Tax II Reviewer and Notes

Ingles, 2018, Sababan, 2008, Class Discussion and Personal Case Digests

Class Discussion

 What is Estate Tax

o Tax imposed for the right to transfer property thru intestate or testate disposition
 What is Donor’s Tax
o Tax imposed for the right to transmit property inter vivos, gratuitously
 What is the similar factor between the two?
o It is the gratuitous nature of transaction. Hence, any transfer of property gratuitously may fall in the scope of the two taxes as the case maybe.
 What is the distinguishing factor?
o It is the intent. When a person wishes to transfer a property inter vivos, it is generally covered by Donor’s Tax provided that it was made not in
contemplation of death. When the person wishes to transfer a property mortis cause, it is generally covered by Estate Tax.
 What is taxed?
o It is the transmission of the property, not the person

Estate Tax

 Who are liable for Estate tax

o There exist two groups liable for estate tax;
 Those whose property are within and outside the Philippines;
 Resident Citizen
 Non-resident Citizen
 Resident Alien
 Those whose property are located inside Philippines
 Non-resident Alien
 What are included in the gross estate of the first group? (Sec. 104)
o the terms ‘gross estate’ and ‘gifts’ include real and personal property, whether tangible or intangible, or mixed, wherever situated
o On more specific details, according to Sec. 88
 Real Properties- The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of
the time of death shall be, whichever is higher of -
 (1) The fair market value as determined by the Commissioner, or
 (2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.
 Personal Properties –The estate shall be appraised at its FMV as of the time of death. However, the appraised value of personal property as of
the time of death shall be, whichever is near the death of the decedent
  If the property is recently acquired, the purchase price governs
 If the property is not recently acquired, the FMV governs
 Shares of Stock – The FMV depends on whether the shares are listed or unlisted
 Unlisted; If common shares it is based on their book value; If preferred shares it is based on their par value
 Listed is the book value recorded nearest at the time of death
 What are included in the gross estate of the second group? (Sec. 104)
o here the decedent or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so
transferred but which are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross gift'
o What are intangible properties deemed located in the Philippines
 For purposes of computing the gross estate of the Non-resident Alien, the following are considered intangible properties included in their
respective estate;
 franchise which must be exercised in the Philippines;
 shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance
with its laws; shares;
 obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines;
o You consider a foreign corporation having business in PH when the total of its gross income coming from the PH for 3
consecutive years prior to the declaration of dividends exceeds 50%. In this case, it must be at least 85%
 shares, obligations or bonds issued by any foreign corporation if such shares; obligations or bonds have acquired a business situs in
the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be considered as situated
in the Philippines
o Exception to taxability of the intangible properties
 if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the
time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or
 if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a
similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens
of the Philippines not residing in that foreign country.
 To be exempt, the following must be present;
o The principle of reciprocity must be complete
o It falls into one of the categories mentioned above
 Gross Estate (Sec. 85)
The following shall be included in the gross estate of the decedent;
o Decedent’s Interest
 To the extent of the interest therein of the decedent at the time of his death
o Transfer in Contemplation of Death
 Two modes of transfer under this category;
  Transfer in contemplation of death- To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or
otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death
 Transfer inter vivos - which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any
period which does not in fact end before his death;
o Possession or enjoyment of the property
o The right of income
o the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or
the income therefrom
 Circumstances indicating that the transfer is in contemplation of death;
o Age and health of the transferor as indicator of illness
o Length of time between the transfer and the time of death
o The concurrence of making a will or making a will within a short period of time after the transfer
o Revocable Transfers
 To the extent of any interest therein, of which the decedent has at any time made a transfer by trust or otherwise, where the enjoyment
thereof was subject at the date of his death to any change through the exercise of a power by trust or otherwise, where the enjoyment thereof
was subject at the date of his death to any change through the exercise of a power to alter, amend, revoke, or terminate
 As long as the decedent has the power to alter, amend, revoke, or terminate notwithstanding the actual exercise thereof is already
sufficient to include it in the gross estate.
o Property Passing through GPA
 To the extent of any property passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in
contemplation of, or intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has retained for
his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death;
o Possession or enjoyment of the property
o The right of income
o the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or
the income therefrom
 General Power of Appointment is needed for the interest to be included in the gross estate of the decedent. Any type of appointment will
not warrant the inclusion in the gross estate
o Illustration: Suppose that X acquired a property from Z. X ordered Z to transfer only the property to anyone he may deem
worthy. This is a GPA
o Life Insurance Proceeds
 To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as insurance under policies taken out by
the decedent upon his own life, irrespective of whether or not the insured retained the power of revocation, or to the extent of the amount
receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the
beneficiary is irrevocable.
 To be included in the gross estate the following must appear;
 o The life insurance was taken out by the decedent himself, either actual or constructive (in cases where the ER or any agent
procures the insurance on behalf of the decedent) on his life
 This does not include any insurance taken out of compulsion, such as SSS and GSIS
 It only involves life insurance, other health insurance will not warrant the inclusion in the gross estate
o The beneficiaries maybe;
 His estate, administrator, executor whether the insurance is revocable or not
 Any third person provided that the insurance policy is revocable, otherwise the irrevocability of the insurance will not
be included in the gross estate.
o Prior Interest
 Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section shall apply to the transfers, trusts, estates,
interests, rights, powers and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing,
exercised or relinquished before or after the effectivity of this Code.
o Transfer of Insufficient Consideration
 If any one of the transfers, trusts, interests, rights or powers enumerated and described in Subsections (B), (C) and (D) of this Section is
made, created, exercised or relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value, at the time of
death, of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the
decedent.
 Transfers in contemplation of death; Revocable transfers; Properties passing through GPA has all the same exception for the
operation of their rule;
o is not a bona fide sale for an adequate and full consideration in money or money's worth
o All for the effort to circumvent the imposition of Estate tax.
 How do you compute then the value?
o If the transfer is bona fide sale of an adequate and full consideration then it is considered as excluded in the computation of the
gross estate
o If the transfer is not bona fide sale of an adequate and full consideration then the formula of: FMV- Price = the difference which is
included
o If the transfer is purely gratuitous where no price is given the FMV shall be included in the computation
o Capital of the Surviving Spouse
 The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be deemed a part of his or her gross estate.
 Computation of Net Estate (Sec. 86) of the first group
The following are considered for the purpose of getting the value of the net estate
o Standard Deduction
 An amount equivalent to 5Million Pesos
 This is the only claim that is not included in the gross estate before it can be considered as deduction
 This is a conditional deduction
 It is only applicable once the gross estate exceeds 5Mphp. Otherwise, there is no estate tax to impose.
o Claims against the estate (Where the decedent is the debtor)
 That at the time the indebtedness was incurred the debt instrument was duly notarized and, if the loan was contracted within three (3) years
before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan
 The following requisites must concur;
o The liability must represent a personal obligation of the deceased at the time of his death
o The liability was contracted in good faith and for adequate and full consideration
o The claim must be a debt or claim which is valid in law and enforceable in court
o The indebtedness must not have been condoned by the creditor
 If it was condoned by the creditor after including it already in the net estate, date-of-death valuation rule applies the
amount deductible is the debt which could have been enforced against the deceased in his lifetime.
 This mean that the remaining amount enforceable against the decedent would be used as a deduction in the
estate while the condoned amount is subject to donor’s tax (gratuitous transfer in the part of the creditor)
o If the claim arose out of a debt instrument, the debt instrument must be notarized. Otherwise, a debt not arising from any
written instrument no longer needs to prove its notarization
o If the loan was contracted within 3 years before the death of the decedent, the administrator or executor must submit a
statement showing the disposition of the proceeds of the loan
o Claims against an insolvent person
 where the value of decedent's interest therein is included in the value of the gross estate
 The only condition herein to include in the computation: the full amounts of the receivable are first included in the gross estate
o For unpaid mortgages upon, or any indebtedness
 property where the value of decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross
estate
 The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a
promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or
money's worth.
o Taxes
 Taxes are deductible from the gross estate if such taxes accrued prior to the decedent’s death
 However, the following taxes are not considered as deduction
 Income tax on income received after death
 Property taxes not accrued before death
 Estate tax
o Loses
 There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement
 The requisites are as followed;
 It arise from those mentioned
  Not compensated by insurance or otherwise
 Not claimed as deduction in an income tax return of the state subject to income tax.
o This is an instance where the insurance did not completely indemnify the loss
 Occurring during the settlement of the estate
 Occurring before the last day for the payment of the estate tax
o Properties previously taxed / Vanishing Deduction
 An amount equal to the value specified below of any property forming a part of the gross estate situated in the Philippines of any person who
died within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death,
where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift,
bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property so received:
 One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his death;
 Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the
death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
 Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the
death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
 Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4) years prior to the
death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
 Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the
death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;
 Requisites to allow vanishing deduction
 The present decedent died within five years from receipt of the property
 The property must be located in the Philippines
 The property must have formed part of the taxable estate of the prior decedent, or of the taxable gift of the donor
 The estate tax or donor’s tax imposed must have finally determined and paid
 The property must be identified as the one received from the prior decedent or donor or something acquired in exchange (when we
say exchange, this are fictitious exchanges which in reality in governed by the gratuitous intent of the parties)
 No vanishing deduction on the property was allowable to the estate of the prior decedent
o Transfer for Public Use
 The amount of all the bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any
political subdivision thereof, for exclusively public purposes.
 Elements are as follows;
 Receipient must be those stated above
 Must be exclusively for public purpose
o Family Home
 An amount equivalent to the current fair market value of the decedent's family home: Provided, however, That if the said current fair market
value exceeds Ten million pesos, the excess shall be subject to estate tax.
 The amount shall not exceed 10M, for the excess shall be subject to estate tax
 The estate of the decedent claiming the deduction must be legally married individual or the head of the family
 The amount of the whole family home must be included in the gross estate
o Amount Received by Heirs Under Republic Act No. 4917.
 Any amount received by the heirs from the decedent - employee as a consequence of the death of the decedent-employee in accordance with
Republic Act No. 4917: Provided, That such amount is included in the gross estate of the decedent

 Computation of net estate for Non-resident Alien

o The following (with the same rules discussed above) are to be considered (EXCEPT for shares in the conjugal property: the net share of the surviving
spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property shall, for the purpose of this
Section, be deducted from the net estate of the decedent.)
 Standard Deduction of 50k
 Claims against the estate
 Claims against an insolvent person
 Unpaid mortgages, indebtedness
 Taxes
 Loses
 Vanishing Property
 Transfer for Public Use

 Exemption of Certain Acquisitions and Transmissions (Sec. 87)

o (A) The merger of usufruct in the owner of the naked title;
 This is a usufruct without a period. Upon the death of the usufructuary, the usufruct is then transferred to the naked owner. Such merger is
exempt from estate tax because no property is transmitted to the heirs of the usufructuary
o (B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
 The decedent herein (fiduciary heir) merely holds the property in behalf of the fideicommissary.
o (C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor;
and
o (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which
insures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies
or transfers shall be used by such institutions for administration purposes.
 Requisite for exemption;
 No part of the income inures to the benefit of any individual
  Not more than 30% of such gift shall be used by such institutions for administration process
 Determination of the Value of the Estate (Sec. 88)
o (A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there shall be taken into
account the probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary
of Finance, upon recommendation of the Insurance Commissioner.
 The difference between Sec. 88 and Sec. 87 in terms of usufructuary
 Sec. 87 contemplates a situation where the usufruct is without period and terminable upon death
 Sec. 88 contemplates a situation where the usufruct is with a period, hence when the usufructuary dies during the effectivity of the
usufruct, a certain interest still exist with the usfructuary over the property which is transmissible to his heirs.
o (B) Properties (See discussion above in what is included in the gross estate of the first group)
 Payment of Tax (Sec. 91)
o Time of Payment
 The estate tax imposed by Section 84 shall be paid at the time the return is filed by the executor, administrator or the heirs.
o Extension of Time
 When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon
the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the
estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in respect of which the
extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the Statute of
Limitations for assessment as provided in Section 203 of this Code shall be suspended for the period of any such extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no
extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond
in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon
the payment of the said tax in accordance with the terms of the extension.
o Payment by Installment
 In case the available cash of the estate is insufficient to pay the total estate tax due, payment by instalment shall be allowed within 2 years
from the statutory date of payment without civil penalty and interest
o Liability for Payment
 The estate tax imposed by Section 84 shall be paid by the executor or administrator before delivery to any beneficiary of his distributive share
of the estate. Such beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment of such portion
of the estate tax as his distributive share bears to the value of the total net estate.

For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or administrator of the decedent, or if there is no
executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any
property of the decedent.
  Discharge of Executor or Administrator from Personal Liability (Sec. 93)
o If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge
from personal liability therefore, the Commissioner (as soon as possible, and in any event within one (1) year after the making of such application, or
if the application is made before the return is filed, then within one (1) year after the return is filed, but not after the expiration of the period
prescribed for the assessment of the tax in Section 203 shall not notify the executor or administrator of the amount of the tax. The executor or
administrator, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in the tax thereafter
found to be due and shall be entitled to a receipt or writing showing such discharge.
 Section 94. Payment before Delivery by Executor or Administrator.
o No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification
from the Commissioner that the estate tax has been paid is shown.
 Section 95. Duties of Certain Officers and Debtors.
o Registers of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage,
by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and
actually due thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District Officer, or
Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non payment of the tax discovered by them.
Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the preparation or acknowledgment of
documents regarding partition or disposal of donation intervivos or mortis causa, legacy or inheritance, shall have the duty of furnishing the
Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer of the place where he may have his principal office, with
copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax. Neither shall a debtor of the
deceased pay his debts to the heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner that the tax fixed in
this Chapter had been paid is shown; but he may pay the executor or judicial administrator without said certification if the credit is included in the
inventory of the estate of the deceased.
 Section 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations.
o If after the payment of the estate tax, new obligations of the decedent shall appear, and the persons interested shall have satisfied them by order of the
court, they shall have a right to the restitution of the proportional part of the tax paid.

Donor’s Tax

 What is the subject of donor’s tax? (Section 98)

o There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift, a tax
o Note that the donation contemplated under this section is a complete donation: There exists an acceptance of the donation by the donee and
knowledge of such acceptance by the donor.
o Furthermore, donor must donate the property absolutely or without condition or with condition however, donor already relinquished or failed to
exercise such power. It cannot be included in the gift tax if it is conditional.
 What is the current donor’s tax rate? (Section 99)
o The tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts in excess of Two hundred fifty thousand pesos
(₱250,000) exempt gift made during the calendar year.
 Who are subject to donor’s tax
o See those group of people who are subject to estate tax
o Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes shall be governed by the Election Code, as
amended.
 Pursuant to Election code, they are exempt from donor’s tax Provided that they declare or report it to COMELEC, otherwise subject to
donor’s tax
 What are the properties to be considered?
o Same with those included in the gross estate
 Transfer for Insufficient Consideration (Section 100)
o Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or
money’s worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year
o The property was transferred under the guise of a sale or any mode of disposition for purposes of avoiding donor’s tax. In that instance, it shall be
included in the gross gift tax provided the following requisites are considered;
 The transfer is less than adequate and full consideration
 Transfer is made inter vivos, otherwise it is subject to estate tax
 If the transfer was due to renunciation of successional right of one spouse in favour of another spouse, the same is included in the
gross gift and not in gross estate. This is because, the successional right waived is included in the property regime of the spouses
 If the renunciation of successional right was in general. This is not included in the gross gift because of the rule of accretion on the
law on succession
 It shall not fall under the following categories;
 It is not considered as capital asset, whereby the property sold is subject to final tax of 6% as provided under Sec. 24(d)
 It was indeed made in adequate consideration
o There exists a presumption that a sale, exchange, or other transfer of property made in the ordinary course of business will be considered as made for
an adequate and full consideration in money or money’s worth provided the following are present;
 a transaction which is a bona fide, at arm’s length,
 and free from any donative intent
 Exemption from Donor’s tax (Section 101)
The following are considered exemption from donor’s tax for the first group of people liable;
o Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any
political subdivision of the said Government
o Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization,
trust or philanthrophic organization or research institution or organization
 To be exempt under this category the following must be met;
 Not more than 30% of the donation is used for administrative purposes
 Donee must be non-stock, non-profit organization
  The institution must be governed by board of trustees who do not receive and compensation
 Does not issue any dividends
 Devotes all of its income in the accomplishment of the purpose enumerated in its AOI
o And those donations made which are considered exempt by law

The following are considered exempted donation made by the second group of individuals liable for donor’s tax

o Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any
political subdivision of the said Government.
o Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthrophic
organization or research institution or organization: Provided, however, That not more than thirty percent 30% of said gifts shall be used by such
donee for administration purposes.
 The difference between this category to those of the first group is that, the only requirement to be exempt is that not more than 30% of the
donation is used for administrative purposes
o And those donations made which are considered exempt by law
 Valuation of gifts made (Section 102)
o Real Properties- The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of the
time of death shall be, whichever is higher of -
 (1) The fair market value as determined by the Commissioner, or
 (2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.
o Personal Properties –The estate shall be appraised at its FMV as of the time of death.

Class Discussion on VAT

 What do you mean by in the ordinary course of business?

o The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective
of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
 What are the requisites to consider the VATability of a transaction
o Determine whether it was made in the ordinary course of business;
o If it is made in such course, determine what transaction it is by reference to Sections 106-108
o Also check if the transaction, though made in the ordinary course of business, falls under Sec. 109 for it to be considered as exempt.
 Are non-stock; non-profit organization subject to VAT as well?
o Yes, as held in the case of CIR v. CA and COMASERCO, the supreme court held;
Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit, organization or government entity, is
liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the
sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term
 "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity regardless of whether or
not the entity is profit-oriented.
The definition of the term "in the course of trade or business" present law applies to all transactions even to those made prior to its
enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and
services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is
liable to pay VAT for the sale of goods and services.
 Are non-stock; non-profit educational institution subject to VAT then?
o Yes, they are subject to VAT PROVIDED the transaction is not actually, directly and exclusively used for educational purpose
o As held in the case of CIR v. De La Salle;
Court significantly laid down the requisites for availing the tax exemption under Article XIV, Section 4 (3), namely: (1) the taxpayer falls
under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used
actually, directly and exclusively for educational purposes.
We find that the text demonstrates the policy of the 1987 Constitution, discernible from the records of the 1986 Constitutional
Commission79 to provide broader tax privilege to non-stock, non-profit educational institutions as recognition of their role in assisting the
State provide a public good.
Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax, VAT, and LBT. On the other hand, when it also shows that it uses its assets in the form of
real property for educational purposes, it shall be exempted from RPT.
o Furthermore, as provided under Sec. 109(h) Educational services rendered by private educational institutions are VAT exempt transactions
 Is incidental transactions VATable?
o Yes, they are included. In the case of Mindanao II Geothermal v. CIR, the supreme court held the following pronouncement;
Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction. However, it does not follow that an isolated transaction cannot be
an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction
"in the course of trade or business" includes "transactions incidental thereto."
Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to NPC. In the
course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s
property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II’s
business which should be liable for VAT.
o Therefore, in order that an incidental transaction to be considered VATable, a connection of that transaction to the primary purpose of the business
must be established though it is deemed isolated.
 What are considered exempted from the definition of ordinary course of business?
o Isolated transaction
 This means that it has not correlation with the primary purpose of the business, otherwise it falls under the definition of “incidental”
o Involuntary transaction
 This is further elucidated in the case of PSALM v. CIR;
 The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to
privatize NPC generation assets. PSALM was created primarily to liquidate all NPC financial obligations and stranded contract costs
in an optimal manner.
PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is not "in the course of
trade or business" but purely for the specific purpose of privatizing NPC assets in order to liquidate all NPC financial obligations.
PSALM is tasked to sell and privatize the NPC assets within the term of its existence.60 The EPIRA law even requires PSALM to
submit a plan for the endorsement by the Joint Congressional Power Commission and the approval of the President of the total
privatization of the NPC assets and IPP contracts.
Thus, it is very clear that the sale of the power plants was an exercise of a governmental function mandated by law for the primary
purpose of privatizing NPC assets in accordance with the guidelines imposed by the EPIRA law.

 Also in the case of CIR v. Magsaysay;

VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayer’s role or link in
the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations,19 the tax is levied only on
the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These
transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter
of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such
goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own
accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of
trade or business.
In the instant case, the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of
Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized that the normal
VAT-registered activity of NDC is leasing personal property.
 What is administrative and judicial claim for filing creditable input tax under section 112?
o As discussed under San Roque Power Corp v. CIR;
 1997 NIRC on 1 January 1998, the procedure has always been definite: the 120-day period is mandatory and jurisdictional. Accordingly, a
taxpayer can file a judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120-day period,
or (2) only within thirty days from the expiration of the 120- day period if the Commissioner does not act within such period.
o Furthermore, under Mindanao II Geothermal v. CIR, Supreme Court made the following pronouncement to clear the ambiguity;
 First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to such
sales." In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which means
at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of
the two-year prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.
 Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)." The
 reference in Section 112(C) of the submission of documents "in support of the application filed in accordance with Subsection A" means that
the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-
year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or
credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner. As held in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA."
 Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days), then the
taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive
period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the
731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his
judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to
the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative
claim within the two-year prescriptive period.
 The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in
truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court
cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.
 Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative
claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides
the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not
only the plain meaning but also the only logical interpretation of Section 112(A) and (C).

Value Added Tax

 Definitions to remember
o VAT - is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.
o In the ordinary course of business - means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto,
by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of
its net income and whether or not it sells exclusively to members or their guests), or government entity.
 What is regular - It is not merely an isolated transaction, it requires habituality
 Exception for Habituality: non-resident foreign shall be considered as being course of trade or business.
 See class discussion above
o Goods or Properties - shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:
 (a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
 (b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or
other like property or right;
 (c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
  (d) The right or the privilege to use motion picture films, tapes and discs; and
 (e) Radio, television, satellite transmission and cable television time.
o Gross selling price - the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale,
barter or exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form part of the
gross selling price.
o Sale or exchange of services - means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration (See
section Sec. 108(A)) and includes the following
 (1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
 “(2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
 “(3) The supply of scientific, technical industrial or commercial knowledge or information;
 “(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of
any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3);
 “(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus purchased from such nonresident person;
 “(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any
scientific industrial or commercial undertaking, venture, projector scheme;
 “(7) The lease of motion picture films, -films, tapes and discs; and
 “(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
o Gross Receipts - means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during
the taxable quarter for the services performed or to be performed for another person, excluding value-added tax.
 Provided that the persons involved herein is between payor and payee directly. It cannot involve an uninterested third person where he is the
ultimate recipient of the consideration instead of the service provider
o Input tax - means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or
local purchase of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional input tax
determined in accordance with Section 111 of this Code.
 Simply put, the VAT paid by seller
o Output tax - means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to
register under Section 236 of this Code.
 Simply put, the VAT passed by the seller
 Who are liable for VAT? (Section 105)
o The persons liable for VAT are;
 Who sells barters, exchanges, leases goods or properties in the course of trade or business in PH
 Any person who renders service in the course of trade or business in PH
 Any person who imports goods
 This transaction is the only circumstance that does not require to be in the course of trade or business
 o The seller is the one who is statutorily liable for the payment of the tax, but the burden of the amount of VAT is shifted or passed on to the buyer,
transferee, lessee or recipient of the goods or services
o Provided that the transaction is not considered as zero rated or effectively zero rated nor vat exempt.
 VAT status of a transaction
A person can either be subject to the following VAT statuses;
o VATable transaction – transactions that are required by law to impose vat
o Zero rated VAT – refers to the export sale of goods and supply of services. The seller charges no output tax, but can offset the input tax paid with the
end goal of claiming a refund or tax credit
 Technically, it cannot be said that there is no VAT imposed in this transaction because an amount is required by law, though it is JUST 0%
o Effiectively zero rated VAT – refers to the sale of goods or supply of services to persons or entities who are exempt under special laws or international
agreements
 Illustrative situation of zero rated and effectively zero rated;
 For zero rated sales: ABC a PH corporation sold to XYZ a foreign corporation, after payment, 2 tons of wood (Section 106(2)(a)(1).
 For effectively zero rated sales: ABC corp sold 2 tons of wood to LMN corporation who under RA 123abc is exempt from taxes
imposed under NIRC. ABC should have imposed an output vat but due to the law exempting LMN it becomes zero rated
o VAT-exempt – refers to transactions that cannot impose output vat and cannot offset input vat
o Difference between the four transactions

Transactions Zero-rated Effectively zero VAT exempt

with 12% VAT transaction rated transactions
transaction
Generally, No Total Credit or Total Credit or Partial Credit or
refund or credit. Refund- It may Refund- Much refund- any
However, should have a tax credit like zero rated transactions that
there exist an or refund because transaction, it are considered
excess in the its output vat is may have a tax exempt cannot
input vat after zero percent as credit or refund. offset the input
offsetting output provided under However this is tax because no
vat, the excess NIRC as not by virtue of output tax can be
shall be carried amended. having a 0% shifted. They can
over the next This is pursuant VAT but due to only be granted
taxable quarter as to Sec. 112 the authority of partial credit or
provided under law granting refund via
Sec. 110(B) exemption on considering it as
taxes to certain cost of business
individuals,
included therein
is the exemption
of paying VAT
 VAT Transactions (those subject to 12%)
 VAT on sale of goods or properties (Section 106(A)(1))
o We have to consider whether the transaction is a normal sale or deemed sale transaction
 Normal sale – is the ordinary sale transaction
 Deemed sale – technically there is no sale made because the essential requisites of sale is lacking, however by virtue of law, it is deemed
considered sale hence VATable.
o Normal sales
 There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to twelve
percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor.
o Deemed sales
 (1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of
business;
 (2) Distribution or transfer to:
 (a) Shareholders or investors as share in the profits of the VAT-registered persons (property dividends); or
 (b) Creditors in payment of debt (dacion en pago);
 (3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and
 (4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
 VAT on Importation of Goods (Section 107A)
o There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to twelve percent (12%) based on;
 Total value basis - the total value used by the Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes, if
any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody:
 Landed cost basis - That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall
be based on the landed cost plus excise taxes, If any.
o Who is liable for VAT under this section? (Section 107b)
 Importer is exempt from VAT however, when the goods are subsequently sold, transferred, or exchange in PH to a non-exempt person or
entity. That entity shall have the burden of paying the tax prior to the release from customs custody
 VAT on sale of services and use or lease of properties (Section 108(A))
o There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange
of services, including the use or lease of properties.
o In order to be considered as a VATable service the following should be considered;
 Service should be rendered in PH
 Can be any and all kinds of services rendered to others provided there is no ee-er relationship
 There is a fee, remuneration or consideration
o The material factor to be considered – provided that the lease contract or services is rendered or performed in PH it is VATable, regardless of the
execution of the agreement
VAT Transactions (Zero rated and Effectively Zero Rated)
 On sale of goods or properties (Sec. 106(2)(a) and (2)(b)]
o A. Export Sales – By virtue of cross border doctrine, though certain areas stated below are within the territorial limits of PH, it is deemed a separate
customs territory by law hence regarded as foreign soil.
Provided that the goods remain in the ecozone (brought and consumed therein) it is within the zero rated transaction. If it was introduced back in PH,
it is no longer considered zero rated transaction
Any erroneous imposition of output VAT is recoverable against the supplier, initiated by purchaser
 The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
 Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
 Purchased by a non-resident buyer but delivered to a resident local export oriented enterprise whereby they will transform the goods
bought.
 The difference with no. 1 of this list is that the former, there exist shipment while the latter there exist no shipment
 Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual
production;
 Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other
special laws; and
 The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations:
 Provided, That the goods, supplies, equipment and fuel shall be used for international shipping or air transport operations.
o B. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively
subjects such sales to zero rate.
 On Service and use or lease of properties (Sec. 108B)
o “(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
 Elements are as follows;
 For other persons doing business outside PH
 Goods are subsequently exported
 The services are paid in accordance with the rules and regulation of the BSP
o “(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in business conducted outside the Philippines or
to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
 Elements are as follows;
  Person engaged in business conducted outside PH OR Non-resident person not engaged in business who is outside PH when the
services are performed
 Consideration is paid in accordance with the rules and regulation of BSP
 The difference with no. 1 of this list;
 No. 1 involves specific acts and one specific person
 No. 2 has wide scope of acts and two specific persons
o “(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent (0%) rate;
o “(4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use
thereof:
 Provided, That these services shall be exclusive for international shipping or air transport operations;
o “(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales
exceed seventy percent (70%) of total annual production;
o “(6) Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country; and
 The difference between this and the transaction under the 12% rule – Under this proviso, the transportation originated from PH to a foreign
country whereas under the 12% rule, is only limited to domestic transactions
o “(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.
o “(8) Services rendered to:
 “(i) Registered enterprises within a separate customs territory as provided under special law; and
 “(ii) Registered enterprises within tourism enterprise zones as declared by the TIEZA subject to the provisions under Republic Act No. 9593
or The Tourism Act of 2009.
VAT Exempt Transactions (Section. 109)
 Sec. 109. Exempt Transactions.— (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added
tax:
 “(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of or king generally used as, or yielding or
producing foods for human consumption; and breeding stock and genetic materials therefor.

Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt and copra shall be considered in their original state
o If the products referred herein are no longer considered original state, it can still be a VAT-exempt transaction under L of this list, provided that the
cooperatives are duly accredited by the CDA
 “(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced
or imported, used in the manufacture of finished feeds
o except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets, they are subject to
VAT;
 “(C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to
resettle in the Philippines:
o Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines;
 “(D) Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and
household effects belonging to;
o persons coming to settle in the Philippines or Filipinos or their families and descendants who are now residents or citizens of other countries, such
parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the profession, rank or position of the persons importing
said items, for their own use;
o not for barter or sale, accompanying such persons, or arriving within a reasonable time:
o Provided, That the Bureau of Customs may, upon the production of satisfactory evidence that such persons are actually coming to settle in the
Philippines and that the goods are brought from their former place of abode, exempt such goods from payment of duties and taxes:
o Provided, further, That vehicles, vessels, aircrafts, machineries and other similar goods for use in manufacture, shall not fall within this classification
and shall therefore be subject to duties, taxes and other charges;
 “(E) Services subject to percentage tax under Title V;
 “(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;
 “(G) Medical, dental, hospital and veterinary services except those rendered by professionals;
o Exclusive only to Medical, Dental, Hospital, and Veterinary servies.
o Health care company providers are not considered in this transaction because they merely provide.
 “(H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher
Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions;
o Two entities found herein;
 Private educational institution- provided that they are accredited by the proper government agencies
 Government educational institution with no qualification to be exempt
 “(I) Services rendered by individuals pursuant to an employer-employee relationship;
 “(J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications
and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines;
 “(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under
Presidential Decree No. 529;
 “(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether
in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing of their produce;
o The elements are as follows;
 Must be registered with CDA
 Sells exclusively to its members of products in original state
 If it sells to non-members, it can sell products of either original or altered state
 “(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority;
 “(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share
capital contribution of each member does not exceed Fifteen thousand pesos (₱15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;
 “(O) Export sales by persons who are not VAT-registered;
 “(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for
low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other
related laws, residential lot valued at One million five hundred thousand pesos (₱1,500,000) and below, house and lot, and other residential dwellings valued at
Two million five hundred thousand pesos (₱2,500,000) and below:
o The following are exempt under this paragraph
 Real properties not primarily held for sale to customers or in the ordinary course of trade or business
 Low-cost housing
 Socialized housing
 House and lot and other residential dwellings
 “(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos (₱15,000) [and the annual rental must not exceed 1.5M];
 “(R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin;
o which appears at regular intervals
o with fixed prices or subscription and sale
o and which is not devoted principally to the publication of paid advertisements;
 “(S) Transport of passengers by international carriers;
o `Difference between those found in Sec. 108 – this is the transport by an international carrier whereas those found under sec. 108 are domestic
carriers
 “(T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international
transport operations;
 “(U) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations:
o Provided, That the fuel, goods, and supplies shall be used for international shipping or air transport operations;
 “(V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries;
 “(W) Sale or lease of goods and services to senior citizens and persons with disability, as provided under Republic Act Nos. 9994 (Expanded Senior Citizens
Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons With Disability), respectively;
 “(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;
 “(Y) Association dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations;
 “(Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
 “(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning January 1, 2019; and
 “(BB) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of Three million pesos (₱3,000,000).
o Elements are as follows;
 The transaction is VATable
  It is not one of those mentioned in sec. 109
 The gross receipts and or annual sales does not exceed 3Mphp

Creditable Input VAT (Sec. 110)

 Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable
against the output tax:
(a) Purchase or importation of goods:
 (i) For sale; or
 (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or
 (iii) For use as supplies in the course of business; or
 (iv) For use as materials supplied in the sale of service; or
 (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code.
(b) Purchase of services on which a value-added tax has been actually paid.
 The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs.
 Rule on capital goods or properties on how to credit input and output VAT
o Having an estimated useful life of more than one year;
o Treated as depreciable assets under income tax law
o Used directly or indirectly, in the production or sale of taxable goods or services
o If they have an aggregate acquisition cost of not exceed 1,000,000 the input tax will be allowed in the month of purchase
o If the cost of acquisition exceed 1,000,000 the following are applied, depending on their depreciable life;
 Estimated life is five years or more, the input vat is evenly spread for 59 succeeding months counting from the month of acquisition
 Estimated life is less than five years, the input tax will be spread evenly by the actual number of months comprising of the life.
 A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows:
o Total input tax which can be directly attributed to transactions subject to value-added tax; and
o A ratable portion of any input tax which cannot be directly attributed to either activity.
 Excess of Output VAT
o If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Provided, however, That any input tax attributable to
zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.
o It simply means that any input vat shall be offset to the output vat and any excess thereof shall be the basis of the imposition of VAT
o There also exist instances when the input vat is excessive. Such excess is carried over for the next taxable quarter. However, if the transaction is a zero
rated sale, the entity has a choice to either refund or credit it.
  Any unutilized creditable input taxes attributable to zero-rated sales can only be recovered through a refund or tax credit. Unapplied cannot
be treated as deductible expense for income tax purposes

Transitional and Presumptive Input Tax Credit (Sec. 111)

 A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according
to rules and regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory
of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax.
o Inclusion of real properties as discussed under the case of Fort Bonifacio v. CIR;
On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties, together with the improvements
thereon, in the beginning inventory of goods, materials and supplies, based on which inventory the transitional input tax credit is computed.
It can be conceded that when it was drafted Section 105 could not have possibly contemplated concerns specific to real properties, as real
estate transactions were not originally subject to VAT. At the same time, when transactions on real properties were finally made subject to
VAT beginning with Rep. Act No. 7716, no corresponding amendment was adopted as regards Section 105 to provide for a differentiated
treatment in the application of the transitional input tax credit with respect to real properties or real estate dealers.
 The purpose of transitional input tax discussed under the case of Fort Bonifacio v. CIR;
The clear language of the law entitles new trades or businesses to avail of the tax credit once they become VAT-registered. The transitional input tax
credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as when a business as it commences
operations.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to
remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of
the taxpayer’s income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person
is yet unable to credit input VAT payments.
 What are considered presumptive input tax?
o Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil, shall be allowed a
presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their production.

Refund or Tax Credit of Input Tax (Sec. 112)

 Zero-rated or Effectively Zero-rated sales

o Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against output tax:
 o Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP):
o Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales.
o Provided, finally, That for a person making sales that are zero-rated under Section 108(B) (6), the input taxes shall be allocated ratably between his
zero-rated and non-zero-rated sales (Transport of passenges)
 Cancellation of VAT Registration
o A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused
input tax which may be used in payment of his other internal revenue taxes.
 Period within which Refund or Tax Credit of Input Taxes shall be Made
o For Administrative Claim - within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, the Commissioner shall grant a refund for creditable input taxes
within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in
accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the
Commissioner must state in writing the legal and factual basis for the denial.
o For Judicial Claim - In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or
employee of the BIR to act on the application within ninety (90) days period shall be punishable under Section 269 of this Code.
o Purpose of the period, as discussed under San Roque Power Corp. v. CIR;
To reiterate, the 120-day and 30-day periods, as held in the case of Aichi, are mandatory and jurisdictional. Thus, noncompliance with the
mandatory 120+ 30-day period renders the petition before the CTA void. The ruling in said case as to the mandatory and jurisdictional
character of said periods was reiterated in San Roque and a host of succeeding similar cases.
Significantly, a taxpayer can file a judicial claim only within thirty (30) days from the expiration of the 120-day period if the Commissioner
does not act within the 120-day period. The taxpayer cannot file such judicial claim prior to the lapse of the 120-day period, unless the CIR
partially or wholly denies the claim within such period. The taxpayer-claimant must strictly comply with the mandatory period by filing an
appeal to the CTA within thirty days from such inaction; otherwise, the court cannot validly acquire jurisdiction over it.
o Discussion under Mindanao II Geothermal v. CIR (which includes the discussion under San Roque and Achi Forging Case);
(1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or
effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide
whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the
CIR, then the administrative claim may be considered to be denied by inaction.
 (3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying the administrative claim or from
the expiration of the 120-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods.
o What is the significance of BIR Ruling No. DA-489-03?
 BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a
government agency tasked with processing tax refunds and credits.
 Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time
of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.
 Hence, it operates as an equitable estoppel

Invoicing and Accounting Requirement for VAT-Registered Persons (Sec. 113)

 What should a VAT-registered person issue?

o (1) A VAT invoice for every sale, barter or exchange of goods or properties; and
o (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.
o What is the difference of the two?
 As discussed under of Nippon Express Corp v. CIR;
The Manila Mining case in fact recognized a difference between the two, to wit: A "sales or commercial invoice" is a written account
of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the
ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services. A "receipt" on the other
hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor or
creditor, or person rendering services and client or customer.
Kepco Philippines Corporation v. Commissioner (Kepco): We then declared for the first time that a VAT invoice is necessary for
every sale, barter or exchange of goods or properties while a VAT official receipt properly pertains to every lease of goods or
properties, and for every sale, barter or exchange of services. Thus, we held that a VAT invoice and a VAT receipt should not be
confused as referring to one and the same thing; the law did not intend the two to be used alternatively. We stated:
[T]he VAT invoice is the seller's best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyer's best
evidence of the payment of goods or services received from the seller. Even though VAT invoices and receipts are normally issued
by the supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to substantiate the actual amount or
quantity of goods sold and their selling price (proof of transaction), and the best means to prove the input VAT payments (proof of
payment). Hence, VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither
does the law intend the two to be used alternatively.
 What Information Should be Contained in the VAT Invoice or VAT Official Receipt.
(1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. Provided,
That:
 (a) The amount of the tax shall be known as a separate item in the invoice or receipt;
(b) If the sale is exempt from value-added tax, the term “VAT-exempt sale: shall be written or printed prominently on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) value-added tax, the term “zero-rated sale” shall be written or printed prominently on the invoice or
receipt.
(d) If the sale involved goods, properties or services some of which are subject to and some of which are VAT zero-rated or Vat exempt, the invoice
or receipt shall clearly indicate the break-down of the sale price between its taxable, exempt and zero-rated components, and the calculation of the
value-added tax on each portion of the sale shall be known on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts
for the taxable, exempt, and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and
(4) In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name,
business style, if any, address and Taxpayer Identification Number (TIN) of the purchaser, customer or client.