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VALUE-ADDED TAX
Q. WHAT IS THE NATURE AND CONCEPT OF VALUE-ADDED TAXES?
* VAT is a percentage tax. There is a percentage fixed by law which will be applied to
the gross selling price in order to arrive to the VAT to be paid.
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] 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 valueadded tax, thus:
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 12%
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.
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 tax on invoices received exceeds that on invoices passed, a tax
refund may be claimed.
1.
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.
2.
If at the end of a taxable quarter, the output taxes exceed the input taxes,
the excess has to be paid by the seller.
3.
If the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters
4.
The case of CIR v. Benguet Corporation defined input tax and output tax.
Input tax
Output tax
Input VAT or input tax represents the When that person or entity sells his/its
actual payments, costs and expenses products or services, the VAT-registered
incurred by a VAT-registered taxpayer in taxpayer generally becomes liable for
connection with his purchase of goods 12% of the selling price as output VAT or
and services
output tax.
Thus, "input tax" means the valueadded 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 VAT-registered
person
The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT
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either by
X may claim the 1,500 input tax on his purchase as a tax credit. This is why
it was deducted from 1,800.
(c) Can Z claim a tax credit?
(1) passing on the 12% output VAT on the gross selling price or gross receipts, as the
case may be, to its buyers, or
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 valueadded tax (VAT) imposed in Sections 106 to 108 of this Code.
Simply stated, a taxpayer subject to 12% 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.
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 non-stock, nonp-rofit 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: UNDER 1ST PARAGRAPH OF SEC 105, WHAT ARE THE VAT-ABLE TRANSACTIONS?
[SALE, IMPORTATION AND SERVICES]
-In this case, Y will pay for/ultimately be liable for the vat of 6,000 on the sale because
the output tax is greater than the input tax. (see 2nd situation in first page)
1.
2.
3.
4.
X is a VAT registered person. He bought goods from Y for 12,500, exclusive of VAT. X
then sold these goods to consumer Z for 15,000, exclusive of the VAT
(a) How much is the VAT payable by X to the BIR?
Xs purchase has an input tax of 1,500 (12,500 x 12%) and his re-sale
transaction has an output tax of 1,800 (15,000 x 12%) The VAT payable by X
is the difference of the output tax and the input tax thus it is 300 (1800-1500)
(b) How much can X claim as a tax credit?
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Q: UNDER PAR 2, VAT IS AN INDIRECT TAX. DISTINGUISH BETWEEN LIABILITY FOR THE TAX
AND BURDEN OF THE TAX .
* The case of Contex Corporation v. CIR made a distinction between the two
concepts. It provided [[Contex Corporation v. CIR, GR No. 151135, 2 July 2004.]
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,
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transferee or lessee.
Unlike a direct tax, such as the income tax, which primarily taxes an individuals 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.
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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.
That the sale of the vessels was not in the ordinary course of trade or business of
NDC was appreciated by both the CTA and the Court of Appeals, the latter doing so
even in its first decision which it eventually reconsidered. We cite with approval the
CTAs explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955
(97 Phil. 992), the term "carrying on business" does not mean the performance of a
single disconnected act, but means conducting, prosecuting and continuing business
by performing progressively all the acts normally incident thereof; while "doing
business" conveys the idea of business being done, not from time to time, but all the
time.
"Course of business" is what is usually done in the management of trade or
business.
What is clear therefore, based on the aforecited jurisprudence, is that "course of
business" or "doing business" connotes regularity of activity. In the instant case, the
sale was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization could no longer
be repeated or carried on with regularity. It should be emphasized that the normal
VAT-registered activity of NDC is leasing personal property.
This finding is confirmed by the Revised Charte of the NDC which bears no indication
that the NDC was created for the primary purpose of selling real property.
The conclusion that the sale was not in the course of trade or business, which the CIR
does not dispute before this Court should have definitively settled the matter. Any
sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.
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.
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course
of trade or business;
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.
(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;
(d) The right or the privilege to use motion picture films, tapes and discs; and
SEC. 106. Value-Added Tax on Sale of Goods or Properties. (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.
(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which
are capable of pecuniary estimation and shall include:
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(c) The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
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:
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws.
* The case of CIR v. Benguet Corporation explained VAT rating vis-as-vis zero-rating
in principle, as well as by way of illustration, to wit:
In transactions taxed at a 12% rate (VAT rating), 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.
Effectively Zero-Rated
Effectively zero-rated transactions
refer to the sale of goods or supply of
services to persons or entities whose
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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 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 VATexempt transactions (CIR argued this way because if the export sales were VAT
exempt, then it would be entitled to claim any credit from input tax)
The Supreme Court ruled that Toshiba was a registered VAT entity and its export
sales were subject to 0% VAT.
Note: Remember, 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
[Toshiba Information Equipment (Phils.), Inc. v. CIR, GR No. 157594, 9 Mar. 2010.]
Hence:
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.
actual export of goods and services from the Philippines to a foreign country
must be free of VAT;
On the other hand, those destined for use or consumption within the Philippines
shall be imposed with ten percent (10%) [now 12%] VAT.
Additionally, 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.]
To prove that it was engaged in the sale and actual shipment of goods from the
Philippines to a foreign country and therefore entitled to tax credit of input VAT,
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 Technologys evidence sufficiently
established that it was engaged in export sales.
Note: Based on Sec 106, export sales, or sales outside the Philippines, are subject to
VAT at 0% rate if made by a VAT-registered person. When applied to the tax base,
the 0% rate obviously results in no tax chargeable against the purchaser. The seller
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of such transactions charges no output tax, but can claim a refund or tax credit
certificate for the VAT previously charged by suppliers.
Additionally, Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a
taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a
refund or issuance of a tax credit certificate for input taxes paid attributable to such
sales upon complying with the following requisites: (1) the taxpayer is engaged in
sales which are zero-rated (like export sales) 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 creditable input tax due or
paid must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output tax; and (5) in case of
zero-rated sales under Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with BSP rules and regulations. It is added
that, "where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly or entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of the
sales
[Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007.]
phrase 'foreign
currency denominated sale' means sale to a nonresident of goods, except those mentioned
in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
Trade or Business
106(B)(2) Other Transactions:
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.
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 SRPCs 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 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(C) Changes in or Cessation of Status of a VAT-Registered Person
106(D) Sales Returns, Allowances, and Sales Discounts
106(E) Authority of the Commissioner to Determine the Appropriate Tax Base
Sec. 107, Value-Added Tax on Importation of Goods
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
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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.
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.
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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.]
110(B) Excess Output or Input Tax
110(C) Determination of Creditable Input Tax
Sec. 111, Transitional/Presumptive Input Tax Credits
111(A) Transitional Input Tax Credits
111(B) Presumptive Input Tax Credits
Sec. 112, Refunds or Tax Credits of Input Tax
112(A) Zero-Rated or Effectively Zero-Rated 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
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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 June 2007; CIR v. Mirant Pagbilao Corporation, GR No.
172129, 12 Sept. 2008.]
*** 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 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 sellers best proof of the sale of the
goods or services to the buyer while the VAT receipt is the buyers 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
* 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%) value-added 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 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.]
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