VALUE-ADDED TAX

NATURE OF VAT

The Value-Added Tax (VAT) is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and
on importation of goods into the Philippines. (Sec. 4.105-2, Revenue Regulations (RR) No. 16-05, the Consolidated VAT Regulations)

Indirect tax: It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. (Commissioner of
Internal Revenue vs. SEAGATE Technology (Philippines); G.R. No. 153866; February 11, 2005)

Tax on Consumption: VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed
percentage. It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end
users by the providers of these goods or services who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive from the
final consumer (or output VAT). The final purchase by the end consumer represents the final link in a production chain that itself involves several transactions
and several acts of consumption. (CIR vs. Magsaysay Lines; GR No. 146984; July 28, 2006)

Tax Credit Method: If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the suppliers, no
payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid. If, however, the input taxes exceed the output taxes,
the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or
from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against the output tax. (CIR vs.
Seagate Technology (Phils.); GR No. 153866; Feb. 11, 2005)

I. REGISTRATION REQUIREMENT

PERSONS REQUIRED TO REGISTER FOR VAT: Any person who, in the course of trade or business, sells, barters or exchanges goods or properties, or
engages in the sale or exchange of services, shall be liable to register for value-added tax if:
(a) His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Section 109 (A) to (AA), have exceeded Three
Million pesos (P3,000,000) (Prior to the TRAIN, P1,919,500); or
(b) There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under
Section 109 (A) to (AA), have exceeded Three Million pesos (P3,000,000) (Prior to the TRAIN, P1,919,500); (Sec. 236[G])
(c) Radio and television franchisees are required to register for VAT if their gross receipts for the preceding calendar year exceeded P10,000,000. (Sec. 119)

Persons availing of the 8% Flat Rate of Income Tax: Individual taxpayers availing of the 8% flat rate of income tax are likewise exempt from the
payment of the 12% VAT, and under Sec. 236(H) of the Tax Code, as amended, are not allowed to avail of the optional VAT registration.

However, note that under RR No. 13-18, if a taxpayer who initially availed of the 8% flat rate, but whose sales during the year exceeded P3,000,000, he shall
be liable for the 12% VAT prospectively, starting the next month when his sales exceeded P3,000,000 and shall be required to update his VAT registration on
or before the last day of the said month.

ILLUSTRATION: Mr. JMLH signified his intention to be taxed at 8% in his 1st Quarter Income Tax. For the first three quarters, his sales amounted to
P2,250,000. However, his sales for the month of October, November and December were all P1,000,000 each.

In this case, Mr. JMLH exceeded the P3,000,000 threshold during the month of October. Accordingly,
1. He is subject to the 12% VAT beginning November (the next month); and
2. He is required to update his registration from Non-VAT to VAT-registered on or before November 30.

OPTIONAL REGISTRATION FOR VAT:

(a) Any person who is not required to register for value-added tax may elect to register for value-added tax by registering with the Revenue District Office
that has a jurisdiction over the head office of that person and paying the annual registration fee of P500.

Any person who elects to register shall not be entitled to cancel his registration for the next three (3) years.

Individual taxpayers availing of the 8% flat rate of income tax are not allowed to avail of the optional VAT registration.

(b) Radio and television franchisees who are not required to register under letter (c) above. Once registration is availed, it can no longer be cancelled.

Basis of determining mandatory registrability for VAT: the basis shall be comprised only of those sales which are not considered exempt under Sec.
109(A) to (AA). Thus, any such sales falling within the exemptions are excluded from the gross sales for purposes of determining if the taxpayer is required
to be registered for VAT.

For example, ABC Company had P2,000,000 sales of fresh fruits and P2,500,000 sales of fruit jams. The sale of fresh fruits is considered exempt under Sec.
109(A). Therefore, the basis of determining mandatory registrability would only be P2,500,000, the amount of sales not exempt under Sec. 109(A) to (AA).
Considering, however, that the amount does not exceed P3,000,000, ABC Company is not mandatorily required to register for VAT.

Main business of those who will optionally register: Under Sec.109(2), the main business must be subject to VAT and the transactions which are exempt
do not constitute his main business. As such, if the main business is exempt, then such optional registration is not available considering that Sec. 109(2)
speaks of a “VAT-registered person” who can exercise such option.

Moreover, under RMC No. 46-2008, the BIR clarified that “[i]f the main business is exempt from VAT, the VAT-exempt person cannot elect that the said
exempt business/es be placed under the VAT system. The option to be subject to VAT on its exempt transactions is available only to a VAT-registered person
pursuant to Section 109(2) of the Code, as amended by R.A. 9337.”

Registration not a requisite for VAT liability; but required to claim input VAT: the amount of sales is the one determinative of the liability for VAT
not registration. As such, if the amount of sales for the past 12 months exceeded or actually exceeds P3,000,000, the taxpayer shall be subject to the VAT
even if he did not register for such type of tax.
The registration requirement is actually a pre-requisite to claim input VAT. Accordingly, even if a taxpayer becomes liable for VAT for exceeding the threshold
amount of P3,000,000 but fails to register, he shall be liable for the output VAT on such sales, but he shall not be entitled to any input VAT for his failure to
register.

II. IMPOSITION OF VAT

PERSONS LIABLE TO PAY THE VAT

1. Any person who, in the course of trade or business,
a. sells, barters, or exchanges goods or properties (seller or transferor)
b. leases goods or properties (lessor)
c. renders services (service provider)
2. Imports goods (importer) – the person who brings goods into the Philippines, whether or not made in the course of trade or business

As an indirect tax, VAT-registered sellers may pass on or shift the burden of the VAT to the buyers. However, the amount of VAT is still to be remitted to the
BIR by the seller as he is the one statutorily liable for its payment.

“IN THE COURSE OF TRADE OR BUSINESS” means “the regular conduct or pursuit of a commercial or economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit 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.”

Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business, even if the performance of
services is not regular. (Sec. 4.105-3, RR No. 16-05)

TRANSATIONS INCIDENTAL THERETO

The term “incidental” means something necessary, appertaining to, or depending upon another which is termed the principal, something incident to the main
purpose. [Davis vs Pine Lumber Co., 273 C.A.2d 218, 77 Cal. Rptr. 825; Magsaysay Lines Inc., et.al. vs Commissioner of Internal Revenue (CTA Case No. 4353
dated April 27, 1992)].

One time or isolated transaction can be considered “incidental” to the main business if the asset sold was used in business and recorded
under Property, Plant and Equipment: 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." In which case, the sale of a fully-depreciated vehicle by a company principally engaged in the conversion of steam to electricity was held to be
subject to VAT since the vehicle was used in business and recorded under property, plant and equipment. (Mindanao Geothermal II vs. Commissioner of
Internal Revenue)

Main business must be VATable to consider transactions “incidental” thereto VATable as well: otherwise, if the main line of business is VAT-
exempt, such as sale of copra, then transactions incidental thereto are considered VAT-exempt as well. e.g., sale of delivery truck by the one who sells copra.

However, if the sale is VAT zero-rated, the incidental transactions thereto, not considered zero-rated, are treated as subject to 12% VAT. This is because a
zero-rated sale is actually subject to VAT, although at 0% rate.

The requirement of “in the course of trade or business” or “incidental thereto” is NOT applicable to:
a. Importations – in fact, even if the importation is personal and not for business purposes, the same will be considered subject to VAT, unless the importer
is an exempt importer (e.g., BOI-registered enterprise or PEZA-registered entities enjoying exemption from taxes on their importations under their
registration)
b. Sale of service by non-residents in the Philippines – as long as the services are rendered in the Philippines, the same wil be subject to withholding VAT.
The last paragraph of Sec. 105 provides that they “shall be considered as being in the course of trade or business.”

SERVICES RENDERED ON A REIMBURSEMENT-AT-COST BASIS STILL SUBJECT TO VAT EVEN IF NO PROIFT IS REALIZED THEREFROM: even
a non-stock, non-profit, organization or government entity is liable to pay VAT on the sale of goods or services. 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.

Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates
on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long
as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT . (CIR vs. CA and
Commonwealth Management Services (COMASERCO); GR No. 125355; March 30, 2000)

SUBSIDIZED EXPENSES WHERE THERE IS NO SALE OF SERVICE IS NOT SUBJECT TO VAT: In the case of CIR vs. Sony Philippines, Inc., Sony
Philippines was assessed by the BIR of deficiency VAT for reimbursing the advertising expenses advanced by SIS. The Supreme Court held that “[t]o begin
with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony's advertising expense for it was but an assistance
or aid in view of Sony's dire or adverse economic conditions, and was only "equivalent to the latter's (Sony's) advertising expenses.”

Under Sec. 106, “there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale,
barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged
by Sony.”

In the case of CIR v. Court of Appeals (COMASERCO case), the Court had the occasion to rule that services rendered for a fee even on reimbursement-on-
cost basis only and without realizing profit are also subject to VAT. The case, however, is not applicable to the present case. In that case, COMASERCO
rendered service to its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost
or expense that it incurred although without profit. This is not true in the present case. Sony did not render any service to SIS at all. The
services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance
to Sony in the amount equivalent to the latter's advertising expense but never received any goods, properties or service from Sony. (CIR vs.
Sony Philippines, Inc., GR No. 178697 dated November 17, 2010)

DETERMINATION OF TAX
1. If the amount provided is exclusive of VAT, that amount is simply multiplied by 12% to arrive at the amount of VAT;
2. If the amount provided is inclusive of VAT, that amount is divided by 112% and then multiplied by 12% to arrive at the amount of VAT.

The amount indicated in the official receipt or the invoice amount is presumably inclusive of VAT. Thus, if the official receipt or invoice price states P112,000
as the amount of sales, the VAT amount is 12/112 of P112,000 which is P12,000.

On the other hand, if what is provided is “sales” or “purchases” account, these are presumably exclusive of VAT, since the output VAT and input VAT are
recorded, separately from sales or purchases, in their respective accounts.

III. VAT ON SALE OF GOODS OR PROPERTIES

The term "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.

TAX BASE: for sale of goods is the “gross selling price” which is 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.” (Sec. 106, NIRC)

In short, the gross selling price is the invoice price less any allowable discounts and excluding the VAT.

In case of barter, sale or exchange of real property subject to VAT, gross selling price shall mean the consideration stated in the sales document or the fair
market value whichever is higher. The term “fair market value” shall mean whichever is higher of: (1) the fair market value as determined by the Commissioner
(zonal value); (2) fair market value as shown in schedule of values of the Provincial or City Assessors (real property tax declaration). (Sec. 4.106-4, RR No.
16-05)

ALLOWABLE DEDUCTIONS FROM GROSS SALES TO ARRIVE AT TAX BASE:

a. Sales returns and allowances
b. Sales discounts, provided:
(1) The sales discount granted is indicated in the invoice at the time of sale; and
(2) The grant of which does not depend upon the happening of a future event.
(3) The discount is expressly indicated in the invoice/OR. (Sec. 4.106-9, RR No. 16-05)

Accordingly, a cash discount which is based on the prompt payment of the buyer is not allowable as a deduction from gross sales because it is dependent on
the timing of payment. Trade discounts, however, which are granted at the time of sale and are based, usually, on the bulk of the orders, is allowable since it
is not dependent on a future event.

VAT ACCRUES ON THE CONSUMMATION OF THE SALE in a contract of sale, the contract is perfected upon the meeting of the minds. However, ownership
is not transferred until delivery is made which is the consummation of the contract.

Under RR No. 16-05, the input VAT is creditable upon consummation of the sale, which is upon the delivery of the goods and issuance of the sales invoice.
Consequently, the VAT thereon accrues at the same time regardless whether payment has already been made, subject to the exception under sale of real
property on installments.

ILLUSTRATION: A sold goods to B on March 28, 2017 when it was delivered as well. B paid A on April 2, 2017.

Since the transaction is a sale of goods, the VAT shall be recognized on March when the sale was consummated, regardless if payment was made on the
subsequent month, i.e., April.

SALE OF REAL PROPERTY ON INSTALLMENT: means sale of real property by a real estate dealer, the initial payments of which in the year of sale do
not exceed 25% of the gross selling price/contract price.

In this case, the VAT shall be due on each installment payments only reported on each of their respective months/quarters and not the whole VAT due on the
sale.

Sale on a Deferred-Payment Basis: if the initial payments exceed 25% of the gross selling price/contract price, the transaction shall be considered
as a sale on a deferred-payment basis and will be treated as a cash sale which makes the entire selling price taxable in the month/quarter of sale.

Initial payments shall mean the sum of the:

1. Down payment
2. All instalment payments made or is expected to be received during the year of sale; and
3. When the amount of mortgage is more than the cost to the seller, the excess shall form part of the initial payments (e.g., the mortgage on the real
property is P1,000,000, where the cost to the seller is P800,000 – the excess of P200,000 is considered part of the initial payments).

The term does not include any notes or other evidence of indebtedness issued by the purchaser to the seller or the mortgage when the same is lower than
the cost to the seller.

ILLUSTRATION: A land was sold for P3,000,000, exclusive of VAT payable in 20 monthly instalments of P150,000 each.

a. If the lot was sold on March 1, 2017, the total monthly installment payments or the “initial payments” would be P1,500,000 (P150,000 installments
for 10 months).
 Since the initial payments is 50% of the selling price, this would be considered as a sale on “deferred-payment” basis and accordingly, the whole
P360,000 (P3,000,000 * 12%) VAT on the sale of lot would be due in the month/quarter of sale, i.e., March;

b. If the lot was sold on Nov. 1, 2017, the total monthly instalment payments for 2017 would be P300,000 (equivalent to two months), which is 10% of
the selling price and thus would qualify as installment sale.

Accordingly, only 12% of the P300,000 would be the VAT due, i.e., P18,000 for November and P18,000 for December, or P36,000 for the quarter.

c. If in the case of (b) above, but the fair market value of the land is P2,000,000 – the computation would be the same since the selling price is higher
than the market value.

d. If in (b) above, the fair market value of the land is P4,000,000, then this amount will be the basis of the VAT computation, which in the case of real
property is based on the FMV or Selling Price whichever is higher.

The VAT base on each installment will be computed as follows:

Installment Payment
X Fair Market Value = VAT base
Total Contract Price

In the above example, the VAT base for November and December would be P150,000, computed as follows:

P150,000
X P4,000,000 = P200,000
P3,000,000

The VAT due then would be P24,000 (P200,000 VAT base * 12%) for November and P24,000 for December.

Note: the denominator is ALWAYS the selling price/contract price since this represents 100% of the total payments that will be made. The formula
computes for the ratio of the completion of payment and what percentage that is compared to the fair market value which is the proper VAT base.

Sale of real property used in business may still be subject to VAT as an “incidental” transaction: under Sec. 106(1)(a) above, the sale of real
property, to be considered as goods subject to VAT, must be made by a real estate developer or dealer, or one who holds such real property primarily for
sale. A real estate dealer includes any person engaged in the business of buying, developing, selling, exchanging real properties as principal and holding
himself out as a full or part-time dealer in real estate.

Note, however, under Sec. 14(p)(1) of RR No. 16-05, as amended by RR No. 4-2007, real property used in business is considered ordinary asset and its sale
will be regarded as incidental to the business and thus subject to VAT even if the seller is not considered a real estate dealer.

IV. TRANSACTIONS DEEMED SALE

TRANSACTIONS DEEMED SALE: as the term implies, entails no actual sale, but by their nature, are considered as “sales” subject to VAT.

Rationale: to recoup from the input VAT already claimed on such goods which are not subsequently subjected to output VAT since they are not sold. Note
that the input VAT on purchase of raw materials can be claimed on the month of purchase with the expectation that the goods will relate to output VAT upon
their sale; if the disposition of the finished goods do not result in a VATable transaction, or if not deemed sale, then the taxpayer would have benefited from
the input VAT without any corresponding output VAT liability.

TAX BASE: The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange
of goods or properties under Sec. 4.106-7 paragraph (a), or where the gross selling price is unreasonably lower than the actual market value. The gross selling
price is unreasonably lower than the actual market value if it is lower by more than 30% of the actual market value of the same goods of the same quantity
and quality sold in the immediate locality or the nearest date of sale. In case of such, the actual market value shall be the tax base. (Sec. 4.106-7 (b), RR No.
16-05)

OUTPUT TAX: is based on the market value. However, in case of retirement or cessation of business, the tax base shall be the acquisition cost or the
current market price of the goods or properties, whichever is lower.

THE FOLLOWING TRANSACTIONS SHALL BE DEEMED SALE:

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.

This can take place when VAT-registered person withdraws goods from his business for his personal use. (Sec. 4.106-7[a][1] of RR No. 16-05)
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons

Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of retained earnings and distributed by
the company to its shareholders shall be subject to VAT. (Sec. 4.106-1[a][2][i] of RR No. 16-05)

b. Creditors in payment of debt;

3. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned

CONSIGNMENT OF GOODS in itself is not a VAT taxable transaction. Only if actual sale is not made within sixty (60) days following the date such
goods were consigned will it be treated as a transaction deemed sale subject to VAT.

4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
(Sec. 106[B])
 The VAT shall also apply to goods disposed of or existing as of a certain date if under circumstances to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is
terminated.

SUBJECT TO OUTPUT TAX: the VAT shall apply to goods or properties originally intended for sale or use in business, and capital goods which are
existing as of the occurrence of the following:
1. Change of business activity from VAT taxable status to VAT-exempt status;
2. Approval of a request for cancellation of registration due to reversion to exempt status;
3. Approval of request for cancellation or registration due to a desire to revert to exempt status after the lapse of 3 consecutive years from the time
of registration by a person who voluntarily registered despite being exempt under Sec. 109(2) of the Tax Code;
4. Approval of request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts exceeding
P3,000,000 (P1,919,500 prior to the TRAIN), but who failed to exceed this amount during the first 12 months of operation. (Sec. 4.106-8(a), RR
No. 16-05)

NOT SUBJECT TO OUTPUT TAX: The VAT shall not apply to goods or properties existing as of the occurrence of the following:
1. Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders.
The goods or properties used in business or those comprising the stock-in-trade of the corporation, having a change in corporate control, will not
be considered sold, bartered or exchanged despite the change in the ownership interest in the said corporation.
2. Change in the trade or corporate name of the business;
3. Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of the date of the merger or consolidation, shall be
absorbed by the surviving or new corporation. (Sec. 4.106-8 (b), RR No. 16-05)

V. VAT ON IMPORTATIONS

IMPORTATION is the act of bringing goods and merchandise into the Philippines from a foreign country.

TAX BASE: the total value used by the Bureau of Customs (BOC) in determining tariff and customs duties, plus customs duties, excise taxes, if
any, and other charges, such as postage, commission, and similar charges, prior to the release of the goods from customs custody.

In case the valuation used by the BOC in computing customs duties is based on volume or quantity, the landed cost shall be the basis for computing VAT.
“Landed cost” consists of the invoice amount, customs duties, freight, insurance and other charges.

If the goods imported are subject to excise tax, the excise tax shall form part of the tax base.

Note, however, that those amounts paid which are contrary to law, morals or public policy shall not be included in the VAT base and likewise are not deductible
for income tax purposes, such as facilitation fees or bribe.

The same rule applies to technical importations. (see zero-rated sales)

SALE OF TAX-FREE GOODS TO NON-EXEMPT PERSONS: the importation of goods is exempt from VAT and customs duties if made by an exempt person
(like an embassy or an ambassador). However, in the event he sells, transfers or otherwise disposes of the goods in favor of a NON-EXEMPT person, the
importation shall be taxable against the purchaser, transferee or recipient who shall be considered as importer thereof.

IMPORTER: refers to any person who brings goods into the Philippines, whether or not made in the course of trade or business. (Sec. 4.107-1(b), RR
No. 16-05)

VI. VAT ON SALE OF SERVICE

A. SALE OF SERVICE SUBJECT TO 12% VAT

The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling processing,
manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies; services of franchise
grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this
Code and non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.

The phrase 'sale or exchange of services' shall likewise include:

(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 of 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 non-resident 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 non-resident 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, project or 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.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the
property is leased or used in the Philippines. (Sec. 108)

SERVICES MUST BE PERFORMED IN THE PHILIPPINES: such that, if the services were performed outside the Philippines, the same is not subject to
VAT. Note, however, that even though the services are performed in the Philippines but for a foreign client/customer, the same may be treated as zero-rated.
(Please see zero-rated sale of service)

VAT ACCRUES AT THE TIME OF PAYMENT: Unlike sale of goods, where the VAT accrues upon consummation of the sale independent of the timing of
payment, in sale of services, the VAT accrues at the time of payment independent of whether the services has been performed or not, or in short, following
the cash basis of accounting.

As such, even if the services were already performed, but the same remain unpaid, no VAT is due yet. On the other hand, if payment is already received but
no services has been performed yet, the VAT is already due.

TAX BASE: for sale of service is the “gross receipts” which 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,” (Sec.
108, NIRC) except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment on behalf of
another which do not redound to the benefit of the payor. (Sec. 4.108-4, RR No. 16-05, as amended by RR No. 4-07)

Pass-through transactions: for the above exceptions to apply, the receipt must be issued for the third person who will ultimately shoulder the expense, in
order to be excluded from the gross receipts of the person receiving the reimbursement or the advances.

ILLUSTRATION: A paid P100 to B, P30 of which is reimbursement of the services advanced by B and paid to C.

In this case, B should only issue a receipt for P70, and C will issue a receipt for P30 in the name of A, in order for B to subject only P70 to VAT instead of
the whole P100 received from A.

‘CONSTRUCTIVE RECEIPT’ occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service
without restrictions by the payor. The following are examples of constructive receipts:
1. Deposits in banks which are made available to the seller of services without restrictions;
2. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and
3. Transfer of the amounts retained by the payor to the account of the contractor. (Sec. 4.108-4, RR No. 16-05)

LESSORS OF PROPERTY: unless considered exempt under Sec. 109 of the Tax Code, Lessors of Property shall be considered liable for VAT on the gross
rentals, regardless of the place where the contract of lease or licensing agreement was executed if the property leased or used is located in the Philippines.

VAT on rental and/or royalties payable to non-resident foreign corporations or owners for the sale of service and use or lease of properties in the Philippines
shall be based on the contract price agreed upon by the licensor and licensee. The licensee shall be responsible for the payment of VAT on such rentals and/or
royalties in behalf of the non-resident foreign corporation or owner in the manner prescribed under [withholding VAT on payments to non-residents]. (Sec.
4.108-3(a), RR No. 16-05)

Advance payment: If the advance payment constitutes prepaid rental, then such payment is taxable to the lessor in the month when received, irrespective
of the accounting period employed by the lessor.

The following do not constitute advance payment of rentals subject to VAT:

1. Loan to the lessor;
2. An option money for the property; or
3. A security deposit for the faithful performance of certain obligations of the lessee, such advance payment is not subject to VAT. However, a security
deposit applied to rentals shall be subject to VAT at the time of its application.

(See discussion under VAT-Exempt Transactions for discussion on lease of residential property)

PROFESSIONALS: as compared to the Local Government Code which covers only lawyers and those who are PRC licensed, for VAT purposes, professionals
include Actors, Professional Athletes, Singers, Broadcasters, Directors, etc.

General Professional Partnerships: deposits received by the GPP should be booked as income at that time and a VAT Official Receipt issued, thus subject
the same to VAT upon receipt, regardless if the GPP will only use the same for out of pocket expense to be paid to third parties. (RMC No. 89-2012)

The same rule applies to other service providers, other than GPPs. (RMC No. 16-2013)

However, the receipts for such expenses must be in the name of the GPP in order to claim the same as an expense for income tax purposes.

SALE OF CINEMA TICKETS NOT SUBJECT TO VAT: While the enumeration of services under Sec. 108 is merely by way of example only and not exclusive,
the legislative intent is not to impose VAT on gross receipts of cinema/theater houses on their admission tickets, only to lessors of cinematographic films.
Instead, the same is subject to the 10% amusement tax under the Local Government Code, as amended. Only lessors or distributors of cinematographic films
are included in the coverage of VAT. (CIR vs. SM Prime Holdings, GR No. 183505 dated February 26, 2010)

TOLL FEES SUBJECT TO VAT: fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the
taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to
assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that
can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is
made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller’s liability but merely the burden of the VAT.

Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added
to the selling price. Once shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase
the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, VAT is imposed
on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "user’s tax." VAT is assessed against the tollway operator’s
gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter
directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways. (Diaz vs. the SOF and
the CIR, GR No. 193007 dated July 19, 2011)

DEALERS IN SECURITIES AND LENDING INVESTORS: Dealers in Securities mean merchants of stock or securities regularly engaged in the purchase of
securities and their resale. Lending Investors includes all persons other than banks, non-bank financial intermediaries, finance companies and other financial
intermediaries not performing quasi-banking functions who make a practice of lending money for themselves or others at interest.

Tax Base:
1. Dealer in Securities – gross selling price less cost of the securities sold;
2. Lending Investor – gross receipts. (Sec. 4.108-3(g), RR No. 16-05)

FRANCHISE GRANTEES: Generally, telephone and telegraph, radio and/or television broadcasting and all other franchise grantees, except gas and
water utilities, shall be subject to VAT in lieu of franchise tax.

However, franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed P10,000,000 shall
not be subject to VAT but to the 3% franchise tax imposed under Sec. 119 of the NIRC.

Franchise grantees of gas and water utilities shall be subject to the 2% franchise tax on their gross receipts and not to VAT.

Gross receipts of other franchise grantees, other than those covered by Sec. 199 of the Tax Code, shall be subject to the VAT, subject to the threshold
requirement and optional registration availment. (Sec. 4.108-3(h), RR No. 16-05)

SALE TO PAGCOR IS ZERO-RATED: PAGCOR is exempt from the payment of VAT because PAGCOR’s charter, P.D. No. 1869, is a special law that
grants petitioner exemption from taxes. Although R.A. No. 9337 (amendment to the Tax Code) introduced amendments to Section 108 of R.A. No. 8424
by imposing VAT on other services not previously covered, it did not amend the portion of Section 108 (B)(3) that subjects to zero percent rate services
performed by VAT-registered persons 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 0% rate. (PAGCOR vs. BIR; GR No. 172087; March 15, 2011)

NON-LIFE INSURANCE COMPANIES: are those engaged in the business of property insurance, as distinguished from insurance on human lives, health,
accident and insurance appertaining thereto or connected therewith which shall be subject to the percentage tax under Sec. 123 of the NIRC. (Sec. 4.108-
3(i), RR No. 16-05)

Tax Base: premiums collected, whether paid in money, notes, credits or any substitute for money.
1. REINSURANCE PREMIUMS: are subject to VAT.
2. COMMISSIONS: whether related to life or non-life, insurance or reinsurance, are subject to VAT.
3. VAT DUE FROM REINSURANCE COMPANIES: is to be withheld by the local insurance company and to be remitted to the BIR in accordance with [the
withholding VAT (to be discussed later)].

Life Insurance Companies: premiums paid to LIFE insurance companies are subject to the 2% premiums tax which is a percentage tax. Accordingly, they are
exempt from the VAT.

VII. ZERO-RATED SALES

ZERO-RATED SALE OF GOODS:

a. Export Sales. - The term "export sales" means:
1. 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);
2. 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);
3. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of
total annual production;
4. Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
5. Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special
laws.

“EXPORT SALES UNDER E.O. No. 226”: Export sales provided under Sec. 106(A)(2)(a)(5) of the NIRC “shall mean the Philippine port F.O.B. value
of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer
to another export producer, or to an export trader that subsequently exports the same including sales to export processing zones. (Sec. 4.106-5,
RR No. 16-05)
 6. Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. However, under
the TRAIN, it is required that they shall be used exclusively for international shipping or air transport operations.

The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations is limited to
goods, supplies, equipment and fuel that shall be used in the transport of goods and passengers from a port in the Philippines directly to a foreign
port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for
the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad: Provided,
further, that if any portion of such fuel, goods, supplies or equipment is used for purposes other than that mentioned in this paragraph, such portion
of fuel, goods, supplies, and equipment shall be subject to 12% VAT.

NOTE:
1. (2) (3) and (5) are no longer subject to zero-rating under the TRAIN, upon satisfaction of the following conditions:
a. The successful establishment and implementation of an enhanced VAT refund system that grants refunds of creditable input tax within 90
days from the filing of the VAT refund application with the Bureau: Provided, That, to determine the effectivity of item no. 1, all applications
filed from January 1, 2018 shall be processed and must be decided within 90 days from the filing of the VAT refund application;

The 90-day period to process and decide, pending the establishment of the enhanced VAT Refund System shall only be up to the date of approval
of the Recommendation Report on such application for VAT refund by the Commissioner or his duly authorized representative.

However, all claims for refund/tax credit certificate filed prior to January 1, 2018 shall still be governed by the one hundred twenty (120)-day
processing period.

b. All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019.

Provided, That the DOF shall establish a VAT refund center in the BIR and in the BOC that will handle the processing and granting of cash refunds
of creditable input tax.

2. No. (4), on the other hand, is now considered VAT-exempt under the TRAIN. Accordingly, any input VAT attributable thereto will no longer be
allowed as input tax credits but rather will be closed to expense for income tax purposes.

b. Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" means sale to a non-resident of goods, except those
mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

NOTE: This provision has been removed under the TRAIN. Accordingly, they are now subject to VAT.

c. 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.

d. Sale and delivery of goods to:

1. Registered enterprises within a separate customs territory; and
2. Registered enterprises within tourism enterprise zones as declared by the Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
subject to the provisions of RA No. 9593, or the Tourism Act of 2009.

The above (d[1] and [2]) were vetoed by the President and per RR No. 13-18 is not included among those considered zero-rating. In the veto message
of the President, it is opined that these are subject to VAT by virtue of the veto. However, it must be noted that our VAT system follows the cross-border
doctrine; and economic zones are managed as separate customs territory under Section 8 of the Special Economic Zone Act. Accordingly, sales from
domestic suppliers to PEZA-registered entities inside the economic zone should remain to be considered zero-rated despite the removal of the above
provisions.

ZERO-RATED SALE OF SERVICE: The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
a. *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);
b. Services other than those mentioned in the preceding paragraph, 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);
c. 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;
d. Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof: Provided,
that these services shall be exclusively for international shipping or air transport operations. Thus, the services referred to herein shall not pertain to
those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code
e. *Services performed by subcontractors and/or contractors in processing, converting, of manufacturing goods for an enterprise whose export
sales exceed seventy percent (70%) of total annual production.
f. Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country. Gross receipts of international air or shipping
carriers doing business in the Philippines derived from transport of passengers and cargo from the Philippines to another country shall be exempt from
VAT; however, they are still liable to a percentage tax of three percent (3%) based on their gross receipts derived from transport of cargo from the
Philippines to another country as provided for in Sec. 118 of the Tax Code; and
g. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and
steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels: Provided, however, that zero-rating shall
apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall not extend to the sale of services related to the
maintenance or operation of plants generating said power.

*NOTE: (a) and (e) above shall be subject to the 12% VAT and no longer subject to zero percent under the same conditions as that of sale of goods
 above under (2) (3) and (5).

ZERO RATED SALE OF GOODS OR PROPERTIES/SERVICES: (by a VAT-registered person) is a taxable transaction for VAT purposes but shall not result
in any output tax. However, the input tax on purchase of goods, properties or services, related to such zero-rated sale, shall be available as:
1. A tax credit (input VAT); or
2. Refund or for the issuance of a Tax Credit Certificate. (Sec. 4.106-5, RR No. 16-05)

If the VAT is not billed separately in the document of sale, the selling price or the consideration stated therein shall be deemed inclusive of VAT. (Sec.
106-4, RR No. 16-05, as amended by RR No. 4-07)

FACILITATION OF COLLECTION OF RECEIVABLES FOR FOREIGN COUNTERPART - ZERO-RATED UNDER SEC. 108(B)(3): services performed by
VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines),
when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The taxpayer in this case
is a VAT-registered person that facilitates the collection and payment of receivables belonging to its non-resident foreign client, for which it gets paid in
acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines
is not in the same category as "processing, manufacturing or repacking of goods" and should, therefore, be zero-rated. In reply to a query of respondent, the
BIR opined in VAT Ruling No. 080-89 that the income respondent earned from its parent company’s regional operating centers (ROCs) was automatically zero-
rated effective January 1, 1988 (CIR vs. American Express; GR No. 152609; June 29, 2005)

TO BE CONSIDERED ZERO-RATED UNDER SEC. 108(B)(3), THE RECIPIENT OF THE SERVICE MUST BE DOING BUSINESS OUTSIDE THE
PHILIPPINES: The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of goods" and that payment for such
services be in acceptable foreign currency accounted for in accordance with BSP rules. Another essential condition for qualification to zero-rating
under Section 102(b)(2) is that the recipient of such services is doing business outside the Philippines. While this requirement is not expressly
stated in the second paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services must be "for other
persons doing business outside the Philippines." The phrase "for other persons doing business outside the Philippines" not only refers to the services
enumerated in the first paragraph of Section 102(b), but also pertains to the general term "services" appearing in the second paragraph of Section 102(b). In
short, services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines. In
this case, the payer-recipient of respondent’s services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortium’s
principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. (CIR vs. Burmeister and Wain; GR No.
153205; Jan. 22, 2007)

CROSS BORDER DOCTRINE: Under the Destination Principle, goods and services are taxed only in the country where these are consumed.

The Philippine VAT Law adheres to the "cross border doctrine" of the VAT system, which basically means that no VAT shall be imposed to form part of
the cost of goods destined for consumption outside the territorial border of the Philippine taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must be free of VAT. Conversely, those goods destined for use or consumption and services to be rendered
within the Philippines shall be subject to the 12 % VAT. In explaining the “cross border principle”, the Supreme Court ruled that under the cross-border
principle of the VAT system being enforced by the BIR, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule
holds for such exports from the national territory — except specifically declared areas — to an Ecozone, or in this case, a Freeport Zone. (CIR vs. Seagate and
CIR vs. Toshiba, cited in RMC No. 50-2007)

AUTOMATIC VS. EFFECTIVE ZERO-RATING: An automatically zero-rated sale refers to a sale of goods, properties and services to a Freeport Zone-
registered enterprise by a VAT-registered seller/supplier that is regarded as either an export sale or a foreign currency denominated sale under Section 106
of the Tax Code of 1997.

An effectively zero-rated sale, on the other hand, refers to the local sale of goods, properties and services by a VAT-registered person to an entity that was
granted indirect tax exemption under special laws or international agreements. Since the buyer is exempt from indirect tax, the seller cannot pass on the VAT
and therefore, the exemption enjoyed by the buyer shall extend to the seller, making the sale effectively zero-rated. (Q4, RMC No. 50-2007)

However, those considered effectively zero-rated [i.e., zero-rated sale of goods under Sec. 106(A)(2)(c) and sale of services under Sec. 108(B)(3)] shall require
prior application with the appropriate BIR office for effective zero-rating. Without an approved application for effective zero-rating, the transaction otherwise
entitled to zero-rating shall be considered exempt. (RR No. 16-05) However, still, this paragraph was deleted under RR No. 4-07.

However, still, such requirement of prior ruling has been struck down in the case of CIR vs. Seagate Technology (Philippines), the Court held that a VAT-
registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero rating of the transactions of a taxpayer. Hence,
transactions of a VAT-registered taxpayer cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT exemption
would be determined, not by their nature, but by the taxpayer’s negligence -- a result not at all contemplated. Administrative convenience cannot thwart
legislative mandate.

The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of a taxpayer’s
transactions. The scope of such regulations is not within the statutory authority x x x granted by the legislature.

Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our VAT law requires an additional application
to be made for such taxpayers transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt
simply because an application therefor was not made or, if made, was denied. To allow the additional requirement is to give unfettered discretion to those
officials or agents who, without fluid consideration, are bent on denying a valid application. Moreover, the State can never be estopped by the omissions,
mistakes or errors of its officials or agents. (GR No. 153866; Feb. 11, 2005)

SALE WITHIN THE FREEPORT ZONE: Such sale, exchange, barter or lease of goods, properties and services within the Freeport Zones shall be exempt
from VAT. The following transactions are covered under this exemption:

a. All transactions between and/or among two registered Freeport Zone Enterprises or Residents;
b. Consumer goods purchased and consumed within the Freeport Zones;
c. Sale/supply of services, including power or electricity, by a Freeport Zone-registered enterprise or resident within the Freeport Zone, regardless of whether
or not the buyer or customer is a registered Freeport Zone enterprise or Zone Resident, provided that said power/electricity or services are rendered,
 used or consumed within the Freeport Zone; and
d. The lease of properties owned by Freeport Zone-registered enterprises or Residents, provided that such properties are located within the subject Freeport
Zones. (Q6, RMC No. 50-2007)

A freeport zone, or economic zone, is considered as outside the customs territory of the Philippines for VAT purposes, following the destination principle,
transactions within the same are considered exempt from VAT, including those made between PEZA-registered entities.

TECHNICAL IMPORTATION: A sale by an entity registered and operating within an ecozone to a buyer in the customs territory shall be treated
as a technical importation made by the buyer in the customs territory. The buyer shall be treated as the importer and shall be imposed the corresponding
import taxes and duties prior to release of the goods or merchandise from Customs custody. Any unpaid taxes thereon, aside from being the prime liability of
the buyer-importer, shall constitute a lien on such goods or merchandise imported from the Freeport Zone. (Q8, RMC No. 50-2007)

VIII. VAT-EXEMPT TRANSACTIONS1

A. SALE OR IMPORTATION OF:

1. Agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human
consumption; and breeding stock and genetic materials therefor.

“In their original state” – even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying,
salting, boiling, 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. (Sec. 109[1][A])

“Livestock” shall include cows, bulls and calves, pigs, sheep, goats and rabbits. “Poultry” shall include fowls, ducks, geese and turkey. Either does not
include fighting cocks, race horses, zoo animals and other animals generally considered as pets.

“Marine food products” shall include fish and crustaceans, such as, but not limited to eels, trout, lobster, shrimps, prawns, oysters, mussels and clams.
(Sec. 4.109-1(B)(1)(a), RR No. 16-05)

“Raw Sugar” under RR No. 13-13, amending Sec. 2(b) of RR No. 13-08, is limited now by the BIR to muscovado.

2. 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 (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally
considered as pets). (Sec. 109[1][B])

B. IMPORTATION OF:

1. Personal and household effects belonging to the residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the
Philippines; Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines. (Sec. 109[1][C])

Under RA No. 10863, or the Customs Modernization and Tariff Act, the following are considered conditionally tax- and/or duty-exempt importations:

a. Personal and household effects of returning residents:

FOB or FCA Required years of stay Must have not been availed
value exempt in a foreign country of, prior to arrival, within
P150,000 Less than 5 years 6 months
P250,000 At least 5 years but not 5 years
more than 10 years
P350,000 10 years or more 10 years

b. OFWs shall have the privilege to bring in tax and duty free home appliances and other durables limited to one of every kind once every calendar
year accompanying them on their arrival or arriving within a period not exceeding 60 days after the OFWs returns. (Sec. 800(f), Tariff and Customs
Code, as amended)

c. “Balikbayan boxes” containing personal and household effects with a FCA value not exceeding P150,000 and the items are not in commercial
quantities or intended for barter, sale or for hire. This can be availed up to three times in a calendar year. (Sec. 800(g), Tariff and Customs Code,
as amended)

d. De Miminis Importations: No duties and taxes shall be collected on goods with an FOB or FCA value of P10,000 or below. (Sec. 423, Tariff and
Customs Code, as amended)

2. Professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and household
effects belonging to 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 and not for barter or sale, accompanying such persons, or arriving within a reasonable time: 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: 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. (Sec. 109[1][D])

3. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations: Provided, That the fuel, goods and
supplies shall be used for international shipping or air transport operations. Thus, said fuel, goods and supplies shall be used exclusively or shall pertain

1
Sec. 109 of the NIRC as segregated under http://www.ntrc.gov.ph/files/Chapter-III---VAT.pdf, updated with recent laws, rules and jurisprudence.
 to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any
other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that
originated from abroad, or to load passengers and/or cargoes bound for abroad.

If any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies
shall be subject to twelve percent (12%) VAT.

C. SERVICES RENDERED BY:

1. Persons subject to percentage tax under Title V of the NIRC. (Sec. 109[1][E])

a. 3% percentage tax - Sale or lease of goods or properties or the performance of services of non-VAT-registered persons whose gross sales/receipts
other than those provided under Section 109 (A) to (AA) do not exceed P3,000,000 (Sec. 116 of the Tax Code) except individuals availing of the 8%
flat rate of income tax and cooperatives;
b. 3% common carrier’s tax - Services rendered by domestic common carriers by land, for the transport of passengers and keepers of garages
(Sec. 117);
c. 3% franchise tax - Services rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding
year do not exceed Ten Million Pesos (P10,000,000.00), and by franchise grantees of gas and water utilities (Sec. 119);
d. 10% overseas communications tax - Service rendered for overseas dispatch, message or conversation originating from the Philippines (Sec.
120);
e. 2% premiums tax - Services rendered by any person, company or corporation (except purely cooperative companies or associations) doing life
insurance business of any sort in the Philippines (Sec. 123);
f. 4% premiums tax - Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance companies (Sec. 124); 5% - if
directly secured from the foreign insurance corporation.
g. 10/15/18/30% amusement tax - Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and race tracks (Sec. 125); and
h. 6/10 of 1% stock transactions tax - Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange
or through initial public offering (Sec. 127)

2. Agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar. (Sec. 109[1][F])

"Agricultural contract growers" refers to those persons producing for others poultry, livestock or other agricultural and marine food products in their
original state. (Sec. 4.109-1[f] of RR No. 16-05, as amended)

3. Medical, dental, hospital and veterinary services except those rendered by professionals. (Sec. 109[1][G])

Laboratory services are exempted.

Sale of Medicine: If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is subject to VAT (Sec. 4.109-1(g), RR No.
16-05) if made to out-patients.

However, sale of medicine/drugs to in-patients of hospitals are considered part of hospital services, which are exempt from VAT. (BIR Ruling DA 122-05;
April 6, 2005)

HEALTH MAINTENANCE ORGANIZATIONS ARE NOT CONSIDERED VAT EXEMPT UNDER SEC. 198(1)(G) of the NIRC: for the following
reasons observed by the Court of Tax Appeals and adopted by the Supreme Court in CIR vs. Philippine Healthcare Providers, Inc. (GR No. 168129; April
24, 2007):
‘a) Respondent "is not actually rendering medical service but merely acting as a conduit between the members and their accredited and recognized
hospitals and clinics."
b) It merely "provides and arranges for the provision of pre-need health care services to its members for a fixed prepaid fee for a specified period of
time."
c) It then "contracts the services of physicians, medical and dental practitioners, clinics and hospitals to perform such services to its enrolled
members;" and
d) Respondent "also enters into contract with clinics, hospitals, medical professionals and then negotiates with them regarding payment schemes,
financing and other procedures in the delivery of health services."’

Perforce, as respondent does not actually provide medical and/or hospital services, as provided under Section 103 (now Section 109) on exempt
transactions, but merely arranges for the same, its services are not VAT-exempt.

4. Educational services rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission of Higher
Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions. (Sec.
109[1][H])

"Educational services" shall refer to academic, technical or vocational education provided by private educational institutions duly accredited by the DepED,
the CHED and TESDA and those rendered by government educational institutions and it does not include seminars, in-service training, review classes and
other similar services rendered by persons who are not accredited by the DepED, the CHED and/or the TESDA. (Sec. 4.109-1[h] of RR No. 16-05, as
amended)

Consequently, educational services rendered by “review schools” are not considered VAT-exempt under this paragraph considering that they are not
accredited by CHED, DepEd or TESDA.

5. Individuals pursuant to an employer-employee relationship. (Sec. 109[1][I])

6. 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. (Sec. 109[1][E])
7. Banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries. (Sec. 109[1][V])

D. SALES BY:

1. Agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) 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. (Sec. 109[1][L])

Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative
itself. If the cooperative is not the producer (e.g., trader), then only those sales to its members shall be exempted from VAT, except if what was sold is
an agricultural food product in its original state which is exempt not under this paragraph but under Sec. 109(a). (Sec.4.109-1[l] of RR No. 16-05, as
amended)

Note that the exemption likewise covers importations which is not available for other types of cooperatives.

2. Non-agricultural, non-electric and non-credit cooperatives duly registered with the CDA; Provided, That the share capital contribution of each member
does not exceed P15,000 and regardless of the aggregate capital and net surplus ratably distributed among the members. (Sec. 109[1][N])

3. Persons who are not VAT-registered on their export sales. (Sec. 109[1][O])

E. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws32, except those
granted under Presidential Decree No. 529 (Petroleum Exploration Concessionaires under the Petroleum Act of 1949). (Sec. 109[1][K])

F. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the CDA. (Sec. 109[1][M])

Note that this type of cooperative’s gross receipt is exempt from VAT regardless if the customer/client is a member or not.

G. Lease of a residential unit with a monthly rental not exceeding P15,000 (P12,800 prior to the TRAIN) ((Sec. 109[1][Q]) is exempt from VAT and the
3% percentage tax.

Lease of residential units where the monthly rental per unit exceeds P15,000 but the aggregate of such rentals of the lessor during the year do not
exceed P3,000,000 shall likewise be exempt from VAT, however, the same shall be subject to 3% percentage tax. (Sec. 4.109-1(q), RR No. 16-05)

The above rules are applicable to a lessor with a single residential unit for lease. In cases where a lessor has several residential units for lease, some are
leased out for a monthly rental per unit of not exceeding P15,000 while others are leased out for more per unit, his tax liability will be as follows:
1. Rentals not exceeding P15,000 per month - exempt from VAT regardless of the aggregate annual gross receipts;
2. Rentals exceeding P15,000 per month per unit shall be:
a. Subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than
P15,000) exceeds P3,000,000;
b. Subject to the 3% percentage tax imposed under Sec. 116 of the NIRC if the aggregate annual gross receipts DO NOT EXCEED P3,000,000.
(Sec. 4.109-1(q), RR No. 16-05)

The term ‘residential units’ shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units thereof used solely
as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels, hotel rooms, lodging houses, inns and pension houses.

The term ‘unit’ shall mean an apartment unit in the case of apartments, house in the case of residential house; per person in the case of dormitories,
boarding houses and bed spaces; per room in case of rooms for rent.

Commercial units: are not covered by this exemption. Thus, the lease of a commercial unit regardless of monthly rental will be subject to the VAT,
EXCEPT only if the aggregate annual rentals received by the lessor do not exceed the VAT threshold, in which case, he shall be liable for the 3%
percentage tax.

H. The following sale of real properties are not subject to VAT:

1. Sale of real properties NOT primarily held for sale to customers or held for lease in the ordinary course of trade or business;

However, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the
same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s
main business. (Sec. 4.109-1(p)(1) of RR No. 16-05, as amended by RR No. 4-07)

2. Real property utilized for low-cost and socialized housing as defined by RA No. 7279, otherwise known as the Urban Development Act of 1992, and
other related laws;

"Low-cost housing" refers to housing projects intended for homeless low-income family beneficiaries, undertaken by the Government or private
developers, which may either be a subdivision or a condominium registered and licensed by the Housing and Land Use Regulatory Board/Housing
(HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling price is within the selling price ceiling per unit as set by
the Housing and Urban Development Coordinating Council pursuant to RA No. 7279, otherwise known as the "Urban Development and Housing Act
of 1992" and other laws, such as RA No. 7835 and RA No. 8763. (Sec. 4.109-1(p)(2), RR No. 16-05)

"Socialized housing" refers to housing programs and projects covering houses and lots or home lots only undertaken by the Government or the
private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberated terms
on interest payments, and such other benefits in accordance with the provisions of RA No. 7279, otherwise known as the "Urban Development and
Housing Act of 1992" and RA No. 7835 and RA No. 8763. "Socialized housing" shall also refer to projects intended for the underprivileged and
homeless wherein the housing package selling price is within the lowest interest rates under the Unified Home Lending Program (UHLP) or any
equivalent housing program of the Government, the private sector or non-government organizations. (Sec. 4.109-1(p)(3), RR No. 16-05)
 3. Residential lot valued at P1,919,500* and below;

4. Residential house and lot, and other residential dwellings valued at P3,199,200* and below. (Sec. 109[1][P])

*Note that under RR No. 13-2018, the amounts mentioned are “P1,500,000” and “P2,500,000”, as adjusted in 2011 using the Consumer Price
Index values. Accordingly, the amounts exempted from VAT remain to be at P1,919,500 and P3,199,200** which are the adjusted prices in 2011.

**NOTE: Beginning January 1, 2021, the VAT exemption shall only apply to:
a. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business,
b. Sale of real property utilized for socialized housing as defined by Republic Act No. 7279,
c. Sale of house and lot, and other residential dwellings with selling price of not more than Two Million Pesos (P2,000,000.00): Provided, further,
That every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (PSA).

Accordingly, starting Jan. 1, 2021, sale of residential lots will no longer be VAT-exempt.

Sale of Parking Lot: the above rule on adjacent lands does not include the sale of parking lot which may or may not be included in the sale of
condominium units. The sale of parking lots in a condominium is a separate and distinct transaction and is not covered by the rules on threshold amount
not being a residential lot, house & lot or a residential dwelling, thus, should be subject to VAT regardless of amount of selling price. (Sec. 4.109-1(p)(4),
RR No. 16-05, as amended by RR No. 13-2012)

Sale of Adjacent lands: If two or more adjacent residential lots, house and lots or other residential dwellings within a 12-month period in favor of
one buyer from the same seller, for the purpose of utilizing the lots, house and lots or other residential dwellings as one residential area wherein the
aggregate value of the adjacent properties exceeds P1,919,500, for residential lots and P3,199,200 for residential house and lots or other residential
dwellings. Adjacent residential lots, house and lots or other residential dwellings although covered by separate titles and/or separate tax declarations,
when sold or disposed to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one
residential lot, house and lot or residential dwelling (RR No 13-2012)

I. Sale, importation, printing or publication of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed
prices for subscription and sale and which is not devoted principally to the publication of paid advertisements. (Sec. 109[1][R])

J. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or
international transport operations. (Sec. 109[1][T])

K. Transport of passengers by international carriers. (Sec. 109[S] of the Tax Code, as amended by RA No. 10378)

L. 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 of which do not exceed the amount of P3,000,000 (P1,919,500 prior to the TRAIN). (Sec. 109[1][W])

For purposes of the threshold, the husband and wife shall be considered separate taxpayers. However, the aggregation rule for each taxpayer shall apply.
For instance, if a professional, aside from the practice of his profession, also derives revenue from other lines of business which are otherwise subject to
VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall not be
included in determining the threshold. (Sec. 4.109-1(Y) of RR No. 16-05)

M. The following are additional VAT-exempt transactions under the TRAIN:

1. The buyer is a:
a. Senior Citizen as provided under RA No. 9994 (Expanded Senior Citizens Act of 2010); or
b. A Person with Disability (PWD) as provided under RA No. 10754 (An Act Expanding the Benefits and Privileges of Persons with Disability)
2. Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as amended;

ILLUSTRATION: A Corporation is a merchandising concern with P1M worth of inventory. X Corporation, a real estate developer, exchanged its
real properties for the shares of stock of A Corporation resulting in corporate control.

• This is considered as an exempt transfer under Section 40(c)(2) of the Tax Code since the transfer of real property resulted in corporate
control.
• The inventory owned by A Corporation will not be subject to VAT even if the control of such corporation already transferred to X Corporation.
This is in recognition of the separate and distinct personality of the corporation from its stockholders.
• Likewise, X Corporation will not be subject to VAT on the transfer of real property, even if the same is considered as part of its ordinary
assets (inventory).

Note that prior to the TRAIN, the exchange of goods or properties including the real estate properties used in business or held for sale or for
lease of by the transferor, for shares of stocks whether resulting in corporate control or not, is subject to VAT. (RR No. 10-11) Accordingly, in
the above illustration, the real properties exchanged by X Corporation for the shares of stock of A Corporation is subject to VAT prior to the
TRAIN.

3. Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners’ associations
and condominium corporations established under Republic Act No. 9904 (Magna Carta for Homeowners and Homeowners’ Association) and Republic
Act No. 4726 (The Condominium Act), respectively;
4. Sale of gold to the Bangko Sentral ng Pilipinas;
5. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension to beginning January 1, 2019 as determined by the
Department of Health;

DIFFERENCE BETWEEN VAT ZERO-RATED VS. VAT-EXEMPT SALES: While the zero rating and the exemption are computationally the same, they
actually differ in several aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt
transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while registration is optional for VAT-exempt persons.
(Commissioner of Internal Revenue vs. Cebu Toyo Corporation; G.R. No. 149073; February 16, 2005])

VAT-EXEMPT PARTY VS. VAT-EXEMPT TRANSACTION: A VAT-exempt party is person or entity granted VAT exemption under the Tax Code, a special
law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from the VAT. Such
party is also not subject to the VAT but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT
taxpayer.

A VAT-exempt transaction involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax
Code, without regard to the tax status — VAT-exempt or not — of the party to the transaction. Indeed, such transaction is not subject to the VAT, but the
seller is not allowed any tax refund of or credit for any input taxes paid.

IX. INPUT VAT

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:

1. The transitional input tax;
2. The presumptive input tax determined in accordance with Sec. 111 of the Tax Code.
3. Input taxes which can be directly attributed to transactions subject to VAT plus a ratable portion of any input tax which cannot be directly attributed to
either the taxable or exempt activity. (Sec. 4.110-1, RR No. 16-05)

PURCHASE OF GOODS AND SERVICES: To properly claim input tax credits, the purchases must be properly supported as required under Sec. 110(A) and
Sec. 113 of the NIRC.

Who can avail of the input tax credit? Sec. 4.110-2 of RR No. 16-05, as amended, provides:
1. Importer upon payment of VAT prior to the release of goods from customs custody;
2. Purchaser upon of the domestic goods or properties upon consummation of the sale; or
3. Purchaser of services or the lessee or licensee upon payment of the compensation, rental royalty or fee.

Note that the above likewise provides for the proper period of claiming input VAT:
1. Importation – upon release of the goods;
2. Purchase of goods – upon consummation of the sale;
3. Purchase of service or lease – upon payment.

REQUIRED VAT SUPPORT: Sec. 4.110-8 of RR No. 16-05, as amended, implements Sec. 113(A) of the NIRC, and provides for the proper substantiation of
input tax credits, as follows:

TRANSACTION REQUIRED SUPPORT

Domestic purchase of goods
Importation of goods
Purchase of real property
Purchase of service
Transitional input tax
Deemed sale
Purchase of service from non-residents
Advance VAT on sugar
5% Final VAT on sale to government
VAT Invoice
Import entry declaration and BOC receipt or other similar documents proving the
payment of VAT (such as a Statement of Settlement of Duties and Tax [SSDT] and
Single Administrative Document [SAD])
Public instrument together with VAT invoice
VAT Official Receipt
Inventory list submitted to the BIR
Invoice required under sec. 4.113-2 of RR No. 16-05
BIR Form No. 1600 (withheld VAT)
Payment order
Withholding certificate

A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows information required under
Secs. 113 and 237 of the NIRC.

BIR has consistently held that VAT invoices are for sellers of goods and VAT ORs for sellers of services. (VAT Ruling No. 179-88 dated May 24, 1988) Likewise,
the CTA has consistently denied refund of input tax which is not compliant with the above requirements.

Accordingly, input VAT on sale of goods, even if supported by a VAT OR, Statement of Account or other supporting documents cannot be claimed as a tax
credit without the VAT invoice which is the proper supporting document.

REQUIRED INFORMATION IN THE VAT SUPPORT

The above provision is reiterated under Sec. 4.113-1(B) of RR No. 16-05, as amended. Accordingly, the following shall be the information required to be
presented in a VAT Invoice or VAT Official Receipt in order to properly claim input tax credits:
a. A statement that the seller is a VAT-registered person, followed by his Tax Identification Number (TIN);
b. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT;
c. VAT must be separately shown

In Northwind Power Development Corporation vs. CIR (CTA Case No. 8119 dated March 12, 2013) the Court disallowed the input VAT on purchases of
goods and services supported by VAT invoices and official receipts which did not separately indicate the amount of VAT.

d. A statement indicating that the sale is “VAT-exempt” or “zero-rated,” if applicable;

 THE WORDS ZERO-RATED MUST BE INDICATED IN THE OFFICIAL RECEIPT OR INVOICE: A VAT-registered taxpayer is required to comply
with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated
sales. A VAT invoice is an invoice that meets the requirements of Section 4.108-1 of RR 7-95. RR 7-95 expressly states that [A]ll purchases covered
by invoices other than a VAT invoice shall not give rise to any input tax. A taxpayer’s invoice, lacking the word zero-rated, is not a VAT invoice,
and thus cannot give rise to any input tax.

We have ruled in several cases that the printing of the word zero-rated is required to be placed on VAT invoices or receipts covering zero-rated sales in
order to be entitled to claim for tax credit or refund. In Panasonic v. Commissioner of Internal Revenue, we held that the appearance of the word zero-
rated on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually
paid. Absent such word, the government may be refunding taxes it did not collect. (Microsoft Philippines, Inc. vs. CIR, GR No. 180173, April 6, 2011)

e. In the case of sales in the amount of one thousand pesos (P1,000.00) or more where the sale or transfer is made to a VAT-registered person,
the (1) name, (2) business style, if any, (3) address and (4) TIN of the purchaser, customer or client, shall be indicated in addition to the information
required in (1) and (2).

In Nesic Philippines, Inc. vs. CIR (CTA Case No. 7012 dated March 13, 2009) where the CTA disallowed the input VAT credits claimed where the address
and/or TIN of Nesic were not indicated in the supporting sales invoices and/or official receipts.

f. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service.

NAME OF THE BUYER: the name of the buyer/purchaser must likewise be indicated in the official receipt or invoice in order to identify the proper claimant
of the input VAT.

STRICT COMPLIANCE IS REQUIRED: taxpayers claiming for a refund or tax credit certificate must comply with the strict and mandatory invoicing and
accounting requirements provided under the 1997 Tax Code, as amended, and its implementing rules and regulations. Rules and regulations with regard to
procedures are implemented not to be ignored or to be taken for granted, but are strictly adhered to for they are developed from the law itself.

PURCHASE OF CAPITAL GOODS: where a VAT-registered person:

1. Purchases or imports capital goods (which are depreciable assets for income tax purposes);
2. The aggregate acquisition cost of which (exclusive of VAT) exceeds One Million pesos (P1,000,000), regardless of the acquisition cost of each
capital good
3. In a calendar month

The input tax thereon shall be claimed as credit against output tax in the following manner; if the estimated useful life of a capital good is:
1. Five (5) years or more – the input tax shall be spread evenly over a period of 60 months.
2. Less than 5 years – the input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising
the estimated useful life of the capital good.

In both cases, the claim for input tax credit shall commence in the calendar month that the capital goods were acquired.

Where the aggregate acquisition cost (exclusive of VAT) purchased or imported during any calendar month does not exceed P1,000,000, the total input taxes
will be allowable as credit against output tax in the month of acquisition.

Aggregate Acquisition Cost of a depreciable asset in any calendar month refers to the total price, excluding the VAT, agreed upon for one or more assets
acquired and not on the payments actually made during the calendar month. Thus, an asset acquired in instalment for an acquisition cost of more than
P1,000,000, excluding the VAT, will be subject to the amortization of input tax despite the fact that the monthly payments/instalments may not exceed
P1,000,000.

Capital goods or properties refers to goods or properties with the estimated useful life greater than 1 year and which are treated as depreciable assets
under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale of taxable goods or services.

Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not depreciated until the asset is placed in service.
Normally, upon completion, a CIP item is reclassified to the appropriate asset account and the reclassified asset is depreciated.

CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be determined based on the progress billings. Until
such time the construction has been completed, it will not qualify as capital goods as herein defined, in which case, input tax credit on such transaction can
be recognized in the month the payment was made: Provided, that an official receipt of payment has been issued based on the progress billings.

Once the input tax has already been claimed while the construction is still in progress, no additional input tax can be claimed upon completion of the asset
when it has been reclassified as a depreciable capital asset and depreciated.

Disposal of capital goods prior to the exhaustion of the amortizable input tax thereon – the entire amount of the unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit during the month/quarter when the sale or transfer was made.

Accounting requirements: Under Sec. 4.113-3 of RR No. 16-05 provides that a subsidiary record in ledger form shall be maintained for the acquisition,
purchase or importation of depreciable assets or capital goods which shall contain, among others, information on the total input tax thereon as well as the
monthly input tax claimed in VAT declaration or return.

TRAIN AMENDMENT: The amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with unutilized input VAT
on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized. If the purchase was made on January 1, 2022, the
input VAT on the capital goods can be claimed as tax credits in full in the month of purchase.

MIXED TRANSACTIONS (VATable/VAT-exempt/VAT zero-rated)

The utilization of the input VAT depends to which such purchase relates as follows:
 Related to: Utilization
12% VATable sales Input tax credit
0% VATable sales 1. Input tax credit; or
2. Refund or issuance of TCC
VAT-exempt sales Charged to costs/expense

It is evident from the foregoing that a VAT-registered taxpayer can only claim input VAT that can be directly attributed to its VAT taxable transactions
(transactions subject to 12% and 0% VAT) and where one is also engaged in an activity not subject to VAT, the Company can only claim a ratable portion of
the common input VAT as tax credit.

Thus, purchase of raw materials and services which can be directly attributable to VATable and VAT zero-rated sale may be creditable against any output VAT
liability. However, purchases which cannot be directly attributable to any sale, like payment for rent, or purchase of capital goods, which are related to bringing
about VATable and VAT-exempt sales, must be apportioned ratably.

Sec. 4.110-4, RR No. 16-05, as amended by RR No. 4-07, provides the following formula in determining the creditable portion of input tax not directly
attributable to any activity and the portion of input tax attributable to VAT-exempt sales for the month:

A. The input tax attributable to sales to private entities subject to 12%, for the month, shall be computed as follows:

Taxable sales (12%) Amount of input tax not directly

X
Total Sales attributable to any activity

B. The input tax attributable to zero-rated sales for the month shall be computed as follows:

Taxable sales (0%) Amount of input tax not directly

X
Total Sales attributable to any activity

C. The input tax attributable to VAT-exempt sales for the month shall be computed as follows:

Taxable sales (exempt) Amount of input tax not directly

X
Total Sales attributable to any activity

D. The input tax attributable to sales to government for the month shall be computed as follows:

Taxable sales to government Amount of input tax not directly

X
Total Sales attributable to any activity

The above allocated amounts shall be treated as follows:

1. The amount of input tax allocated to sales subject to 12% and 0% VAT may be creditable against output VAT; However, the amount attributable to zero-
rated sales may be claimed as input tax credit or refund.
2. The amount allocated to VAT-exempt sales cannot be claimed as credits against any output VAT but should be treated as part of cost or expense;
3. The amount allocated to sales to government shall be included with the amount directly attributable thereto then compared with the 7% standard input
VAT. (see input VAT on sales to government)

INPUT VAT ON SALES TO GOVERNMENT: Under Sec. 4.114-2(a) of RR No. 16-05, as amended, implementing Sec. 114(C), the 5% final VAT withholding
rate shall represent the net VAT payable of the seller. The remaining 7% effectively accounts for the STANDARD INPUT VAT for sale of goods or services
to government, in lieu of actual input VAT directly attributable or ratably apportioned to such sales.

1. If the actual input VAT (those directly attributable to sale to government and the amount ratably apportioned thereto [see MIXED TRANSACTIONS])
EXCEEDS 7% of the gross payments (sales to government), the excess may form part of the sellers’ expense or cost;
2. On the other hand, if the actual input VAT is LESS THAN the 7%, the difference must be closed to expense or cost, effectively making it an additional
income/revenue.

In all instances, the total input VAT credits that will be claimed by the taxpayer relative to the sales to government (composed of 5% Final Withholding VAT
and 7% Standard Input VAT, both based on sales amount [not on purchases]) is equivalent to the output VAT on his sales to government.

ILLUSTRATION: X Company had VATable sales amounting to P200,000 and sales to government amounting to P100,000, both exclusive of VAT. During
the month, X Company paid rent amounting to P75,000 and purchases directly attributable to its regular sales and sales to government amounting to
P20,000 and P50,000, respectively. The amount of input tax credits pertaining to the sales to government will be as follows:

Input VAT on sales to government: the amount claimed as tax credits amounts to P12,000:

1. Final Withheld VAT: P5,000 (P100,000 * 5%) shall be creditable against output VAT payable in full.
2. Standard Input VAT: P7,000 (P100,000 * 7%)

The input VAT from purchases pertaining to sales to government amounts to P9,000, computed as follows:

1. Input tax directly attributable: P50,000 * 12% = P6,000

2. Input tax allocated from rent (payment related to both VATable and sales to government): P3,000
 P100,000
X P9,000 = P3,000
P300,000

Since the actual input VAT pertaining to sales to government is P9,000 (P6,000 + P3,000) and exceeds the standard input VAT of P7,000, the difference
of P2,000 will be recorded as expense or cost, with the following pro forma entry:

DR Expense/Cost 2,000
CR Input VAT 2,000

Effectively, the taxpayer claimed P12,000 of input VAT (the 5% final VAT and the P7,000 standard input VAT) equivalent to the output VAT on the sales
to government.

Input VAT on VATable sales: the amount claimed as tax credits amounts to P8,400.

1. Input tax directly attributable to VATable sales: P20,000 * 12% = P2,400

2. Input tax allocated from rent: P6,000 computed as follows:

P200,000
X P9,000 = P6,000
P300,000

VAT Payable: P15,600, computed as follows:

Output VAT @12%

VATable sales 200,000 24,000
Sales to government 100,000 12,000 36,000

Creditable Input VAT

Domestic Purchases of Goods 70,000* (8,400)
Payment of Rent 75,000 (9,000)
Final Withheld VAT (5,000)
Excess of Standard Input VAT
over Input VAT attributable to
sales to government 2,000 (20,400)
VAT Payable 15,600
*composed of P20,000 purchases directly atrributable to regular
sales and P50,000 purchases directly attributable to sales to
government

Alternatively, it may be computed as follows:

Output VAT 36,000

Creditable Input VAT
Pertaining to VATable sales 8,400
Pertaining to Sales to Government 12,000 (20,400)
VAT Payable 15,600

Or still, alternatively, since the sales to government would really not result in any VAT payable amount, it may be computed as follows:

Output VAT on VATable sales only 24,000

Creditable input VAT pertaining to VATable sales only (8,400)
VAT Payable 15,600

If, however, the purchases directly attributable to sales to government amounts only to P10,000:

The Input VAT that may be claimed as tax credit relating to sales to government is still P12,000, composed of the P5,000 Final Withheld VAT and P7,000
standard input VAT.

The actual input tax from purchases attributable to such sales shall only be P4,200., computed as follows:

1. Input tax directly attributable: P10,000 * 12% = P1,200

2. Input tax allocated from rent (payment related to both VATable and sales to government): P3,000

P100,000
X P9,000 = P3,000
P300,000

Since the actual input VAT now is less than the P7,000 standard input VAT, the difference of P2,800 is then reported as additional income or a reduction
in cost/expense, with the following pro forma entry:

DR Input VAT 2,800

CR Expense/Cost or Income 2,800
 The revenue regulations are vague as to the treatment of the P2,800 difference. But since the difference is presented in the VAT return as a negative
deduction (effectively an addition) to allowable input tax credits, it may be imputed that the P2,800 will be claimed as additional input VAT making the
total input tax credits related to the sales to government, equivalent to the standard input VAT, in this case, P7,000.

VAT payable: is the same even if the Standard Input Tax is higher than the actual input VAT attributable to sales to the government.

Output VAT @12%

VATable sales 200,000 24,000
Sales to government 100,000 12,000 36,000

Creditable Input VAT

Domestic Purchases of Goods 30,000* (3,600)
Payment of Rent 75,000 (9,000)
Final Withheld VAT (5,000)
Excess of Standard Input VAT
over Input VAT attributable to
sales to government (2,800) (20,400)
VAT Payable 15,600
*composed of P20,000 purchases directly attributable to regular
sales and P50,000 purchases directly attributable to sales to
government

Note that the excess of standard input VAT over the input VAT attributable to sales to government is a negative amount (since standard input VAT is
actually lower), effectively becoming an additional input VAT credit in the computation – this is the same mechanism that can be found in an actual VAT
return.

TRAIN AMENDMENT: beginning January 1, 2021, the VAT withholding system under this subsection shall shift from final to a creditable system.

WITHHOLDING VAT ON PAYMENTS TO NON-RESIDENTS: Sec. 114-2 of RR No. 16-05, as amended, provides that the government or any of its political
subdivisions, AS WELL AS private corporations, individuals, estates and trusts, shall withhold 12% VAT with respect to the following payments:

1. Lease or use of properties or property rights owned by non-residents;

2. Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents; and
3. Other services rendered in the Philippines by non-residents.

The above shall be remitted to the BIR using Remittance Return of VAT and Other Percentage Taxes Withheld (BIR Form No. 1600) which shall be filed within
10 days following the end of the month the withholding was made.

The VAT withheld and remitted to the BIR:

1. VAT-registered withholding agent - may claim as input tax credit the amount remitted to the BIR. The BIR Form No. 1600 shall serve as the proof or
documentary substantiation for the claimed input tax or input VAT.
2. Non-VAT taxpayer – passed-on VAT evidenced by the duly filed BIR Form No. 1600 shall form part of the cost or purchased services, which may be
treated either as an “asset” or “expense,” whichever is applicable.

TAX CREDITS: The creditable input tax shall be the sum of all the allowable input tax as determined in accordance with the foregoing discussions less any
amount claimed as refund plus any excess input tax carried over from the preceding month or quarter.

EXCESS INPUT/OUTPUT TAX

1. Output tax exceeds input tax – the difference shall be the VAT payable, the amount of which shall be remitted to the BIR.
2. Output tax is less than the input tax – the difference may be carried over to the succeeding quarter/quarters. The input tax attributable to the purchase
of capital goods or to zero-rated sales may be refunded or credited against other internal revenue taxes, subject to the provisions of Sec. 112.

UNUTILIZED INPUT TAX CREDITS ATTRIBUTABLE TO ZERO-RATED SALES CANNOT BE CLAIMED AS DEDUCTION FOR INCOME TAX
PURPOSES: unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. Nowhere
in the Tax Code can we find a specific provision expressly providing for another mode of recovering unapplied input taxes, particularly the proposition of the
taxpayer who requested for the ruling that unapplied input taxes may be treated outright as deductible expense for income tax purposes. Thus, input taxes
on purchase of goods and services after the expiration of the 2 year prescriptive period cannot be expensed outright. (RMC No. 57-2013 dated Aug. 23, 2013,
circularizing BIR Ruling No. 123-2013 dated March 25, 2013)

CONSEQUENCE OF ERRNEOUS VAT INVOICE OR VAT OFFICIAL RECEIPT: Sec. 113(D) of the NIRC provides:
1. If a person who is not a VAT-registered person issues an invoice or receipt showing his TIN, followed by the word “VAT”, shall be liable for:
a. The VAT on said transaction without the benefit of any input tax credit; and
b. 50% surcharge.

The VAT on said transaction may be creditable to the VAT-registered buyer provided it is properly substantiated.

2. If a VAT-registered person issues a VAT invoice or VAT OR for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the
term “VAT-exempt sale,” the issuer shall be liable to account for the VAT.

TRANSITIONAL INPUT VAT: Sec. 111 of the NIRC is implemented by Sec. 4.111-1 of RR No. 16-05 provides that a person upon exceeding the threshold
amounts provided under Sec. 109(W) of the NIRC or voluntarily elects to be a VAT-registered person (except franchise grantees whose threshold amount is
P10,000,000) shall be entitled to the transitional input tax on the inventory on hand as of the effectivity of VAT registration, on the following:
1. Goods purchased for resale in their present condition;
2. Material purchased for further processing, but which have not yet undergone processing;
3. Goods which have been manufactured by the taxpayer;
4. Goods in process for sale; or
5. Goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person.

AMOUNT OF TRANSITIONAL INPUT TAX: shall be whichever is higher between:

1. 2% of the value of the beginning inventory on hand or
2. Actual VAT paid on such goods, materials and supplies.

VALUATION: The value of the goods allowed for income tax purposes shall be the basis for the computation of the 2% transitional input tax, including goods
that are exempt from VAT under Sec. 109 of the NIRC.

PRESUMPTIVE INPUT VAT: is 4% of the purchases of primary agricultural products (which are supposedly VAT-exempt, being agricultural food products
in their original state) and is available only for taxpayers engaged in the following activities:
1. Processing of:
a. Sardines;
b. Mackerel; and
c. Milk.
2. Manufacturing of:
a. Refined sugar;
b. Cooking oil;
c. Packed noodle-based instant meals

LIMITED TO AGRICULTURAL PRODUCTS: note that the last part of Sec. 111(B)(1) provides for purchases of primary agricultural products. Thus, the
purchase of sardines and mackerel, being marine products may not be entitled to presumptive input VAT.

X. REFUND OR TAX CREDITS OF INPUT TAX

CLAIM FOR REFUND OF EXCESS INPUT TAXES: may be attributable to:

1. Excess input tax attributable to zero-rated sales which have not been applied to any output tax;
2. Unused input tax and the taxpayer desires to cancel its/his VAT registration.

FOR CLAIMS OF VAT REFUND ATTRIBUTABLE TO ZERO-RATED SALES, SEC. 112 APPLIES NOT SEC. 229: In a claim for refund or credit of "excess"
input VAT under Section 110(B) (Tax Credits) and Section 112(A) (Refunds or Tax Credits of Input Tax), the input VAT is not "excessively" collected as
understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT
System, there is no claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally
due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term
"excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is
more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected
under Section 229. (Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue,
and Philex Mining Corporation v. Commissioner of Internal Revenue; G.R. No. 187485, 196113, and 197156; February 12, 2013 [San Roque case])

REQUISITES:
1. There must be zero-rated or effectively zero-rated sales;
2. That input taxes were incurred or paid;
3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales;
4. That the input VAT payments were not applied against any output VAT liability; and
5. That the claim for refund was filed within the two-year prescriptive period.

STATUTORY PERIOD FOR CLAIMING VAT REFUND/TCC

(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.

The two-year period is reckoned from the close of the taxable quarter when the sales were made not from the payment of the VAT/purchase
or filing of the return: The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal
revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made
pertaining to the input VAT regardless of whether said tax was paid or not. (CIR vs. Mirant Pagbilao, GR No. 172129 dated September 12, 2008)

(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.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s
petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles. (San Roque case, supra)

Administrative and Judicial claim filed within the same day: In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing
of the judicial claim with the CTA premature.

(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.

When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no
"decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. (San Roque case, supra)

(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. (Mindanao II Geothermal Partnership vs. Commissioner of
Internal Revenue; G.R. No. 193301; March 11, 2013)

TRAIN AMENDMENT:
1. The period allowed for the BIR to grant or deny applications for refund is now 90 days (no longer 120 days).
2. The BIR is now required to provide the factual and legal bases for denial, if such be the case, as there is no more “deemed denial” in case the said
period expires.

The 90-day period to process and decide, pending the establishment of the enhanced VAT Refund System shall only be up to the date of approval of the
Recommendation Report on such application for VAT refund by the Commissioner or his duly authorized representative: Provided, That all claims for refund/tax
credit certificate filed prior to January 1, 2018 will be governed by the one hundred twenty (120)-day processing period.

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 the ninety (90)- day period shall be punishable under Section 269 of the Tax Code, as amended.

EFFECT OF NON-COMPLIANCE WITH THE PERIODS: Non-compliance with mandatory periods, non-observance of prescriptive periods, and non-
adherence to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or credit, whether or not the Commissioner questions the numerical
correctness of the claim of the taxpayer. (San Roque case, supra)

TAXPAYER CLAIMING REFUND MUST BE VAT-REGISTERED: Petitioner is registered as a NON-VAT taxpayer and thus, is exempt from VAT. As an
exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption from the burden of
VAT on petitioner’s purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VAT
taxpayer.

Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed
on to the latter. (Contex Corporation vs. CIR; GR No. 151135; July 2, 2004)

REQUIREMENT OF SUBSTANTIATION: For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered
entity and that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by purchase invoices or official receipts. [S]ale of gold
to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso fact mean that [the seller] is entitled to the amount of refund
sought as it is required by law to present evidence showing the input taxes it paid during the year in question. What is being claimed in the instant petition is
the refund of the input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it is necessary for the Petitioner to show proof that
it had indeed paid the said input taxes. (COMMISSIONER OF INTERNAL REVENUE vs. MANILA MINING CORPORATION, Respondent; G.R. No. 153204 August
31, 2005)

INDEPENDENT CPA CERTIFICATION NOT SUFFICIENT: There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
which either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence
of input VAT payments. xxx Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent certified public
accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof unless offered and actually verified by this Court. CTA Circular
No. 1-95, as amended by CTA Circular No. 10-97, requires that the photocopies of invoices, receipts and other documents covering said accounts or payments
must be pre-marked by the party and submitted to this Court. (CIR vs. Manila Mining Corporation, supra.)

COMPLIANCE REQUIREMENTS

Deadlines for the filing of the VAT Return shall be:

1. Monthly VAT Return (BIR Form No. 2550M) – 20th day following the close of the month;
2. Quarterly VAT Return (BIR Form No. 2550Q) – 25th day following the close of the quarter.

Note, however, that the above deadline for the monthly return is applicable only to manual filing (including those filing using the eBIRForms). As such, those
filing using the electronic filing and payment system (efps) may be accorded 1 to 5 days extension in the filing of their monthly returns.

TRAIN amendment: beginning January 1, 2023, the filing and payment required under the Tax Code shall be done within twenty-five (25) days following
the close of each taxable quarter.

Summary Lists of Sales and Purchases: RR No. 1-2012 required the mandatory submission of Summary Lists of Sales and Purchases of ALL VAT-registered
taxpayers together with the quarterly VAT return.