(SEC.

105) VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, exchange, or lease of goods, or properties and on the performance of service in the course of trade or business, or on the importation of goods, whether for business or non-business purposes. Any individual engaged in business or businesses where the aggregate gross sales or receipts do not exceed P100,000 during any 12-month period shall be principally for subsistence or livelihood and not in the course of trade or business, and shall be exempt from the payment of VAT and from any percentage tax imposed under the tax code. (Sec. 9-236.2, RR 16-2005) The allocation of condominium units to parties of a joint venture or consortium formed for the purpose of undertaking construction projects as a return on their contributions is not subject to a) income tax, because it is merely a return of contribution and no income is realized; b) VAT because it is not a sale of real property done in the ordinary course of business; c) documentary stamp tax, because the transfer is without consideration. An important requirement for imposing VAT is that the sale or transaction sought to be taxed must be entered into by a person in the course of trade or any business carried on by such person. VAT is an indirect tax. As such it can be shifted to the purchasers/transferees, or lessees of goods, properties, and services. As a gen.rule, the VAT system, uses the desti-nation principle or cross-border doctrine as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Pursuant to the Vienna Convention on Diplomatic Relations, A diplomatic agent shall be exempt from all duties and taxes except: a) indirect taxes of a kind which are normally incorporated in the price of goods and services (VAT). Techniques of computing VAT: 1) addition method- here, the tax is applied on the value added to a product which includes all payments made at each stage in the form of wages, salaries, rents, interests, profits and other inputs; 2) Tax credit method- the VAT rate is applied on the total sale price without any deduction whatsoever; and from the tax arrived at, are deducted all previous tax payments on purchases made.

3) Cost-deduction or cost-subtraction method- the vat rate is applied on the difference between the gross selling price or gross value of the taxable article and the cost of raw materials utilized by the taxpayer which have been previously subject to tax. Ways under which tax may be computed: (1) under the gross product type, only the input tax on purchases of raw material goods for sale or for conversion into other finished goods for sale is allowed as tax credit in determining tax liability; (2) under the consumption type, all input taxes on all business purchases, including supplies, capital goods or equipment, and services can be credited; and (3) under the income type, which differs from the other types in that the input tax on capital goods allowed as tax credit is amortized over the depreciable life of said goods. Requisites for liability: 1) there must be sale 2) the sale must be of taxable goods, properties, or services; and 3) the sale must be made by a taxable person in the course or furtherance of business. All sellers of goods, properties, and services whose aggregate gross annual sales or receipts exceed P1.5 million will be covered by the VAT, unless such sales are specifically exempt. A representative office is a non-resident foreign corporation not engaged in any income-generating business in the Philippines.

(SEC. 106) Export sales are zero-rated if made by VAT-registered persons; if the person is not registered, they are treated as exempt sales. Sec. 3 of RMO No. 9-2000 provides that sales of goods, properties, or services made by a VAT-registered supplier to a BOI-registered exporter shall be accorded automatic zero rating. Sec. 3(1)(a) of RMC No. 74-99 provides that sales made by a VATregistered supplier to a PEZA-registered enterprise is subject to zeropercent VAT. Effectively zero-rated sale of goods or properties it refers to the local sale of goods and properties by a VAT-registered person to a person or entity granted indirect tax exemption under special laws or international agreement.

Under the catching-up effect in the VAT system, where a raw material, which is untaxed, or not fully taxed, forms part of the finished product, the 12% value-added tax on the untaxed portion of the raw materials will catch-up with the finished product upon sale thereof. Sale of real property on the installment plan 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. Sale of real property by a real estate dealer on a deferred payment basis, not on the installment plan, means sale of real property, the initial payments of which in the year of sale exceeds 25% of the gross selling price. The transaction shall be treated as cash sale which makes the entire selling price taxable in month of sale. initial payments means payment or payments which the seller receives before or upon the execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property during the year when the sale or disposition of the real property was made. 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.

(SEC. 107) Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. Under the concept of bonded manufacturing warehouse, the importation of articles brought to such warehouse for processing and re-exportation is not yet complete; hence, no tax consequence results as long as the imported article remains therein within the prescribed period of time.