What is the nature of value added taxes?

• When sales of goods or

• Indirect tax services do not occur within
o May be shifted or passed on to the buyer, the course of trade of
transferee or lessee of the goods, properties business, the providers of
or services. such goods or services
• Tax on consumption would hardly, if at all, have
• Uses the tax credit method the opportunity to
o Invoice based appropriately credit any
o An entity can credit against or subtract from VAT liability as against
the VAT charged on its sales or outputs the their own accumulated
VAT paid on its purchases, inputs and VAT collections since the
imports accumulation of output
o Output taxes – input taxes = VAT to be paid VAT arises only through
o If the input taxes exceed the output taxes, the ordinary course of
the excess shall be carried over to the business.
succeeding quarter/s. Mindanao • Sale of the Nissan Patrol is
§ If the input taxes result from zero Geothermal v. CA said to be an isolated
rated or effectively zero rated transaction. However, it
transactions OR from the does not follow that an
acquisitions of capital goods, any isolated transaction cannot
excess over the output taxes shall be an incidental transaction
instead be refunded or credited for purposes of VAT
against other internal revenue taxes. liability.
o Input taxes – value added tax paid by a • In the course of its business,
VAT-registered person/entity in the course Mindanao II bought and
of his/its trade or business on the eventually sold a Nissan
importation of goods or local services from a Patrol. Prior to the sale, the
VAT registered person. Nissan Patrol was part of
o Output tax – VAT on the sale of taxable Mindanao II’s property,
goods or services by any person registered plant, and equipment.
or required to register. Therefore, the sale of the
Nissan Patrol is an
Who is liable to pay VAT? (sec.105) incidental transaction made
in the course of Mindanao
VAT imposed on any person who: II’s business which should
1. Sells, barters or exchanges goods or properties in the be liable for VAT.
course of trade or business; or CIR v. • Non-stock, non-profit
2. Sells services in the course of trade or business; or COMASERCO organizations are liable to
3. Imports goods, whether or not in the course of trade pay VAT on the sale of
or business goods or services.

Ordinary course of trade or business Distinguish between liability for the tax and burden for the
• Means the regular conduct or pursuit of a commercial tax
or economic activity • What is transferred in VAT is not the liability for the
• Also includes transactions incidental thereto tax, but the tax burden.
• Covers any person regardless whether or not the • Seller remains the person primarily and legally liable
person engaged therein is a nonstock, nonprofit for the payment of the tax. Ultimately, the final
organization purchaser bears the burden of the tax.
• Exceptions:
o If taxpayer is a non-resident alien, there is
no need for the regularity of conduct.
o Importation of goods (sec.107)

Case Doctrine
CIR v. Magsaysay • Sale of vessels not in the
ordinary course of business
-> sold because of
privatization
• VAT bears direct relevance
to the taxpayer’s role in the
production chain
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 NORMAL VAT TRANSACTIONS – 12% B. Sale of services
a. Sec.108 – Sale of services in the course of trade
A. Sale of goods and properties or business includes those performed or
a. Sec.106 (A)(1) – The term goods and rendered by:
properties shall mean all tangible and 1) Construction or service contractors
intangible objects which are capable of 2) Stock, real estate, commercial,
pecuniary estimation and shall include: customs and immigration brokers
(PRREM) 3) Lessor of property, whether
1) Real properties held primarily personal or real
for sale to customers or held for 4) Warehousing services
lease in the ordinary course of 5) Lessor or distributors of
trade or business; cinematographic films;
2) The right or privilege to use 6) Persons engaged in milling,
Patent, copyright, design or processing, manufacturing or
model, plan, secret formula or repacking of goods for others;
process, goodwill, trademark, 7) Proprietors, operators, or keepers
trade brand, or other like of hotels
property or right. 8) Proprietors, operators, or keepers
3) Right or the privilege to use in of restaurants, cafes, including
the Philippines of any industrial, clubs and caterers
commercial or scientific 9) Dealers in securities
Equipment; 10) Lending investors
4) The right or the privilege to use 11) Transportation contractors on their
Motion picture films, tapes and transport of goods or cargoes
discs ; and 12) Common carriers by air and sea
5) Radio, television, satellite 13) Sales of electricity by generation
transmission and cable companies, transmission and
television time. distribution companies
b. Sec.106 (B) - Transactions Deemed Sale 14) Services of franchise grantees of
(SOCCR) electric utilities, telephone and
1) Transfer, use or consumption telegraph, radio and television
not in the course of business of broadcasting and all other
goods or properties Originally franchise grantees
intended for sale or for use in 15) Non-life insurance companies
the course of business; (except crop insurances)
2) Distribution or transfer to: 16) Similar services regardless of
a) Shareholders or investors whether or not the performance
as Share in the profits of thereof calls for the exercise or use
the VAT registered of the physical or mental faculties
persons; or b. Also included are:
b) Creditors in payment of 1) Lease or use of or right or
debt privilege to use any copyright,
c) Consignment of goods if patent, design, plan etc.
actual sale is not made 2) Lease or use of, or the right to use
within 60 days following of any industrial, commercial, or
the date such goods were scientific equipment
consigned; and 3) The supply of scientific, technical,
d) Retirement from or industrial or commercial
cessation of business, knowledge or information
with respect to 4) The supply of any assistance that is
inventories of taxable ancillary and subsidiary and is
goods existing as of such furnished as a means of enabling
retirement or cessation. the application or enjoyment of
such property as enumerated in (2)
or any such knowledge or
information as mentioned in (3)

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 5) Supply of services by a non- Case Doctrine
resident person or his CIR v. Sony Dole-out or subsidy from the
employee in connection with Singaporean company to the
the use of property or rights Philippine company neither
belonging to, or the constituted a sale of goods or
installation or operation of properties, nor a sale of services. Sony
any brand, machinery or other not liable to pay VAT.
apparatus purchase from such
non-resident person
CIR v. Seagate VAT shall be imposed on every
6) Supply of technical advice, importation of goods, whether or not
assistance or services in the course of trade or business. This
rendered in connection with is unlike VAT on sale of goods or
technical management or properties which must be made in the
administration of any course of trade or business.
scientific, industrial or QC v. ABS- Radio and television broadcasting
commercial undertaking, CBN companies who annual gross receipts
venture, project or scheme
exceed P10 million are governed by
7) Lease of motion picture films,
tapes, discs
Sec.108. They are liable to pay VAT
8) Lease or use of or the right to and do not have the option to choose
use radio, television, satellite between paying franchise tax or VAT.
transmission, cable television CIR v. Any sale of services for a fee,
time. COMASERCO remuneration or consideration is
subject to VAT, regardless of any
Note: profit derived therefrom.
• Services must be done in the course of business CIR v. SM Lease of motion picture films, tapes
• Done for valuable consideration Prime Holdings and discs did NOT equate to showing
(actually/constructively received) or exhibition of motion pictures or
fims. SM not liable to pay VAT.
Sonza v. ABS- Professionals such as talent and
CBN television and radio broadcasters are
C. Importation liable to pay VAT.
San Roque v Portion of SRPC’s claim for tax
Sec. 107 CIR refund/credit for alleged unutilized
a. Every importation of foods shall be input VAT was attributable to a sale of
subject to VAT, whether for use in electricity to NPC that was made
business or not
during the testing period. Although the
b. Tax base:
sale was not a commercial sale or in
• Total value used by the BOC in
determining tariff and customs duty + the course of business, it was a
customs duties + excise tax + other transaction deemed sale (in this case it
charges prior to removal of goods was zero-rated).
from customs custody; OR
• Based on landed costs, when the Tax base:
customs duties are determined on the b. Sale of goods – gross sales
basis of the quantity or volume of the
c. Sale of services – gross receipt
goods
o Total amount of money or its equivalent
• Landed cost: invoice cost +
freight insurance + customs
representing the contract price,
duties + excise tax + other compensation, service fee, rental or royalty
charges prior to removal of including the amount charged for materials
goods from customs custody. supplied with the services and deposits and
advanced payments actually or
constructively received.

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3
 ZERO-RATED TRANSACTIONS For Services
A. Sec. 108 (B)
For goods 1) Processing, manufacturing or repacking
A. Sec.106 (A)(2) goods for other persons doing business
a. Export Sales. outside the Philippines which goods are
1) The sale and actual shipment of goods from subsequently exported, where the services
the Philippines to a foreign country, are paid for in acceptable foreign currency
irrespective of any shipping arrangement that and accounted for in accordance with the
may be agreed upon which may influence or rules and regulations of the BSP;
determine the transfer of ownership of the 2) Services other than those mentioned in the
goods so exported and paid for in acceptable preceding paragraph, rendered to a person
foreign currency or its equivalent in goods or engaged in business conducted outside the
services, and accounted for in accordance Philippines OR to a nonresident person not
with the rules and regulations of the Bangko engaged in business who is outside the
Sentral ng Pilipinas (BSP); Philippines when the services are performed,
2) Sale of raw materials or packaging materials the consideration for which is paid for in
to a nonresident buyer for delivery to a acceptable foreign currency and accounted
resident local export-oriented enterprise to for in accordance with the rules and
be used in manufacturing, processing, regulations of the BSP
packing or repacking in the Philippines of 3) Services rendered to persons or entities
the said buyer's goods and paid for in whose exemption under special laws or
acceptable foreign currency and accounted international agreements to which the
for in accordance with the rules and Philippines is a signatory effectively subjects
regulations of the Bangko Sentral ng the supply of such services to zero percent
Pilipinas (BSP); (0%) rate;
3) Sale of raw materials or packaging materials 4) Services rendered to persons engaged in
to export-oriented enterprise whose export international shipping or international air
sales exceed seventy percent (70%) of total transport operations, including leases of
annual production; property for use thereof. [52]
4) Sale of gold to BSP 5) Services performed by subcontractors and/or
5) Those considered export sales under contractors in processing, converting, of
Executive Order NO. 226, otherwise known manufacturing goods for an enterprise whose
as the "Omnibus Investment Code of 1987", export sales exceed seventy percent (70%) of
and other special laws; and total annual production.
6) The sale of goods, supplies, equipment and 6) Transport of passengers and cargo by air or
fuel to persons engaged in international sea vessels from the Philippines to a foreign
shipping or international air transport country; and
operations. 7) Sale of power or fuel generated through
b. Foreign Currency Denominated Sale. renewable sources of energy such as, but not
A. sale to a nonresident of goods, except limited to, biomass, solar, wind, hydropower,
those mentioned in Sections 149 and geothermal, ocean energy, and other
150, assembled or manufactured in emerging energy sources using technologies
the Philippines for delivery to a such as fuel cells and hydrogen fuels.
resident in the Philippines, paid for in
acceptable foreign currency and
accounted for in accordance with the
rules and regulations of the BSP
a. note: this does not apply to
automobiles and non-
essential goods subject to
excuse taxes

c. Sales to persons or entities whose exemption

under special laws or international agreements
to which the Philippines is a signatory
effectively subjects such sales to zero rate.

MB Agunoy
4
Distinguish between VAT rating and zero rating making such seller the payment of VAT, will
• Transactions which are taxed at zero-rate do not internationally competitive ultimately bear the burden of
result in any output tax. Input tax attributable to zero- the tax shifted by suppliers.
rated sales could be refunded or credited against other
internal revenue taxes at the option of the taxpayer. Cross-border doctrine
• Example: • No VAT shall be imposed to form part of the cost of
o Taxpayer purchases materials from supplier goods destined for consumption outside of the
at P80. (cost 73 pesos +VAT) territorial border of the taxing authority. Actual
§ Input tax: P7.30 (10% of 73 pesos) export of goods and services from the Philippines to a
(now 12%) foreign country must be free from VAT.
o Sells finished product in a zero rated • Ecozone territories shall be free from VAT.
transaction for P110 (cost 100 pesos + VAT)
§ Allowed to recover both input tax Destination Principle
of P7.30 + output vat of 2.70 (10% • Goods and services are to be taxed only in the
of the value he has added) country where they are consumed. Thus, exports are
§ Total VAT: 10 pesos zero-rated, while imports are taxed.
• “Consumption”
Distinguish between VAT exemption and zero-rating o Use of a thing in a way that exhausts it.
o As applied to services, it means the
VAT exemption Zero-rated sales performance or successful completion of a
Shall not bill any output tax Shall not result in any output contractual duty.
to his customers because the tax • Exceptions to destination principle – Sec.108 (B)
said transaction is not subject o Deemed exceptions because although the
to VAT services are performed in the Philippines,
Not entitled to any input tax Input tax on his purchase of upon compliance with certain requirements,
on such purchases despite goods, properties or services sale of such services are zero-rated.
issuance of a VAT invoice or related to such zero rated sale Case Doctrine
receipt shall be available as tax credit Atlas 0% rate applies to the total sale of raw
or refund in accordance with Consolidated materials or packaging materials to an export-
these regulations. v. CIR oriented enterprise and not just the percentage
Only removes the VAT at the All VAT is removed from the of the sale in proportion to the actual exports
exempt stage, and it will zero-rated goods, activity, or of the enterprise
actually increase, rather than frim. CIR v. Amex PH facilitated the collection and
reduce the total taxes paid by American payment of receivables belonging to its HK
the exempt firm’s business or Express based foreign client and getting paid for it in
non-retail customers. acceptable foreign currency. This falls under
Only partial relief because the Total relief for the purchaser sec.108 (B) – zero-rated.
purchaser is not allowed any from the burden of the tax CIR v. Placer Dome Canada engaged the services of
tax refund of or credit for Placer Dome Placer Dome PH to perform clean-up and
input taxes paid. rehabilitation. Court tuled that the sale of
Registration is optional for Persons engaged in services of PD Canada was zer-rated.
VAT-exempt person transactions which are zero- CIR v. Burmeister was engaged in the operatioin of
rated being subject to VAT Burmeister power barges in Mindanao. SC denied their
are required to register claim on that ground that Sec.108 (B)2
required that the payer-recipient of the
Distinguish between zero-rated transactions and effectively services must be doing outside the Philippines.
zero-rated transactions (differ as to source)
Services other than processing, manufacturing,
Zero-rated Effectively zero-rated or repacking of goods must be performed for
Refer to the export sale of Sale of goods or supply of persons doing business outside the Philippines.
goods and supply of services services to persons or entities CIR v. Acesite was the operator of a hotel. It leased a
whose exemption under Acesite portion of its premises to PAGCOR. Pursuant
special laws or international Hotel to PAGCOR charter, Acesite’s sale of services
agreements to which the Corporation to PAGCOR was zero rated.
Philippines is a signatory San Roque Effective zero rating is not intended as a
effectively subjects such v. CIR benefit to the person legally liable to pay the
transaction to a zero rated tax, but to relieve certain exempt entities (like
sale NPC) from the burden of indirect tax so as to
Primarily intended to be Intended to benefit the encourage development of industries.
enjoyed by the seller who is purchaser who, not being
directly and legally liable, directly and legally liable for
MB Agunoy
5
 EXEMPT TRANSACTIONS 15. Export sales by persons who are not VAT-registered;
16. Sale of real properties:
1. Sale or importation of agricultural and marine food products • Not primarily held for sale to customers or held for
in their original state, livestock and poultry of or king lease in the ordinary course of trade or business or
generally used as, or yielding or producing foods for human • Real property utilized for low-cost and socialized
consumption. Products classified under this paragraph shall housing
be considered in their original state even if they have • Residential lot valued at P1,919,500 and below
undergone the simple processes of preparation or • House and lot, and other residential dwellings
preservation for the market. Polished and/or husked rice, valued at 3,199,200 and below.
corn grits, raw cane sugar and molasses, ordinary salt and 17. Lease of a residential unit with a monthly rental not
copra shall be considered in their original state; exceeding 12,800.
2. Sale or importation of fertilizers; seeds, seedlings and 18. Sale, importation, printing or publication of books and any
fingerlings; fish, prawn, livestock and poultry feeds, newspaper, magazine review or bulletin which appears at
including ingredients, whether locally produced or regular intervals with fixed prices for subscription and sale
imported, used in the manufacture of finished feeds (except and which is not devoted principally to the publication of
specialty feeds for race horses, fighting cocks, aquarium paid advertisements;
fish, zoo animals and other animals generally considered as 19. Transport of passengers by international carriers;
pets); 20. Sale, importation or lease of passenger or cargo vessels and
3. Importation of personal and household effects belonging to aircraft, including engine, equipment and spare parts thereof
the residents of the Philippines returning from abroad and for domestic or international transport operations;
nonresident citizens coming to resettle in the Philippines: 21. Importation of fuel, goods and supplies by persons engaged
Provided, That such goods are exempt from customs duties in international shipping or air transport operations;
under the Tariff and Customs Code of the Philippines; 22. Services of bank, non-bank financial intermediaries
4. Importation of professional instruments and implements, performing quasi-banking functions, and other non-bank
wearing apparel, domestic animals, and personal household financial intermediaries; an
effects (except any vehicle, vessel, aircraft, machinery other 23. Sale or lease of goods or properties or the performance of
goods for use in the manufacture and merchandise of any services other than the transactions mentioned in the
kind in commercial quantity) belonging to persons coming preceding paragraphs, the gross annual sales and/or receipts
to settle in the Philippines, for their own use and not for do not exceed the amount of P1,919,500.
sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival. Additions by RR No. 04-07
5. Services subject to percentage tax under Title V; 1. Importation of life-saving equipment, safety and rescue
6. Services by agricultural contract growers and milling for equipment and communication and navigational safety
others of palay into rice, corn into grits and sugar cane into equipment for shipping transport operations
raw sugar 2. Importation of capital equipment, machinery, spare parts
7. Medical, dental, hospital and veterinary services except etc. to be used in the construction, repair or renovation of
those rendered by professionals. any merchant marine vessel operated or to be operated in
8. Educational services rendered by private educational domestic trade.
institutions, duly accredited by DEPED, CHED or TESDA
and those rendered by government educational institutions; Additions by RA 7432 – exemptions from VAT of sale of goods and
9. Services rendered by individuals pursuant to an employer- services to senior citizens. VAT exemption covers:
employee relationship; 1. Purchase of medicines and such other essential medical
10. Services rendered by regional or area headquarters supplies
established in the Philippines by multinational corporations 2. Professional fees of attending physicians in all private
and do not earn or derive income from the Philippines; hospitals, medical facilities, outpatient clinics and home
11. Transactions which are exempt under international health care services
agreements to which the Philippines is a signatory or under 3. Professional fees of licensed professional health providing
special laws, except those under Presidential Decree No. home health care services
529; 4. Medical and dental services and diagnostic and laboratory
12. Sales by agricultural cooperatives duly registered with the fees in all private hospitals
Cooperative Development Authority to their members as 5. Actual fare for land transportation travel
well as sale of their produce, whether in its original state or 6. Actual transportation fare for domestic air transport services
processed form, to non-members; their importation of direct and sea shipping vessels
farm inputs, machineries and equipment, including spare 7. Admission fees charged by theaters
parts thereof, to be used directly and exclusively in the 8. Funeral and burial services for the death of the senior
production and/or processing of their produce; citizen
13. Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the Cooperative
Development Authority;
Note: Sec. 109 (2)
14. Sales by non-agricultural, non- electric and non-credit
A VAT-registered person may elect that Subsection (1) not apply to
cooperatives duly registered with the Cooperative
its sale of goods or properties or services
Development Authority: Provided, That the share capital
• Provided, that an election made under this subsection
contribution of each member does not exceed Fifteen
shall be irrevocable for a period of three (3) years from
thousand pesos (P15, 000) and regardless of the aggregate
the quarter the election was made.
capital and net surplus ratably distributed among the
members;

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6
Distinguish between an exempt transaction and an exempt • Doctors subject to VAT
party • Hospitals are not – St. Luke’s case

Exempt transaction Exempt party

Involves goods and services A person or entity granted tax
which, by their nature, are exemption under the Tax
specifically listed in and Code, a special law or an
expressly exempted from international agreement and
VAT, without regard to the by virtue of which its taxable
tax status of the party in transactions become exempt
transaction. from the VAT.
Transaction is not subject to Also not subject to VAT but
VAT but seller is NOT may be allowed a tax refund
allowed any tax refund or or credit.
credit.

Case Doctrine
Misamis Between the Bureau of Food and Drug and
Oriental v. DOF the BIR, the classification of the BIR
would prevail.
CIR v. Transactions involving medical, dental,
Philippine hospital and veterinary services are VAT
Health Care exempt transactions. Here, Philippine
Providers health care did not render such services but
merely arranged for the same. Thus, it is
not VAT-exempt.
PAGCOR v. PAGCOR was exempt from VAT by virtue
CIR of its charter.
First Planters Pawnshops are non-bank financial
Pawnshop v. intermediaries (vat-exempt).
CIR
RR 16-11 If two or more adjacent residential lots are
sold or disposed in favor of one buyer, for
the purpose of utilizing the lots as one
residential lot, the shall be exempt from
VAT only if the aggregate value of the lots
does not exceed P1,919,500.
RR 13-12 If two or more adjacent residential lots are
sold or disposed in favor of one buyer from
the same seller within a 12-month period,
for the purpose of utilizing the lots as one
residential lot, the sale shall be exempt
from VAT only if the aggregate value of
the lots does not exceed 1,919,500.

Sale of parking lots in a condominium is a

separate and distinct transaction and is not
covered by the rules on threshold amount
not being a residential lot It is subject to
VAT regardless of selling price.
RR 15-13 Transport of cargo by international carriers
is VAT-exempt but subject to percentage
tax.
RR 04-07 In order to be VAT exempt, the imported
fuel and goods and supplies must be used
exclusively for the transport of foods and
or passengers from a port in the Philippines
directly to a foreign port without stopping
at any local port.

On Vat exemption of medical fees:

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7
 TAX CREDITS 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
Sec. 110 – Tax Credits registered or required to register under Section 236 of this Code.
A. Creditable Input Tax. -
1. Any input tax evidenced by a VAT invoice or official (B) Excess Output or Input Tax. –
receipt issued in accordance with Section 113 hereof on the
following transactions shall be creditable against the output
tax: If at the end of any taxable quarter the output tax exceeds the input
a. Purchase or importation of goods: tax, the excess shall be paid by the Vat-registered person. If the input
i. For sale; or tax exceeds the output tax, the excess shall be carried over to the
ii. For conversion into or intended to form succeeding quarter or quarters. Provided, however, That any input tax
part of a finished product for sale attributable to zero-rated sales by a VAT-registered person may at his
including packaging materials; or option be refunded or credited against other internal revenue taxes,
iii. For use as supplies in the course of subject to the provisions of Section 112.
business; or
iv. For use as materials supplied in the sale (C) Determination of Creditable Input Tax. –
of service; or
v. For use in trade or business for which The sum of the excess input tax carried over from the preceding
deduction for depreciation or month or quarter and the input tax creditable to a VAT-registered
amortization is allowed under this person during the taxable month or quarter shall be reduced by the
Code. amount of claim for refund or tax credit for value-added tax and other
b. Purchase of services on which a value-added tax adjustments, such as purchase returns or allowances and input tax
has been actually paid. attributable to exempt sale.
2. The input tax on domestic purchase or importation of
goods or properties by a VAT-registered person shall be The claim for tax credit referred to in the foregoing paragraph shall
creditable: include not only those filed with the Bureau of Internal Revenue but
a. To the purchaser upon consummation of sale and also those filed with other government agencies, such as the Board of
on importation of goods or properties; and Investments and the Bureau of Customs.
b. To the importer upon payment of the value-added
tax prior to the release of the goods from the SEC. 111. Transitional/Presumptive Input Tax Credits.
custody of the Bureau of Customs.
A. Transitional Input Tax Credits. - A person who becomes
Provided, that the input tax on goods purchased or liable to value-added tax or any person who elects to be a
imported in a calendar month for use in trade or
VAT-registered person shall, subject to the filing of an
business for which deduction for depreciation is
inventory according to rules and regulations prescribed by
allowed under this Code shall be spread evenly the Secretary of finance, upon recommendation of the
over the a month of acquisition and the fifty-nine
Commissioner, be allowed input tax on his beginning
(59) succeeding months if the aggregate
inventory of goods, materials and supplies equivalent to two
acquisition cost for such goods, excluding the percent (2%) of the value of such inventory or the actual
VAT component thereof, exceeds One million value-added tax paid on such goods, materials and supplies,
pesos (P 1, 000, 000): Provided, however, That if
whichever is higher, which shall be creditable against the
the estimated useful life of the capital good is less
output tax.
than five (5) years, as used for depreciation B. Presumptive Input Tax Credits. - Persons or firms engaged
purposes, then the input VAT shall be spread over
in the processing of sardines, mackerel and milk, and in
such a shorter period: Provided, finally, that in the
manufacturing refined sugar and cooking oil, shall be
case of purchase of services, lease or use of allowed a presumptive input tax, creditable against the
properties, the input tax shall be creditable to the
output tax, equivalent to four percent (4%) of the gross
purchaser, lessee or license upon payment of the
value in money of their purchases of primary agricultural
compensation, rental, royalty or free. products which are used as inputs to their production.
3. A VAT-registered person who is also engaged in
transactions not subject to the value-added tax shall be As used in this Subsection, the term 'processing' shall mean
allowed tax credit as follows: pasteurization, canning and activities which through
a. Total input tax which can be directly attributed to physical or chemical process alter the exterior texture or
transactions subject to value-added tax; and form or inner substance of a product in such manner as to
b. A ratable portion of any input tax which cannot prepare it for special use to which it could not have been put
be directly attributed to either activity. in its original form or condition.

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.

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8
 SEC. 112. Refunds or Tax Credits of Input Tax. - Requirements for a claim for VAT refund/credit (based on
Intel v. CIR):
1. Taxpayer is engaged in sales which are zero-rated or
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
registered person, whose sales are zero-rated or effectively zero-rated effectively zero-rated
may, within two (2) years after the close of the taxable quarter when 2. Taxpayer is VAT-registered
the sales were made, apply for the issuance of a tax credit certificate 3. Claim must be filed within two years after the close
or refund of creditable input tax due or paid attributable to such sales, of the taxable quarter when such sales were made
except transitional input tax, to the extent that such input tax has not 4. Input taxes are due or paid
been applied against output tax. 5. Input taxes are not transitional input taxes
6. Input taxes have not been applied against output taxes
Provided, however, That in the case of zero-rated sales under Section during and in the succeeding quarters
106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the 7. Input taxes claimed are attributable to zero-rated or
acceptable foreign currency exchange proceeds thereof had been duly effectively zero-rated sales
accounted for in accordance with the rules and regulations of the 8. In certain type of zero-rated sales, the acceptable
Bangko Sentral ng Pilipinas (BSP):
foreign currency proceeds thereof had been duly
accounted in accordance with BSP rules
Provided, further, That where the taxpayer is engaged in zero-rated or 9. Where there are both zero-rated or effectively zero-
effectively zero-rated sale and also in taxable or exempt sale of goods
rated sales and taxable or exempt sales, and the input
of properties or services, and the amount of creditable input tax due or
taxes cannot be directly and entirely attributable to
paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the any of these sales, the input taxes shall be
volume of sales. proportionately allocated on the basis of sales
volume.
Provided, finally, That for a person making sales that are zero-rated
under Section 108(B) (6), the input taxes shall be allocated ratably PRESCRIPTIVE PERIOD FOR TAX REFUND/ CREDIT
between his zero-rated and non-zero-rated sales.
Case Doctrine
(B) Cancellation of VAT Registration. - A person whose Atlas v. CIR Prescriptive period for filing administrative
registration has been cancelled due to retirement from or cessation of and judicial claims shall be two years from
business, or due to changes in or cessation of status under Section DATE OF FILING of VAT quarterly return.
106(C) of this Code may, within two (2) years from the date of CIR v. Mirant Two-year prescriptive period in claims for
cancellation, apply for the issuance of a tax credit certificate for any Pagbilao VAT refund/credit must be counted NOT
unused input tax which may be used in payment of his other internal from the date of filing of the VAT quarterly
revenue taxes.
return but from the CLOSE OF TAXABLE
QUARTER when the revelant sales were
(C) Period within which Refund or Tax Credit of Input Taxes made.
shall be Made. - In proper cases, the Commissioner shall grant a
CIR v. Aichi Mandated compliance of administrative and
refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of Forging judicial claims with both the two-year
complete documents in support of the application filed in accordance prescriptive period AND the 120-30 day
with Subsections (A) hereof. period rule.

In case of full or partial denial of the claim for tax refund or tax Summary from CIR v. San Roque:
credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected When ADMINISTRATIVE Applicable doctrine
may, within thirty (30) days from the receipt of the decision denying claim filed with CIR
the claim or after the expiration of the one hundred twenty day- Before June 8, 2007 Mirant (close of taxable
period, appeal the decision or the unacted claim with the Court of Tax quarter)
Appeals.
June 8, 2007 – Sept 10, 2008 Atlas (filing of return)
Sept 11, 2008 onwards Mirant (close of taxable
(D) Manner of Giving Refund. - Refunds shall be made upon quarter)
warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by the When JUDICIAL claim filed Applicable doctrine
Chairman, Commission on audit, the provisions of the Administrative with CTA
Code of 1987 to the contrary notwithstanding: Provided, That refunds Before December 10, 2003 Aichi (120+ 30 day periods
under this paragraph shall be subject to post audit by the Commission mandatory)
on Audit. December 10, 2003 to Tax payer need not wait for
October 5, 2010 lapse of 120 day period
before it could seek judicial
relief with CTA by way of
Petition for Review
October 6, 2010 onwards Aichi (120+ 30 day periods
mandatory)

MB Agunoy
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 SEC. 113. Invoicing and Accounting Requirements for VAT- b. The VAT shall, if the other requisite information
Registered Persons. – required under Subsection (B) hereof is shown on
the invoice or receipt, be recognized as an input
(A) Invoicing Requirements. - A VAT-registered person shall issue: tax credit to the purchaser under Section 110 of
1. A VAT invoice for every sale, barter or exchange of goods this Code.
or properties; and
2. A VAT official receipt for every lease of goods or 2. If a VAT-registered person issues a VAT invoice or VAT
properties, and for every sale, barter or exchange of official receipt for a VAT-exempt transaction, but fails to
services. display prominently on the invoice or receipt the term 'VAT
exempt sale', the issuer shall be liable to account for the tax
(B) Information Contained in the VAT Invoice or VAT Official imposed in section 106 or 108 as if Section 109 did not
Receipt. - The following information shall be indicated in the VAT apply.
invoice or VAT official receipt:
1. A statement that the seller is a VAT-registered person, (E) Transitional Period. - Notwithstanding Subsection (B) hereof,
followed by his TIN; and taxpayers may continue to issue VAT invoices and VAT official
2. The total amount which the purchaser pays or is obligated receipt for the period July 1, 2005 to December 31, 2005 in
to pay to the seller with the indication that such amount accordance with Bureau of Internal Revenue administrative practices
includes the value-added tax. Provided, That: that existed as of December 31, 2004.
a. The amount of the tax shall be known as a
separate item in the invoice or receipt;
b. If the sale is exempt from value-added tax, the SEC. 114. Return and Payment of Value-Added Tax. -
term "VAT-exempt sale” shall be written or (A) In General. - Every person liable to pay the value-added tax
printed prominently on the invoice or receipt; imposed under this Title shall file a quarterly return of the amount of
c. If the sale is subject to zero percent (0%) value- his gross sales or receipts within twenty-five (25) days following the
added tax, the term "zero-rated sale" shall be close of each taxable quarter prescribed for each taxpayer: Provided,
written or printed prominently on the invoice or however, That VAT-registered persons shall pay the value-added tax
receipt. on a monthly basis.
d. If the sale involved goods, properties or services
some of which are subject to and some of which Any person, whose registration has been cancelled in accordance with
are VAT zero-rated or VAT exempt, the invoice Section 236, shall file a return and pay the tax due thereon within
or receipt shall clearly indicate the break-down of twenty-five (25) days from the date of cancellation of registration:
the sale price between its taxable, exempt and Provided, That only one consolidated return shall be filed by the
zero-rated components, and the calculation of the taxpayer for his principal place of business or head office and all
value-added tax on each portion of the sale shall branches.
be known on the invoice or receipt: Provided,
That the seller may issue separate invoices or (B) Where to File the Return and Pay the Tax. - Except as the
receipts for the taxable, exempt, and zero-rated Commissioner otherwise permits, the return shall be filed with and
components of the sale. the tax paid to an authorized agent bank, Revenue Collection Officer
3. The date of transaction, quantity, unit cost and description or duly authorized city or municipal Treasurer in the Philippines
of the goods or properties or nature of the service; and located within the revenue district where the taxpayer is registered or
4. In the case of sales in the amount of One thousand pesos required to register.
(P1,000) or more where the sale or transfer is made to a
VAT-registered person, the name, business style, if any, (C) Withholding of Value-added Tax. - The Government or any of
address and Taxpayer Identification Number (TIN) of the its political subdivisions, instrumentalities or agencies, including
purchaser, customer or client. government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
(C) Accounting Requirements. - Notwithstanding the provisions of which are subject to the value-added tax imposed in Sections 106 and
Section 233, all persons subject to the value-added tax under Sections 108 of this Code, deduct and withhold the value-added tax imposed in
106 and 108 shall, in addition to the regular accounting records Sections 106 and 108 of this Code, deduct and withhold a final value-
required, maintain a subsidiary sales journal and subsidiary purchase added tax at the rate of five percent (5%) of the gross payment
journal on which the daily sales and purchases are recorded. The thereof:
subsidiary journals shall contain such information as may be required
by the Secretary of Finance. Provided, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%)
(D) Consequence of Issuing Erroneous VAT Invoice or VAT withholding tax at the time of payment. For purposes of this Section,
Official Receipt. – the payor or person in control of the payment shall be considered as
1. If a person who is not a VAT-registered persons issues an the withholding agent. The value-added tax withheld under this
invoice or receipt showing his TIN, followed by the word Section shall be remitted within ten (10) days following the end of the
"VAT"; month the withholding was made.
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;

MB Agunoy
10
 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 Person 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.

Three instances when input tax is not 0% or 12%:

1. Presumptive input tax

2. Transitional input tax
3. Final withholding tax

Case Doctrine
CIR v. Manila A sales or commercial invoice is a written
Mining account of goods sold or services rendered
indicating the prices charged which is used
in the ordinary course of business
evidencing sale and transfer.

Receipt on the other hand is a written

acknowledgment of the fact of payment.
AT&T SC gave credence to sales invoices (not
Communications official receipts) saying that sales invoices
v CIR are recognized commercial documents to
facilitate trade. They are proofs that a
business transaction has been concluded.
Kepco Only a VAT invoice might be presented to
Philippines v. substantiate a sale of goods or properties,
CIR while only a VAT receipt could
substantiate a sale of services.
Panasonic v. Term “zero-rated sale” must be imprinted,
CIR and not merely written or stamped. Claim
for refund/credit substantiated by non-
conforming invoices or receipts shall be
disallowed.

MB Agunoy
11