PART 4 - VALUE-ADDED TAX

Title VI, NIRC

I. NATURE AND CHARACTERISTICS OF VAT

A. Tax on Value Added

- It is a tax on consumption levied on the sale, barter, exchange or
lease of goods or properties or services in the Philippines and on
importation of goods in to the Philippines.

B. Sales Tax
C. Tax on Consumption (Sec. 4. 105-2)
D. Indirect Tax
1. Impact of Tax
2. Incidence of Tax
Context Corp. vs. Commissioner of Internal Revenue (433
SCRA 376)
E. Tax Credit Method
F. Destination Principle
CIR vs. Toshiba Information Equipment (Phils.) (466 SCRA 211)

II. PERSONS LIABLE TO VAT (Sec. 105, NIRC)

A. Taxable Person
1. Refers to any person liable to VAT whether registered or
registrable according to Sec. 236 of NIRC.
2. Where the amount of gross receipts exceed the threshold fixed
by law (Sec. 109 (BB), NIRC)
B. In the course of trade or business
- Notwithstanding the rule on regularity – Services performed by non-
resident foreign persons in the Philippines are subject to VAT.
- Commissioner of Internal Revenue vs. COMASERCO (329 SCRA
237)
- CIR vs. Magsaysay Lines (497 SCRA 63)

III. VAT ON SALE OF GOODS OR PROPERTIES (Sec. 106, NIRC)

A. Rate and Tax Base
1. Rates 12% or 0%
2. Tax Base – Gross Selling Price
a. Meaning of Gross Selling Price China Banking Corp. vs. Court of
Appeals (403 SCRA 634)
b. Allowable deductions from Gross Selling Price (Sec. 106(D),
NIRC; Sec. 4. 106-9, RR 16-05, as amended)
B. Requisites for Taxability of sale of goods and/or properties: In general
1. Sale, barter or exchange of goods or properties
2. Meaning of term “goods or properties”
3. In the course of trade or business
4. Goods and properties are located within the Philippines and
consumed therein
5. Sale of goods or properties not exempt from VAT under Sec. 109 of
NIRC
C. Sale of Real Properties
D. Zero-rate Sales of goods or properties (Sec. 106 (A), NIRC)
 1. Zero-rated Sales, defined
2. Sales subject to 0% VAT
a. Export Sales (Sec.106 (2)(a))
b. Foreign Currency Denominated Sales (Sec.106 (2)(b))
3. Sales to tax-exempt entities
4. Differentiated from Effectively Zero-rated Sales of goods and
properties (Sec.106 (2)(c))
E. Transaction deemed Sale (Sec. 106 (B), NIRC)
1. Transfer, use or consumption not in the course of business of
goods/properties originally intended for sale or use in the course of
business
2. Distribution or transfer to shareholders, investors or creditors
3. Consignment of goods if actual sale is not made within 60 days from
date of consignment
F. Change or Cessation of Status as VAT-registered person (Sec. 106 (C),
NIRC)
1. Subject to VAT – goods or properties originally intended for sale or use
in business and capital goods existing as of occurrence of the
following:
a. Change of business activity from VAT taxable status to VAT-
exempt status
b. Approval of requests for cancellation of a registration due to
reversion to exempt status
c. Approval of request for cancellation of registration due to desire to
revert to exempt status after lapse of 3 consecutive years.
d. Approval of request for cancellation of registration for failure to
meet threshold amount (for VAT.
2. Not Subject to VAT
a. Change of control of a corporation(Sec. 40 (C) (2))
b. Change in the trade or corporate name
c. Merger or consolidation of corporations (Sec. 40 (C) (2))

IV. VAT ON IMPORTATION (Sec. 107, NIRC)

V. VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES (Sec.
108, NIRC;)
A. Tax Rate – 12% or 0%
B. Tax Base – Gross Receipts
1. Gross Receipts, Defined (Sec. 108, NIRC)
2. Constructive Receipt
C. Requisites for Taxability of Sale of Services
1. Sale or Exchange of services
(a) Meaning of “Sale or exchange of services”
Commissioner of Internal Revenue vs. COMASERCO (329 SCRA
237)
2. Person selling services liable to VAT
3. Service performed in the Philippines
4. Service performed in the course of trade or business
5. Seller of service who actually or constructively receives the fee or
remuneration
6. Service is not exempt from VAT
D. Zero-Rate Sale of Services (Sec. 108(B), NIRC)
1. Zero-rated Sales, defined
2. Services subject to 0% VAT
 3. Differentiated from Effectively Zero-rated Sales of goods and
properties

VI. VAT EXEMPT TRANSACTIONS (Sec. 109, NIRC)

A. VAT Exempt Transactions, in general
B. Exempt Transactions, Enumerated (Sec. 4. 109-1 (B), RR 16-05, as
amended)

VII. COMPUTATION OF VAT

A. Input Tax & Output Tax, defined (Sec. 110, NIRC)
B. Sources of Input Tax – creditable against output tax (Sec. 110, NIRC)
1. Purchase or importation of goods
a. For sale; or
b. For conversion into or intended to form part of a finished
product for sale, including packaging materials; or
c. For use a supplies in the course of business; or
d. For use as raw materials supplied in the sale of services; or
e. For use in trade or business for which deduction for
depreciation or amortization is allowed under the NIRC.
i. Claim for Input tax on depreciable goods
2. Purchase of real properties for which VAT has actually been paid
3. Purchase of services in which VAT has actually been paid
4. Transactions “deemed sale” under Sec. 106 (B) of the NIRC
5. Transitional Input tax under Sec. 111(a) of the NIRC (Sec. 111 (A),
NIRC)
6. Presumptive input tax under Sec. 111(b) of the NIRC
7. Transitional input tax credits allowed under the transitory and other
provisions of the Regulations.
C. Persons who can avail of the input tax credit
D. Determination of Output/Input Tax; Vat Payable; Excess Input Tax Credits
1. Determination of Output Tax
2. Determination of Input Tax Creditable
3. Allocation of Input Tax on Mixed Transactions
4. Determination of the output Tax and VAT Payable and Computation of
VAT Payable or Excess Tax Credits
E. Substantiation of input tax credits (Sec. 113), NIRC
F. Refund or Tax Credit of Excess Input Tax (Sec. 112, NIRC)
1. Who may claim for refund/apply for issuance of Tax Credit Certificate
(TCC) or Cash Refund
2. Period to file claim for refund/apply for Issuance of TCC/Cash Refund
3. Manner of giving refund

VIII. Transactions subject to Special Rules

A. Transactions of Foreign Governments
B. Transactions with PEZA/SBMA/CEZA-registered entities
IX. ComplianceRequirements
A. Registration (Sec. 236 (G) - (H), NIRC)
1. Mandatory (Sec. 236 (G), NIRC)
2. Optional (Sec. 236 (H), NIRC)
B. Invoicing and Accounting Requirements (Sec. 113, NIRC)
1. Invoicing Requirements, In General (Sec. 113 (1), NIRC)
2. Invoicing and Recording Deemed Sale Transactions (Sec. 113(2))
 3. Consequences of issuing Erroneous VAT Invoice or Vat Official
Receipt (Sec.113 (4))
C. Filing of Return and Payment of VAT (Sec. 114(A))
D. Withholding of creditable VAT (Sec. 114(C), NIRC)
E. Administrative and Penal Sanctions (Sec. 115, NIRC)