Gruba - Vat With Train

GUIDE NOTES AND CASES ON VALUE-ADDED TAX VALUE-ADDED TAX Q: What is the nature of value-added taxes? * VAT is a percentage tax. ** CIR v. Seagate Technology (Philippines) is a case on a claim for tax refund/credit of alleged unutilized input VAT paid on capital goods for the period 1 April 1998 to 30 June 1999. It explained the concept of a value-added tax, thus: “Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent [now 12 percent] levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor. It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. In either case, though, the same conclusion is arrived at. The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been drawn from the tax credit method. Such method adopted the mechanics and self-enforcement features of the VAT as first implemented and

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practiced in Europe and subsequently adopted in New Zealand and Canada. Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. 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 other internal revenue taxes.” (Emphasis supplied.) [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] *** Citing CIR v. Seagate Technology (Philippines), the case of Panasonic Communications Imaging Corporation of the Philippines v. CIR explained value-added tax in this wise: “The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. For example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the

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tax on invoices received exceeds that on invoices passed, a tax refund may be claimed.” [Panasonic Communications Imaging Corporation of the Philippines v. CIR, GR No. 178090, 8 Feb. 2010.] **** The case of CIR v. Benguet Corporation defined “input tax” and “output tax.” “Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VATregistered person/entity in the course of his/its trade or business on the importation of goods or local purchases of goods or services from a VAT-registered person. On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally becomes liable for 10% of the selling price as output VAT or output tax. Hence, "output tax" is the value-added tax on the sale of taxable goods or services by any person registered or required to register under Section 107 of the (old) Tax Code. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either by (1) passing on the 10% output VAT on the gross selling price or gross receipts, as the case may be, to its buyers, or (2) if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR. Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and services may recover its input VAT costs by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover

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its input VAT costs by filing a refund or tax credit with the BIR.” [CIR v. Benguet Corporation, GR No. 145559, 14 July 2006.] Sec. 105, Persons Liable Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being course of trade or business. Q: VAT is an indirect tax. Distinguish between liability for the tax and burden of the tax.

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* The case of Contex Corporation v. CIR made a distinction between the two concepts. It provided: “At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures. Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax.” (Emphasis supplied.) [Contex Corporation v. CIR, GR No. 151135, 2 July 2004.] Q: What is meant by “in the course of trade or business”?

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* The case of CIR v. Magsaysay Lines, Inc. involved the sale by the National Development Company of five of its vessels to Magsaysay Lines, Inc. The issue was whether such sale was within the coverage of VAT. The Supreme Court found that the sale of the vessels was not in the ordinary course of trade or business. As such, the transaction was outside the coverage of VAT. The decision contained an explanation of VAT, to wit: “A brief reiteration of the basic principles governing VAT is in order. 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. The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption, yet assuages the manufacturers or providers of goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability. Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or

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business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business.” (Emphasis supplied.) [CIR v. Magsaysay Lines, Inc., GR No. 146984, 28 July 2006.] In the case of Mindanao II Geothermal v. CIR , GR No. 193301, 2013, Mindanao II’s business is to covert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to National Power Corp. In the course of its business, Mindanao bought and eventually sold a Nissan Patrol (part of Mindanao’s property, plant and equipment prior to sale). The sale of the Nissan Patrol is considered as incidental transaction made in the course of business. An isolated transaction may be considered an incidental transaction for purposes of imposition of VAT. ** In the case of CIR v. CA, COMASERCO, being a non-stock and non-profit organization, contended that it was operating on a reimbursement-of-cost basis, that of business,” and that therefore, it was not liable to pay VAT. The Supreme Court held that Section 105 of the 1997 Tax Code was clear and unambiguous in stating that non-stock non-profit organizations were liable to pay VAT on the sale of goods or services. [CIR v. CA, GR No. 125355, 30 Mar. 2000.] Sec. 106, Value-Added Tax on Sale of Goods or Properties

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106(A) Rate and Base of Tax - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to Twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. 106(A)(1) 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. The term 'gross selling price' means 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. Q: What is a “sale of goods or properties”?

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* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of several advertising companies. Due to Sony Philippines’ dire economic conditions, Sony International Singapore handed Sony Philippines a dole-out to answer for the expenses payable to the advertising companies. Sony Philippines was thereafter assessed deficiency VAT for the transaction, i.e., dole-out, between Sony International Singapore and Sony Philippines. The Supreme Court ruled that the dole-out or subsidy from the Singaporean company to the Philippine company neither constituted a sale of goods or properties, nor a sale of services. Hence, Sony Philippines was not liable to pay VAT on the same. [CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.] 106(A)(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: Q: Distinguish between VAT rating and zero-rating. * The case of CIR v. Benguet Corporation explained VAT rating visas-vis zero-rating in principle, as well as by way of illustration, to wit: “In transactions taxed at a 10% rate, when at the end of any given taxable quarter the output VAT exceeds the input VAT, the excess shall be paid to the government; when the input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for the succeeding quarter or quarters. On the other hand, transactions which are taxed at zero-rate do not result in any output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other internal revenue taxes at the option of the taxpayer. To illustrate, in a zero-rated transaction, when a VAT-registered person (“taxpayer”) purchases materials from his supplier at

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P80.00, P7.30[39] of which was passed on to him by his supplier as the latter’s 10% output VAT, the taxpayer is allowed to recover P7.30 from the BIR, in addition to other input VAT he had incurred in relation to the zero-rated transaction, through tax credits or refunds. When the taxpayer sells his finished product in a zerorated transaction, say, for P110.00, he is not required to pay any output VAT thereon. In the case of a transaction subject to 10% VAT, the taxpayer is allowed to recover both the input VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the P30.00 value he has added to the P80.00 material) by passing on both costs to the buyer. Thus, the buyer pays the total 10% VAT cost, in this case P10.00 on the product.” (Emphasis supplied.) [CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.] Q: Distinguish between VAT exemption and zero-rating. * The case of Contex Corporation v. CIR enumerated two ways by which a transaction could have preferential treatment under the VAT system, namely: (1) VAT exemption; and (2) zero-rating. “Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the transaction can have preferential treatment in the following ways: (a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the goods or properties).

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The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. On the other hand, a VATregistered purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt. (b) Zero-Rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. Under zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt firm’s business or nonretail customers. It is for this reason that a sharp distinction must be made between zero-rating and exemption in designating a value-added tax.” (Emphasis supplied.) [Contex Corporation v. CIR, GR No.151135, 2 July 2004.] ** CIR v. Seagate Technology (Philippines) differentiated VAT exemption and zero-rating in this wise: “In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from either one of them is not. [In] zero rating, there is total relief for the purchaser from the burden of the tax. But in an exemption there is only partial relief, because the purchaser is not allowed any tax refund

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of or credit for input taxes paid.” [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] *** Further still, the case of CIR v. Cebu Toyo Corporation cited the differences between VAT exemption and zero-rating, thus: “In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction completely from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free of VAT. 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.” [CIR v. Cebu Toyo Corporation, GR No. 149073, 16 Feb. 2005.] Q: Distinguish between zero-rated transactions and effectively zerorated transactions. * The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated that: “Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated transactions as to their source.

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Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.” The decision went on to say (under the subheading Zero Rating and Exemption): “Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.” (Emphasis supplied.) [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] 106(A)(2)

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(a) Export Sales - The term 'export sales' means: Q: What is the cross-border doctrine? * According to CIR v. Toshiba Information Equipment (Phils.), Inc., the Philippines adheres to the cross-border doctrine which means that “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. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while those destined for use or consumption within the Philippines shall be imposed with ten percent (10%) [now 12%] VAT.” Sales made by an enterprise within a non-ECOZONE territory, i.e., Customs Territory, to an enterprise within an ECOZONE territory shall be free of VAT. [CIR v. Toshiba Information Equipment (Phils.), Inc., GR No. 150154, 9 Aug. 2005.] 106(A)(2)(a) (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); Q: Give examples of export sales in the form of actual shipment of goods from the Philippines to a foreign country. * Toshiba Information Equipment (Phils.), Inc. v. CIR is a claim for tax refund/credit of alleged unutilized input VAT on local purchases of goods and services which are attributable to export

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sales for the first and second quarters of 1997. [NOTE: This is different from the Toshiba Case previously cited.] In the case at bar, the CIR, in the Joint Stipulation of Facts and Issues, admitted that Toshiba was a registered VAT entity and that it was subject to 0% VAT on its export sales. Later, in his Motion for Reconsideration of the adverse Court of Tax Appeals decision, the CIR would argue that Toshiba was not entitled to its claim for tax refund/credit because it was VAT-exempt and its export sales were VAT-exempt transactions. The Supreme Court ruled that Toshiba was a registered VAT entity and its export sales were subject to 0% VAT. [Toshiba Information Equipment (Phils.), Inc. v. CIR, GR No. 157594, 9 Mar. 2010.] ** The case of Intel Technology Philippines, Inc. v. CIR is a claim for tax refund/credit of alleged unutilized input VAT on local purchases of goods and services which are attributable to export sales for the second quarter of 1998. To prove that it was engaged in the “sale and actual shipment of goods from the Philippines to a foreign country,” Intel Technology presented documentary evidence such as summary of export sales, sales invoices, official receipts, airway bills, and export declarations. And, to prove that payment was made “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),” a certification of inward remittances was presented by Intel Technology. The Supreme Court found that Intel Technology’s evidence sufficiently established that it was engaged in export sales. [Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007.]

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106(A)(2)(a) (2) Sale and delivery of goods to: (i) Registered enterprises within a separate customs territory as provided under special laws; and (ii) Registered enterprises within tourism enterprise zones as declared by the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) subject to the provisions under Republic Act No. 9593 or the Tourism Act of 2009. 106(A)(2)(a) (3) Sale of raw materials or packaging materials to a nonresident 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 Banko Sentral ng Pilipinas (BSP); 106(A)(2)(a) (4) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; Q: Give an example of a sale of raw materials to an export-oriented enterprise. * Section 106(A)(2)(a)(iii) of the 1997 Tax Code pertains to the sale of raw materials or packaging materials to an export-oriented

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enterprise whose export sales exceed 70% of total annual production. With respect to the extent of the relief, the Supreme Court held that:

operations, PROVIDED, THAT THE GOODS, SUPPLIES, EQUIPMENT AND FUEL SHALL BE USED FOR INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATIONS.

“Thus, the 0% rate applies to the total sale of raw materials or packaging materials to an export-oriented enterprise and not just the percentage of the sale in proportion to the actual exports of the enterprise.” [Atlas Consolidated Mining and Development Corporation v. CIR, GR No. 146221, 25 Sept. 2007.]

PROVIDED, THAT SUBPARAGRAPHS (3), (4), AND (5) HEREOF SHALL BE SUBJECT TO THE TWELVE PERCENT (12%) VALUE ADDED TAX AND NO LONGER BE CONSIDERED EXPORT SALES SUBJECT TO ZERO PERCENT (0%) VAT RATE UPON SATISFACTION OF THJE FOLLOWING CONDITIONS:

106(A)(2)(a) (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. 
 Q: Give an example of export sales under the Omnibus Investment Code of 1987 and other special laws. * In Panasonic Communications Imaging Corporation of the Philippines v. CIR, Panasonic produced and exported paper copiers and their sub-assemblies, parts, and components. It was registered with the Board of Investments as a preferred pioneer enterprise under the Omnibus Investment Code of 1987; it was a registered VAT enterprise; and its export sales were zero-rated. [Panasonic Communications Imaging Corporation of the Philippines v. CIR, GR No. 178090, 8 Feb. 2010.] 106(A)(2)(a) (6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport

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1. THE SUCCESSFUL ESTABLISHMENT AND IMPLEMENTATION OF AN ENHANCED VAT REFUND SYSTEM THAT GRANTS REFUNDS OF CREDITABLE INPUT TAX WITHIN NENETY (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 NINETY (90) DAYS FROM THE FILING OF THE VAT REFUND APPLICATION; 2. ALL PENDING VAT REFUND CLAIMS AS OF DECEMBER 31, 2017 SHALL BE FULLY PAID IN CASH BY DECEMBER 31, 2019. PROVIDED, THAT THE DEPARTMENT OF FINANCE SHALL ESTABLISH A VAT REFUND CENTER IN THE BUREAU OF INTERNAL REVENUE (BIR) AND THE BUREAU OF CUSTOMS (BOC) THAT WILL HANDLE THE PROCESSING AND GRANTING OF CASH REFUNDS OF CREDITABLE INPUT TAX. AN AMOUNT EQUIVALENT TO FIVE PERCENT (5%) OF THE TOTAL VALUE- ADDED TAX COLLECTION OF THE BIR AND BOC FOR THE IMMEDIATELY PRECEDING YEAR SHALL BE AUTOMATICALLY APPROPRIATED ANNUALLY AND SHALL BE TREATED AS A SPECIAL ACCOUNT IN THE GENERAL FUND OR AS TRUST RECEIPTS FOR THE PURPOSE OF FUNDING,

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CLAIMS FOR VAT REFUND;PROVIDED, THAT ANY UNUSED FUND, AT THE END OF THE YEAR SHALL REVERT TO THE GENRAL FUND. PROVIDED, FURTHER, THAT THE BIR AND BOC SHALL BE REQUIRED TO SUBMIT TO THE CONGRESSIONAL OVERIGHT COMMITTEE ON THE COMPOREHENSIVE TAX REFORM PROGRAM (COCCTP) A QUARTERLY REPORT OF ALL PENDING CLAIMS FOR REFUND AND ANY UNUSED FUND. (As amended by Train Law) 106(A)(2)(b) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. 106(B) Transactions Deemed Sale - The following transactions shall be deemed sale: 106(B)(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; Q: Give an example of a transaction deemed sale under this provision. * In San Roque Power Corporation v. CIR, San Roque Power Corporation was engaged in the supply of electricity to the National Power Corporation. Such sale of service qualified as a zero-rated transaction under Section 108(B)(3) of the 1997 Tax Code. A portion of SRPC’s claim for tax refund/credit for alleged unutilized input VAT was attributable to a “sale” of electricity to NPC that was made during the testing period sometime in 2002, for which SRPC was paid an amount of Php 42.5 million. The issue

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was whether such “sale” qualified for zero-rating. The Supreme Court held that although the “sale” was not a commercial sale or in the normal course of business, it was a “transaction deemed sale” under Section 106(B)(1) of the 1997 Tax Code. It thus qualified for zero-rating. [San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.] 106(B)(2) Distribution or transfer to: (a) Shareholders or investors as share in the profits of the VATregistered persons; or (b) Creditors in payment of debt; 
 106(B)(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and 106(B)(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. * These are: (1) transfer to shareholders/investors as share in the profits of a VAT-registered person/entity; (2) transfer to creditors in payment of debt; (3) consignment of goods, if actual sale is not made within 60 days following the date such goods were consigned; and (4) retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. 106(C) Changes in or Cessation of Status of a VAT-Registered Person - The tax imposed in Subsection (A) of this Section 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

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the Commissioner, the status of a person as a VAT-registered person changes or is terminated. 106(D) Sales Returns, Allowances, and Sales Discounts – The value of goods or properties sold and subsequently returned or for which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given. 106(E) Authority of the Commissioner to Determine the Appropriate Tax Base - The Commissioner shall, by rules and regulations prescribed by the Secretary of Finance, determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under Subsection (B) hereof, or where the gross selling price is unreasonably lower than the actual market value. Sec. 107, Value-Added Tax on Importation of Goods 107(A) In General. - There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to twelve percent (12%) based on the total value used by the Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, If any.

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107(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof. Q: Does VAT apply on every importation of goods? * In explaining value-added tax, CIR v. Seagate Technology (Philippines) stated that VAT shall be imposed on every importation of goods, whether or not in the course of trade or business. This is unlike VAT on sale of goods or properties which must be in the course of trade or business. Otherwise, the person/transaction shall not be liable to pay VAT. Pertinent portion of the decision read: “Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent [now 12 percent] levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor.” [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]

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Sec. 108, Value-Added Tax on Sale of Services and Use or Lease of Properties 108(A) Rate and Base of Tax - There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. 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; sale of electricity by generation companies, transmission BY ANY ENTITY, and distribution companies, INCLUDING ELECTRIC COOPERATIVES; services of franchise grantees of electric

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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 facilities. 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 nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person. 
(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial

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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. 
 The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax. Q: What is a “sale of services”? * In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of several advertising companies. Due to Sony Philippines’ dire economic conditions, Sony International Singapore handed Sony Philippines a dole-out to answer for the expenses payable to the advertising companies. Sony Philippines was thereafter assessed deficiency VAT for the transaction, i.e., dole-out, between Sony International Singapore and Sony Philippines. The Supreme Court ruled that the dole-out or subsidy from the Singaporean company to the Philippine company neither constituted a sale of goods or properties, nor a sale of services. Hence, Sony Philippines was not liable to pay VAT on the same. [CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.]

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** Quezon City v. ABS-CBN Broadcasting Corporation dealt with VAT-able sales of “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.” [NOTE: Section 119 of the Tax Code imposes a percentage tax, in the form of a 3% franchise tax, on radio and television broadcasting companies whose annual gross receipts do not exceed Php 10 million. Such franchise holders, however, has the option of paying 3% franchise tax or 12% VAT. On the other hand, radio and television broadcasting companies whose annual gross receipts exceed Php 10 million are governed by Section 108 of the 1997 Tax Code. They are liable to pay VAT, and do not have the option to choose between paying franchise tax or VAT.] ABS-CBN, being a broadcasting company with yearly gross receipts exceeding Php 10 million, was found liable to pay VAT. [Quezon City v. ABS-CBN Broadcasting Corporation, GR No. 166408, 6 Oct. 2008.] *** Section 108 of the 1997 Tax Code defines “sale of services” as “the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration,” including “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.” In the case of CIR v. CA, COMASERCO was a non-stock non-profit organization engaged in the sale of services of such nature. However, COMASERCO argued that its sales of services were not subject to VAT because although it charged a fee for

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such sales, the organization was operating on a reimbursementof-cost basis and hence, did not derive profit from such sales. The Supreme Court held that any sale of services for a fee, remuneration or consideration is subject to VAT, regardless of any profit derived therefrom. [CIR v. CA, GR No. 125355, 30 Mar. 2000.] **** “Sale of services” includes “lease of motion picture films, films, tapes and discs.” In CIR v. SM Prime Holdings, Inc., SM Prime and First Asia were engaged in the business of operating cinema houses. At issue was whether cinema operators/proprietors were liable to pay VAT, on top of the amusement tax imposed by the 1991 LGC. The Supreme Court conceded that the enumeration of services subject to VAT under Section 108 of the 1997 Tax Code was not exhaustive. However, “lease of motion picture films, films, tapes and discs” did not equate to “showing or exhibition of motion pictures or films.” SM Prime and First Asia were not liable to pay VAT. [CIR v. SM Prime Holdings, Inc., GR No. 183505, 26 Feb. 2010.] ***** Sonza v. ABS-CBN Broadcasting Corporation differentiated between services rendered pursuant to an employer-employee relationship and services rendered by an independent contractor pursuant to a contractual relationship. Subsumed under the latter, professionals such as talent and television and radio broadcasters are liable to pay VAT. [Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June 2004.] 108(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate:

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Q: What is the destination principle? Are there exceptions to the rule? * According to CIR v. American Express International, Inc.: “As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.” The decision proceeded to define “consumption” as “the use of a thing in a way that thereby exhausts it.” Applied to services, it means “the performance or successful completion of a contractual duty, usually resulting in the performer’s release from any past or future liability.” Exceptions to the destination principle are found in Section 108(B) of the 1997 Tax Code. They are deemed exceptions because although the services are performed in the Philippines, upon compliance with certain requirements, the sales of such services are zero-rated. [CIR v. American Express International, Inc. (Philippine Branch), GR No. 152609, 29 June 2005.] 108(B)(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); 108(B)(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable

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foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); Q: Cite examples of services other than “processing, manufacturing, or repacking of goods.” * In CIR v. American Express International, Inc., Amex Phils. facilitated in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client, Amex HK, and getting paid for it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. The Supreme Court ruled that the facilitation services Amex Phils. rendered in the Philippines fell under Section 108(B)(2) of the 1997 Tax Code. [CIR v. American Express International, Inc., GR No. 152609, 29 June 2005.] ** In CIR v. Placer Dome Technical Services (Phils.) Inc., Placer Dome Canada engaged the services of Placer Dome Phils. to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers in Marinduque. Placer Dome Phils. argued that its sale of services to Placer Dome Canada was a zero-rated transaction under Section 108(B)(2) of the 1997 Tax Code. Citing CIR v. American Express International, Inc., the Supreme Court upheld Placer Dome Phils.’ argument. [CIR v. Placer Dome Technical Services (Philippines), Inc., GR No. 164365, 8 June 2007.] *** In CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., Burmeister was engaged in the actual operation and management of two power barges in Mindanao. It claimed that its transactions were subject to zero-rating under Section 108(B)(2) of the 1997 Tax Code. The Supreme Court denied Burmeister’s claim on the ground that Section 108(B)(2) of the

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1997 Tax Code additionally required that the payer-recipient of the services must be doing business outside the Philippines. It ruled in this manner: “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.” [NOTE: In relation to CIR v. American Express International, Inc. and CIR v. Placer Dome Technical Services (Philippines), Inc. discussed above, said cases stated that consumption of the services abroad is not a requirement for zero-rating. However, on the basis of CIR v. Burmeister & Wain Contractor Mindanao, Inc., the payer-recipient of the services must be doing business outside of the Philippines.] [CIR v. Burmeister & Wain Scandinavian Contractor Mindanao, Inc., GR No. 153205, 22 Jan. 2007.]

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108(B)(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)(2)] and effectively zero-rated transactions [e.g., Sec. 108(B)(3)]. * The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated that: “Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated transactions as to their source. Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.” The decision went on to say (under the subheading Zero Rating and Exemption): “Applying the destination principle to the

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exportation of goods, automatic zero rating is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.” (Emphasis supplied.) [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] Q: Give examples of effectively zero-rated sales of services pursuant to special laws. * In CIR v. Acesite (Philippines) Hotel Corporation, Acesite was the operator of Holiday Inn Manila Pavilion Hotel. It leased a portion of its premises to PAGCOR for casino operations. It also catered food and beverages to PAGCOR’s casino patrons. The issue was whether Acesite could refund the VAT it paid on its rental income and sale of food and beverages to PAGCOR. The Supreme Court, pursuant to PAGCOR’s charter (PD No. 1869 and all amendments thereto), found that Acesite’s sale of services to PAGCOR was zero-rated under Section 108(B)(3) of the 1997 Tax Code. [CIR v. Acesite (Philippines) Hotel Corporation, GR No. 147295, 16 Feb. 2007.] ** In the case of San Roque Power Corporation v. CIR, San Roque Power Corporation was engaged in the sale of electricity to NPC. The Supreme Court ruled that SRPC’s sale of service to NPC was zero-rated, pursuant to NPC’s charter and under Section 108(B)(3) of the 1997 Tax Code. It explained the rationale for the effective zero-rating of NPC in this manner:

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“It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries. Before, as well as after, the adoption of the VAT, certain special laws were enacted for the benefit of various entities and international agreements were entered into by the Philippines with foreign governments and institutions exempting sale of goods or supply of services from indirect taxes at the level of their suppliers. Effective zero-rating was intended to relieve the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there been no exemption. In this case, petitioner is being exempted from paying VAT on its purchases to relieve NPC of the burden of additional costs that petitioner may shift to NPC by adding to the cost of the electricity sold to the latter.” [San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.] 108(B)(4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof: PROVIDED, THAT THESE SERVICES SHALL BE EXCLUSIVELY FOR INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATIONS; 108(B)(5) 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; 108(B)(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country

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108(B)(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels. 108(B)(8) Services rendered to: (i) Registered enterprises within a separate customs territory as provided under special law; and (ii) Registered enterprises within tourism enterprise zones as declared by the TIEZA subject to the provisions under Republic Act No. 9593 or The Tourism Act of 2009. PROVIDED THAT SUBPARAGRAPHS (B) (1) AND (B) (5) HEREOF SHALL BE SUBJECT TO THE TWELVE PERCENT (12%) VALUE-ADDED TAX AND NO LONGER BE SUBJECT TO ZERO PERCENT (0%) VAT RATE UPON SATISFACTION OF THE FOLLOWING CONDITIONS: 1. THE SUCCESSFUL ESTABLIISHMENT AND IMPLEMENTATION OF AN ENHANCED VAT REFUND SYSTEM THAT GRANTS REFUNDS OF CREDITABLE INPUT TAX WITHIN NINETY (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 NONETY (90) DAYS FROM THE FILING OF THE VAT REFUND APPLICATION;

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2. ALL PENDING VAT REFUND CLAIMS AS OF DECEMBER 31, 2017 SHALL BE FULLY PAID IN CASH BY DECEMBER 31, 2019. PROVIDED, THAT THE DEPARTMENT OF FINANCE SHALL ESTABLISH A VAT REFUND CENTER IN THE BUREAU OF INTERNAL REVENUE (BIR) AND IN THE BUREAU OF CUSTOMS (BOC) THAT WILL HANDLE THE PROCESSING AND GRANTING OF CASH REFUNDS OF CREDITABLE INPUT TAX. AN AMOUNT EQUIVALENT TO FIVE PERCENT (5%) OF THE TOTAL VALUE-ADDED TAX COLLECTION OF THE BIR AND THE BOC FOR THE IMMEDIATELY PRECEDING YEAR SHALL BE AUTOMATICALLY APPROPRIATED ANNUALLY AND SHALL BE TREATED AS A SPECIAL ACCOUNT IN THE GENERAL FUND OR AS TRUST RECEIPTS FOR THE PURPOSE OF FUNDING CLAIMS FOR VAT REFUND; PROVIDED, THAT ANY UNUSED FUND, AT THE END OF THE YEAR SHALL REVERT TO THE GENERAL FUND. PROVIDED, FURTHER, THAT THE BIR AND BOC SHALL BE REQUIRED TO SUBMIT TO THE COCCTRP A QUARTERLY REPORT OF ALL PENDING CLAIMS FOR REFUND AND ANY UNUSED FUND. Sec. 109, Exempt Transactions – (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: Q: Distinguish between an exempt transaction and an exempt party.

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* CIR v. Seagate Technology (Philippines) made a distinction between exempt transaction exempt party in this wise: “An exempt transaction, on the one hand, 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. An exempt party, on the other hand, is a 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.” (Emphasis supplied.) [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] Q: Give examples of exempt transactions. 109 (A) Sale or importation of 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 thereof. Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or

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husked rice, corn grits, raw can sugar and molasses, ordinary salt and copra shall be considered in their original state; * Misamis Oriental Association of Coco Traders, Inc. v. DOF interpreted the provisions of the 1977 Tax Code. However, it is instructive as to the issue of who determines or classifies a certain product, i.e., whether it is food or non-food. According to the decision, as between the Bureau of Food and Drug and the Bureau of Internal Revenue, the classification made by the latter would prevail. [Misamis Oriental Association of Coco Traders, Inc. v. DOF, GR No. 108524, 10 Nov. 1994.] 109 (B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets; 109 (C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines; 109 (D) Importation of professional instruments and implements, TOOLS OF TRADE, OCCUPATION OR EMPLOYMENT, wearing apparel, domestic animals, and personal 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

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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 BOUGHT 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. 109 (E) Services subject to percentage tax under Title V; 109 (F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar; 109 (G) Medical, dental, hospital and veterinary services except those rendered by professionals; * Section 109(G) of the Tax Code provides that transactions involving medical, dental, hospital, and veterinary services are VAT-exempt transactions. In the case of CIR v. Philippine Health Care Providers, Inc., it was found that Philippine Health Care Providers, Inc. did not render medical, dental, hospital, and veterinary services, but merely arranged for the same. Hence, its services were not VAT-exempt. [CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 Apr. 2007.]

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109 (H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions; 109 (I) Services rendered by individuals pursuant to an employeremployee relationship; * Sonza v. ABS-CBN Broadcasting Corporation differentiated between services rendered pursuant to an employer-employee relationship (which is an exempt transaction) and services rendered by an independent contractor pursuant to a contractual relationship (which is subject to VAT). The Supreme Court ruled that Sonza was an independent contractor. As such, he was subject to VAT on the services that he rendered. [Sonza v. ABSCBN Broadcasting Corporation, GR No.138051, 10 June 2004.] 109 (J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines; 109 (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529; * In Philippine Amusement & Gaming Corporation v. CIR, the Supreme Court held that PAGCOR was exempt from payment of VAT. It cited, among others, the VAT exemption of PAGCOR’s

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transactions by virtue of its charter (PD No. 1869 and all amendments thereto) in relation to Section 109(K) of the 1997 Tax Code. [Philippine Amusement & Gaming Corporation v. CIR, GR No. 172087, 15 Mar. 2011.] 109 (L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in their 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; 109 (M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered with the Cooperative Development Authority; 109 (N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority; Provided, That the share capital contributions of each member does not exceed Fifteen Thousand Pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members; 109 (O) Export sales by persons who are not VAT-registered; 109 (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at One million five hundred pesos

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(P1,500,000) and below, house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000) and below: Provided, THAT BEGINNING JANUARY 1, 2021, THE VAT EXEMPTION SHALL ONLY APPLY TO SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE TO CUSTOMERS OR HELD FOR LEASE IN THE ORDIANRY COURSE OF TRADE OR BUSINESS; SALE OF REAL PROPERTY UTILIZED FOR SOCIALIZED HOUSING AS DEFINED BY REPUBLIC ACT NO. 7279, SALE OF HOUSE AND LOT, AND OTHER RESIDENTIAL DWELLINGS WITH SELLING PRICE OF NOT MORE THAN TWO MILLION PESOS (P2,000,000): PROVIDED FURTHER, That every three (3) years thereafter, the amount herein stated shall be adjusted to ITS present value using the Consumer Price Index, as published by the PHILIPPINE STATISTICS AUTHORITY (PSA). 109 (Q) Lease of a residential unit with a monthly rental not exceeding FIFTEEN THOUSAND PESOS (P 15,000) 109 (R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixes prices or subscription and sale and which is not devoted principally to the publication of paid advertisements; 109 (S) Transport of passengers by international carriers; 109 (T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; 109 (U) 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

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INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATIONS; * In order to be VAT-exempt, the imported fuel, goods and supplies must be used exclusively for the transport of goods and/or passengers from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines. If any portion of such fuel, goods or supplies is used otherwise, such portion shall be subject to VAT. [RR No. 04-07] 109 (V) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries; * Now Section 109(V) of the 1997 Tax Code provides that transactions involving services rendered by banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries shall be VAT-exempt. Note, however, that as a rule, such services are subject to gross receipts tax. ** The case of First Planters Pawnshop, Inc. v. CIR pertained to a taxable period prior to the adoption of the present wording of Section 109(V) of the 1997 Tax Code. However, the decision is relevant in that it discussed the tax treatment of a pawnshop business. The Supreme Court held that pawnshops are non-bank financial intermediaries. [First Planters Pawnshop, Inc. v. CIR, GR No. 174134, 30 July 2008.] 109 (W) SALE OR LEASE OF GOODS AND SERVICES TO SENIOR CITIZENS AND PERSONS WITH DISABILITIES, AS PROVIDED UNDER REPUBLIC ACT NOS. 9994 (EXPANDED SENIOR CITIZENS ACT OF

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2010) AND 10754 (AN ACT EXPANDING THE BENEFITS AND PRIVILEGES OF PERSONS WITH DISABILITY), RESPECTIVELY; 109 (X) TRANSFER OF PROPERTY PURSUANT TO SECTION 40(C)2 OF THE NIRC , AS AMENDED; 109 (Y) ASSOCIATION DUES, MEMBERSHIP FEES, AND OTHER ASSESSMENTS AND CHARGES COLLECTED BY HOMEOWNERS ASSOCIATIONS AND CONDOMINIUM CORPORATIONS; 109 (Z) SALE OF GOLD TO THE BANGKO SENTRAL NG PILIPINAS; 109 (AA) SALE OF DRUGS AND MEDICINES PRESCRIBED FOR DIABETES, HIGH CHOLESTEROL, ABND HYERSTENSION BEGINNING JANUARY 1, 2019; AND 109 (BB) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of THREE million pesos (P3,000,000). Sec. 110, Tax Credits 110(A) Creditable Input Tax (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part

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of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts. (b) Purchase of services on which a value-added tax has been actually paid. (2) The input tax on domestic purchase of goods or properties shall be creditable: (a) To the purchaser upon consummation of sale and on importation of goods or properties; and (b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs. Provided, That the input tax on goods purchased or imported in a calendar month for use on trade or business for which deduction is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One Million Pesos (P1,000,000): Provided, however, That if the estimated useful life of the capital goods is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: PROVIDED FURTHER THAT THE AMORTIZATION OF THE INPUT VAT SHALL ONLY BE ALLOWED UNTIL DECEMBER 31, 2021

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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; Provided, finally, That, in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of the compensation, rental, royalty or fee. (3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows: (a) Total input tax which can be directly attributed to transactions subject to value-added tax; and (b) A ratable portion of any input tax which cannot be directly attributed to either activity. 
 The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section 111 of this Code. The term 'output tax' means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of this Code. Q: Distinguish between “input tax” and “output tax.”

“Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VAT-registered person/entity in the course of his/its trade or business on the importation of goods or local purchases of goods or services from a VATregistered person. On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally becomes liable for 10% of the selling price as output VAT or output tax. Hence, "output tax" is the value-added tax on the sale of taxable goods or services by any person registered or required to register under Section 107 of the (old) Tax Code. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either by (1) passing on the 10% output VAT on the gross selling price or gross receipts, as the case may be, to its buyers, or (2) if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR. Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and services may recover its input VAT costs by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover its input VAT costs by filing a refund or tax credit with the BIR.” [CIR v. Benguet Corporation, GR No. 145559, 14 July 2006.]

* The case of CIR v. Benguet Corporation defined “input tax” and “output tax.”

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110(B) Excess Output or Input Tax - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the Vat-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. (As amended by RA No. 9361.) 110(C) Determination of Creditable Input Tax - The sum of the excess input tax carried over from the preceding month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as purchase returns or allowances and input tax attributable to exempt sale. 
 The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of Internal Revenue but also those filed with other government agencies, such as the Board of Investments the Bureau of Customs. Sec. 111, Transitional/Presumptive Input Tax Credits 111(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent for eight percent (8%) of the value of such inventory or the actual value-

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added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax. 111(B) Presumptive Input Tax Credits. (1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. (As amended by RA No. 9337.) As used in this Subsection, the term 'processing' shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. Sec. 112, Refunds or Tax Credits of Input Tax 112(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VATregistered person, whose sales are zero-rated or effectively zerorated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and

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regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zerorated sales. Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)(2)] and effectively zero-rated transactions [e.g., Sec. 108(B)(3)]. * The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated that: “Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated transactions as to their source. Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The

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seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.” The decision went on to say (under the subheading Zero Rating and Exemption): “Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.” (Emphasis supplied.) [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] Q: What are the requirements for a claim for VAT refund/credit? * The cases of Intel Technology Philippines, Inc. v. CIR and San Roque Power Corporation v CIR enumerated the requirements, thus: (1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; (4) the input taxes are due or paid; (5) the input taxes are not transitional input taxes; (6) the input taxes have not been applied against output taxes during and in the succeeding quarters;

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(7) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (8) in certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B); Sections 108(B)(1) and (2)]; and (9) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume. [Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007; San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.] Q: In claims for VAT refund/credit, what is the reckoning point for the two-year prescriptive period? * In 2007, the Supreme Court promulgated its decision in Atlas Consolidated Mining and Development Corporation v. CIR which essentially held that in claims for VAT refund/credit, the prescriptive period for filing administrative and judicial claims shall be two years reckoned from the date of filing of the VAT quarterly return. A year later, in the highly publicized case of CIR v. Mirant Pagbilao Corporation, the Supreme Court changed its mind and ruled that the two-year prescriptive period in claims for VAT refund/credit must be counted not from the date of filing of the VAT quarterly return, but from the close of the taxable quarter when the relevant sales were made. [Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos. 141104 & 148763, 8

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June 2007; CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12 Sept. 2008.] 112(B) Cancellation of VAT Registration - A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes. 112(C) Period within which Refund or Tax Credit of Input Taxes Shall Be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within NINETY (90) days from the date of submission of THE OFFICIAL RECEIPTS OR INVOICES AND OTHER DOCUMENTS in support of the application filed in accordance with subsections (A) AND (B) hereof; PROVIDED , THAT SHOULD THE COMMISSIONER FIND THAT THE GRANT OF REFUND IS NOT PROPER, THE COMMISSIONER MUST STATE IN WRITING THE LEGAL AND FACTUAL BASIS FOR THE DENIAL. 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 THIS CODE. Q: When are administrative and judicial claims for VAT refund/credit filed? BEFORE THE AMENDMENTS UNDER THE TRAIN LAW.

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* In 2007, the Supreme Court promulgated its decsion in Atlas Consolidated Mining and Development Corporation v. CIR which essentially held that claims for VAT refund/credit must be filed within the two-year prescriptive period. In 2010, the Supreme Court came out with the controversial case of CIR v. Aichi Forging Company of Asia, Inc. which mandated compliance of administrative and judicial claims with both the two-year prescriptive period [Section 112(A)] and the 120-30 day period rule [Section 112(C)]. Otherwise, claims would be adjudged as either filed out of time or prematurely filed. [Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos. 141104 & 148763, 8 June 2007; CIR v. Aichi Forging Company of Asia, Inc., GR No. 184823, 6 Oct. 2010.] ** See the case of CIR v. San Roque Power Corporation, GR No. 187485, 12 February 2013. Period When Administrative Claim Filed with CIR Before 8 June 2007

8 June 2007 to 11 September 2008 On or after 11 September 2008 Period When Judicial Claim Filed with CTA Before 10 December 2003

Applicable Doctrine Mirant Doctrine (verba legis rule) – 2year period should be counted from the close of the taxable quarter when the sales were made Atlas Doctrine – 2-year period should be counted from the date of filing of the return and payment of the output VAT Mirant Doctrine (verba legis rule) Applicable Doctrine 120+30 day periods are mandatory and jurisdictional

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10 December 2003 to 6 October 2010

On or after 6 October 2010

BIR Ruling No. DA-489-03 -Taxpayerclaimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review Aichi Doctrine - (120+30 day periods are mandatory and jurisdictional)

112(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the Commission on Audit. Sec. 113, Invoicing and Accounting Requirements for VATRegistered Persons 113(A) Invoicing Requirements. - A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. Q: Is there a difference between an invoice and an official receipt? * CIR v. Manila Mining Corporation defined these terms, to wit: “A ’sales or commercial invoice’ is a written account of goods sold or

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services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services. A ‘receipt’ on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.” [CIR v. Manila Mining Corporation, GR No. 153204, 31 Aug. 2005.] ** In AT&T Communications Services Philippines, Inc. v. CIR, AT&T was engaged in the business of providing information, promotional, supportive, and liaison services to foreign corporations. It filed a claim for tax refund/credit for alleged unutilized input VAT on said sales of services and presented sales invoices to substantiate the same. In giving credence to the sales invoices (not necessarily official receipts), the Supreme Court said that: “Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs that a business transaction has been concluded, hence, should not be considered bereft of probative value. Only the preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for tax refund proper.” [AT&T Communications Services Philippines, Inc. v. CIR, GR No. 182364, 3 Aug. 2010.] *** On other hand, the case of Kepco Philippines Corporation v. CIR made a distinction between a VAT invoice and a VAT receipt, such that only a VAT invoice might be presented to substantiate a

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sale of goods or properties, while only a VAT receipt could substantiate a sale of services. Pertinent portion of the decision read: “In other words, the VAT invoice is the seller’s best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyer’s best evidence of the payment of goods or services received from the seller. Even though VAT invoices and receipts are normally issued by the supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction), and the best means to prove the input VAT payments (proof of payment). Hence, VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used alternatively.” [Kepco Philippines Corporation v. CIR, GR No. 181858, 24 Nov. 2010.] 113(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: (a) The amount of the tax shall be shown as a separate item in the invoice or receipt; (b) If the sale is exempt from value-added tax, the term "VATexempt sale" shall be written or printed prominently on the invoice or receipt; (c) If the sale is subject to zero percent (0%) value-added tax,

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the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt; (d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the valueadded tax on each portion of the sale shall be shown on the invoice or receipt: "Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale. (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of the purchaser, customer or client. * Section 113(B)(2)(c) of the 1997 Tax Code provides that certain information must be indicated on the VAT invoice or VAT official receipt, and that “if the sale is subject to zero percent (0%) valueadded tax, the term ‘zero-rated sale’ shall be written or printed prominently on the invoice or receipt.” The Bureau of Internal Revenue, the Divisions of the Court of Tax Appeals, the Court of Tax Appeals En Banc, and the Supreme Court has conflicting opinions on whether the term “zero-rated sale” must be written, stamped, or imprinted. However, as enunciated in recent cases, the term “zero-rated sale” must be imprinted, and not merely written or stamped. Otherwise, such claims for VAT refund/credit substantiated by

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non-conforming VAT invoices or VAT official receipts shall be disallowed. [Panasonic Communications Imaging Corporation of the Philippines, GR No. 1708090, 8 Feb. 2010; JRA Philippines, Inc. v. CIR, GR No. 177127, 11 Oct. 2010; Hitachi Global Storage Technologies Philippines Corporation v. CIR, GR No. 174212, 20 Oct. 2010; Microsoft Philippines, Inc., v. CIR, GR No. 180173, 6 Apr. 2011.] 113(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such information as may be required by the Secretary of Finance. 113(D) Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt. - "(1) If a person who is not a VAT-registered person issues an invoice or receipt showing his Taxpayer Identification Number (TIN), followed by the word "VAT": (a) The issuer shall, in addition to any liability to other percentage taxes, be liable to: (i) The tax imposed in Section 106 or 108 without the benefit of any input tax credit; and (ii) A 50% surcharge under Section 248 (B) of this code; (b) The VAT shall, if the other requisite information required under Subsection (B) hereof is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser under Section 110 of this Code. (2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the term "VAT-exempt Sale",

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the issuer shall be liable to account for the tax imposed in Section 106 or 108 as if Section 109 did not apply. 113(E) Transitional Period. - Notwithstanding Subsection (B) hereof, taxpayers may continue to issue VAT invoices and VAT official receipts for the period July 1, 2005 to December 31, 2005, in accordance with Bureau of Internal Revenue administrative practices that existed as of December 31, 2004." Sec. 114, Return and Payment of Value-Added Tax 114(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis. PROVIDED FINALLY THAT BEGINNING JANUARY 1, 2023, THE FILING AND PAYMENT REQUIRED UNDER THIS SUBSECTION SHALL BE DONE WITHIN TWENTY-FIVE (25) DAYS FOLLOWING THE CLOSE OF EACH TAXABLE QUARTER. Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches. 114(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the return shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer

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or duly authorized city or municipal Treasurer in the Philippines located within the revenue district where the taxpayer is registered or required to register. 114(C) Withholding of Value-Added Tax. - The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final valueadded tax at the rate of five percent (5%) of the gross payment thereof: Provided, THAT BEGINNING JANUARY 1, 2021 THE VAT WITHOLDING SYSTEM UNDE, SHALR THIS SUBSECTION SHALL SHIFT FROM FINAL TO CREDITABLE SYSTEM; PROVIDED FURTHER THAT THE PAYMENT FOR LEASE OR USE OF PROPERTIES OR PROPERTY RIGHTS TO NONRESIDENT OWNERS SHALL BE SUBJECT TO 12% WITHOLDING TAX AT THE TIME OF PAYMENT; PROVIDED, HOWEVER, THAT PAYMENTS FOR PURCHASES OF GOODS AND SERVICES ARISING FROM PROJECTS FUNDED BY OFFICIAL DEVELOPMENT ASSISTANCE (ODA) AS DEFINED UNDER REPUBLIC ACT NO. 8182, OTHERWISE KNOWN AS THE “OFFICIAL DEVELOPMENT ASSISTANCE ACT OF 1996” AS AMENDED, SHALL NOT BE SUBJECT TO THE FINAL WITHHOLDING TAX SYSTEM AS IMPOSED IN THIS SUBSECTION. FOR PURPOSES OF THIS SECTION, THE PAYOR OR PEPRSON IN CONTROL OF THE PAYMENT SHALL BE CONSIDERED AS THE WITHOLDING AGENT. The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.

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Sec. 115, Power of the Commissioner to Suspend the Business Operations of a Taxpayer The Commissioner or his authorized representative is hereby empowered to suspend the business operations and temporarily close the business establishment of any person for any of the following violations: (a) In the Case of a VAT-registered Person. – (1) Failure to issue receipts or invoices; (2) Failure to file a value-added tax return as required under Section 114; or (3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts for the taxable quarter. (b) Failure of any Persons to Register as Required under Section 236. – The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.

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