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SECOND EXAM TRANSCRIPT

TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
09 JANUARY 2018 (FRDulay) KINDS OF LOSSES
1. Claims against insolvent persons. It is a loss because it is
CHANGES IN ESTATE AND DONOR’S TAXATION already uncollectible. The only condition is that these
collectibles must be included in the gross estate.
A. ESTATE TAXATION 2. Casualty losses.

(1) AS TO RATES The principles under casualty losses is still the same in the TRAIN
LAW. It must be timely reported with the BIR. Right now there is still no
Under the old law: IRR regarding that matter. Under the IRR of the old tax law, report to
the BIR must be made within forty-five (45) days. Please check your
SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, book kung 45 days ba.
collected and paid upon the transfer of the net estate as determined
in accordance with Sections 85 and 86 of every decedent, whether Also, the casualty losses must be incurred not later than the last day
resident or nonresident of the Philippines, a tax based on the value of for the payment of estate tax. Under the old law, the last day for
such net estate, as computed in accordance with the following payment of the estate tax is as you file the estate tax return (pay-as-
schedule: you-file system). That is six (6) months from death. But right now, unde
the TRAIN Law,you file your estate tax return one (1) year from the
OVER BUT NOT THE TAX PLUS OF THE time of death. Since you pay-as-you-file, it follows also that casualty
OVER SHALL EXCESS losses may be incurred within one (1) year from the time of death.
BE OVER
INDEBTEDNESS
P200,000 Exempt
 That is pretty much the same. Wala paring change yan. Ang
P200,000 P550,000 0 5% P200,000
change lang ay numbering lang. It’s practically the same.
P500,000 P2,000,000 P15,000 8% P500,000
P2,000,000 P5,000,000 P135,000 11% P2,000,000 For CLAIMS AGAINST THE ESTATE: Provided, That at the time the
P5,000,000 P10,000,000 P465,000 15% P5,000,000 indebtedness was incurred the debt instrument was duly notarized
P10M And over P1,215M 20% P10M and, if the loan was contracted within three (3) years before the death
of the decedent, the administrator or executor shall submit a statement
Under the TRAIN LAW: showing the disposition of the proceeds of the loan.

SEC. 84. Rate of Estate Tax.— There shall be levied, assessed, TAXES AND MORTGAGE UNPAID are still the same concepts. For
collected and paid upon the transfer of the net estate as determined unpaid mortgages upon, or any indebtedness in respect to, property
in accordance with Sections 85 and 86 of every decedent, whether where the value of decedent's interest therein, undiminished by such
resident or nonresident of the Philippines, a tax at the rate of six mortgage or indebtedness, is included in the value of the gross estate,
percent (6%) based on the value of such net estate. but not including any income tax upon income received after the death
of the decedent, or property taxes not accrued before his death, or any
This is actually the most drastic change in computing the estate taxes. estate tax.
There is a drastic change in the tax rate for estate taxation. You no
longer have a tax table. It’s just a flat rate of 6% based on the net VANISHING DEDUCTIONS is still the same. So the principles for
taxable estate. ordinary deductions is still applicable except for a few points. The only
thing missing there is just the expenses. Wala na tayong judicial
Take note that the basis of the estate tax is the net estate. Which expenses. Wala na tayong funeral expenses.
means that, basically, the principles that you have learned before in
computing the net estate is more or less the same. SPECIAL DEDUCTIONS

(2) AS TO DEDUCTIONS STANDARD DEDUCTIONS


 There is also extensive change with respect to standard
Under the Old law: deductions. Dati meron tayong SMeRF diba? Right now,
1. Ordinary deductions under the TRAIN Law it’s no longer SMeRF, it’s just SRF.
2. Special deductions Sabihin na nating SuRF para mag make sense. Under the
3. Share of the surviving spouse old law, standard deduction is 1 Million. You don’t have to
prove anything. Under the TRAIN Law, it’s the same
ORDINARY DEDUCTIONS principle but the amount is increased to 5 Million.

Our mnemonics for ordinary deductions is ELITMTV. For special RA 4917


deductions, you have SMeRFS. Are those items still applicable right  It’s still the same. Death benefits received by heirs as
now? Partly yes, partly no. Let us itemize the change. Let’s begin with compensation for the death of the employee. The only
the ordinary deductions. condition is that you have to include it in the gross estate of
the decedent.
EXPENSES
 Under the old law, we have the ELITMTV as ordinary FAMILY HOME
deductions. But right now, yung letter E (expenses) is no  It has also changed. From 1 Million, it was already changed
longer found under the TRAIN Law. What is left is LITMTV. to 10 Million. The excess value is subject to estate tax.
Wala na tayong Judicial Expenses and Funeral Expenses Pretty much the same.
starting January 1, 2018.  If you notice in the TRAIN Law, wala nang Medical
Expenses (MEDEX). You can no longer claim the P300,000
LOSSES medical expenses. But if you think about it, it is covered
 For losses, the estate can still deduct claims against already in the standard deductions.
insolvent persons where the value thereof is included in the
gross estate.
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
DEDUCTIONS ALLOWED TO NON-RESIDENT ESTATES If you look at the provision in TRAIN if the Gross value of the estate
 Under the old law our principle if the estate can claim exceeds P5,000,000 you should have a CPA certification. Under the
ordinary deductions only. Wala silay special deductions. old law, it is only P2,000,000. So which is which? All estate must file an
 But under the TRAIN Law, NRADs can now claim a special estate tax return or just those whose gross estate exceeds
deduction. It is a standard deduction of P500,000 P5,000,000? If you ask me i don’t really know but the second choice
makes more sense. After all, the TRAIN Law says “In all cases of
TRAIN LAW SEC. 86(B). - (1) Standard Deduction.— An amount transfers subject to the tax”. But let’s just wait for the Revenue
equivalent to Five hundred thousand pesos (₱500,000); Regulation with regard to that because as of now, wala pa.

That’s the only thing changed about the NRADs. (4) AS TO TIME OF FILING

(3) ESTATE TAX RETURNS AND PAYMENTS Under the old law:

Estate Tax Returns SEC. 90(B). Time for Filing. - For the purpose of determining the
 That’s for Deductions. Let’s now go to estate tax returns and estate tax provided for in Section 84 of this Code, the estate tax
payments. Estate tax returns is Section 90. The old law return required under the preceding Subsection (A) shall be filed
provides: within six (6) months from the decedent's death.

Under the old law: A certified copy of the schedule of partition and the order of the
court approving the same shall be furnished the Commissioner
SEC 90. Estate Tax Returns. - (A) Requirements. - In all cases within thirty (30) after the promulgation of such order.
of transfers subject to the tax imposed herein, or where, though
exempt from tax, the gross value of the estate exceeds Two Under the TRAIN Law:
hundred thousand pesos (P200,000), or regardless of the gross
value of the estate, where the said estate consists of registered or SEC. 90(B). Time for Filing. - For the purpose of determining the
registrable property such as real property, motor vehicle, shares of estate tax provided for in Section 84 of this Code, the estate tax
stock or other similar property for which a clearance from the return required under the preceding Subsection (A) shall be filed
Bureau of Internal Revenue is required as a condition precedent for within one (1) year from the decedent’s death.
the transfer of ownership thereof in the name of the transferee, the
executor, or the administrator, or any of the legal heirs, as the case The time is changed from 6 months to 1 year.
may be, shall file a return under oath in duplicate, xxx
(5) PAYMENT BY INSTALLMENT
Under the TRAIN LAW:
Another thing changed by the TRAIN Law is the Payment by
SEC 90. Estate Tax Returns. - (A) Requirements. - In all cases of Installment. Under the old revenue regulations, it is actually allowed
transfers subject to the tax imposed herein, or regardless of the but it is not provided by law diba? It’s an ultra vires revenue regulation.
gross value of the estate, where the said estate consists of So now, it is already in Section 91(C)
registered or registrable property such as real property, motor
vehicle, shares of stockor other similar property for which a TRAIN LAW SEC. 91(C). Payment by Installment.— In case the
clearance from the Bureau of Internal Revenue is required as a available cash of the estate is insufficient to pay the total estate tax
condition precedent for the transfer of ownership thereof in the due, payment by installment shall be allowed within two (2) years
name of the transferee, the executor, or the administrator, or any of from the statutory date for its payment without civil penalty and
the legal heirs, as the case may be, shall file a return under oath in interest.
duplicate xxx
PRINCIPLES TO REMEMBER
If you notice under the TRAIN Law, the deleted portion is this “or  Payment by installment of estate tax is already allowed
where, though exempt from tax, the gross value of the estate exceeds beginning January 1, 2018.
Two hundred thousand pesos (P200,000)”.  The sole ground for the allowance thereof is “In case the
available cash of the estate is insufficient to pay the total
WHAT IS THE RULE UNDER THE OLD LAW? estate tax due.
 GR: Executor/Administrator shall file an estate tax return.  The payment by installment of estate tax is allowed up to 2
 EXC: Where the Gross estate does not exceed P200,000 years.
 EXC TO EXC: Where the said estate consists of registered
or registrable property IF THE EXECUTOR OR ADMINISTRATOR OPTS TO PAY ESTATE
TAXES THROUGH INSTALLMENT, IS THE ESTATE LIABLE FOR
WHY IS THE P200k REMOVED? SURCHARGES AND INTEREST?

It is because under the old law, if the Net estate is under P200,000, the NO. Estate tax law is pretty much the same with succession laws, the
estate is exempt from estate taxes. Now, flat rate na, wala ng law at the time of the decedent’s death shall govern. Besides, estate
exemption. So, does that mean na lahat kailangan na mag-file ng tax accrues from the time of death. Also, tax laws operate
estate tax return? But look at the standard deduction, it is already prospectively unless otherwise provided.
P5,000,000. If your gross estate is less than that, wala kanang
babayarang estate tax. So ano na ang rule under the TRAIN Law? To (6) BANK WITHDRAWAL BEFORE PAYMENT OF ESTATE TAX
be honest about it, I don’t really know.
Under the old law:
Kay nawala naman ng P200,000 all estate must file an estate tax
return. That is one way to argue about it. Another way of interpreting it SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
is that if the gross estate does not exceed P5,000,000, there’s no need Bonds or Rights. - If a bank has knowledge of the death of a
for that person to file an estate tax return. Kay dili man siya person, who maintained a bank deposit account alone, or jointly
maglampas sa standard deduction.
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
with another, it shall not allow any withdrawal from the said deposit (B) Tax Payable by Donor if Donee is a Stranger. - When the
account, unless the Commissioner has certified that the taxes donee or beneficiary is stranger, the tax payable by the donor shall
imposed thereon by this Title have been paid: Provided, however, be thirty percent (30%) of the net gifts.
That the administrator of the estate or any one (1) of the heirs of the
decedent may, upon authorization by the Commissioner, withdraw For the purpose of this tax, a "stranger", is a person who is not a:
an amount not exceeding Twenty thousand pesos (P20,000) (1) Brother, sister (whether by whole or half-blood), spouse,
without the said certification. ancestor and lineal descendant; or (2) Relative by consanguinity in
the collateral line within the fourth degree of relationship.
Under the TRAIN Law:
(C) Any contribution in cash or in kind to any candidate, political
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, party or coalition of parties for campaign purposes shall be
Bonds or Rights.- If a bank has knowledge of the death of a governed by the Election Code, as amended.
person, who maintained a bank deposit account alone, or jointly
with another, it shall allow any withdrawal from the said deposit Under the TRAIN Law:
account, subject to a final withholding tax of six percent (6%). For
this purpose, all withdrawal slips shall contain a statement to the SEC. 99. Rate of Tax Payable by Donor.— (A) In General.— The
effect that all of the joint depositors are still living at the time of tax for each calendar year shall be six percent (6%) computed on
withdrawal by any one of the joint depositors and such statement the basis of the total gifts in excess of Two hundred fifty thousand
shall be under oath by the said depositors. pesos (₱250,000) exempt gift made during the calendar year.

Under the old law (B) Any contribution in cash or in kind to any candidate, political
 GR: Banks are prohibited to allow anyone to withdraw from party or coalition of parties for campaign purposes shall be
the bank account of the deceased whether the account is in governed by the Election Code, as amended
his own name or in conjunction with others.
 EXCs: There is no longer a distinction between donation to a stranger and
1. The Commissioner has certified that the taxes donation not to a stranger. That’s bullshit already today under the
imposed thereon by this Title have been paid; or TRAIN Law. It is now a flat rate of 6% in excess of P250,000 during the
2. Upon authorization by the Commissioner, withdraw calendar year.
an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. Letter B is pretty much bullshit because the Election Code is always
changing. I think Casasola and De Leon says that it is still exempt from
Right now, wala na yan. Starting January 1, 2018. You are not allowed donor’s tax.
to withdraw but here’s the catch. It is subject to a final withholding tax
of 6%. (2) TRANSFER FOR LESS THAN ADEQUATE AND FULL
CONSIDERATION
Sir, can I deduct it from the estate tax due?
Under the old law:
My take on this provision is that it’s a final withholding tax, it’s a
separate tax. Probably it is a form of estate tax because it relates to SEC. 100. Transfer for Less Than Adequate and Full
the estate of the decedent but it is some sort of a different type of tax. Consideration. - Where property, other than real property referred
Also, hindi siya creditable. I think what is being taxed here is the to in Section 24(D), is transferred for less than an adequate and full
privilege of withdrawing money from the bank. So the question now is consideration in money or money's worth, then the amount by
this, since final na siya, is the amount withdrawn still part of the gross which the fair market value of the property exceeded the value of
estate? Estate taxation does not have a provision which says that the consideration shall, for the purpose of the tax imposed by this
properties subjected to final tax is no longer included as part of the Chapter, be deemed a gift, and shall be included in computing the
gross estate unlike in income taxation. Let’s just wait for the revenue amount of gifts made during the calendar year.
regulation and Supreme Court ruling on that.
Under the TRAIN Law:
B. DONOR’S TAX
Sec. 100. Transfer for Less Than Adequate and Full
(1) AS TO RATES Consideration.— Where property, other than real property referred
to in Section 24(D), is transferred for less than an adequate and full
SECTION 99. Rates of Tax Payable by Donor. - (A) In General. - consideration in money or money’s worth, then the amount by
The tax for each calendar year shall be computed on the basis of which the fair market value of the property exceeded the value of
the total net gifts made during the calendar year in accordance with the consideration shall, for the purpose of the tax imposed by this
the following schedule: If the net gift is: Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year: Provided, however,
OF THE That a sale, exchange, or other transfer of property made in the
BUT NOT THE TAX ordinary course of business (a transaction which is a bona fide, at
OVER PLUS EXCESS
OVER SHALL BE arm’s length, and free from any donative intent), will be considered
OVER
P 100,000 Exempt as made for an adequate and full consideration in money or
P 100,000 200,000 0 2% P100,000 money’s worth.
P200,000 500,000 2,000 4% 200,000
P500,000 1,000,000 14,000 6% 500,000 Under the old law
P1,000,000 3,000,000 44,000 8% 1,000,000  GR: Transfer for Less Than Adequate and Full
P3,000,000 5,000,000 204,000 10% 3,000,000 Consideration is subject to Donor’s tax.
P5,000,000 10,000,000 404,000 12% 5,000,000  EXC: If the property sold, bartered or traded is a real
property and a capital asset. It is because it is subject to
P10,000,000 1,004,000 15% 10,000,000
Capital Gains Tax (CGT) of 6% based on Selling Price,
Assessed Value or Zonal Value whichever is higher.
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
Under the TRAIN law CHARACTERISTICS OF VAT
 GR: Transfer for Less Than Adequate and Full
Consideration is subject to Donor’s tax. (1) BUSINESS TAX. It is generally imposed on persons
 EXCs: engaged in trade or business.
1. If the property sold, bartered or traded is a real
property and a capital asset. It is because it is SEC. 105. Persons Liable. - Any person who, in the course of
subject to Capital Gains Tax (CGT) of 6% based trade or business, sells barters, exchanges, leases goods or
on Selling Price, Assessed Value or Zonal Value properties, renders services, and any person who imports goods
whichever is higher. shall be subject to the value-added tax (VAT) imposed in Sections
2. Sale, exchange, or other transfer of property made 106 to 108 of this Code. xxx
in the ordinary course of business (a transaction
which is a bona fide, at arm’s length, and free from GR: Any person, whether natural or juridical, who, in the course of
any donative intent) trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall
So dalawa na siya. Para mas madali, it is ordinary transfers in the be subject to VAT.
ordinary course of business.
HOW IS “IN THE COURSE OF TRADE OR BUSINESS” DEFINED?
REQUIREMENTS  The phrase "in the course of trade or business" means the
1. There is a sale, exchange or transfer; regular conduct or pursuit of a commercial or an economic
2. It is made in the ordinary course of business; and activity, including transactions incidental thereto, by any
3. The transaction which is a bona fide, at arm’s length, and person regardless of whether or not the person engaged
free from any donative intent therein is a non-stock, non-profit private organization
(irrespective of the disposition of its net income and whether
I think this is a good provision to avoid payment of donor’s taxes when or not it sells exclusively to members or their guests), or
you don't intend to donate anything. Sometime you’re not after the government entity (Section 105 of the NIRC).
money eh but the goodwill.
There are actually two definitions given by the Tax Code:
(3) EXCEPTION OF CERTAIN GIFTS 1. Regular conduct or pursuit of a commercial or an economic
activity. This means that you normally do it with the end view
For all taxpayers except NRADs of gaining profit.
2. Transactions incidental thereto.
Under the old law:
1. Dowries (P10,000) CIR vs. MAGSAYSAY LINES
2. Gifts made to or for the use of the National Government G.R. No. 146984 | July 28, 2006
3. Gifts in favor of an educational and/or charitable etc.
FACTS: Pursuant to the government’s privatization program, NDC
Under the TRAIN law: decided to sell its shares in the National Marine Corp. and five
1. There is no longer exception for dowries vessels. Magsaysay Lines bought the shares and vessels. The CIR
contends that the sale of the five vessels is incidental to its NDC’s
With respect to NRAD donors, everything is still the same. Those are VAT registered activity of leasing out personal property and thus
the changes brought about by the TRAIN Law to Estate and Donor VAT-taxable. It further argued that VAT is imposed on any sale or
Taxes. transactions ‘deemed sale’ of taxable goods (including capital
goods, irrespective of the date of acquisition)." The sale of the
11 JANUARY 2018 (MKGumboc) vessels were among those transactions "deemed sale," as
enumerated in Section 4 of R.R. No. 5-87.
VALUE-ADDED TAX (VAT)
ISSUE: W/N the sale of NDC of its five vessels is subject to VAT.
TRANSFER TAXES are taxes imposed on the gratuitous transfers of
properties. RULING: NO

WHAT WILL HAPPEN IF IT INVOLVES ONEROUS TRANSFERS? In Imperial v. Collector of Internal Revenue, the term "carrying on
1. It will be subjected to business taxes because it may be business" does not mean the performance of a single disconnected
possible that it is transferred in the course of your ordinary act, but means conducting, prosecuting and continuing business by
business; or performing progressively all the acts normally incident thereof; while
2. It will be subjected to capital gains tax; or "doing business" conveys the idea of business being done, not
3. There will only be income tax implication. from time to time, but all the time.

WHAT IS VALUE-ADDED TAX? What is clear therefore, based on the aforecited jurisprudence, is
 It is a tax imposed only in a piece of work, merit or that "course of business" or "doing business" connotes regularity of
importance of goods, properties or services and not to the activity. In the instant case, the sale was an isolated transaction.
total value of the goods and services. The sale which was involuntary and made pursuant to the declared
 It is also a tax on spending or consumption. policy of Government for privatization could no longer be repeated
 It is levied on the sale, barter, exchange or lease of goods or or carried on with regularity. It should be emphasized that the
properties and services to be consumed here in the normal VAT-registered activity of NDC is leasing personal property.
Philippines.
 It is a uniform tax levied on any importation of goods, Any sale, barter or exchange of goods or services not in the course
whether or not in the course of trade or business, or imposed of trade or business is not subject to VAT. In this case, the sale of
on each sale, barter, exchange or lease of goods or the vessels was an isolated transaction, not done in the ordinary
properties or on each rendition of services in the course of course of NDC’s business and is thus not subject to VAT.
trade or business.
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
DISCUSSION: been using the car in relation to its business. Therefore, it is incidental
thereto.
Here, NDC is not engaged in the selling of vessels. In fact, its business
is primarily on leasing the vessels. Being such, it cannot be said that In other words, it can be said that everything that is connected to your
the sale of the five vessels is made in the ordinary course of tis trade business or incidental thereto, when sold, is subjected to VAT.
or business. Another important thing to take note here is the reason
why the vessels were sold. It was pursuant to a government mandate. Illustration:
Hence, NDC was obliged to sell the vessels.
Supposing you are engaged in a car wash business. Then suddenly
MINDANAO II GEOTHERMAL vs. CIR you decided to sell your water pump because you want to upgrade. If
G.R. No. 193301 | March 11, 2013 you are a VAT registered person and you sell that machine, what is the
VAT implication?
FACTS: Mindanao II is engaged in the business of finance,
engineering, supply, installation, testing, commissioning, operation, You cannot argue with the BIR that you should not be subjected to
and maintenance of a 48.25 megawatt geothermal power plant. VAT because you are engaged in the business of car wash and not on
Later on, it sold its Nissan Patrol car which it now claims as input the selling of machines. The law is clear that VAT is imposed on the
VAT. It stated that the sale of the fully depreciated Nissan Patrol is regular conduct or pursuit of a commercial or an economic activity,
a one-time transaction and is not incidental to its VAT zero-rated including transactions incidental thereto.
operations. The BIR disallowed the input tax credit.
Another difference between the two cases is that MINDANAO II cannot
ISSUE: W/N the sale of the Nissan Patrol is subject to VAT. simply rely in the case of CIR vs. MAGSAYSAY LINES. Basically, the
SC is saying that the latter is just an isolated case. In a way the SC is
RULING: YES saying that as long as you used in your business and you
subsequently sell it, then you should pay the VAT for that sale even if it
Mindanao II relies on Commissioner of Internal Revenue v. is not primarily your business.
Magsaysay Lines, Inc. (Magsaysay and Imperial v. Collector of
Internal Revenue (Imperial) to justify its position. Magsaysay, IS A NON-STOCK, NON-PROFIT ORGANIZATION WHO SELLS
decided under the NIRC of 1986, involved the sale of vessels of the PROPERTIES LIABLE TO VAT?
National Development Company (NDC) to Magsaysay Lines, Inc.
We ruled that the sale of vessels was not in the course of NDC’s YES. The law is clear. It says that any person regardless of whether or
trade or business as it was involuntary and made pursuant to the not the person engaged therein is a non-stock, non-profit, private
Government’s policy for privatization. Magsaysay, in quoting from organization irrespective of the disposition of its net income and
the CTA’s decision, imputed upon Imperial the definition of "carrying whether or not it sells exclusively to members or their guests or
on business." Imperial, however, is an unreported case that merely government entity.
stated that "‘to engage’ is to embark in a business or to employ
oneself therein." CIR vs. COMASERCO
G.R. No. 125355 | March 30, 2000
Mindanao II’s sale of the Nissan Patrol is said to be an isolated
transaction. However, it does not follow that an isolated transaction FACTS: COMASERCO is a domestic corporation. It is an affiliate of
cannot be an incidental transaction for purposes of VAT liability. Philamlife. COMASERCO is organized to perform collection,
Indeed, a reading of Section 105 of the 1997 Tax Code would show consultative and other technical services, including functioning as
that a transaction "in the course of trade or business" includes an internal auditor, of Philamlife and its other affiliates. Later on,
"transactions incidental thereto." BIR assessed COMASERCO for VAT deficiency.

Mindanao II’s business is to convert the steam supplied to it by COMASERCO asserted that the services it rendered to Philamlife
PNOC-EDC into electricity and to deliver the electricity to NPC. In and its affiliates, relating to collections, consultative and other
the course of its business, Mindanao II bought and eventually sold a technical assistance, including functioning as an internal auditor,
Nissan Patrol. Prior to the sale, the Nissan Patrol was part of were on a "no-profit, reimbursement-of-cost-only" basis. It averred
Mindanao II’s property, plant, and equipment. Therefore, the sale of that it was not engaged in the business of providing services to
the Nissan Patrol is an incidental transaction made in the course of Philamlife and its affiliates. COMASERCO was established to
Mindanao II’s business which should be liable for VAT. ensure operational orderliness and administrative efficiency of
Philamlife and its affiliates, and not in the sale of services.
DISCUSSION: COMASERCO stressed that it was not profit-motivated, thus not
engaged in business. Since it was not engaged in business, it was
Here, the SC ruled that sale of the Nissan Patrol is not an isolated not liable to pay VAT.
transaction but it is incidental to its trade or business because it has
been using the car for its business. Being such, the sale thereof is On the other hand, CIR maintains that the services rendered by
subject to VAT. COMASERCO to Philamlife and its affiliates, for a fee or
consideration, are subject to VAT. VAT is a tax on the value added
Let us now compare it with the case of CIR vs. MAGSAYSAY LINES by the performance of the service. It is immaterial whether profit is
where the SC ruled that the sale of the five vessels is not subject to derived from rendering the service.
VAT because it is deemed to be an isolated transaction.
ISSUE: W/N COMASERCO was engaged in the sale of services,
Actually, the main difference between the two cases is the fact of and thus liable to pay VAT thereon.
voluntariness of the transaction. In CIR vs. MAGSAYSAY LINES,
practically, the corporation has no choice but to sell its vessels RULING: YES
because it is obliged to follow a government mandate. Hence, the sale
is involuntary on its part. On the other hand, in MINDANAO II Section 105 of the NIRC clarifies that even a non-stock, non-profit,
GEOTHERMAL vs. CIR, the sale of its Nissan Patrol is voluntary on its organization or government entity, is liable to pay VAT on the sale
part. Further, the corporation cannot deny that at some point, it has of goods or services. VAT is a tax on transactions, imposed at

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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
every stage of the distribution process on the sale, barter, exchange that it was paid the cost or expense that it incurred although without
of goods or property, and on the performance of services, even in profit. This is not true in the present case. Sony did not render any
the absence of profit attributable thereto. The term "in the course of service to SIS at all. The services rendered by the advertising
trade or business" requires the regular conduct or pursuit of a companies, paid for by Sony using SIS dole-out, were for Sony and
commercial or an economic activity regardless of whether or not the not SIS. SIS just gave assistance to Sony in the amount equivalent
entity is profit-oriented. to the latter’s advertising expense but never received any goods,
properties or service from Sony.
Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its DISCUSSION:
affiliates on a reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services Here, the BIR is contending that the money given by Sony Singapore
rendered. As long as the entity provides service for a fee, to Sony Philippines should be subjected to VAT. Further, Sony
remuneration or consideration, then the service rendered is subject Philippines cannot claim any input VAT credits for the advertising
to VAT. expenses because it did not declare any VAT from the money given by
Sony Singapore.
DISCUSSION:
The SC ruled that unlike in the case of COMASERCO where services
Here, COMASERCO offered its services to Philamlife Life as its sole were in fact rendered by COMASERCO in favor of Philamlife, here
client in exchange that the latter will pay it back. In other words, there was no underlying service at all because the advertising services
COMASERCO practically receives nothing. Nevertheless, the SC ruled was rendered in favor of Sony Philippines and not for Sony Singapore.
that even if there is no income involved because it purely What the latter merely did is to provide dole-out to Sony Philippines in
reimbursement-of-cost-only basis, as long as there is service for order to pay said advertising expenses.
remuneration or consideration, it is subject to VAT. Take note that
under the law, it provides sale of services. Further the law says without In other words, in COMASERCO it provides that I will do something for
any regard whether the entity the entity is for profit or not, without any you and you just reimburse me for the services I render. Since it is for
regard of the purpose for which the income or money is received in a consideration regardless of any profit present and there were
consideration of such service. services rendered that is already a VATABLE transaction. On the other
hand in SONY case, there was indeed receipt of money and it gained
CIR vs. SONY income for it but there is no sale, barter or exchange involved.
G.R. No. 178697 | November 17, 2010
As to the money received by Sony Philippines from Sony Singapore,
FACTS: Sony Philippines engaged the services of several the SC ruled that it forms part of its income. But is that correct? Diba it
advertising companies. Due to dire economic conditions, Sony is a dole out. It means that it somehow partakes the nature of a
International Singapore (SIS) gave Sony Philippines a dole-out to donation. Is donation income? Think about it.
pay for said advertising expenses. Sony Philippines claimed as
input VAT credits that VAT paid for the advertising expenses. CONTINUATION OF CHARACTERISTICS OF VAT

The CIR disallowed this and assessed Sony Philippines deficiency (2) INDIRECT TAX. This means that the burden of tax may be
VAT on the reimbursable received by it from SIS. The CIR contends shifted by the statutory taxpayer to another person.
that the reimbursable was a fee for a Vataxable activity. It points
out that since Sony’s advertising expense was reimbursed by SIS, In VAT, the one statutorily liable to pay is the seller even if he may
the former never incurred any advertising expense. As a result, transfer it to the buyer. Hence, if he fails to pay the VAT, he may be
Sony is not entitled to a tax credit. At most, the CIR continues, the held liable for penalties and surcharges. Also, if the buyer fails to pay
said advertising expense should be for the account of SIS, and not the VAT, it will still be the seller who will be held responsible for the
Sony. The CIR further argues that Sony itself admitted that the payment thereof.
reimbursement from SIS was income and, thus, taxable.
COST DEDUCTION METHOD provides that VAT is a single stage tax
ISSUE: W/N the advertising expenses granted by SIS to Sony Phil system and payable only by the original seller (ABAKADA vs.
is subject to VAT. Ermita). This is why we said earlier that the seller is the person
statutorily liable for the VAT. He may pass the burden but ultimately if
RULING: NO the buyer fails to pay the VAT, it will always be the seller who is held
primarily liable.
Insofar as the subsidy may be considered as income and, therefore,
subject to income tax, the Court agrees. However, the Court does But right now, the VAT system is a mixture of the cost deduction
not agree that the same subsidy should be subject to VAT. To begin method and the tax credit method.
with, the said subsidy termed by the CIR as reimbursement was not
even exclusively earmarked for Sony’s advertising expense for it In the same vein that if there is VAT refund to be filed by someone,
was but an assistance or aid in view of Sony’s dire or adverse only the person who is statutorily liable can claim that VAT refund.
economic conditions, and was only "equivalent to the latter’s
(Sony’s) advertising expenses." (3) TAX ON SPENDING OR COMSUMPTION OF GOODS

Under Section 106, there must be a sale, barter or exchange of CONSUMPTION pertains to the use of a thing in a way that thereby
goods or properties before any VAT may be levied. Certainly, there exhausts it. The case in point here is the SONY wherein it provides
was no such sale, barter or exchange in the subsidy given by SIS to that there must be consumption or sale of goods or services rendered
Sony. It was but a dole out by SIS and not in payment for goods or before VAT will be imposed.
properties sold, bartered or exchanged by Sony.
SERVICES means the performance or successful completion of a
The case of COMASERCO is not applicable in this case. In that contractual duty, usually resulting in the performers release from any
case, COMASERCO rendered service to its affiliates and, in turn, past or future liability.
the affiliates paid the former reimbursement-on-cost which means

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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
(4) FOLLOWS THE DESTINATION PRINCIPLE AND THE WHY IS OUR PRESENT TAX SYSTEM A MIXTURE OR A QUASI-
CROSS BORDER DOCTRINE DEDUCTION METHOD?

DESTINATION PRINCIPLE means that the destination of the goods While it is true that the seller is the one liable for VAT, he can still claim
determines the taxation or exemption from VAT. Goods and services the same as part of his tax credit for his tax liabilities. Hence, you can
are taxed only in the country where they are consumed. simply say that this tax credit method is not a tax pyramiding scheme.
For example A sells to B. A transfers the VAT to B then B also sells to
CROSS BORDER DOCTRINE states that VAT is to be imposed to C. B transfers the VAT to C. Here it looks like a tax on top of another
form part to the cost of goods destined for consumption outside of the tax thus may amount to tax pyramiding. But precisely because of this
territorial border of the taxing authority. input VAT tax where the taxpayer is allowed to claim tax credit, it is no
longer a tax over a tax. What he paid to anther he can simply claim as
Illustration: input tax to reduce his VAT liability.

Goods or services consumed here in the Philippines are subject to the IMPOSITION OF VAT
12% VAT but the goods or services exported outside the Philippines
are subject to zero-rated transaction because it is no longer consumed SEC. 105. Persons Liable. - Any person who, in the course of
here in the Philippines. trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods
(5) PERCENTAGE TAX. It is imposed at every stage of the shall be subject to the value-added tax (VAT) imposed in Sections
distribution process on the sale, barter, or exchange or lease 106 to 108 of this Code. xxx
of goods or properties and on the performance of service in
the course of trade or business or on the importation of TRANSACTIONS COVERED BY VAT:
goods, whether for business or non-business 1. Sale of goods or properties in the course of trade or
(6) EXCISE TAX. It is a tax on the privilege of engaging in the business;
business of selling goods or services or in the importation of 2. Sale of services and leases in the course of trade or
goods business;
(7) AD VALOREM TAX. As its amount or rate is based on gross 3. Importation, whether or not in the course of trade or
selling price or gross value in money or gross receipts business
derived from the transaction
Also, take note of the last paragraph of Section 105 which says:
TAX CREDIT METHOD
SEC. 105. The rule of regularity, to the contrary notwithstanding,
TAX CREDIT is the deduction on the tax liability. The cost deduction services as defined in this Code rendered in the Philippines by
method also has something to do with tax credit. The composition of nonresident foreign persons shall be considered as being course of
VAT is actually the input VAT and the output VAT. trade or business.

TAX CREDIT METHOD provides that, an entity can credit against or A foreigner will render services which will be consumed here in the
subtract from the VAT charged on its sales or outputs the VAT paid on Philippines. Since the service will be consumed here, there will be a
its purchases, inputs and imports. VAT implication. Pagbayad mo sa service provider, there will be a
withholding VAT. In short, the services rendered by nonresident foreign
In the computation of VAT, if you take everything out, the VAT will be persons shall be deemed as done in the course of trade or business
based on your selling. Once you sell goods palabas tawag diyan for the purposes of VAT.
output VAT. The output VAT is actually the VAT liability of the person
selling. Under our present tax laws, the output VAT is reduced by the (1) VAT ON SALE OF GOODS OR PROPERTIES
input VAT. The seller now becomes the buyer and in the context of
buying the person on whom I bought the products also passed on to
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
me the VAT. In other words, ang input VAT kung ano man yon
(A) Rate and Base of Tax. - There shall be levied, assessed and
binayaran ko sa ibang tao, I can claim it as part of my tax credit.
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) of the gross selling
INPUT TAX means the value-added tax paid by a VAT-registered
price or gross value in money of the goods or properties sold,
person/entity in the course of his/its trade or business on the
bartered or exchanged, such tax to be paid by the seller or
importation of goods or local purchases of goods or services from a
transferor; Provided that the President, upon recommendation of
VAT- registered person (from the book of Casasola).
the Secretary of Finance, shall, effective January 1, 2006, raise the
rate any of value-added tax to twelve percent (12%) after any of the
OUTPUT TAX is the value-added tax on the sale of taxable goods or
following conditions have been satisfied: xxx
services by any person registered or required to register under the Tax
Code (from the book of Casasola).
PRINCIPLES TO REMEMBER
1. Tax rate: 12%
Otherwise stated, OUTPUT TAX is the VAT due on the sale or lease or
2. Tax base: The gross selling price or gross value in money of
taxable goods, properties or services by an VAT-registered person. On
the goods or properties sold, bartered or exchange (output
the other hand, INPUT TAX is the VAT due on or paid by a VAT-
VAT)
registered person on importation of good or local purchases of goods
or services, including lease or use of properties, in the course of his
IF I AM A BUSINESSMAN AND I SELL GOODS OR SERVICES, IS
trade or business (from the book of Casasola).
IT AUTOMATIC THAT I AM LIABLE TO VAT?
FORMULA:
Not yet because the general amount for the sale or threshold is always
considered. Under the old law, it used to be P1.5M until it was raised to
OUTPUT VAT- INPUT VAT = VAT PAYABLE
P1,919,500. Therefore, if I am a businessman and my sale does not
exceed P1,919,500 then I am not liable to VAT.

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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
If the sales will increase to the threshold amount, then that is the time Under the TRAIN LAW:
when the businessman will be held liable to the 12% VAT.
SEC. 236 (G) Persons Required to Register for Value-Added
CHANGES UNDER THE TRAIN ON SECTION 106(A) Tax.— (1) Any persons who, in the course of trade or business,
sells, barters or exchanges goods or properties, or engages in the
(1) AS TO THE STANDBY PROVISION sale or exchange of services, shall be liable to register for value-
added tax if:
If you read Section 106, it contains a standby provision of the (a) His gross sales or receipts for the past twelve (12)
President when it comes to VAT law upon the happening of the two months, other than those that are exempt under Section
conditions as indicated in the case of ABAKADA vs. Ermita case. 109(A) to (BB), have exceeded Three million pesos
That is why the 10% VAT rate is now increased to 12%. In fact, that (₱3,000,000); or
was challenge for being unconstitutional but the SC ruled otherwise. (b) There are reasonable grounds to believe that his gross
sales or receipts for the next twelve (12) months, other
ABAKADA vs. ERMITA than those that are exempt under Section 109(A) to (BB),
will exceed Three million pesos (₱3,000,000).
There was no undue delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and *So please don’t forget about the P1,919,500 because what may be
administration of the increase rate under the law is contingent. The asked from you is a transaction that occurred prior to January1, 2018.
legislature has made the operation of the 12% rate contingent upon
a specified fact or condition. It leaves the entire operation or non- ASSUMING THE TAXPAYER DID NOT REACH THE THRESHOLD,
operation of the 12% rate upon factual matters outside of the CAN HE STILL AVAIL OF THE VAT REGISTRATION? YES
control of the executive.
OPTIONAL VAT REGISTRATION
Under the TRAIN LAW:
SEC. 236(H). Optional Registration for Value-Added Tax of
SEC. 106. Value-added Tax on Sale of Goods or Properties.— Exempt Person.— (1) Any person who is not required to register
“(A) Rate and Base of Tax.— There shall be levied, assessed and for value-added tax under Subsection (G) hereof may elect to
collected on every sale, barter or exchange of goods or properties, register for value-added tax by registering with the Revenue District
a value-added tax equivalent to twelve percent (12%) of the gross Office that has jurisdiction over the head office of that person, and
selling price or gross value in money of the goods or properties paying the annual registration fee in Subsection (B) hereof.
sold, bartered or exchanged, such tax to be paid by the seller or
transferor. EFFECTS WHEN A TAXPAYER WHO IS NOT REQUIRED TO
REGISTER AS A VAT TAXPAYER REGISTERS HIMSELF AS SUCH
Hence, the standby provision is already removed under the TRAIN law. 1. The option cannot be revoked or cancelled for three years.
It simply says that the VAT rate shall be 12%. In other words, it is irrevocable for the next three years from
the time of registration.
Under the old law, if the sales of a businessman do not exceed 2. The taxpayer is liable to pay VAT even if for such years he
P1,919,500, he is not subject to VAT but if he exceeds the threshold did not reach the ceiling required for the payment thereof.
then he shall be liable to VAT. But, in addition to this, the liability of
such person also depends on his VAT registration. Every businessman Additional provision under the TRAIN LAW:
may register himself either as a VAT taxpayer or non-VAT taxpayer.
SEC. 236(H). Optional Registration for Value-Added Tax of
(2) AS TO THE CEILING FOR VAT REGISTRAION Exempt Person.— (1) Any person who is not required to register
for value-added tax under Subsection (G) hereof may elect to
KINDS OF VAT REGISTRATION register for value-added tax by registering with the Revenue District
1. Mandatory VAT registration Office that has jurisdiction over the head office of that person, and
2. Optional VAT registration paying the annual registration fee in Subsection (B) hereof.

MANDATORY REGISTRATION (2) Any person who elects to register under this Subsection
shall not be entitled to cancel his registration under
SEC. 236(G). Persons Required to Register for Value-Added Subsection (F)(2) for the next three (3) years.
Tax.— (1) Any persons who, in the course of trade or business,
sells, barters or exchanges goods or properties, or engages in the Provided, That any person taxed under Section 24(A)(2)(b) and
sale or exchange of services, shall be liable to register for value- 24(A)(2)(c)(2)(a) of the NIRC who elected to pay the eight percent
added tax if: (8%) tax on gross sales or receipts shall not be allowed to avail of
(a) His gross sales or receipts for the past twelve (12) this option.
months, other than those that are exempt under Section For purposes of Title IV of this Code, any person who has
109 (A) to (U) have exceeded One million nine hundred registered value-added tax as a tax type in accordance with the
nineteen thousand five hundred pesos (P1,919,500); or provisions of Subsection (C) hereof shall be referred to as a ‘VAT-
(b) There are reasonable grounds to believe that his gross registered person’ who shall be assigned only one Taxpayer
sales or receipts for the next twelve (12) months, other Identification Number (TIN).
than those that are exempt under Section 109 (A) to (U)
will exceed One million nine hundred nineteen thousand PRINCIPLES TO REMEMBER
five hundred pesos (P1,919,500). (amended by RA  Section 24(A)(2)(b) refers to self-employed individuals
10376) and/or professionals.
 Section 24(A)(2)(c)(2)(a) refers to mixed income earners
Under the TRAIN law, it is no longer P1,919,500 but it is now P3M. which means that the person is employed and at the same
Take note, however, that the P3M will only apply beginning January 1, time he is exercising his own trade or business or
2018. profession.

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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
 RATIONALE FOR THE PROHIBITION: These persons has GENERAL RULE: Yes, he is subject to VAT because he exceeded the
the option to be taxed at 8% based on their gross sales or threshold.
gross receipts. However, this is only if their income will not
exceed P3M. In other words, these persons do not have the EXCEPTION: if the transaction by that taxpayer is specifically declared
option to elect the 8% if their income exceeds P3M. by the NIRC as VAT-exempt.

16 JANUARY 2018 (YIbay) (2) OPTIONAL REGISTRATION

(1) VALUE-ADDED TAX ON SALE OF GOODS OR PROPERTIES SEC. 236(G)(1)(b). There are reasonable grounds to believe that his
gross sales or receipts for the next twelve (12) months, other than
SEC. 106. Value-Added Tax on Sale of Goods or Properties. – those that are exempt under Section 109(A) to (V), will exceed One
(A) Rate and Base of Tax. - There shall be levied, assessed and million five hundred thousand pesos (P1,500,000); or
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) of the gross selling Even if there is no actual sales or receipts as of yet but there are
price or gross value in money of the goods or properties sold, bartered reasonable grounds to believe that in a single year or within the 12
or exchanged, such tax to be paid by the seller or transferor. month period the sales or receipts would exceed P1.9M, the taxpayer
can opt for a VAT registration.
Under the old law, the tax rate is 12%. The tax base of the VAT is
without regard with anything else. The tax base is the Gross Selling For instance you just opened your business and you don’t know
Price. whether or not to register as a VAT taxpayer or a non-VAT taxpayer.
Why is it that you need to decide on that? Because there is a huge
Changes under the TRAIN Law: difference between the VAT percentage and the percentage tax

SEC. 106. Value-Added Tax on Sale of Goods or Properties. – What if you are engaged in the selling of heavy machineries (eg.
(A) Rate and Base of Tax.— There shall be levied, assessed and Bulldozers)? Secondhand bulldozers costs P2M. If you are in that kind
collected on every sale, barter or exchange of goods or properties, a of business, mag-isip ka na. You have the option to register as a VAT
value-added tax equivalent to twelve percent (12%) of the gross selling taxpayer.
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. Supposing the taxpayer did not exceed the P1.9M threshold in a single
year, can you still register as a VAT taxpayer? YES, the law allows
The new law explicitly stated that the rate is at 12% and the standby that.
provision is already removed.
WHAT ARE THE BENEFITS IF YOU WILL REGISTER AS A VAT
ADMINISTRATIVE PROVISIONS TAXPAYER?

THREE TRANSACTIONS COVERED BY VAT: 1. He will be able to claim input taxes.


1. Sale of goods or properties
2. Sale of services SEC. 236(H). Optional Registration for Value-Added Tax of
3. Importation Exempt Person. – (1) Any person who is not required to register for
value-added tax under Subsection (G) hereof may elect to register for
WHEN WE TALK OF SALE OF GOODS AND PROPERTIES, FOR value-added tax by registering with the Revenue District Office that has
THEM TO BE LIABLE FOR VAT: a jurisdiction over the head office of that person, and paying the annual
a. They shall exceed the threshold registration fee in Subsection (B) hereof.
b. Look into the registration of whether or not they are VAT or
non-VAT registered. WHAT IS THE EFFECT IF THE PERSON WOULD OPT TO
REGISTER AS A VAT TAXPAYER?
TWO KINDS OF REGISTRATION:
1. Mandatory registration SEC. 236(H)(2). Any person who elects to register under this
2. Optional registration Subsection shall not be entitled to cancel his registration under
Subsection (F) (2) for the next three (3) years.
(1) MANDATORY REGISTRATION
This for three (3) successive years. So the choice is irrevocable for the
SEC. 236(G). Persons Required to Register for Value-Added Tax. next 3 years. Even if the sales or receipts would NOT exceed the
(1) Any person who, in the course of trade or business, sells, P1.9M, he cannot cancel such registration for 3 years.
barters or exchanges goods or properties, or engages in the
sale or exchange of services, shall be liable to register for CHANGES UNDER THE TRAIN LAW
value-added tax if:
(a) His gross sales or receipts for the past twelve (12) SEC. 72. Section 236 of the NIRC, as amended, is hereby further
months, other than those that are exempt under amended to read as follows:
Section 109(A) to (V), have exceeded One million
five hundred thousand pesos (P1,500,000); or “SEC. 236. Registration Requirements. —
(H) Optional Registration for Value-Added Tax of Exempt
*threshold is now P1,919,500 Person.— “(2) Any person who elects to register under this
Subsection shall not be entitled to cancel his registration under
WHAT IF THE TAX PAYER IS NOT A VAT REGISTERED PERSON Subsection (F)(2) for the next three (3) years.
AND HIS GROSS SALES EXCEEDS THE 1.9M THRESHOLD? WILL
THAT PERSON BE SUBJECT TO VAT? “Provided, That any person taxed under Section 24(A)(2)(b) and
24(A)(2)(c)(2)(a) of the NIRC who elected to pay the eight percent
A: It depends. (8%) tax on gross sales or receipts shall not be allowed to avail of this
option.
9|P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
What does Section 24(A)(2)(b) refer to? This refers to self-employed SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
individuals/professionals
(D) Sales Returns, Allowances and Sales Discounts. - The value of
What does Section 24(A)(2)(c)(2)(a) refer to? This refers to mixed goods or properties sold and subsequently returned or for which
income earners with respect to their business income or practice of allowances were granted by a VAT-registered person may be
profession. 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
With respect to the self-employed or mixed income earners, they have discount granted and indicated in the invoice at the time of sale and
the option to be taxed at 8% of their gross sales or receipts. Yan ang the grant of which does not depend upon the happening of a future
option nila under the TRAIN Law. What is the catch? They can avail of event may be excluded from the gross sales within the same quarter it
the 8% option if their gross sales or receipts will not exceed P3M. bago was given.
yan.
Gross Selling Price xx
*mixed income earner –earns compensation income and business Sales Returns (xx)
income Sales Discounts (xx)
Sales Allowance (xx)
In case that these taxpayers, businessmen, self-employed individuals, Tax Base xx
or mixed income earners, these individuals, once they elect to be taxed
at 8%, they do NOT have the option to register themselves as a VAT SALES DISCOUNTS
taxpayer.
The sales discount must not be conditional. It must not depend on the
GENERAL RULE: Under the TRAIN Law, taxpayers may have the happening of a future event.
option to register themselves as a VAT taxpayer.
TRANSACTION DEEMED SALES (TDS)
EXCEPTION: Self-employed individuals or mixed income earners who
opted to be taxed at 8% based on gross sales or gross receipts of their These are transactions that are in essence not a sale but under tax
business income. law, it is already considered as a sale, barter, or exchange of
properties which will be subjected to VAT.
IMPORTANCE OF VAT REGISTRATION
1. So that the taxpayers will be able to determine what are SEC. 106(B). Transactions Deemed Sale. - The following
business taxes to be paid. transactions shall be deemed sale:
2. Only VAT taxpayers will be able to benefit under the VAT (1) Transfer, use or consumption not in the course of business
provisions of the NIRC particularly on the input tax. of goods or properties originally intended for sale or for use
in the course of business;
HOW DOES THE LAW DEFINE “GOODS” OR “PROPERTIES”? (2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of
SEC. 106. Value-Added Tax on Sale of Goods or Properties. – the VAT-registered persons; or
(b) Creditors in payment of debt;
(A) Rate and Base of Tax. - (1) "Goods or Properties." The term (3) Consignment of goods if actual sale is not made within sixty
"goods" or "properties" shall mean all tangible and intangible objects (60) days following the date such goods were consigned;
which are capable of pecuniary estimation and shall include: and
(4) Retirement from or cessation of business, with respect to
(a) Real properties held primarily for sale to customers or held inventories of taxable goods existing as of such retirement or
for lease in the ordinary course of trade or business; cessation.
(b) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark, (1) Transfer, use or consumption not in the course of business of
trade brand or other like property or right; goods or properties originally intended for sale or for use in the
(c) The right or the privilege to use in the Philippines of any course of business;
industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes
For example I invented a new toothpaste. In order to market the
and discs; and
product, I will give 1 box of toothpaste for free. What would be the
(e) Radio, television, satellite transmission and cable television
business tax implication? Is it a TDS? Is it a VATable sale?
time.
It is not a VATable sale because it was not made in the course of
The term "gross selling price" means the total amount of money or
business. It is part of your operating expenses. If that transacation is
its equivalent which the purchaser pays or is obligated to pay to the
not in the ordinary course of business, you consider it as TDS.
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
The usual example would be if you have a grocery store. If you would
such goods or properties shall form part of the gross selling price.
get sardines from the store for your personal consumption, that
becomes TDS.
Essentially when you talk of good or properties, it refers to all kinds of
properties that are capable of pecuniary estimation, whether real or (2) Distribution or transfer to: (a) Shareholders or investors as
personal, whether tangible or intangible. Take note that the sale must share in the profits of the VAT-registered persons; or (b)
be done in the ordinary course of business. Creditors in payment of debt;
If you take a look at the definition, the law provides that the percent
shall be based on the gross selling price. Actually, it is not totally true Self-explanatory
that the tax base for the 12% VAT is the GSP. You still have to
consider the sales return, discounts and allowances.

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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
(3) Consignment of goods if actual sale is not made within sixty (1) The sale and actual shipment of goods from the Philippines
(60) days following the date such goods were consigned; to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence
If it is sold or if it is not sold within 60 days following the consignment. or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its
I have 1 box of sardines then I will give it for you to sell. You determine equivalent in goods or services, and accounted for in
how much to sell it but return to me the original price of that 1 box of accordance with the rules and regulations of the Bangko
sardines. What happens if there are remaining unsold sardines within Sentral ng Pilipinas (BSP);
the 60day period? The remaining sardines will not be considered as
TDS. REQUIREMENTS MUST BE COMPLIED WITH SO THAT THE
EXPORT SALES BE CONSIDERED SALES SUBJECT TO ZERO-
But what if returned AFTER the 60day period? The entire box of RATED
sardines will be recognized as a TDS whether or not it was sold 1. There must be actual exportation of goods or properties;
2. The sale or transaction must be paid for in an acceptable
ZERO-RATED VAT foreign currency or its equivalent goods or services;
3. The payment is accounted for in accordance with the BSP
IS ZERO-RATING STILL A VAT TRANSACTION? Yes, it is still a rules and regulations;
VAT transaction because it is a sale, barter, or exchange of property. 4. The taxpayer exporting is a VAT registered person only VAT
Only that the percentage of the tax to be imposed is 0%. registered persons may be able to avail the benefit of the
VAT system
Therefore, if it considered to be a VAT transaction, there is an output 5. The substantiation requirements must have been complied
tax on the transaction (0%) and yet I may still claim input taxes for the with by the taxpayer
goods or services that have been procured to run the business. No
output tax but there is an input tax. (2) Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local export-
What woud then be the treatment on the input tax if the output tax is oriented enterprise to be used in manufacturing, processing,
zero (0)? You may claim or ask for a VAT refund from the government. packing or repacking in the Philippines of the said buyer's
goods and paid for in acceptable foreign currency and
TWO TYPES OF ZERO-RATED TRANSACTIONS (FOR GOOD OR accounted for in accordance with the rules and regulations of
PROPERTIES): the Bangko Sentral ng Pilipinas (BSP);

(1) AUTOMATICALLY ZERO-RATED TRANSACTIONS


A F
Generally, it refers to the actual exportation of goods. This is line with
the concept of Destination Principle and the Cross Border Doctrine.
B
Once you export, destine of consumption would be abroad. That
transaction is “VAT exempt” because there is no output tax but zero-
rated. No imposable output VAT. Make no mistake that when we say A produces raw materials or packaging materials. A enters into a
zero-rated, it is NOT a VAT exempt transaction. contract with F, a foreigner with the agreement that the materials sold
to F shall be delivered to B. B will produce the finish product to be
(2) EFFECTIVELY ZERO-RATED TRANSACTIONS exported to F.

Refers to the local sale of goods or supply of services by a VAT (3) Sale of raw materials or packaging materials to export-
registered person to persons who are granted tax exemptions under oriented enterprise whose export sales exceed seventy
special laws or international agreements to which the Philippines is a percent (70%) of total annual production;
signatory. In other words, that transaction either a sale, barter, or
exchange, even if done WITHIN the Philippines is considered zero- TWO KINDS OF SALE OF RAW MATERIALS OR PACKAGING
rated by reason of law or international agreements to which the MATERIALS:
Philippines is a signatory. 1. Paid for in acceptable foreign currency and accounted for in
accordance with the BSP rules and regulations (no. 2)
Example: Economic zones – when it comes to commercial 2. Does not need be paid in acceptable foreign currency and
transactions, it is considered as a “foreign territory” accounted for in accordance with the BSP rules and
regulations (no.3)
WHAT ARE CONSIDERED ZERO-RATED SALE OF GOODS?

Section 106 (2) The following sales by VAT-registered persons shall A B


be subject to zero percent (0%) rate:
(a) Export Sales. – xxx
(b) Foreign Currency Denominated Sale. – xx A sells to B, an export-oriented enterprise. B’s total production or more
(c) Sales to persons or entities whose exemption under than 70% of its production is for exportation. Ultimately, the raw
special laws or international agreements to which the material or packaging materials will be consumed outside the
Philippines is a signatory effectively subjects such sales Philippines.
to zero rate.
ATLAS CONSOLIDATED vs. CIR
(1) EXPORT SALES G.R. No. 146221 | September 25, 2007

What are those considered as export sales? If the sales are made to an export-oriented enterprise, does zero-rated
VAT apply only to the goods that are exported?

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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
It doesn’t matter. What is important is that it is an export oriented (1) The successful establishment and implementation of an
enterprise. The sale remains to be zero-rated sale. enhanced VAT refund system that grants refunds of
creditable input tax within ninety (90) days from the filing
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and of the VAT refund application with the Bureau: Provided,
(5) Those considered export sales under Executive Order NO. That, to determine the effectivity of item no. 1, all
226, otherwise known as the "Omnibus Investment Code of applications filed from January 1, 2018 shall be
1987", and other special laws; and processed and must be decided within ninety (90) days
(6) The sale of goods, supplies, equipment and fuel to persons from the filing of the VAT refund application; and
engaged in international shipping or international air (2) All pending VAT refund claims as of December 31, 2017
transport operations. shall be fully paid in cash by December 31, 2019.

(2) FOREIGN CURRENCY DENOMINATED SALE “Provided, That the Department of Finance shall establish a VAT
refund center in the Bureau of Internal Revenue (BIR) and in the
The phrase "FOREIGN CURRENCY DENOMINATED SALE" means Bureau of Customs (BOC) that will handle the processing and granting
sale to a nonresident of goods, except those mentioned in Sections of cash refunds of creditable input tax.
149 and 150, assembled or manufactured in the Philippines for
delivery to a resident in the Philippines, paid for in acceptable foreign “An amount equivalent to five percent (5%) of the total VAT collection
currency and accounted for in accordance with the rules and of the BIR and the BOC from the immediately preceding year shall be
regulations of the Bangko Sentral ng Pilipinas (BSP). automatically appropriated annually and shall be treated as a special
account in the General Fund or as trust receipts for the purpose of
In essence, the taxpayer sells his goods to a non-resident. But the funding claims for VAT refund: Provided, That any unused fund, at the
goods will be delivered here in the Philippines. The only thing is that it end of the year shall revert to the General Fund.
is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng “Provided, further, That the BIR and the BOC shall be required to
Pilipinas (BSP). submit to the Congressional Oversight Committee on the
Comprehensive Tax Reform Program (COCCTRP) a quarterly report
Take note that it covers the sale of all properties except sec. 149 and of all pending claims for refund and any unused fund.
sec. 150 of the NIRC. These are the items or goods referred to as non-
essential goods. The sale of gold to the BSP is not anymore included in the list. It is
already considered as a VAT exempt transaction (Section 34 of
SEC. 150 – jewelry, perfumes, toilet waters, yacht, and other vessels TRAIN).
intended for leisure. And then you have the special laws and
international agreements. The transactions found in section 106(A)(2) (a) (3,4,5) are no longer a
zero-rated transaction beginning January 1, 2018. But the government
CHANGES UNDER THE TRAIN LAW has to comply with the conditions.

SEC. 31. Section 106 of the NIRC, as amended, is hereby further 18 JANUARY 2018 (JMortejo)
amended to read as follows:
(2) VAT ON IMPORATION OF GOODS
SEC. 106. Value-added Tax on Sale of Goods or Properties.—“(A)
Rate and Base of Tax.— (2) (a) Export Sales.— SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. - There shall be levied, assessed and collected on
(2) Sale and delivery of goods to: every importation of goods a value-added tax equivalent to ten percent
(10%) based on the total value used by the Bureau of Customs in
(i) Registered enterprises within a separate customs territory as determining tariff and customs duties plus customs duties, excise
provided under special laws; and taxes, if any, and other charges, such tax to be paid by the importer
(ii) Registered enterprises within tourism enterprise zones as prior to the release of such goods from customs custody: Provided,
declared by the Tourism Infrastructure and Enterprise Zone That where the customs duties are determined on the basis of the
Authority (TIEZA) subject to the provisions under Republic quantity or volume of the goods, the value-added tax shall be based on
Act No. 9593 or The Tourism Act of 2009. the landed cost plus excise taxes, if any. xxx

This is a new provision. The sales and deliveries of goods to territories PRINCIPLES TO REMEMBER
designated as special economic or special tourism enterprise zones, 1. Importation of goods, whether related to your business or
are considered as export sales. It is considered as effectively-zero not, will be subjected to VAT.
rated. 2. Registration is immaterial. Once you import, whether you are
a VAT-registered taxpayer or not, you will still pay a VAT on
“(5) Those considered export sales under Executive Order No. 226, importation. But of course, this presupposes that the
otherwise known as the Omnibus Investment Code of 1987, and other importation of goods is not VAT-exempt.
special laws; and 3. Tax rate - 12%

“(6) The sale of goods, supplies, equipment and fuel to persons WHAT IS THE TAX BASE?
engaged in international shipping or international air transport
operations: Provided, That the goods, supplies, equipment and fuel The provision says the tax base is composed of 3 items, which are the
shall be used for international shipping or air transport operations. following:
1. DUTIABLE VALUE - total value used by the Bureau of
“Provided, That subparagraphs (3), (4), and (5) hereof shall be subject Customs in determining tariff and customs duties.
to the twelve percent (12%) value-added tax and no longer be 2. The customs and excise taxes paid, if any.
considered export sales subject to zero percent (0%) VAT rate upon 3. Other charges
satisfaction of the following conditions:  Take note, this would pertain only to those charges
which are incurred prior to removal/withdrawal of
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
these goods from the Customs Warehouse. In in the Philippines, it is subject to VAT already. It doesn’t mean that if
other words, if the expenses will be incurred right the services are done here, it is automatically subject to VAT.
after the withdrawal, the goods will now be
excluded from the tax base for the VAT on Take note, there is a big difference between the place where the
importation. service is rendered and the place where the service is actually
consumed. VAT is a tax on consumption.
There are essentially 2 kinds of costs or expenses which are
incurred before VAT on importation: SEC. 108. Value-added Tax on Sale of Services and Use or Lease
1. Expenses incurred by actually importing the goods - You pay of Properties. –
for the purchase price, insurance, handling of the goods and
properties while in transit to the Philippines, etc. (A) Rate and Base of Tax. - There shall be levied, assessed and
2. Costs and expenses while the goods are within the territory collected, a value-added tax equivalent to ten percent (10%) of gross
of the Philippines but still within the jurisdiction of the Bureau receipts derived from the sale or exchange of services, including the
of Customs – i.e wharfage dues, arrastre charge, custom use or lease of properties.
broker’s fees.
The phrase "sale or exchange of services" means the performance of
SEC. 107. Value-Added Tax on Importation of Goods. – all kinds or services in the Philippines for others for a fee, remuneration
(B) Transfer of Goods by Tax-Exempt Persons. - In the case of tax- or consideration, including those performed or rendered by
free importation of goods into the Philippines by persons, entities or construction and service contractors; stock, real estate, commercial,
agencies exempt from tax where such goods are subsequently sold, customs and immigration brokers; lessors of property, whether
transferred or exchanged in the Philippines to non-exempt persons or personal or real; warehousing services; lessors or distributors of
entities, the purchasers, transferees or recipients shall be considered cinematographic films; persons engaged in milling processing,
the importers thereof, who shall be liable for any internal revenue tax manufacturing or repacking goods for others; proprietors, operators or
on such importation. The tax due on such importation shall constitute a keepers of hotels, motels, rest houses, pension houses, inns, resorts;
lien on the goods superior to all charges or liens on the goods, proprietors or operators of restaurants, refreshment parlors, cafes and
irrespective of the possessor thereof. other eating places, including clubs and caterers; dealers in securities;
lending investors; transportation contractors on their transport of goods
Some books would refer to this provision as “technical importation”. or cargoes, including persons who transport goods or cargoes for hire
another domestic common carriers by land, air and water relative to
The first thing that would happen is that the goods and properties are their transport of goods or cargoes; services of franchise grantees of
imported here in the Philippines and they are imported by a VAT- telephone and telegraph, radio and television broadcasting and all
exempt person. Subsequently, this person would transfer this to other franchise grantees except those under Section 119 of this Code;
another person who is not a VAT-exempt entity. services of banks, non-bank financial intermediaries and finance
companies; and non-life insurance companies (except their crop
EXAMPLE: Circumstances involving Consul Officials of foreign insurances), including surety, fidelity, indemnity and bonding
countries. Supposing an Indonesian Consul Officer will come here in companies; and similar services regardless of whether or not the
the Philippines, bringing along his own vehicle. By principle of performance thereof calls for the exercise or use of the physical or
international comity, this person is not taxable here in the Philippines. mental faculties.

Thus, the car is not subject to VAT on importation. But what happens The phrase 'sale or exchange of services' shall likewise include:
when the Consul Official decides to sell his car? The buyer of the car (1) The lease or the use of or the right or privilege to use any
will be liable for VAT on importation. copyright, patent, design or model, plan secret formula or
process, goodwill, trademark, trade brand or other like
CHANGES OF VAT ON IMPORTATION UNDER TRAIN LAW property or right;
(2) The lease of the use of, or the right to use of any industrial,
SEC. 32. Section 107 of the NIRC, as amended, is hereby further commercial or scientific equipment;
amended to read as follows: (3) The supply of scientific, technical, industrial or commercial
knowledge or information;
“SEC. 107. Value-added Tax on Importation of Goods.— (4) The supply of any assistance that is ancillary and subsidiary
“(A) In General.— There shall be levied, assessed and collected on to and is furnished as a means of enabling the application or
every importation of goods a value-added tax equivalent to twelve enjoyment of any such property, or right as is mentioned in
percent (12%) based on the total value used by the Bureau of Customs subparagraph (2) or any such knowledge or information as is
in determining tariff and customs duties, plus customs duties, excise mentioned in subparagraph (3);
taxes, if any, and other charges, such tax to be paid by the importer (5) The supply of services by a nonresident person or his
prior to the release of such goods from customs custody: Provided, employee in connection with the use of property or rights
That where the customs duties are determined on the basis of the belonging to, or the installation or operation of any brand,
quantity or volume of the goods, the value-added tax shall be based on machinery or other apparatus purchased from such
the landed cost plus excise taxes, if any. nonresident person.
(6) The supply of technical advice, assistance or services
“(B) Transfer of Goods by Tax-exempt Persons.— x x x.” rendered in connection with technical management or
administration of any scientific, industrial or commercial
The new provision merely removes the stand-by provision under the undertaking, venture, project or scheme;
old law, everything else is still applicable. (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,
(3) VAT ON SALE OF SERVICES, AND USE OR LEASE OF satellite transmission and cable television time.
PROPERTY
Lease of properties shall be subject to the tax herein imposed
In the case of CIR vs. AMERICAN EXPRESS, Justice Panganiban irrespective of the place where the contract of lease or licensing
gave a very good explanation on how the VAT on services goes. At agreement was executed if the property is leased or used in the
first blush, you might think that since the services are performed here Philippines.

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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
The term "gross receipts" means the total amount of money or its dated September 20, 2007. Subsequently, the CIR also issued a
equivalent representing the contract price, compensation, service fee, Preliminary Assessment Notice (PAN) against MEDICARD for
rental or royalty, including the amount charged for materials supplied deficiency VAT. MEDICARD received CIR’s FAN dated December 10,
with the services and deposits and advanced payments actually or 2007 for allegedly deficiency VAT for taxable year 2006 including
constructively received during the taxable quarter for the services penalties.
performed or to be performed for another person, excluding value-
added tax. xxx According to the CIR, the taxable base of HMOs for VAT purposes is
its gross receipts without any deduction under Section 4.108.3(k) of
Tax Rate – 12% Revenue Regulation (RR) No. 16-2005. Citing Commissioner of
Internal Revenue v. Philippine Health Care Providers, Inc., the CIR
Tax Base – Gross Receipts which means the total amount of money argued that since MEDICARD does not actually provide medical and/or
or its equivalent representing the contract price, compensation, service hospital services, but merely arranges for the same, its services are
fee, rental or royalty, including the amount charged for materials not VAT exempt.
supplied with the services and deposits and advanced payments
actually or constructively received during the taxable quarter for the MEDICARD filed a protest arguing, among others, that that the
services performed or to be performed for another person, excluding services it render is not limited merely to arranging for the provision of
value-added tax. medical and/or hospitalization services but include actual and direct
rendition of medical and laboratory services. MEDICARD established
Let’s simplify the definition, the gross receipts is the total amount of that upon receipt of payment of membership fee it actually issued two
money or its equivalent which would include: official receipts, one pertaining to the VAT able portion, representing
1. Contract Price – what is written in the contract or probably compensation for its services, and the other represents the non-
the service fees; vatable portion pertaining to the amount earmarked for medical
2. Materials and services supplied for the rendition of your utilization. On June 19, 2009, MEDICARD received CIR’s Final
service; Decision denying its protest. The petitioner MEDICARD proceeded to
3. Deposits and advanced payments actually or constructively file a petition for review before the CTA.
received.
The CTA Division held that the amounts that MEDICARD earmarked
Basically, what the service provider receives for the rendition of and eventually paid to doctors, hospitals and clinics cannot be
services will form part of the gross receipts. excluded from the computation of its gross receipts because the act of
earmarking or allocation is by itself an act of ownership and
MEDICARD PHILIPPINES vs. CIR management over the funds by MEDICARD which is beyond the
G.R. No. 222743 | April 5, 2017 contemplation of RR No. 4-2007. Furthermore, MEDICARD’s earnings
from its clinics and laboratory facilities cannot be excluded from its
FACTS: MEDICARD is a health maintenance organization (HMO) that gross receipts because the operation of these clinics and laboratory is
provides prepaid health and medical insurance coverage to its clients. merely an incident to MEDICARD’s line of business as an HMO.
Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and ISSUE: What is included in the term “gross receipts”? Is it the entire
curative medical services provided by duly licensed physicians, 100% of the membership fees or only the 20% actually received by
specialists, and other professional technical staff participating in the MEDICARD?
group practice health delivery system at a hospital or clinic owned,
operated or accredited by it. RULING: Only the 20% is included in the gross receipts.
Sir: How many contracts does MEDICARD have in relation to the The CTA en banc overlooked that the definition of gross receipts
service they provide? under. RR No. 16-2005 merely presumed that the amount received by
an HMO as membership fee is the HMO's compensation for their
Student: There are 2 contracts. services. As a mere presumption, an HMO is, thus, allowed to
One is between a corporate client and MEDICARD, with the corporate establish that a portion of the amount it received as membership fee
client's employees being considered as MEDICARD members; and the does NOT actually compensate it but some other person, which in this
other is between the health care institutions/healthcare professionals case are the medical service providers themselves. It is a well-settled
and MEDICARD. Under the first, MEDICARD undertakes to make principle of legal hermeneutics that words of a statute will be
arrangements with healthcare institutions/healthcare professionals for interpreted in their natural, plain and ordinary acceptation and
the coverage of MEDICARD members under specific health related signification, unless it is evident that the legislature intended a
services for a specified period of time in exchange for payment of a technical or special legal meaning to those words. The Court cannot
more or less fixed membership fee read the word "presumed" in any other way.

Sir: With respect to the fees, what does Medicard do with those fees It is notable in this regard that the term gross receipts as elsewhere
mentioned as the tax base under the NIRC does not contain any
Student: 20% of it will go to Medicard as remuneration of their services specific definition. Therefore, absent a statutory definition, this Court
while the 80% will go as payment to contracted health care providers. has construed the term gross receipts in its plain and ordinary
meaning, that is, gross receipts is understood as comprising the entire
Student: Accredited hospitals, health care professionals and receipts without any deduction.37 Congress, under Section 108, could
sometimes, Medicard can also provide the medical services at the have simply left the term gross receipts similarly undefined and its
option of the members/employees.) interpretation subjected to ordinary acceptation,. Instead of doing so,
Congress limited the scope of the term gross receipts for VAT
MEDICARD filed it first, second, and third quarterly VAT Returns purposes only to the amount that the taxpayer received for the services
through Electronic Filing and Payment System (EFPS) on April 20, July it performed or to the amount it received as advance payment for the
25, and October 25, 2006, respectively, and its fourth quarterly VAT services it will render in the future for another person.
Return on January 25, 2007.
In the proceedings ·below, the nature of MEDICARD's business and
Upon finding some discrepancies between MEDICARD’s Income Tax the extent of the services it rendered are not seriously disputed. As an
Returns (ITR) and VAT Returns, the CIR issued a Letter Notice (LN) HMO, MEDICARD primarily acts as an intermediary between the

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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
purchaser of healthcare services (its members) and the healthcare services are ultimately consumed in the Philippines. And if you notice
providers (the doctors, hospitals and clinics) for a fee. By enrolling also, there is a listing of the kind of services that is subject to VAT. But
membership with MED ICARD, its members will be able to avail of the take note, the listing is not exclusive.
pre-arranged medical services from its accredited healthcare providers
without the necessary protocol of posting cash bonds or deposits prior EXAMPLE: Service contractors i.e. Security Agencies
to being attended to or admitted to hospitals or clinics, especially There is an issue that cropped up, whether or not you should include in
during emergencies, at any given time. Apart from this, MEDICARD the gross receipts, the salaries of the security guards. There is already
may also directly provide medical, hospital and laboratory services, a SC decision on that; you read PROTECTOR’S SERVICES vs. CIR.
which depends upon its member's choice. The Vatable amount includes the salaries of the security guards.

Thus, in the course of its business as such, MED ICARD members can What about the lessors/distributors of cinematographic films?
either avail of medical services from MEDICARD's accredited
healthcare providers or directly from MEDICARD. In the former, CIR vs. SM PRIME HOLDINGS
MEDICARD members obviously knew that beyond the agreement to G.R. No. 183505 | February 16, 2010
pre-arrange the healthcare needs of its ·members, MEDICARD would
not actually be providing the actual healthcare service. Thus, based on FACTS: Respondents SM Prime Holdings, Inc. (SM Prime) and First
industry practice, MEDICARD informs its would-be member Asia Realty Development Corporation (First Asia) are domestic
beforehand that 80% of the amount would be earmarked for medical corporations duly organized and existing under the laws of the
utilization and only the remaining 20% comprises its service fee. In the Republic of the Philippines. Both are engaged in the business of
latter case, MEDICARD's sale of its services is exempt from VAT operating cinema houses, among others.
under Section 109(G).
On September 26, 2003, the Bureau of Internal Revenue (BIR) sent
As to the CIR's argument that the act of earmarking or allocation is by SM Prime a Preliminary Assessment Notice (PAN) for value added tax
itself an act of ownership and management over the funds, the Court (VAT) deficiency on cinema ticket sales in the amount of
does not agree.1âwphi1 On the contrary, it is MEDICARD's act of P119,276,047.40 for taxable year 2000. In response, SM Prime filed a
earmarking or allocating 80% of the amount it received as membership letter-protest dated December 15, 2003.
fee at the time of payment that weakens the ownership imputed to it.
By earmarking or allocating 80% of the amount, MEDICARD On December 12, 2003, the BIR sent SM Prime a Formal Letter of
unequivocally recognizes that its possession of the funds is not in the Demand for the alleged VAT deficiency, which the latter protested in a
concept of owner but as a mere administrator of the same. For this letter dated January 14, 2004. The BIR denied the protest filed by SM
reason, at most, MEDICARD's right in relation to these amounts is a Prime and ordered it to pay the VAT deficiency for taxable year 2000 in
mere inchoate owner which would ripen into actual ownership if, and the amount of P124,035,874.12.
only if, there is underutilization of the membership fees at the end of
the fiscal year. Prior to that, MEDI CARD is bound to pay from the BIR contends that SM Prime Holdings is liable for VAT deficiency since
amounts it had allocated as an administrator once its members avail of the enumeration of services subject to VAT in Section 108 of the NIRC
the medical services of MEDICARD's healthcare providers. is not exhaustive because it covers all sales of services unless
exempted by law. Thus, he maintains that the exhibition of movies by
DISCUSSION: cinema operators or proprietors to the paying public, being a sale of
service, is subject to VAT.
Even if you read the definition of “gross receipts”, the BIR said that it
includes everything that you have received without deductions. But ISSUE: Is SM Prime Holdings liable to VAT?
what did the SC say? You read the definition of gross receipts as a
whole. You give meaning to all the words and phrases within that RULING: NO
definition.
A cursory reading of Section 108 clearly shows that the enumeration of
The SC said that not the entire fees should be subjected to the 12% the sale or exchange of services subject to VAT is not exhaustive. The
VAT, only those which pertains to the actual services rendered by the words, including, similar services, and shall likewise include, indicate
taxpayer. that the enumeration is by way of example only.

(Sir: The problem with the decision is, diba it is already part of Among those included in the enumeration is the lease of motion picture
Medicard’s services to facilitate with third persons. You don’t mean to films, films, tapes and discs. This, however, is not the same as the
say that you will pay for the Medicard only for the services that they showing or exhibition of motion pictures or films.
would render. Para saan pala yung service fees? Take note that the
coverage of the service fees is two-fold: 1. For its own medical Since the activity of showing motion pictures, films or movies by
services and 2. To facilitate it with others. And of course, part of the cinema/ theater operators or proprietors is not included in the
service of facilitation is to make arrangements with third persons and it enumeration, it is incumbent upon the court to the determine whether
goes along with it the payment of the medical services to be rendered such activity falls under the phrase similar services. The intent of the
by these third persons. O diba? So its kinda weird yung sinabi ng SC legislature must therefore be ascertained.
but in a way, tama din naman sila. It is not the services of Medicard,
it’s actually the services of some other person or entity.) In this case, the SC said that the legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT. (It
What does “SALE OR EXCHANGE OF SERVICES” mean? *Sir traced down the history of amusement taxes, as discussed fully in the
reads the definition under Section 108 – A, 2nd paragraph* case. Please read the full text)

We will not discuss everything here but the operative term here is “all DISCUSSION:
kinds of services in the Philippines for others for a fee,
remuneration or consideration”. In other words, the SC is saying that there is no VAT law which
imposes VAT on the cinema/theater operators or proprietors. That’s
When we say “ALL SERVICES IN THE PHILIPPINES”, it does not the essence of the SC decision. If you look at the listing, the law is
mean that the services have to be done in the Philippines. It means the

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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
specific: “lessors or distributors of cinematographic films”. That’s the CHANGES OF VAT ON SERVICES UNDER THE TRAIN LAW
only thing that is covered by VAT.  Section 33 of the TRAIN Law, if you read it, electric
cooperatives are already subject to 12% VAT.
*Sir asks the student (for academic discussion), whether or not he
agrees with the SC decision. According to Sir, there is something 25 JANUARY 2018 (ACNarca)
wrong with the decision if we focus strictly to the legal matters
pertaining to VAT. Power to tax is plenary, it is all-encompassing. And ZERO-RATED SALE OF SERVICES
according to the definition or sale or exchange of services, it includes
the performance of all kinds of services for a fee.* The operation of zero-rated sales of services is pretty much the same
with the sales of goods. You export goods but this time you export
TRANSPORTATION “services” which are deemed by law as exportation services. What are
these?
Persons engaged in the transportation business are engaged in the
sale of services. (B) Transactions Subject to Zero Percent (0%) Rate - The following
services performed in the Philippines by VAT- registered persons shall
What is the rule here? be subject to zero percent (0%) rate.
 3 modes of transportation: Land, Air and Sea
 2 types of subject of transportation: Cargo or Person (1) Processing, manufacturing or repacking goods for other persons
 Destinations: Domestic or International doing business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign
GENERAL RULE: Domestic transportation by land, air or sea is currency and accounted for in accordance with the rules and
subject to VAT. (This presupposes that it exceeds the 1.9 million regulations of the Bangko Sentral ng Pilipinas (BSP);
threshold or the taxpayer is a VAT-registered taxpayer)
This processing of goods will be exported afterwards. BUT WHAT
EXCEPTION: Domestic transportation of persons by land. ARE THE REQUIREMENTS?
What is the tax consequence? It is subject to OPT (Other percentage 1. The processing, manufacturing or repacking goods must be
taxes) performed in the Philippines;
2. The recipient of said services is another person doing
What about international air or shipping carriers? business outside the Philippines;
 Subjected to 3% international carrier tax. 3. The goods which were processed, manufactured or
repacked are subsequently exported; and
SEC. 118. Percentage Tax on International Carriers. - (A) 4. The services rendered are paid for in acceptable foreign
International air carriers doing business in the Philippines shall pay a currency and accounted for in accordance with the rules and
tax of three percent (3%) of their quarterly gross receipts. regulations of the BSP

(B) International shipping carriers doing business in the Philippines (2) Services other than those mentioned in the preceding paragraph,
shall pay a tax equivalent to three percent (3%) of their quarterly gross the consideration for which is paid for in acceptable foreign currency
receipts. and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
What about domestic carriers who have international flights?
 For international flights – zero-rated transaction This second type involves any other services other than processing,
 For domestic flights – subjected to VAT manufacturing or repacking. The next difference is that the services
are done for a person doing business outside the Philippines.
TOLLWAY OPERATORS
 Case in point, DIAZ vs. SECRETARY OF FINANCE, toll THE FOLLOWING CONDITIONS MUST BE COMPLIED WITH:
fees collected by tollway operators are also subject to VAT. 1. The services rendered must be other than processing,
Pretty much the same with the franchise grantees. manufacturing or repacking of goods;
2. The services must be performed in the Philippines;
But take note that not all franchise grantees are subject to VAT. It will 3. The services must be rendered to a person engaged in
entirely depend on the character of their franchise and their yearly business conducted outside the Philippines or to a
gross receipts. For the radio and TV, the threshold is 10 million. If it’s nonresident person not engaged in business who is outside
more than 10million, then it will be subjected to 12% VAT. If it does not the Philippines when the services are performed; and
exceed, it will be subjected to OPT. 4. The consideration for which it is paid for is in acceptable
foreign currency and accounted for in accordance with the
VAT ON PROFESSIONALS rules and regulations of the BSP.
 GENERAL RULE: The VAT will apply. For VAT-registered
professionals, regardless of their gross receipts for the entire CIR vs. BURMEISTER & WAIN
year, they will be subjected to VAT. But if they are not VAT- G.R. No. 153205 | January 22, 2010
registered, then the threshold shall be considered.
The SC said that the services were supposed to be a VAT transaction.
SALE OF ELECTRICITY But the thing is the SC said that it is a zero-rated transaction because it
 GENERAL RULE: Right now, it is already subjected to VAT; involves a BIR ruling which is prejudicial to the taxpayer. Later on you
service providers. Those who are distributors of electricity will learn that if there is a prejudicial ruling issued by the BIR that
are subject to VAT. prejudicial ruling will be prospective in nature. According to the SC:
 EXCEPTION: Sale of power or fuel-generated thru
renewable sources of energy such as, but not limited to, The Court recognizes the rule that the VAT system
biomass, solar, etc. These are considered zero-rated generally follows the destination principle (exports are
transactions. zero-rated whereas imports are taxed). However, as the
Court stated in American Express, there is an exception
to this rule.[25] This exception refers to the 0% VAT on
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
services enumerated in Section 102 and performed in the Since the performance and the services are consumed here in the
Philippines. For services covered by Section 102(b)(1) Philippines then there is more reason to reject the proposal that they
and (2), the recipient of the services must be a person are subject to zero-rated VAT.
doing business outside the Philippines. Thus, to be
exempt from the destination principle under Section If we allow the AMEX-PH to be subject to zero-rated VAT then we will
102(b)(1) and (2), the services must be (a) performed in be violating the DESTINATION PRINCIPLE.
the Philippines; (b) for a person doing business outside However, the law clearly provides for an exception to the destination
the Philippines; and (c) paid in acceptable foreign principle; that is, for a zero percent VAT rate for services that
currency accounted for in accordance with BSP rules. are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and
DISCUSSION: regulations of the [BSP]."

What type of corporation is Burmeister? It is foreign consortium. And THUS, FOR THE SUPPLY OF SERVICE TO BE ZERO-RATED AS
they entered into a contract with Napocor for the maintenance of two AN EXCEPTION, THE LAW MERELY REQUIRES THAT:
power barges located in the Philippines. They obtained a BIR ruling 1. The service be performed in the Philippines;
saying that they are zero-rated. And when they file a refund, the BIR 2. The service fall under any of the categories in Section 102(b)
denied the refund. At CTA, Burmeister said that they are entitled to a of the Tax Code; and
refund on the basis that the services rendered by the Burmeister were 3. It be paid in acceptable foreign currency accounted for in
zero-rated because binayaran sila through dollars. accordance with BSP rules and regulations.

The SC said that it is not enough that the services were through a The SC also mentioned TAX SITUS OF A ZERO-RATED SERVICE.
foreign currency. It is also required that the transaction to be zero-rated “The law neither makes a qualification nor adds a condition in
must be that for persons doing business outside the Philippines. What determining the tax situs of a zero-rated service. Under this criterion,
was the business of Burmeister here? It is doing business in the the place where the service is rendered determines the jurisdiction to
Philippines. the services will be consumed here in the Philippines. impose the VAT.”
Since the transaction is in the Philippines, what is the taxability of the
services rendered? Diba baliktad siya? Burmeister should be subject to (3) Services rendered to persons or entities whose
VAT. All transactions occurred here in the Philippines for the benefit of exemption under special laws or international agreements
a Philippine resident. to which the Philippines is a signatory effectively subjects
the supply of such services to zero percent (0%) rate;
Compare this with the case of CIR vs. AMERICAN EXPRESS. (4) Services rendered to vessels engaged exclusively in
international shipping; and
The services provided by AMEX PH is to facilitate collection of (5) Services performed by subcontractors and/or contractors
receivables of AMEX Hongkong. And then AMEX PH filed a refund at in processing, converting, of manufacturing goods for an
the BIR for the excess input VAT. Sabi niya, that is supposed to be a enterprise whose export sales exceed seventy percent
zero-rated transaction. (70%) of total annual production.

The main question to be resolved by the SC: WON AMEX-PH is CHANGES UNDER THE TRAIN LAW
entitled to a refund.
(1)
We have to look first of what if the nature of the business of AMEX-PH.
Is it covered by the zero-rated sale of services? First, the services are (4) Services rendered to persons engaged in international shipping or
performed here in the Philippines. Second, should the services be international air transport operations, including leases of property for
done abroad in order to be zero-rated? Not necessarily. Because use thereof: Provided, That these services shall be exclusive for
performance and consumption is actually different things. When international shipping or air transport operations;
we say facilitation of collection is different from the outcome of the
facilitation of the collection. While the facilitation is done here in the In other words, it is not enough that services are rendered to this
Philippines, ultimately the consumption here is not. particular institution (those engaged in international shipping or
internation air transport). It is also required that these services shall be
The next question is where is the service consumed? exclusive for internation shipping or air transport operations.

The SC said the services are made and consumed here in the (2)
Philippines. Why? Take a look at the definition of CONSUMPTION.
(8) Services rendered to:
CONSUMPTION is "the use of a thing in a way that thereby exhausts (i) Registered enterprises within a separate customs
it." It is easy for use to consume goods because Makita man natin but territory as provided under special law; and
what about services? But if you’re going to apply the definition of (ii) Registered enterprises within tourism enterprise zones
consumption it means the performance or "successful completion of a as declared by the TIEZA subject to the provisions under
contractual duty, usually resulting in the performer’s release from any Republic Act No. 9593 or The Tourism Act of 2009.
past or future liability.
Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject
Now, looking back at the services rendered by AMEX-PH, when does to the twelve percent (12%) value-added tax and no longer be subject
AMEX-PH complete its services? Does it complete it services abroad? to zero percent (0%) VAT rate upon satisfaction of the following
Diba hindi? It send its reports to AMEX-HK. So upon sending the conditions:
reports to AMEX-HK, the services are already consumed. Tapos na! (1) The successful establishment and implementation of an
The moment AMEX-PH sends the bills and drafts to AMEX-HK, the enhanced VAT refund system that grants refunds of
former is already released of its obligation to do something else. 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
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
decided within ninety (90) days from the filing of the VAT therefor.
refund application; and
(2) All pending VAT refund claims as of December 31, 2017 Products classified under this paragraph and paragraph (a) shall be
shall be fully paid in cash by December 31, 2019. considered in their original state even if they have undergone the
simple processes of preparation or preservation for the market, such
There are zero rated services. But take note parang gi-veto ito ni as freezing, drying, salting, broiling, roasting, smoking or stripping.
President. What is the effect if the President veto it? These vetoed
provision in tax law will be effective even if the President must not like Polished and/or husked rice, corn grits, raw cane sugar and molasses,
it. and ordinary salt shall be considered in their original state;

VAT-EXEMPT TRANSACTIONS (d) Sale or importation of fertilizers; seeds, seedlings and


fingerlings; fish, prawn, livestock and poultry feeds, including
THE OBJECTS OF AN EXEMPTION IN VAT IS EITHER: ingredients, whether locally produced or imported, used in
1. VAT exempt transaction or the manufacture of finished feeds (except specialty feeds for
2. VAT exempt person race horses, fighting cocks, aquarium fish, zoo animals and
other animals generally considered as pets);
VAT EXEMPT VAT EXEMPT PERSON (e) Sale or importation of coal and natural gas, in whatever form
TRANSACTION or state, and petroleum products (except lubricating oil,
It involves goods. It is The person/entity is processed gas, grease, wax and petrolatum) subject to
transactional in nature. granted a VAT exemption excise tax imposed under Title VI;
Goods or services that are under the tax code or (f) Sale or importation of raw materials to be used by the buyer
specifically listed by law to under special law or or importer himself in the manufacture of petroleum products
be VAT exempt. international agreements subject to excise tax, except lubricating oil, processed gas,
entered by the Philippines. grease, wax and petrolatum;
EFFECT VAT mechanisms under Since the person is exempt (g) Importation of passenger and/or cargo vessels of more than
the NIRC is not applicable from VAT, the person five thousand tons (5,000) whether coastwise or ocean-
to that kind of transaction. exempt from VAT if will sell going, including engine and spare parts of said vessel to be
Meaning there will be no a product that person will used by the importer himself as operator thereof;
output tax to be paid by not be able to impose 12% (h) Importation of personal and household effects belonging to
the taxpayer and also VAT. But he will most likely the residents of the Philippines returning from abroad and
there will be no input tax to be subjected to 0% VAT nonresident citizens coming to resettle in the Philippines:
be claimed by the and whatever he Provided, That such goods are exempt from customs duties
taxpayer in that kind of purchases later on he can under the Tariff and Customs Code of the Philippines;
transaction. refund it from the (i) Importation of professional instruments and implements,
government. In other wearing apparel, domestic animals, and personal household
words, he can claim for effects (except any vehicle, vessel, aircraft, machinery other
input taxes because he is goods for use in the manufacture and merchandise of any
exempt totally from the kind in commercial quantity) belonging to persons coming to
payment of any VAT even settle in the Philippines, for their own use and not for sale,
indirectly. barter or exchange, accompanying such persons, or arriving
within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner,
VAT EXEMPT TRANSACTION
that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;
Ex: I am a VAT registered taxpayer. I engaged in a domestic
(j) Services subject to percentage tax under Title V;
passenger transportation business by land and by sea. With respect to
(k) Services by agricultural contract growers and milling for
the transaction with the transportation by land, what is the business tax
others of palay into rice, corn into grits and sugar cane into
implication? It is VAT exempt right because it covered by other
raw sugar;
percentage tax. The service itself, transporting of passengers
(l) Medical, dental, hospital and veterinary services subject to
domestically by land, that is a VAT exempt transaction.
the provisions of Section 17 of Republic Act No. 7716, as
amended:
VAT EXEMPT PERSON
(m) Educational services rendered by private educational
institutions, duly accredited by the Department of Education,
Ex: A PEZA-registered entity. Mag benta ka sa kanila, zero-rated. At
Culture and Sports (DECS) and the Commission on Higher
the same time, if this entity will sell, they are exempt from VAT. (22:46)
Education (CHED), and those rendered by government
educational institutions;
There is a list provided under Sec. 109. You do not need to memorize
(n) Sale by the artist himself of his works of art, literary works,
this. You just need to familiarize with the provisions with each and
musical compositions and similar creations, or his services
exempt transaction. Let us discuss them one by one.
performed for the production of such works;
(o) Services rendered by individuals pursuant to an employer-
SEC. 109. Exempt Transactions. - The following shall be exempt
employee relationship;
from the value-added tax:
(p) Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
(a) Sale of nonfood agricultural products; marine and forest
which act as supervisory, communications and coordinating
products in their original state by the primary producer or the
centers for their affiliates, subsidiaries or branches in the
owner of the land where the same are produced;
Asia-Pacific Region and do not earn or derive income from
(b) Sale of cotton seeds in their original state; and copra;
the Philippines;
(c) Sale or importation of agricultural and marine food products
(q) Transactions which are exempt under international
in their original state, livestock and poultry of or king
agreements to which the Philippines is a signatory or under
generally used as, or yielding or producing foods for human
special laws, except those under Presidential Decree Nos.
consumption; and breeding stock and genetic materials
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
66, 529 and 1590; credit to the purchaser under Section 110, all of this Code.
(r) Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as well (c) Sale or importation of agricultural and marine food products in their
as sale of their produce, whether in its original state or original state, livestock and poultry of or king generally used as, or
processed form, to non-members; their importation of direct yielding or producing foods for human consumption; and breeding
farm inputs, machineries and equipment, including spare stock and genetic materials therefor.
parts thereof, to be used directly and exclusively in the
production and/or processing of their produce; Products classified under this paragraph and paragraph (a) shall be
(s) Sales by electric cooperatives duly registered with the considered in their original state even if they have undergone the
Cooperative Development authority or National Electrification simple processes of preparation or preservation for the market, such
Administration, relative to the generation and distribution of as freezing, drying, salting, broiling, roasting, smoking or stripping.
electricity as well as their importation of machineries and
equipment, including spare parts, which shall be directly Polished and/or husked rice, corn grits, raw cane sugar and molasses,
used in the generation and distribution of electricity; and ordinary salt shall be considered in their original state;
(t) Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the Cooperative Agricultural and marine food products must be in their original state for
Development Authority whose lending operation is limited to them to be VAT exempt. Please take note also of the definition of what
their members; is considered ORIGINAL STATE.
(u) Sales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the Cooperative Products under this paragraph shall be considered in their original
Development Authority: Provided, That the share capital state even if they have undergone the simple processes of preparation
contribution of each member does not exceed Fifteen or preservation for the market, such as:
thousand pesos (P15,000) and regardless of the aggregate 1. Freezing;
capital and net surplus ratably distributed among the 2. Drying;
members; 3. Salting;
(v) Export sales by persons who are not VAT-registered; 4. Broiling;
(w) Sale of real properties not primarily held for sale to 5. Roasting;
customers or held for lease in the ordinary course of trade or 6. Smoking; or
business or real property utilized for low-cost and socialized 7. Stripping
housing as defined by Republic Act No. 7279, otherwise 8. Including those using advanced technological means of
known as the Urban Development and Housing Act of 1992, packaging, such as:
and other related laws, house and lot and other residential a. Shrink wrapping in plastics;
dwellings valued at One million pesos (P1,000,000) and b. Vacuum packing;
below: Provided, That not later than January 31st of the c. Tetra-pack; and
calendar year subsequent to the effectivity of this Act and d. Other similar packaging methods.
each calendar year thereafter, the amount of One million
pesos (P1,000,000) shall be adjusted to its present value Polished and/or husked rice, corn grits, raw cane sugar and molasses,
using the Consumer Price Index, as published by the ordinary salt and copra shall be considered as agricultural food
national Statistics Office (NSO); products in their original state.
(x) Lease of a residential unit with a monthly rental not
exceeding Eight thousand pesos(P8,000); Provided, That not What about muscovado?
later than January 31st of the calendar year subsequent to
the effectivity of Republic Act No. 8241 and each calendar What about marination? Marinated milk fish. There is an existing BIR
year thereafter, the amount of Eight thousand pesos regulation stating that marination is not already in the original state.
(P8,000) shall be adjusted to its present value using the
Consumer Price Index as published by the National Statistics What about mga “bulad”? So origina state pa din.
Office (NS0);
(y) Sale, importation, printing or publication of books and any What about refined sugar? Under Revenue Regulation, if the sugar is
newspaper, magazine review or bulletin which appears at already refined the sugar is no longer in the original state.
regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of paid (d) Sale or importation of fertilizers; seeds, seedlings and fingerlings;
advertisements; and fish, prawn, livestock and poultry feeds, including ingredients, whether
(z) Sale or lease of goods or properties or the performance of locally produced or imported, used in the manufacture of finished feeds
services other than the transactions mentioned in the (except specialty feeds for race horses, fighting cocks, aquarium fish,
preceding paragraphs, the gross annual sales and/or zoo animals and other animals generally considered as pets);
receipts do not exceed the amount of Five hundred fifty
thousand pesos (P550,000): Provided, That not later than This provision is different from Letter A. (I think pasabot ni Atty.
January 31st of the calendar year subsequent to the Donalvo kay Letter C) Pag sinabi nating Letter A., it refers for animals
effectivity of Republic Act No. 8241 and each calendar year and for human consumption. So makaon. So if you eat a dog, it is not a
thereafter, the amount of Five hundred fifty thousand pesos VAT exempt transanction ha!
(550,000) shall be adjusted to its present value using the
Consumer Price Index, as published by the National Pag sinabi nating feeds, it does not included SPECIALTY FEEDS. Like
Statistics Office (NSO). pet food, ginapakaon sa pang sabong.
The foregoing exemptions to the contrary notwithstanding, any person (h) Importation of personal and household effects belonging to the
whose sale of goods or properties or services which are otherwise not residents of the Philippines returning from abroad and nonresident
subject to VAT, but who issues a VAT invoice or receipt therefor shall, citizens coming to resettle in the Philippines: Provided, That such
in addition to his liability to other applicable percentage tax, if any, be goods are exempt from customs duties under the Tariff and Customs
liable to the tax imposed in Section 106 or 108 without the benefit of Code of the Philippines;
input tax credit, and such tax shall also be recognized as input tax

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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
In other words, these are importations by balikbayan. 4. Provided, further, That vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture,
What i-import ko ang ref? Very expensive ref? Is that possible? shall not fall within this classification and shall therefore be
subject to duties, taxes and other charges;
ELEMENTS
1. Importation must be the personal and household effects; (k) Services by agricultural contract growers and milling for others of
2. Belonging to the RETURNING RESIDENTS of the palay into rice, corn into grits and sugar cane into raw sugar;
Philippines and nonresident citizen coming to RESETTLE in
the Philippines; This is reproduced under the TRAIN Law.
3. Provided that such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines. (l) Medical, dental, hospital and veterinary services subject to the
provisions of Section 17 of Republic Act No. 7716, as amended:
(i) Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except Medical, dental, hospital and veterinary except those rendered by
any vehicle, vessel, aircraft, machinery other goods for use in the professionals. This is also carried by the TRAIN Law.
manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own Please take note that professional service of medical or health care
use and not for sale, barter or exchange, accompanying such persons, providers or dental service providers are SUBJECT to VAT.
or arriving within ninety (90) days before or after their arrival, upon the Professional fees yan eh!
production of evidence satisfactory to the Commissioner, that such
persons are actually coming to settle in the Philippines and that the For example: Magpa LAB Exam ko. Who is going to conduct the
change of residence is bona fide; examination for my blood? Med Tech diba? It is a profession diba? If
the services rendered by the Med Tech, what is the business tax
Yung dati balik bayan, ito naman importation of persons in order to implication? What about Nurses?
settle here in the Philippines. Not necessarily balikbayan.
(o) Services rendered by individuals pursuant to an employer-
Importation must be of: employee relationship;
1. Professional instruments and implements;
2. Wearing apparel; Ang binayad mo sa mga empleyado mo, there are VAT exempt
3. Domestic animals; and transactions.
4. Personal household effects.
(r) Sales by agricultural cooperatives duly registered with the
EXCEPT any vehicle, aircraft, machinery, other gods for use in the Cooperative Development Authority to their members as well as sale of
manufacture of merchandise of any kind in commercial quantity: their produce, whether in its original state or processed form, to non-
1. Belonging to persons coming to SETTLE in the Philippines; members; their importation of direct farm inputs, machineries and
2. For their own use and not for sale, barter, or exchange; equipment, including spare parts thereof, to be used directly and
3. Accompanying such persons; or exclusively in the production and/or processing of their produce;
4. Arriving within 90 days before or after their arrival;
5. Upon production of evidence satisfactory to the CIR; WHO AVAIL OF THIS EXEMPTION? Agricultural coops who are CDA
6. That such persons are actually coming to SETTLE in the registered. Take note CDA registration is very essential.
Philippines; and
7. That the change of residence is bona fide. WHAT ARE VAT EXEMPT TRANSACTIONS OVER HERE?
1. Sale to their members;
This provision has been changed under the TRAIN Law. 2. As well as sale of their produce, whether in its original state
or processed form, to non-members
What are the articles involved here? Practically the same articles may  Even if the agri-coop will sell to non-members, still
nadagdag lang konti.. tools of trade, occupation or employment. they are exempt from VAT
3. Their importation of spare parts thereof, to be used directly
WHO OWNS OR IMPORTS THESE ARTICLES? They are either: and exclusively in the production and/or processing of their
1. Persons coming to settle in the Philippines; produce.
 They want to live here already regardless of
citizenship (w) Sale of real properties not primarily held for sale to customers or
2. Overseas Filipinos or under the law, Filipinos or their held for lease in the ordinary course of trade or business or real
families and descendants who are now residents or citizens property utilized for low-cost and socialized housing as defined by
of other countries Republic Act No. 7279, otherwise known as the Urban Development
 Not necessarily na mobalik sila diri. Ok lang and Housing Act of 1992, and other related laws, house and lot and
overseas Filipinos. other residential dwellings valued at One million pesos (P1,000,000)
and below: Provided, That not later than January 31st of the calendar
WHAT ARE THE (COMMISSIONS(?) OF VAT EXEMPTIONS UNDER year subsequent to the effectivity of this Act and each calendar year
THIS PROVISION? The imported articles shall be: thereafter, the amount of One million pesos (P1,000,000) shall be
1. In quantities and of the class suitable to the profession, rank adjusted to its present value using the Consumer Price Index, as
or position of the persons importing said items, published by the national Statistics Office (NSO);
2. For their own use and not for barter or sale,
3. accompanying such persons, or arriving within a reasonable There are two VAT exempt transactions involving real properties:
time 1. Selling of real properties; and
 So now there is a change, dati 90 days, ngayon, 2. Leases of real properties
within a reasonable time. Bakit? Because there are
some balik bayan boxes na hindi dumadating withn (A) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR
90 days SALE TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY
COURSE OF TRADE OR BUSINESS
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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
There are two types of persons who sell real properties: COMMERCIAL
1. Non-dealers – not engaged in the buying or selling of real  Look at the VAT registration. If NON-VAT, you look at the
properties 1.9million threshold. You follow the GENERAL RULE.
2. Dealers

WHAT IS THE IMPLICATION IF NON-DEALER WILL SELL REAL Under the TRAIN LAW:
PROPERTY? THERE ARE TWO TYPES OF PROPERTIES THAT
MAY SOLD BY A NON-DEALER: (P) Sale of real properties not primarily held for sale to customers or
1. Capital assets situated here in the Philippines; held for lease in the ordinary course of trade or business or real
 What is business tax implication? This is VAT property utilized for low-cost and socialized housing as defined by
exempt. When will you consider a sale of Republic Act No. 7279, otherwise known as the Urban Development
property as a VAT transaction? Diba it is for and Housing Act of 1992, and other related laws, residential lot valued
business? at One million five hundred thousand pesos (₱1,500,000) and below,
2. Ordinary assets house and lot, and other residential dwellings valued at Two million five
 I am not a dealer and ayoko nang mag business hundred thousand pesos (₱2,500,000) and below: Provided, That
nang flower shop so ibenta ko na ang lupa and beginning January 1, 2021, the VAT exemption shall only apply to sale
building. What is tax implication? It will be of real properties not primarily held for sale to customers or held for
subjected to VAT or you follow the rules on VAT. lease in the ordinary course of trade or business, sale of real property
 Two possibilities: (1) VAT-registered or (2) utilized for socialized housing as defined by Republic Act No. 7279,
Non-VAT registered. sale of house and lot, and other residential dwellings with selling price
 Kung VAT-registered, automatic subject to VAT. of not more than Two million pesos (₱2,000,000): Provided, further,
Kung non-VAT siya, you look at the 1,919,500 That every three (3) years thereafter, the amount herein stated shall be
threshold. adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (PSA);
WHAT IF HE IS A DEALER?
For the TRAIN Law, BEGINNING JANUARY 1, 2018 UNTIL
TYPES OF REAL PROPERTIES UNDER THE VAT LAW DECEMBER 31, 2020, the principles are still a pplicable, pag sinabing
1. Low-cost housing; nating residential lot, the threshold is P1,500,000. It would seem that
2. Socialized housing; the legislators did not take into consideration the price adjustment
3. Residential lot; recommended. The same with residential dwelling, pagdating ng
4. Residential dwelling TRAIN Law, until 2020, the threshold is P2,500,000.
5. Commercial
Pagdating ng January 1, 2021, socialized housing is still there. Low-
Why do need to classify the properties? Because there are different cost si already gone. So VAT-able transaction na ang low-cost.
ceilings involved. Residential lot is also gone. Residnetial dwelling is still there but the
threshold now is P2,000,000.
SOCIALIZED HOUSING
 For socialized housing there are two possibilities: (x) Lease of a residential unit with a monthly rental not exceeding Eight
1. The dealer will sell residential lot only; or thousand pesos(P8,000); Provided, That not later than January 31st of
2. Residential house and lot. the calendar year subsequent to the effectivity of Republic Act No.
8241 and each calendar year thereafter, the amount of Eight thousand
Pag lote, ang magical number is ______. Pag house and lot, this is pesos (P8,000) shall be adjusted to its present value using the
P450,000. Consumer Price Index as published by the National Statistics Office
(NS0);
EXAMPLE:
There are two types of properties for lease:
I am VAT registered person. I sell a house and lot classified as 1. Commercial
socialized housing for P500,000. Am I subject to VAT? Yes. Vat-  GENERAL RULE: It is dependent on the VAT
registered na nga ako lumampas pa ako sa ceiling. registration and also dependent on the threshold.
2. Residential
I am VAT registered person. I sell a house and lot classified as  The gross receipts from lease of residential units
socialized housing for P300,000. Am I subject to VAT? Since my are subject to the following rules:
transaction did not the ceiling, even if I am a VAT registered, I am not
liable to VAT. If the monthly rental does not The lessor shall be exempt from
exceed P12,800 per unit per VAT and other percentage
Generally we look at the sales of the entire year. But when it comes to month, regardless of the tax (OPT).
real estate transactions, you go per transaction basis. But if VAT- aggregate annual rentals
registerd ka, hindi ka lumampas sa ceiling, still VAT-exempt. If the monthly rental exceeds The lessor is exempt from VAT,
P12,800 per unit per month but but subject to 3% OPT
LOW-COST HOUSING the aggregate annual rentals do
 The magic number is P750,000. not exceed P1,919,500
If the monthly rental exceeds The lessor is subject to 12% VAT
RESIDENTIAL LOT P12,800 per month per unit and
 This is P1,919,500 the aggregate annual rentals
exceed P1,919,500
RESIDENTIAL DWELLING
 Still P3,919,200. Pag sinabi nating residential dwelling, it Under the TRAIN Law, only the figures have changes. From P12,800
refers to residential house and lot or condominium, to P15,000. Everything else is the same.
townhouse.

21 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
(y) Sale, importation, printing or publication of books and any or consolidation. There are transfers of ordinary
newspaper, magazine review or bulletin which appears at regular assets. Supposedly, under the ordinary sense, it
intervals with fixed prices for subscription and sale and which is not is a sale or exchange of property which is why
devoted principally to the publication of paid advertisements; and normally VAT-able ito na transaction. Now under
the new law, this type of transfer is VAT exempt
ELEMENTS siya.
1. Printed or published at regular intervals; 3. (AA) Sale of drugs and medicines prescribed for diabetes,
2. Available for subscription and sale at fixed prices; and high cholesterol, and hypertension beginning January 1,
3. Are not principally devoted to the publication of paid 2019; and
advertisements 4. (Y) Association dues, membership fees, and other
assessments and charges collected by homeowners
What about FHM? Asa gina print ang FHM? Diba dito lang sa Pinas? associations and condominium corporations;
5. (Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
(S) Transport of passengers by international carriers;
01 FEBRUARY 2018 (NAmparo)
It does not matter whether the transport is to or from the Philippines.
TAX CREDIT
(U) Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations; (1) INPUT VAT

Before the TRAIN Law, the exemption is on the entity itself. But under SEC. 110. Tax Credits. –
the TRAIN Law, there is already a qualification. xxx
The term "input tax" means the value-added tax due from or paid by a
Under the TRAIN Law: VAT-registered person in the course of his trade or business on
importation of goods or local purchase of goods or services, including
(U) Importation of fuel, goods and supplies by persons engaged in lease or use of property, from a VAT-registered person.
international shipping or air transport operations: Provided, That the
fuel, goods, and supplies shall be used for international shipping It shall also include the transitional input tax determined in accordance
or air transport operations; 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
It is not enough for this entities to import fuel, goods and supplies, it is properties or services by any person registered or required to register
also required that this business entities must use the fuel, goods and under Section 236 of this Code.
supplies for international shipping or air transport operations. xxx

(W) Sale or lease of goods or properties or the performance of THREE COMPOSITIONS OF INPUT TAXES
services other than the transactions mentioned in the preceding 1. Importation of goods;
paragraphs, the gross annual sales and/or receipts do not exceed the 2. Local purchase of goods /services including lease or use of
amount of One million five hundred thousand pesos property from a VAT-registered person;
(P1,500,000): Provided, That not later than January 31, 2009 and 3. Transitional input tax in accordance with Section 111 of this
every three (3) years thereafter, the amount herein stated shall be Code.
adjusted to its present value using the Consumer Price Index, as
published by. the National Statistics-Office (NSO); (The amount now is The definition of input tax here is quite kulang. Those mentioned in
1,919,500 per R.R No. 13-2012) Sec. 110 are not the only sources of input taxes.
This is a catch-all provision. So for those whose gross receipts or
gross sales does not exceed P1,919,500 are VAT-exempt but shall be FORMULA:
subject to OPT.
Output VAT - Input VAT = VAT payable
Under the TRAIN Law, it is no longer P1,919,500 but it is now
P3,000,000. Also, the provision which allows the readjustment for this To compute for your VAT liability, you deduct your input VAT from your
amount has also been removed unless the Congress will amend the output VAT. Input VAT is a form of a tax credit. Without this input VAT,
law that will adjust the amount. all you have to pay is just the output VAT.

(BB) Sale or lease of goods or properties or the performance of Example: You will import a personal property not used in your
services other than the transactions mentioned in the preceding business. This is an example na output VAT lang ang babayaran mo.
paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Three million pesos (₱3,000,000). Input VAT is a benefit on the part of the taxpayer because he is
allowed to deduct the VAT that he paid in his purchase of goods, or
VAT-EXEMPT TRANSACTIONS UNDER THE TRAIN LAW: services from a VAT registered person and that purchase is related to
1. (W) Sale or lease of goods and services to senior citizens the business.
and persons with disability, as provided under Republic Act
Nos. 9994 (Expanded Senior Citizens Act of 2010) and So kung mag negative ang VAT payable mo, that will cause for a VAT
10754 (An Act Expanding the Benefits and Privileges of refund or VAT carry-over.
Persons With Disability), respectively;
 What are the benefits of the Senior Citizens? SOURCES OF INPUT TAX
 20% discount on selected items like
food, hotels, transportation, amusement (1) Domestic purchase of goods or services including lease
2. (X) Transfer of property pursuant to Section 40(C)(2) of the or use of property from a VAT-registered person for
NIRC, as amended; your business
 If you remember Income Taxation, there will be  You can claim the VAT that you paid to your
exchanges of properties when it is due to merger suppliers.
22 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
(2) Importation of goods which refers to your business Q: WHO MAY CLAIM THIS PRESUMPTIVE INPUT TAX?
 You can claim the VAT you paid for your
importation as part of your input VAT A: It’s claimable only by those who are engaged in specific
(3) Transitional Input VAT businesses. They are:
1. Persons or firms engaged in the processing of sardines,
SEC. 111. Transitional/Presumptive Input Tax Credits. – mackerel and milk; and
(A) Transitional Input Tax Credits. – A person who becomes liable to 2. Persons or firms engaged in manufacturing refined sugar
value-added tax or any person who elects to be a VAT-registered and cooking oil and packed noodle-based instant meals.
person shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of finance, upon Q: WHAT IS THE INPUT VAT RATE?
recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to two A: 4% of the gross value in money of their purchases of primary
percent (2%) of the value of such inventory or the actual value-added agricultural products, which are used as inputs to their production.
tax paid on such goods, materials and supplies, whichever is higher,
which shall be creditable against the output tax. Example: What if you buy sardines in its original state to be used in
my sardines processing plant? What is the tax consequence as to the
WHO MAY CLAIM THIS TRANSITIONAL INPUT VAT? supplier or seller of sardines? Diba human consumption in its original
1. A person who becomes liable to value-added tax; state, it is supposed to be VAT-exempt. May napasa ba na input VAT
2. Any person who elects to be a VAT-registered person. sa akin? Wala diba, nothing, because I purchased it from a VAT-
exempt person.
But if you want to be simple about it, transition input VAT is that input
VAT which can be claimed by the taxpayer who becomes liable for Take note: I will only have input VAT when I purchase something from
VAT for the first time. someone who is also a VAT-registered person. Pag VAT-exempt
person, wala yan.
Example: Dati, hindi ako lumampas ng 1.9M threshold, right now
because I’m doing well with my advertising, my sales went up What am I supposed to pay as input tax? I am a VAT registered person
exceeding such threshold, I have to register as a VAT-taxpayer, it’s but because of the nature of my business, I sell sardines, I cannot
already mandatory registration on my part, so in my transition period, make any input tax, in the end daku kaayo ang output tax diba. So this
since I will pay the VAT, I can claim the transitional input tax. is one form of a remedy provided for by law for those who are engaged
in those kinds of businesses. If you notice, these are basic necessities,
Q: What is the amount of the transitional input VAT that can be yung sardines, mackerel, milk. Noddles? Necessity ba sya? LOL.
deducted against the output tax?
Q: TRANSITIONAL INPUT TAX VS. PRESUMPTIVE INPUT TAX
1. 2% of the value of the beginning inventory of goods
materials, and supplies; OR A: Their differences are:
1. Their tax rates
Which is why the law requires you to submit an inventory in 2. Tax base
accordance with the revenue regulation (inaudible) to the Secretary of 3. How does it work
Finance so that you will be able to determine the basis of the 2%. Do
you still consider the VAT you paid for the inventory materials? No (5) Input taxes, which can be directly attributed to VATable
longer. transactions plus ratable portion of any input tax, which
2. The actual value-added tax paid on such goods, materials cannot be directly attributed to either a taxable or tax-
and supplies, whichever is higher. exempt entity.

You look at the receipts, how much VAT did you pay when you In other words, the two taxes come from mixed transactions.
purchased these goods, materials and supplies. This is one form of
tax-minimization. Examples: I am in a domestic transportation business of passengers
and baggage, what is the business tax implication?
(4) Presumptive Input Tax Credits 1. If I am a domestic carrier by land of passengers, I am
VAT exempt but I’ll pay other percentage tax.
SEC. 111. Transitional/Presumptive Input Tax Credits. – 2. If I am a domestic carrier by land of cargoes and
(B) Presumptive Input Tax Credits. – baggage, it is VATable transaction based on the VAT
1) Persons or firms engaged in the processing of sardines, registration.
mackerel and milk, and in manufacturing refined sugar and
cooking oil, shall be allowed a presumptive input tax, If I am a VAT-registered person, I have two (2) kinds of transaction in
creditable against the output tax, equivalent to one and one- my business:
half percent (4%) of the gross value in money of their 1. The transport of passengers
purchases of primary agricultural products which are used as 2. Transport of goods or cargoes to any point here in
inputs to their production. As used in this Subsection, the Mindanao.
term "processing" shall mean pasteurization, canning and
activities which through physical or chemical process alter So I have to purchase fuel, diba may papasa sa akin na VAT from the
the exterior texture or form or inner substance of a product in purchase of fuel. How will I apportion that? Eto na yun, ratable portion
such manner as to prepare it for special use to which it could of any input tax, which cannot be directly attributed to either a taxable
not have been put in its original form or condition. or tax-exempt entity.

2) Public works contractors shall be allowed a presumptive What if passengers lang lahat? Or lahat cargoes? How am I supposed
input tax equivalent to one and one-half percent (4%) of the to pay the VAT? Can I deduct all the VAT I paid for the fuel? Not
contract price with respect to government contracts only in necessarily. Only a ratable portion which refers to the VATable
lieu of actual input taxes therefrom. transaction.

23 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
(6) Depreciable Capital Goods calendar month for use in trade or business for which deduction for
 They refer to goods or properties with estimated depreciation is allowed under this Code shall be spread evenly over
useful life of greater than one (1) year, which are the month of acquisition and the fifty-nine (59) succeeding months if
treated as depreciable assets used directly or the aggregate acquisition cost for such goods, excluding the VAT
indirectly in the production or sale of taxable goods component thereof, exceeds One million pesos (₱1,000,000):
or services. Provided, however, That if the estimated useful life of the capital good
 These are different from capital assets. Capital is less than five (5) years, as used for depreciation purposes, then the
goods are properties subject to depreciation used input VAT shall be spread over such a shorter period: Provided,
in your business. further, That the amortization of the input VAT shall only be allowed
 In income taxation context, these are part of your until December 31, 2021 after which taxpayers with unutilized input
ordinary assets. VAT on capital goods purchased or imported shall be allowed to apply
the same as scheduled until fully utilized: Provided, finally, That in the
WHAT IS THE TREATMENT IF YOU BUY DEPRECIABLE CAPITAL case of purchase of services, lease or use of properties, the input tax
GOODS? shall be creditable to the purchaser, lessee or licensee upon payment
of the compensation, rental, royalty or fee.
Kung mupalit kag multicab for your laundry shop business, there will xxx
be a corresponding VAT passed to you as the purchaser, can you
deduct the entire 12% VAT? Can you claim it as part of your input CHANGES UNDER THE TRAIN LAW:
taxes? 1. The amortization of the input VAT in the purchase or the
importation of depreciable capital goods shall be allowed
SEC. 110. Tax Credits.— only until the end of the year 2021. After Dec. 31, 2021,
xxx regardless of the aggregate acquisition cost of the
(2) Provided, that the input tax on goods purchased or imported in a depreciable capital goods, the taxpayer can claim the
calendar month for use in trade or business for which deduction for entirety of the input VAT;
depreciation is allowed under this Code shall be spread evenly over 2. After Dec. 31, 2021, what about those taxpayers who have
the a month of acquisition and the fifty-nine (59) succeeding months if unutilized input VAT for their purchases or importation of
the aggregate acquisition cost for such goods, excluding the VAT depreciable capital goods? They can still claim the input
component thereof, exceeds One million pesos (P 1, 000, 000): VAT, they can follow their previous schedule of
Provided, however, That if the estimated useful life of the capital good amortization. Same lang, apply lang hanggang matapos,
is less than five (5) years, as used for depreciation purposes, then the possible man before Dec. 31, 2021 nimo sya gipalit diba,
input VAT shall be spread over such a shorter period: Provided, finally, tapusin mo nalang yung amortization.
that in the case of purchase of services, lease or use of properties, the 3. Beginning Jan. 1, 2022, there is no more amortization of
input tax shall be creditable to the purchaser, lessee or license upon input VAT for purchases or imports of depreciable capital
payment of the compensation, rental, royalty or free. goods.

You can still claim the input tax, but the law says that there are Q: What happens if the output tax exceeds the input tax?
occasions that you cannot claim it completely in one shot. Remember A: That means that there is a VAT payable.
that VAT is payable quarterly.
SEC. 110(B). Excess Output or Input Tax.- If at the end of any
The amount of the input tax that you can deduct in the taxable quarter taxable quarter the output tax exceeds the input tax, the excess shall
will depend on the aggregate acquisition cost for the specific month. be paid by the VAT-registered person.
a. If the aggregate acquisition cost of the depreciable
capital goods, excluding VAT exceeds P1M, you If the input VAT is bigger than the output VAT
are required to amortize the VAT component for
sixty (60) months or the life of the asset, SEC. 110(B). Excess Output or Input Tax.- If the input tax exceeds
whichever is shorter. the output tax, the excess shall be carried over to the succeeding
b. If it does not exceed P1M, that’s the time that you quarter or quarters. Provided, however, That any input tax attributable
can claim the entire 12% VAT during the quarter to the purchase of capital goods or to zero-rated sales by a VAT-
when the depreciable capital good was purchased. registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.
Examples:
 Supposing in a single month, you bought a multicab, tag This is actually favorable to the taxpayer, he can EITHER:
P600,000, the VAT component is (600K x 12%) 72,000, if 1. Carry it over to the next succeeding quarters; 
 OR
this is the only purchase that you had in a calendar month, 2. If applicable, he may claim for a tax refund (VAT refund) or a
you can claim the entire 72,000 as part of your input VAT. tax credit certificate.
 What if bumili ako ng dalawang multicab, 1.2M na, multiply it
by 12% is 144,000. You must amortize this depending on the VAT REFUND
life of the multicab or 60 months (5 years), whichever is
shorter. SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-Rated or Effectively Zero-Rated Sales.- any VAT-
CHANGES UNDER THE TRAIN LAW registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the
*new provisions in italics taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable
SEC. 35. Section 110 of the NIRC, as amended, is hereby further input tax due or paid attributable to such sales, except
amended to read as follows: transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in
SEC. 110. Tax Credits.— the case of zero-rated sales under Section 106(A)(2)(a)(1),
xxx (2) and (B) and Section 108 (B)(1) and (2), the acceptable
“Provided, That the input tax on goods purchased or imported in a foreign currency exchange proceeds thereof had been duly
24 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
accounted for in accordance with the rules and regulations of  Palugi na business mo, you do not want to pay the
the Bangko Sentral ng Pilipinas (BSP): Provided, further, VAT anymore, it’s already below 1.9M (or 3M
That where the taxpayer is engaged in zero-rated or now), you want to be subject to OPT na, it’s okay,
effectively zero-rated sale and also in taxable or exempt sale you cancel your VAT registration, if there are
of goods of properties or services, and the amount of excess input taxes, you may claim for a tax refund.
creditable input tax due or paid cannot be directly and This is under SEC. 112 (B) (?)
entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. Q: What about the other VAT taxpayers?
A: The other VAT taxpayers, they have no zero-rated sales, they can
(B) Capital Goods.- A VAT-registered person may apply for the only carry-over of the excess input tax to the next taxable quarter.
issuance of a tax credit certificate or refund of input taxes
paid on capital goods imported or locally purchased, to the TWO-TIERED PROCESS OF THE APPLICATION FOR A VAT
extent that such input taxes have not been applied against REFUND
output taxes. 1. First, the taxpayer must file the administrative claim for
refund before the BIR
The application may be made only within two (2) years 2. Second, if the administrative application fails, then that’s the
after the close of the taxable quarter when the importation time that the taxpayer will have to avail of the judicial
or purchase was made. application for tax refund.

(C) Cancellation of VAT Registration. - A person whose PROCEDURE


registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of (1) Where should it be filed: The administrative claim for
status under Section 106(C) of this Code may, within two (2) refund shall be filed at the appropriate BIR office or the
years from the date of cancellation, apply for the issuance of Revenue District Office where the principal business is
a tax credit certificate for any unused input tax which may be located.
used in payment of his other internal revenue taxes.
(2) When should it be filed:
(D) Period Within Which Refund or Tax Credit of Input Taxes  The taxpayer should file the administrative claim
Shall be Made. - In proper cases, the Commissioner shall within two (2) years from the close of the taxable
grant a refund or issue the tax credit certificate for creditable quarter when the sales were made. It’s not two
input taxes within one hundred twenty (120) days from the years from the date of sale.
date of submission of complete documents in support  If it’s NOT filed within the two (2) year period,
of the application filed in accordance with Subsections (A) prescribed na, he cannot claim a refund.
and (B) hereof.  If filed within the two (2) year period, CIR has 120
days within which to decide the application for
In case of full or partial denial of the claim for tax refund or refund.
tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the TWO INTERPRETATIONS UNDER THE EXISTING REVENUE
taxpayer affected may, within thirty (30) days from the REGULATIONS:
receipt of the decision denying the claim or after the 1. By Kim Henares: Revenue Regulation in 2014, sabi nya at
expiration of the one hundred twenty day-period, appeal the the time of the submission dapat kompleto kana, whatever
decision or the unacted claim with the Court of Tax Appeals. that is submitted afterwards will no longer be considered.
The problem is, she applied such new ruling even before the
(E) Manner of Giving Refund. - Refunds shall be made upon effectivity of such. Supposedly, it does not have any
warrants drawn by the Commissioner or by his duly retroactive effect. There is a SC ruling which states that what
authorized representative without the necessity of being must be applied must be the rules at the time of the
countersigned by the Chairman, Commission on audit, the submission.
provisions of the Administrative Code of 1987 to the contrary 2. 2017 Revenue Regulation by Carlos Dominguez, which
notwithstanding: Provided, That refunds under this recognizes such SC ruling.
paragraph shall be subject to post audit by the Commission
on Audit. CONCLUSION: The 120-day period is reckoned from the date of
submission complete documents in support of the application filed.
THREE BASIC PRINCIPLES ABOUT VAT REFUND
1. This is a law, which is strictly construed against the taxpayer (3) After it is filed together with the supporting documents,
and in favor of the taxing authority because a tax refund three (3) things may happen:
partakes the nature of a tax exemption. The consequence is a. CIR will grant the application for refund; or
that, it is up for the taxpayer to support it with facts na he is b. CIR will deny the application; or
entitled to such refund. c. CIR will not do anything. There is INACTION by
2. The proper party to seek the refund for tax is the statutory the CIR.
taxpayer. It is the seller of the property and not the end
consumer. (4) In case there is DENIAL by the CIR, the taxpayer may
3. The VAT refund is applicable only to the VAT registered avail of the judicial remedies.
taxpayers. If he is not a VAT registered person, he cannot a. If taxpayer receives the denial of the application
claim for any tax refund. (administrative claim) from the CIR- The taxpayer
may file an appeal (judicial claim) within 30 days
Two Instances wherein the VAT-registered taxpayer can claim a from the receipt of the denial with the CTA IN
Tax Credit/Refund of Input Tax: DIVISION via a PETITION FOR REVIEW under
1. Zero-rated or effectively zero-rated sales of goods, Revised Rules of Court of Tax Appeals
properties, or services [SEC. 112 (A)]; (RRCTA) Rule 8, Sec. 2. The rule to follow is
2. The cancellation of VAT registration [SEC. 112 (C)]. RULE 42 of the ordinary Rules of Court (RRCTA
25 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
Rule 8, Sec. 4). So, suppletory ang ating Rules of denying the claim, appeal the decision with the Court of Tax Appeals:
Court. Provided, however, That failure on the part of any official, agent, or
b. CTA IN DIVISION wholly or partially denies the employee of the BIR to act on the application within the ninety (90)-day
petition for review; the taxpayer may file a motion period shall be punishable under Section 269 of this Code.
for reconsideration within 15 days from receipt
of the decision (Rule 15 Sec. 1 of RRCTA). CHANGES UNDER THE TRAIN LAW:
c. CTA IN DIVISION denies the motion for 1. The CIR is now given ninety (90) days from the date of
reconsideration, the taxpayer may elevate it to submission of the official receipts or invoices and other
the CTA EN BANC, he will file a PETITION FOR documents in support of the application filed. Dati 120 days,
REVIEW (RRCTA Rule 8, Sec. 1) now 90 days nalang.
d. CTA EN BANC decides against the taxpayer, 2. The application is for tax refund only, if you notice the term
that’s the time that the taxpayer may go up to the “tax credit” is removed. In other words, kwartahay nani
SUPREME COURT through a PETITION FOR karun.
REVIEW ON CERTIORARI under RULE 45 of the 3. The CIR is now required to make a ruling on the refund
Rules of Court within the 15 days from receipt application unlike before that the CIR may not do anything
of the decision. Iba ang petition on certiorari ha within the 120-day period. But right now, he is mandatorily
under Rule 65, iba yun. required to make a ruling and he must state the ruling in
writing and the legal and factual basis of his denial. But the
(5) If there is INACTION by the CIR within 120 days from law says “denial” lang, what about “grant”?
submission of complete documents, taxpayer has two (2)
options: (According to Dean daw) In case of full and partial denial of the application for refund, the
a. Wait for the CIR to make the decision; or taxpayer may appeal the same within thirty (30) days from the receipt
b. Taxpayer may opt not to wait for the decision but of the decision denying the claim; appeal the decision with the Court of
instead file an appeal with the CTA in division Tax Appeals. So, same parin. This is thru petition for review; file it in
within 30 days after the lapse of the 120-day the CTA in division.
period.
4. What if the BIR will not act on the refund application? Then
In either of the two options, if the CTA in division decides against the the official, agent, or employee of the BIR concerned shall
taxpayer, the taxpayer may file a motion for reconsideration or for new be subject to criminal sanctions.
trial, and it it’s still denied, he may go to the CTA en banc, after that,
another motion for reconsideration or new trial and if he will still lose, (Story about the seminar on TRAIN LAW)- That portion about sales of
then the taxpayer will go the Supreme Court via Rule 45 of the Rules goods or services to export-oriented enterprises, supposedly they’re no
of Court. longer considered as zero-rated transactions, subject to VAT na sila
provided na follow yung conditions. Ano yung mga conditions? Diba
Q: Supposing the two (2) year prescriptive period is already running something to do with the mechanism for VAT refund? That specific
out, hindi pa matapos ang 120 day period, what should the taxpayer portion of the law is not yet effective as of now because ilang syudad
do? What kind of application for refund does the 2-year prescriptive yan? And right now the processing of claims is only centralized in
period apply to? Manila. I don’t think the BIR has the manpower to decide on the
appeals. That is one of the problems under the TRAIN Law.
A: It only applies to the administrative claim for refund. So, if it’s only
on the last day of the 2-year prescriptive period that you have filed the 15 FEBRUARY 2018 (FRDulay)
administrative claim, it’s all right. Thereafter, the taxpayer must wait for
120 days. The taxpayer cannot file before the lapse of the 120-day Read the cases for VAT. Read the case of CORAL BAY NICKEL
period because the 120-day period and the 30 days thereafter CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
within which to file the appeal (judicial claim) are MANDATORY June 13, 2016
and JURISDICTIONAL.
CORAL BAY NICKEL CORPORATION vs. COMMISSIONER OF
GENERAL RULE: 120-day period and the 30 days thereafter within INTERNAL REVENUE
which to file the appeal are MANDATORY and JURISDICTIONAL. June 13, 2016

EXCEPTION: The time between Dec. 10, 2003 until October 6, 2010 The issue in that case is what if an entity purchases something which
when the Aichi Ruling came out and became effective. is inside the PEZA Zone or Economic Zones and it was only later on
that the entity became PEZA-registered. So zero-rated to siya. Can he
CHANGES UNDER THE TRAIN LAW claim a tax refund for that matter? (No as in not from the government)

Section 36. Section 112 of the NIRC, as amended, is hereby further In case that he can claim the refund, to whom can that entity ask a
amended to read as follows: refund then? (Supplier that shifted to it the VAT)

“Sec. 112. Refunds or Tax Credits of Input Tax.— FULLTEXT: The petitioner's principal office was located in Barangay
“(C) Period within which Refund of Input Taxes shall be Made.— In Rio Tuba, Bataraza, Palawan.21 Its plant site was specifically located
proper cases, the Commissioner shall grant a refund for creditable inside the Rio Tuba Export Processing Zone — a special economic
input taxes within ninety (90) days from the date of submission of the zone (ECOZONE) created by Proclamation No. 304, Series of 2002, in
official receipts or invoices and other documents in support of the relation to Republic Act No. 7916. As such, the purchases of goods
application filed in accordance with Subsections (A) and (B) hereof: and services by the petitioner that were destined for consumption
Provided, That should the Commissioner find that the grant of refund is within the ECOZONE should be free of VAT; hence, no input VAT
not proper, the Commissioner must state in writing the legal and should then be paid on such purchases, rendering the petitioner not
factual basis for the denial. entitled to claim a tax refund or credit. Verily, if the petitioner had paid
the input VAT, the CTA was correct in holding that the petitioner's
“In case of full or partial denial of the claim for tax refund, the taxpayer proper recourse was not against the Government but against the seller
affected may, within thirty (30) days from the receipt of the decision who had shifted to it the output VAT.

26 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
PERCENTAGE TAX WHAT IS THE TAX BASE FOR OPT?

There are 3 types of business taxes. We have VAT, and we have GENERAL RULE: Gross sales or gross receipts. Always naman yan
Percentage tax. (3 types daw pero 2 ra iya gi-ingon) Under VAT we eh. Gross receipts means the entire receipts without any deduction or
have the regular 12% VAT, the zero-rated VAT (mainly for exclusion as the term is generally and commonly understood.
exportation), and VAT-exempt transactions. Not all VAT-exempt
transactions are subject to the other percentage tax (OPT). Normally, if This is clarified in the case of Chinabank Corp v CA, GR. 146749. I
it generally deals with selling of services and goods, if it falls under the would like you to read that case. Essentially, what Chinabank is
catch all provision of the NIRC, that’s the only time the transaction will arguing is diba meron man yang 20% final withholding tax (FWT) on
be subjected to OPT. Apart from that, there are specific transactions interest income? This Chinabank will have investments. They will also
which the law deems it to be subject to OPT. earn interest income that will be subjected to final taxes. Chinabank is
saying that for us to compute the proper percentage tax on our income
Another principle that you will have to remember is that VAT and OPT as banking institution (we will call later on as Gross Receipts Tax
does not come together. It’s either the person or transaction is subject [GRT]) the BIR or government should exclude the 20% FWT. You will
to VAT (VATable) or the transaction or the person, because of the learn later on that any income that will be received by the bank will be
nature of his business, is subject to OPT. subjected to the GRT on banks and other financial intermediaries.

HOW DO YOU DEFINE OPT? SC said NO! The tax base for GRT is gross receipts. When the law
talks about gross receipts, it talks about gross receipts in its general
A PERCENTAGE TAX is a national tax measured by a certain sense. Whatever the bank receives devoid of any deductions or
percentage of the gross selling price or gross value in money of goods exclusions. Besides, the 20% FWT is already part of income diba?
sold, bartered or imported; or of the gross receipts or earnings derived Anong ginagawa ng bangko kung saan naka-deposit yung Chinabank
by any person engaged in the sale of services. [CIR vs. SOLIDBANK na money? The bank will just withhold the 20%. It’s essentially part of
CORPORATION, November 25, 2003] Chinabank’s income but the other bank withholds a portion of that and
remit to the government. It’s advance payment of income tax. I’s a way
If you come to think about it, it’s pretty much similar with the coverage for the government to collect the tax due on the part of the Chinabank.
of VAT. Sorry if this definition is lacking mainly because the transaction
will be subjected to OPT only if the NIRC or other special laws CHINABANK Corp vs. CA
specifically declares such transaction or person will be subjected to GR. 146749
OPT.
From the FT: In the same manner, the amount of the final withholding
WHAT IS THE NATURE OF PERCENTAGE TAX? tax on interest income should not be deducted from the bank’s interest
income for purposes of the gross receipts tax. The final withholding tax
It is a business tax. It’s also an internal revenue tax but it’s not an on interest, like the creditable withholding tax on rentals, comes from
income tax. It is never an income tax. It is not imposed on the privilege the bank’s income and is money the bank owns that is used to pay the
of earning income rather it is imposed because that person or entity is bank’s tax liability. The final withholding tax and the creditable
engaged in the conduct of that particular business declared b law to be withholding tax constitute payment by the bank to extinguish a tax
subject to OPT. obligation to the government. The bank can only pay with money it
owns, or with money it is authorized to spend. In either case, such
Take note also that percentage tax is different from VAT although if money comes from the bank’s revenues or receipts, and certainly not
you think about it they’re both business taxes but percentage tax in its from the government’s coffers.
very essence that is the very definition of business tax kasi that is not
earned if not for your business. For VAT, it’s more of a consumption OLD NIRC SEC. 116. Tax on Persons Exempt from Value-Added
tax. Tax (VAT). - Any person whose sales or receipts are exempt under
Section 109(V) of this Code from the payment of value-added tax and
We said earlier that once a person is subject to VAT or OPT it is no who is not a VAT registered person shall pay a tax equivalent to three
longer subject to that other kind of business tax, except excise tax. Is percent (3%) of his gross quarterly sales or receipts: Provided, That
there an instance where a taxpayer will be held liable for both the cooperatives shall be exempt from the three percent (3%) gross
VAT and OPT? receipts tax herein imposed.

There is such instance it is a sort of a penalty. That is if the taxpayer TRAIN LAW Sec. 116. Tax on Persons Exempt from Value-added
subject to OPT and then issues a VAT invoice and bills out VAT for Tax (VAT).— Any person whose sales or receipts are exempt under
that transaction. In which case the BIR will impose the proper OPT for Section 109(BB) of this Code from the payment of value-added tax and
that transaction and at the same time the BIR will also collect that VAT who is not a VAT-registered person shall pay a tax equivalent to three
that was billed by the seller. He will also be liable for surcharges, thus percent (3%) of his gross quarterly sales or receipts: Provided, That
a form of penalty. But the general rule is that when the taxpayer is a cooperatives, and beginning January 1, 2019, self-employed and
VAT-registered person or the transaction is subjected to VAT, it’s no professionals with total annual gross sales and/or gross receipts not
longer subject to the OPT. exceeding Five hundred thousand pesos (₱500,000) shall be exempt
from the three percent (3%) gross receipts tax herein imposed.
CAN A PERSON AND OPT AT THE SAME TIME?
Let’s dissect this provision.
Of course because a person can have different types of transactions.
In accounting parlance, we call it as mixed transactions. It means the 1. Any person whose sales or receipts are exempt under
person is engaged in the business wherein he may be liable for VAT or Section 109(V) - under the old Internal Revenue Code, this
he may be liable also for OPT. For instance, if I have a mini-grocery refers to the sale of goods which are export in nature. Goods
store which income exceeds the 1.9M threshold. And at the same time, or services in general which are specifically not declared by
I have a fleet of taxis. O diba? Single person, different types of law to be zero-rated and not VAT-exempt. The other
businesses, different business tax implication. So you look at the requirement is that for these persons who are engaged in
transaction, you look at the person liable. the selling of goods or services, they should not be VAT
registered persons. Under the old NIRC, these taxpayers,
27 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
even if they do not reach the 1.9M threshold, they are not Those are the few things that are introduced by the TRAIN Law under
allowed to register as VAT taxpayer. this provision. Take note also that the cooperatives are also exempt
from the 3% GRT under this provision. These cooperatives must be
Under the TRAIN Law, there is an optional income tax scheme for duly registered with the CDA. Under the TRAIN Law, it’s still there.
those who are self-employed or mixed-income earners.
WHAT ARE THE OTHER CHANGES INTRODUCED BY THE TRAIN
Mixed-income earners means the person in earning compensation and LAW?
at the same time self-employed. So engaged in business. This applies
only to individuals ah.
Beginning January 1, 2019, self-employed and professionals with total
annual gross sales and/or gross receipts not exceeding Five hundred
Section 24 (A)(2)(b) Rate of Tax on Income of “Purely Self-employed
thousand pesos (₱500,000) are supposed to be exempt from the three
Individuals and/ or Professionals Whose Gross Sales or Gross
percent (3%) GRT. The problem is PRRD vetoed this provision. What
Receipts and Other Non-operating Income Does Not Exceed the is the effect?
Value-added Tax (VAT) Threshold as Provided in Section 109(BB).—
Self-employed individuals and/or professionals shall have the option to
1987 Constitution. ART VI Section 27 (2) The President shall have
avail of an eight percent (8%) tax on gross sales or gross receipts and
the power to veto any particular item or items in an appropriation,
other non-operating income in excess of Two hundred fifty thousand
revenue, or tariff bill, but the veto shall not affect the item or items to
pesos (₱250,000) in lieu of the graduated income tax rates under
which he does not object.
Subsection (A)(2)(a) of this Section and the percentage tax under
Section 116 of this Code.
OLD NIRC SEC. 117. Percentage Tax on Domestic Carriers and
Under the TRAIN Law, for those who are purely self-employed and Keepers of Garages. - Cars for rent or hire driven by the lessee,
their gross sales or receipts in their business do not exceed 3M they transportation contractors, including persons who transport passengers
have the option to 8% tax based on their gross receipts or sales. On for hire, and other domestic carriers by land, air or water, for the
top of that, if they choose to be taxed at 8%, they will no longer be transport of passengers, except owners of bancas and owner of
subjected to any percentage tax. Another effect of that is, if that self- animal-drawn two wheeled vehicle, and keepers of garages shall pay a
employed person will opt to be taxed at 8% based of their gross sales tax equivalent to three percent (3%) of their quarterly gross receipts.
or receipts, they lose the option to be registered as a VAT taxpayer.
The gross receipts of common carriers derived from their incoming and
TRAIN LAW Sec. 24. Income Tax Rates.— outgoing freight shall not be subjected to the local taxes imposed
under Republic Act No. 7160, otherwise known as the Local
(A) Rates of Income Tax on Individual Citizen and Government Code of 1991.
Individual, Resident Alien of the Philippines.—
In computing the percentage tax provided in this Section, the following
(2) Rates of Tax on Taxable Income of Individuals. shall be considered the minimum quarterly gross receipts in each
particular case:
(c) Rate of Tax for Mixed Income Earners.— Taxpayers earning both
Jeepney for hire –
compensation income and income from business or practice of
1. Manila and other cities P 2,400
profession shall be subject to the following taxes:
2. Provincial 1,200
1) All Income from Compensation – The rates prescribed under
Subsection (A)(2)(a) of this Section.
Public utility bus –
2) All Income from Business or Practice of Profession –
Not exceeding 30 passengers 3,600
Exceeding 30 but not exceeding 50 passengers 6,000
(a) If Total Gross Sales and/or Gross Receipts and Other Non-
Exceeding 50 passengers 7,200
operating Income Do Not Exceed the VAT Threshold as
Provided in Section 109(BB) of this Code.— The rates
Taxis –
prescribed under Subsection (A)(2)(a) of this Section on
1. Manila and other cities P 3,600
taxable income, or eight percent (8%) income tax based on
2. Provincial 2,400
gross sales or gross receipts and other non-operating
income in lieu of the graduated income tax rates under
Car for hire (with chauffer) 3,000
Subsection (A)(2)(a) of this Section and the percentage tax
Car for hire (without chauffer) 1,800
under Section 116 of this Code.
(b) (b) If Total Gross Sales and/or Gross Receipts and Other
Non-operating Income Exceeds the VAT Threshold as Let’s dissect this provision. What are the types of transactions
Provided in Section 109(BB) of this Code.— The rates here? Those that are in this kind of business:
prescribed under Subsection (A)(2)(a) of this Section. 1. Cars for rent or hire driven by the lessee
2. Transportation contractors, including persons who transport
WHAT ABOUT THOSE MIXED-INCOME EARNERS? WHAT ARE passengers for hire,
THEIR OPTIONS AS A TAXPAYER? 3. Keepers of garages; and
4. Other domestic carriers by land, air or water, for the
transport of passengers except owners of bancas and owner
If their business income will not exceed 3M:
of animal-drawn two wheeled vehicle
1. Their compensation income will always be subjected to the
schedular income tax. Walay labot ang balaon. Kung
WHAT IS THE TAX RATE?
mulapas ka sa exemption, you will pay the tax based on your
compensation income.  3% based on the quarterly gross receipts. Take note that
2. They have the option to be taxed at 8% of their gross sales the payment of percentage tax is quarterly in nature. Pretty
or receipts. If he choose this option, he will lose the benefit much the same with VAT.
of registering as a VAT taxpayer. At the same time, he is
exempt from the 3% OPT. What about domestic carriers by land of goods and cargoes.
Because in this case, the transaction is passengers diba?
Generally, it’s just domestic carriage of persons.
28 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
DOMESTIC CARRIERS [Sec. 109(s)] [Sec. 109(s)]
AIR SEA LAND
Passengers – Passengers – Passengers – Goods and cargoes - Goods and cargoes -
 VATable if PH  VATable if PH  Always OPT  VATable if PH to PH  VATable if PH to PH
to PH to PH (3%)  VAT-exempt if abroad to PH  VAT-exempt if abroad to PH
 Zero-rated if  Zero-rated if  OPT (3%) if PH to  OPT (3%) if PH to
PH to abroad PH to abroad
Goods and cargoes Goods and cargoes Goods and cargoes For RADIO AND TV BROADCASTING COMPANIES, normally if they
 VATable if PH  VATable if PH  VATable if PH are not VAT-registered taxpayers, they will be subjected to the 3%
to PH to PH to PH OPT as a franchise grantee. But these companies has the option to be
 Zero-rated if  Zero-rated if registered as VAT taxpayers. In which case, they will be subjected to
PH to abroad PH to abroad VAT regardless of the value of their gross receipts. If they choose to be
registered as a VAT taxpayer, that option once made is irrevocable.
VATABLE MEANS They shall be subjected to VAT forever or until the company is
1. If VAT-registered – subject to VAT dissolved and stopped it’s business.
2. If Gross receipts exceed the threshold
(1.9M[old]/3M[TRAIN]) – subject to VAT For GAS AND WATER however, they shall be subjected to OPT of 2%
3. If neither – not subject to VAT based on gross receipts. Do these companies have the option to be
registered as a VAT taxpayer? Yes they can register but still they shall
PROBLEM: Manny Corp owns a fleet of bus carrying persons and be subjected to OPT on their gas and water utilities. With respect to
baggages from DVO to any point in Mindanao. What are the business the other income, VAT na sila. If they will not register as VAT taxpayer,
tax implications? normally, the will be subjected to OPT on all their transactions.

The implications are as follows: OVERSEAS COMMUNICATIONS TAX


1. Gross receipts attributable to transport of passengers -
subject to OPT (3%) OLD NIRC SEC. 120. Tax on Overseas Dispatch, Message or
2. Gross receipts attributable to transport of cargoes – VATable Conversation Originating from the Philippines. –

Another thing is the gross receipts of common carriers derived from (A) Persons Liable. - There shall be collected upon every
their incoming and outgoing freight shall not be subjected to the local overseas dispatch, message or conversation transmitted
taxes imposed under the Local Government Code. from the Philippines by telephone, telegraph, telewriter
Under the codal, there is a minimum gross receipts for each quarter exchange, wireless and other communication equipment
depending on what type of vehicle is being used for the transportation service, a tax of ten percent (10%) on the amount paid for
and the place where the business was operating. You take note of the such services.
minimum amount. The BIR is trying to increase this but then BIR
decided not to do anything about this because there is no legal basis. The tax imposed in this Section shall be payable by the
And kung pataasan pa nila ito, kawawa naman yung mga small time person paying for the services rendered and shall be paid to
operators and drivers of these vehicles. the person rendering the services who is required to collect
and pay the tax within twenty (20) days after the end of each
WHAT ABOUT INTERNATIONAL CARRIERS? quarter.

OLD NIRC SEC. 118 Percentage Tax on International Carriers. – (B) Exemptions. - The tax imposed by this Section shall not
(A) International air carriers doing business in the Philippines on apply to:
their gross receipts derived from transport of cargo from the (1) Government. - Amounts paid for messages
Philippines to another country shall pay a tax of three transmitted by the Government of the Republic of
percent (3%) of their quarterly gross receipts. the Philippines or any of its political subdivisions
(B) International shipping carriers doing business in the or instrumentalities;
Philippines on their gross receipts derived from transport of (2) Diplomatic Services. - Amounts paid for
cargo from the Philippines to another country shall pay a tax messages transmitted by any embassy and
equivalent to three percent (3%) of their quarterly gross consular offices of a foreign government;
receipts. (3) International Organizations. - Amounts paid for
messages transmitted by a public international
THREE THINGS organization or any of its agencies based in the
1. The persons involved here are international carriers. Philippines enjoying privileges, exemptions and
Meaning, resident foreign corporations engaged in business immunities which the Government of the
here in the Philippines. And if it is air transportation Philippines is committed to recognize pursuant to
company, it has landing rights here in the PH. So meaning, an international agreement; and
online carrier siya (4) News Services. - Amounts paid for messages
2. The percentage tax refers only to the carriage of goods from any newspaper, press association, radio or
3. The transportation of things goods or cargoes is from the PH television newspaper, broadcasting agency, or
to abroad. Meaning, outgoing travel or flight. newstickers services, to any other newspaper,
press association, radio or television newspaper
INTERNATIONAL CARRIERS broadcasting agency, or newsticker service or to
AIR SEA a bona fide correspondent, which messages deal
Passengers - Passengers - exclusively with the collection of news items for,
or the dissemination of news item through, public
 VATable if PH to PH or abroad  VATable if PH to PH or abroad
press, radio or television broadcasting or a
to PH to PH
newsticker service furnishing a general news
 Zero-rated if PH to abroad  Zero-rated if PH to abroad
service similar to that of the public press.
 Vat-exempt from Jan. 1, 2018  Vat-exempt from Jan. 1, 2018

29 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
Let’s simplify. INTEREST INCOME
 If the interest earns is from a long-term loan, the tax rate is
This is essentially a tax being paid by the person availing the service. 1% of the receipts. Pag short-term 5%. Take note of the
Kung sino yung tumawag ng long distance siya magbabayad. The definition of short-term loans. Pag-sinabi nating short-term
function of the billing company is just to collect that OCT. Then it will the maturity period is 5 years or less or it was originally a
pay to the government. How much is the tax? It’s 10% of the amount long-term loan but the remaining maturity is 5 years or less.
paid for such services.
OTHERS 7%
PERSONS EXEMPT FROM THE PAYMENT OF OCT  Pag sinabi nating others, these are items in the gross
1. Government income other than these (number 1 and 2) like rent income,
2. Diplomatic Services royalties, gain on sale of capital assets. Those are the GRT
3. International Organizations specific for baking and quasi-banking institutions.
4. News Services whether paid for or broadcast, radio or TV,
for the purpose of collecting news. OLD NIRC SEC. 122. Tax on Other Non-Bank Financial
Intermediaries. - There shall be collected a tax of five percent (5%)
Tax on Banks and Non-banks financial intermediaries performing on the gross receipts derived by other non-bank financial
quasi-banking functions intermediaries doing business in the Philippines, from interests,
commissions, discounts and all other items treated as gross income
OLD NIRC SEC. 121. Tax on Banks and Non-Bank Financial under this code.: Provided, That interests, commissions and discounts
Intermediaries Performing Quasi- Banking Functions. - There shall from lending activities, as well as income from financial leasing, shall
be collected a tax on a gross receipt derived from sources within the be taxed on the basis of the remaining maturities of the instruments
Philippines by all banks and non-bank financial intermediaries in from which such receipts are derived, in accordance with the following
accordance with the following schedule: schedule:

(a) On interest, commissions and discounts from lending Maturity period is five years or less 5%
activities as well as income from financial leasing, on the Maturity period is more than five years 1%
basis of remaining maturities of instruments from which such
receipts are derived: Provided, however, That in case the maturity period is shortened thru
pre-termination, then the maturity period shall be reckoned to end as of
Maturity period is five years or less 5% the date of pre-termination for purposes of classifying the transaction
Maturity period is more than five years 1% and the correct rate of tax shall be applied accordingly.

(b) On dividends and equity shares and net income of Provided, finally, That the generally accepted accounting principles as
subsidiaries 0% may be prescribed by the Securities and Exchange Commission for
other non-bank financial intermediaries shall likewise be the basis for
(c) On royalties, rentals of property, real or personal, profits, the calculation of gross receipts.
from exchange and all other items treated as gross income
under Section 32 of this Code 7% Nothing in this Code shall preclude the Commissioner from imposing
the same tax herein provided on persons performing similar financing
(d) On net trading gains within the taxable year on foreign activities.
currency, debt securities, derivatives, and other similar
financial instruments. 7% Kanang nagapahuwam ug kwarta like pawnshops. For pawnshops
naman this is the GRT for the non-bank. Let us simplify the provision.
Provided, however, That in case the maturity period referred to in
paragraph (a) is shortened thru pre-termination, then the maturity GENERAL RULE: 5% of its receipts. You have to qualify this when
period shall be reckoned to end as of the date of pre-termination for you talk about lending activities.
purposes of classifying the transaction and the correct rate of tax shall
be applied accordingly. LENDING
 Pag-sinabi nating lending, meron tayong long-term and
Provided, finally, That the generally accepted accounting principles as short-term. Pag long-term the rate is 1%. Pag short term, the
may be prescribed by the Bangko Sentral ng Pilipinas for the bank or rate is 5%. There is no 7%. 7% there is missing. The
non-bank financial intermediary performing quasi-banking functions definition of short-term is essentially the same as that in
shall likewise be the basis for the calculation of gross receipts. Section 121. Pagbasahin nyo ang codal yan ang meaning ng
“on the basis of remaining maturities”
Nothing in this Code shall preclude the Commissioner from imposing
the same tax herein provided on persons performing similar banking TAX ON LIFE INSURANCE
activities.
OLD NIRC SEC. 123. Tax on Life Insurance Premiums. - There shall
Let’s just dissect the rates. be collected from every person, company or corporation (except purely
cooperative companies or associations) doing life insurance business
To know the rates you have to know the activity of the bank or quasi- of any sort in the Philippines a tax of two percent (2%) of the total
bank. You also have to know what is the source of their receipts that premium collected, whether such premiums are paid in money, notes,
they will have. Basically, there are three (3) types of receipts being credits or any substitute for money; but premiums refunded within six
received by these banks or quasi-banks. It’s either they will receive (6) months after payment on account of rejection of risk or returned for
something because of: other reason to a person insured shall not be included in the taxable
1. Interest income. These may come from your long-term loans receipts; nor shall any tax be paid upon reinsurance by a company that
or short-term loans on the basis of remaining maturity. has already paid the tax; nor upon doing business outside the
2. Dividends and equity shares from subsidiaries Philippines on account of any life insurance of the insured who is a
3. Others nonresident, if any tax on such premium is imposed by the foreign
country where the branch is established nor upon premiums collected
30 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
or received on account of any reinsurance , if the insured, in case of of their gross receipts, irrespective, of whether or not any
personal insurance, resides outside the Philippines, if any tax on such amount is charged for admission.
premiums is imposed by the foreign country where the original
insurance has been issued or perfected; nor upon that portion of the For the purpose of the amusement tax, the term 'gross receipts'
premiums collected or received by the insurance companies on embraces all the receipts of the proprietor, lessee or operator of the
variable contracts (as defined in Section 232(2) of Presidential Decree amusement place. Said gross receipts also include income from
No. 612), in excess of the amounts necessary to insure the lives of the television, radio and motion picture rights, if any. A person or entity or
variable contract workers. association conducting any activity subject to the tax herein imposed
shall be similarly liable for said tax with respect to such portion of the
'Cooperative companies or associations' are such as are conducted by receipts derived by him or it.
the members thereof with the money collected from among themselves
and solely for their own protection and not for profit. The taxes imposed herein shall be payable at the end of each quarter
and it shall be the duty of the proprietor, lessee or operator concerned,
The tax rate is 2% of the total premiums collected. Take note of the as well as any party liable, within twenty (20) days after the end of
items excluded from the gross receipts subject to this OPT. each quarter, to make a true and complete return of the amount of the
gross receipts derived during the preceding quarter and pay the tax
WHAT ARE THOSE? due thereon.
1. Premiums refunded within six (6) months after payment on
account of rejection of risk or returned for other reasons Not all forms of amusement are subject to OPT. It must be listed there.
2. Reinsurance premiums
3. Premiums from life insurance of non-residents received from TAX-EXEMPTION OF BOXING INSTITUTIONS
abroad by branches of domestic corporations doing business 1. World or oriental championship;
outside the PH 2. At least one of the contender is a Filipino; and
4. Excess of premiums on variable contracts 3. The promoter is a Filipino citizen or Filipino Corp. 60% is
supposed to be Filipino-owned.
Take note also of the OPT-exempt under this provision. They are
purely cooperative companies or associations. The definition is in the Gross receipts also include income from television, radio and motion
codal. picture rights, if any. So kung merong mga payperview, kasali siya.

OLD NIRC SEC. 124. Tax on Agents of Foreign Insurance What about if I am an operator of an illegal cockpit? Will I be
Companies. - Every fire, marine or miscellaneous insurance agent subjected to these kinds of tax? Magandang tanong yun ah.
authorized under the Insurance Code to procure policies of insurance
as he may have previously been legally authorized to transact on risks TAX ON WINNINGS
located in the Philippines for companies not authorized to transact
business in the Philippines shall pay a tax equal to twice the tax OLD NIRC SEC. 126. Tax on Winnings. - Every person who wins in
imposed in Section 123: Provided, That the provision of this Section horse races shall pay a tax equivalent to ten percent (10%) of his
shall not apply to reinsurance: Provided, however, That the provisions winnings or 'dividends', the tax to be based on the actual amount paid
of this Section shall not affect the right of an owner of property to apply to him for every winning ticket after deducting the cost of the ticket:
for and obtain for himself policies in foreign companies in cases where Provided, That in the case of winnings from double, forecast/quinella
said owner does not make use of the services of any agent, company and trifecta bets, the tax shall be four percent (4%). In the case of
or corporation residing or doing business in the Philippines. In all cases owners of winning race horses, the tax shall be ten percent (10%) of
where owners of property obtain insurance directly with foreign the prizes.
companies, it shall be the duty of said owners to report to the
Insurance Commissioner and to the Commissioner each case where The tax herein prescribed shall be deducted from the 'dividends'
insurance has been so effected, and shall pay the tax of five percent corresponding to each winning ticket or the 'prize' of each winning race
(5%)on premiums paid, in the manner required by Section 123. horse owner and withheld by the operator, manager or person in
charge of the horse races before paying the dividends or prizes to the
OLD NIRC SEC. 125. Amusement Taxes. - There shall be collected persons entitled thereto.
from the proprietor, lessee or operator of cockpits, cabarets, night or
day clubs, boxing exhibitions, professional basketball games, Jai-Alai The operator, manager or person in charge of horse races shall, within
and racetracks, a tax equivalent to: twenty (20) days from the date the tax was deducted and withheld in
accordance with the second paragraph hereof, file a true and correct
(a) Eighteen percent (18%) in the case of cockpits; return with the Commissioner in the manner or form to be prescribed
(b) Eighteen percent (18%) in the case of cabarets, night or day by the Secretary of Finance, and pay within the same period the total
clubs; amount of tax so deducted and withheld.
(c) Ten percent (10%) in the case of boxing exhibitions:
Provided, however, That boxing exhibitions wherein World or This time, the person who pays the tax is the person who wins. The
Oriental Championships in any division is at stake shall be previous amusement tax is paid by the operators, 126 is collected from
exempt from amusement tax: Provided, further, That at least the winner. Who will collect?
one of the contenders for World or Oriental Championship is
a citizen[s] of the Philippines and said exhibitions are The operator, manager or person in charge of the horse races.
promoted by a citizen/s of the Philippines or by a corporation
or association at least sixty percent (60%) of the capital of OLD NIRC SEC. 127. Tax on Sale, Barter or Exchange of Shares of
which is owned by such citizens; Stock Listed and Traded through the Local Stock Exchange or
(d) Fifteen percent (15%) in the case of professional basketball through Initial Public Offering. –
games as envisioned in Presidential Decree No. 871:
Provided, however, That the tax herein shall be in lieu of all (A) Tax on Sale, Barter or Exchange of Shares of Stock
other percentage taxes of whatever nature and description; Listed and Traded through the Local Stock Exchange.-
and There shall be levied, assessed and collected on every sale,
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks - barter, exchange, or other disposition of shares of stock
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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
listed and traded through the local stock exchange other of again applying such paragraph in order to make
than the sale by a dealer in securities, a tax at the rate of another the constructive owner of such stock.
one-half of one percent (1/2 of 1%) of the gross selling price
or gross value in money of the shares of stock sold, (C) Return on Capital Gains Realized from Sale of Shares of
bartered, exchanged or otherwise disposed which shall be Stocks. –
paid by the seller or transferor.
(1) Return on Capital Gains Realized from Sale of
(B) Tax on Shares of Stock Sold or Exchanged Through Shares of Stock Listed and Traded in the Local
Initial Public Offering. - There shall be levied, assessed Stock Exchange. - It shall be the duty of every
and collected on every sale, barter, exchange or other stock broker who effected the sale subject to the
disposition through initial public offering of shares of stock in tax imposed herein to collect the tax and remit the
closely held corporations, as defined herein, a tax at the same to the Bureau of Internal Revenue within
rates provided hereunder based on the gross selling price or five (5) banking days from the date of collection
gross value in money of the shares of stock sold, bartered, thereof and to submit on Mondays of each week
exchanged or otherwise disposed in accordance with the to the secretary of the stock exchange, of which
proportion of shares of stock sold, bartered, exchanged or he is a member, a true and complete return which
otherwise disposed to the total outstanding shares of stock shall contain a declaration of all the transactions
after the listing in the local stock exchange: effected through him during the preceding week
and of taxes collected by him and turned over to
Up to twenty-five percent (25%) 4% the Bureau Of Internal Revenue.
Over twenty-five percent (25%) but not over thirty-three and
one third percent (33 1/3%) 2% (2) Return on Public Offerings of Shares of Stock. -
Over thirty-three and one third percent (33 1/3%) 1% In case of primary offering, the corporate issuer
shall file the return and pay the corresponding tax
The tax herein imposed shall be paid by the issuing within thirty (30) days from the date of listing of
corporation in primary offering or by the seller in secondary the shares of stock in the local stock exchange. In
offering. the case of secondary offering, the provision of
Subsection (C) (1) of this Section shall apply as to
For purposes of this Section, the term 'closely held the time and manner of the payment of the tax.
corporation' means any corporation at least fifty percent
(50%) in value of outstanding capital stock or at least fifty (D) Common Provisions. - any gain derived from the sale, barter,
percent (50%) of the total combined voting power of all exchange or other disposition of shares of stock under this
classes of stock entitled to vote is owned directly or indirectly Section shall be exempt from the tax imposed in Sections
by or for not more than twenty (20) individuals. 24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this Code
and from the regular individual or corporate income tax. Tax
For purposes of determining whether the corporation is a paid under this Section shall not be deductible for income tax
closely held corporation, insofar as such determination is purposes.
based on stock ownership, the following rules shall be
applied: UNDER THE TRAIN LAW:

(1) Stock Not Owned by Individuals. - Stock owned TRAIN LAW Sec. 127. Tax on Sale, Barter or Exchange of Shares
directly or indirectly by or for a corporation, of Stock Listed and Traded through the Local Stock Exchange or
partnership, estate or trust shall be considered as through Initial Public Offering.—
being owned proportionately by its shareholders,
partners or beneficiaries. (A) Tax on Sale, Barter or Exchange of Shares of Stock
Listed and Traded through the Local Stock Exchange.—
(2) Family and Partnership Ownerships. - An There shall be levied, assessed and collected on every sale,
individual shall be considered as owning the stock barter, exchange or other disposition of shares of stock listed
owned, directly or indirectly, by or for his family, or and traded through the local stock exchange other than the
by or for his partner. For purposes of the sale by a dealer in securities, a tax at the rate of six-tenths of
paragraph, the 'family of an individual' includes one percent (6⁄10 of 1%) of the gross selling price or gross
only his brothers and sisters (whether by whole or value in money of the shares of stock sold, bartered,
half-blood), spouse, ancestors and lineal exchanged or otherwise disposed which shall be paid by the
descendants. seller or transferor.

(3) Option. - If any person has an option acquire You are already familiar with this. Tax on Sale, Barter or Exchange of
stock, such stock shall be considered as owned by Shares of Stock Listed and Traded through the Local Stock Exchange.
such person. For purposes of this paragraph, an I don’t think you are foreign to these terms because we have discussed
option to acquire such an option and each one of a this kind of tax in Tax1. It has something to do with capital gains tax of
series of options shall be considered as an option stock transactions, particularly, domestic stocks transaction.
to acquire such stock.
Sold through the local stock exchange - ½ of 1% stock transaction tax
(4) Constructive Ownership as Actual Ownership. - (STT) of the gross selling price or gross value in money of the shares
Stock constructively owned by reason of the of stock sold, bartered, exchanged or otherwise disposed which shall
application of paragraph (1) or (3) hereof shall, for be paid by the seller or transferor.
purposes of applying paragraph (1) or (2), be
treated as actually owned by such person; but Under the TRAIN Law, it is now 6/10 of 1%.
stock constructively owned by the individual by
reason of the application of paragraph (2) hereof Sold directly to the buyer even if listed - 5% for the first 100,000; 10%
shall not be treated as owned by him for purposes of the excess based on the gains
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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
Under the TRAIN Law, it is not a flat rate of 15% (2) Person Retiring from Business. - Any person retiring from a
business subject to percentage tax shall notify the nearest
TRAIN LAW Section 24 (C) Capital Gains from Sale of Shares of internal revenue officer, file his return and pay the tax due
Stock not Traded in the Stock Exchange.— The provisions of thereon within twenty (20) days after closing his business.
Section 39(B) notwithstanding, a final tax at the rate of fifteen percent
(15%) is hereby imposed upon the net capital gains realized during the (3) Exceptions. - The Commissioner may, by rules and
taxable year from the sale, barter, exchange or other disposition of regulations, prescribe:
shares of stock in a domestic corporation, except shares sold, or
disposed of through the stock exchange. (a) The time for filing the return at intervals other than
the time prescribed in the preceding paragraphs
INITIAL PUBLIC OFFERING (IPO) TAX for a particular class or classes of taxpayers after
considering such factors as volume of sales,
WHAT DO YOU UNDERSTAND ABOUT IPO? financial condition, adequate measures of
security, and such other relevant information
 It’s actually the first time for that corporation and its
required to be submitted under the pertinent
stockholders to sell its shares of stocks to the public and provisions of this Code; and
availing the service of the local stock exchange. (b) The manner and time of payment of percentage
 Selling after the initial public offering is called a follow taxes other than as hereinabove prescribed,
through stock offer or sale. including a scheme of tax prepayment.

WHAT ARE THE TAX IMPLICATIONS OF THAT? (4) Determination of Correct Sales or Receipts. - When it is
found that a person has failed to issue receipts or invoices,
 IPO by a closely held corporation shall be subject to OPT.
or when no return is filed, or when there is reason to believe
that the books of accounts or other records do not correctly
At what rate? reflect the declarations made or to be made in a return
 It depends on the percentage of the stocks sold during the required to be filed under the provisions of this Code, the
IPO and the total outstanding capital stock. Commissioner, after taking into account the sales, receipts
 Authorized capital stock (ACS) - maximum numbers of or other taxable base of other persons engaged in similar
businesses under similar situations or circumstances, or
stocks that a corporations is allowed to issue.
after considering other relevant information may prescribe a
 Outstanding capital stocks (OCS) - that is the total shares minimum amount of such gross receipts, sales and taxable
that is issued (dapat i-minus and treasury shares). Normally base and such amount so prescribed shall be prima facie
it must be lower than the ACS correct for purposes of determining the internal revenue tax
liabilities of such person.
Let’s say the shares are valued at P100. The OCS is 100,000 shares.
ACS is 150,000 shares. During the IPO the corporation was able to sell (B) Where to File. - Except as the Commissioner otherwise permits,
10,000 shares. How do you determine the rate? It’s the shares sold vs. every person liable to the percentage tax under this Title may, at his
the OCS. so 10,000/100,000 = 10%. You look at the tax rate. So kay option, file a separate return for each branch or place of business, or a
hindi man siya lumanpas sa 25% so 4% of the gross selling price or consolidated return for all branches or places of business with the
gross value in money of the shares of stock sold, bartered, exchanged authorized agent bank, Revenue District Officer, Collection Agent or
or otherwise disposed. Let’s say it is sold at P100. duly authorized Treasurer of the city or municipality where said
business or principal place of business is located, as the case may be.
10,000 shares x P100 = P1,000,000
P1,000,000 x 4% = P40,000 For persons liable to pay percentage tax, they shall file a quarterly
return. It is still pay-as-you-file system. The deadline is on or before 25
P40,000 is the IPO tax
days after the end of each taxable quarter.

WHO WILL PAY THE IPO TAX? It’s either the corporation who sells What if there is cancellation of VAT registration? the tax shall accrue
during the IPO and also the existing stockholder of the corporation who from the date of cancellation and shall be paid in accordance with the
sells during the IPO. provisions of this Section. So that’s the only time when the taxpayer
will pay the percentage tax.
There is some sort of scheme. Take note of the definition of a closely
held corporation. Take note also of the returns. Just read that it’s pure You also look at the exceptions
codal.
Where to file? Normally it’s filed separately for each branch or place
OLD NIRC SEC. 128. Returns and Payment of Percentage Taxes. – of business. Payment is per branch not per taxpayer.

(A) Returns of Gross Sales, Receipts or Earnings and Payment of 20 FEBRUARY 2017 (IJAbad)
Tax.
EXCISE TAX
(1) Persons Liable to Pay Percentage Taxes. - Every person
subject to the percentage taxes imposed under this Title SEC. 129. Goods Subject to Excise Taxes. – Excise taxes apply to
shall file a quarterly return of the amount of his gross sales, goods manufactured or produced in the Philippines for domestic sale
receipts or earnings and pay the tax due thereon within or consumption or for any other disposition and to things imported. The
twenty-five (25) days after the end of each taxable quarter: excise tax imposed herein shall be in addition to the value-added tax
Provided, That in the case of a person whose VAT imposed under Title IV.
registration is cancelled and who becomes liable to the tax
imposed in Section 116 of this Code, the tax shall accrue For purposes of this Title, excise taxes herein imposed and based on
from the date of cancellation and shall be paid in accordance weight or volume capacity or any other physical unit of measurement
with the provisions of this Section. shall be referred to as “specific tax” and an excise tax herein imposed
33 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
and based on selling price or other specified value of the goods shall (4) They are generally payable by the manufacturer or the
be referred to as “ad valorem tax.” importer. Excise taxes are directly levied upon the
manufacturer or the importer of the taxable goods.
First things first, I want you to be familiar with the definition of Specific
Tax and Ad Valorem Tax, for usually these questions are asked in the (5) Excise taxes are also in the nature of Indirect Taxes.
Bar Examinations. Because normally, when someone buys an article which is
subject to the excise tax, the burden of paying that tax is
As you all know, Excise tax is also a form of Business tax, but is actually upon the buyer. Apil na siya sa presyo. Ultimately it
different from percentage taxes. While it may be true that sometimes is the buyer who bears the burden of tax.
they refer to transactions or exchange, but excise refers to a specific
type, it does not apply to other type of sale or barter or exchange. It (6) Excise tax may either be Ad Valorem or a Specific Tax.
pertains only to specific goods, example liquors or cigars. Pagsinabi nating Ad Valorem, meaning added value, that is
based on the selling price which is based on the value of the
Normally Excise tax are taxes on the manufacture or production of goods.
certain goods manufactured here in the Philippines. They are not taxes
on the properties. They are in addition to VAT or the OPT. When you talk about Specific Tax, it means a unit of
measurement, such as per kilo, by metric ton, or by liter.
But there is an exception to that Rule provided in the case of CEBU
PORTLAND CEMENT vs. CIR, an old case, GR L-18645 February 27, CHANGES UNDER THE TRAIN LAW
1965. In this case the SC clarified that Ad Valorem tax on mineral
products is not a tax on the minerals but on the privilege of severing or SEC. 41. Section 129, Chapter I of Title VI of the NIRC, as amended,
extracting the same from the earth. is hereby further amended to read as follows:

WHAT ARE THE GOODS SUBJECT TO EXCISE TAXES? SEC 129. Goods and Services Subject to Excise Taxes. – Excise
taxes apply to goods manufactured or produced in the Philippines for
Generally under Section 129 domestic sales or consumption or for any other disposition and to
1. Certain goods manufactured or produced in the Philippines things imported as well as services performed in the Philippines. The
for domestic sale or consumption or for any other excise tax imposed herein shall be in addition to the value-added tax
disposition; imposed under Title IV. xxx
2. It also applies to certain goods which are imported.
Under the NIRC it only involves goods, but under the TRAIN it now
Based here, excise taxes still apply the Destination Principle, includes SERVICE – Non essential services. It only applies to services
because normally it applies to goods which are consumed only here in performed in the Philippines. So it has nothing to do with services
the Philippines. rendered abroad.

Q: WHAT ARE THE GOODS THAT ARE SUBJECT TO EXCISE Sec. 130. Filing of Return and Payment of Excise Tax on Domestic
TAXES? Only those specific goods or products which are locally Products. – (A) Persons Liable to File a Return, Filing of Return on
produced or distributed here in the Philippines. Removal and Payment of Tax. –

Under the Train Law, you have (1) Persons Liable to File a Return. – Every person liable to
a) Non – Essential Services and pay excise tax imposed under this Title shall file a separate
b) Sweetened Beverages. return for each place of production setting forth, among
others, the description and quantity or volume of products to
BASIC FEATURES O EXCISE TAXES be removed, the applicable tax base and the amount of tax
due thereon: xxx
(1) They are imposed only on specific products. The
necessary consequence of that, the excise tax may go As you can see, if you go by this provision, the Pay-as-you-File
together with VAT and your OPT, so long as the product is System still applies. The tax payer pays upon the filing.
produced or manufactured here in the Philippines and the
consumption is among those listed under the NIRC. WHO ARE THE TAXPAYERS LIABLE TO FILE AND PAY FOR THE
EXCISE TAX?
(2) They are generally imposed on products which are for
domestic sale or consumption, and it also involves For this matter, we distinguish the type of article produced:
importation. Therefore, excise taxes are in a way the same 1. Domestic Articles - For Domestic Articles the excise taxes
with VAT. are paid by the manufacturers or by the producers.
2. Imported Articles. For Imported Articles, the excise taxes
(3) They are generally payable prior to the removal from the are collected from the importer or the owner of the imported
place of production or from the Custom’s custody. articles. Usually, the importers, they are the main
Normally when you talk about VAT, these are paid quarterly, consignees
pretty much the same with the OPT, that is the time the
taxpayer must have to pay the government for the VAT or Also, under this provision, every person liable for the payment of the
OPT due from the particular transaction; But when you talk excise tax must file a separate return for each place of production.
of Excise taxes, there is no transaction as of yet.
For example, San Miguel, diba marami yan silang planta, for each
Normally this involves the removal of product because that plant separate return.
product has to be transferred from one place to another, or
probably the product will be removed from the manufacturing xxx Provided, however, That in the case of indigenous, petroleum,
warehouse for bulk sales. Ibaligya jud siya og buo. Before natural gas or liquefied natural gas, the excise tax shall be paid by the
the taxpayer is allowed to remove the products or articles first buyer, purchaser or transferee for local sale, barter, or transfer,
from the warehouse, dapat bayad na na og taxes. while the excise tax on exported products shall be paid by the owner,
34 | P a g e
ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
lessee, concessionaire or operator of the mining claim. Philippines

Q: What if the domestic products are removed from the place of Pretty much the same with the other taxes. So you just read the (4)
production without payment of the Excise tax? Gitanggal nako, Exceptions of the remaining provisions.
gibaligya nako without payment, who will be liable for the tax now?
Under this provision, DETERMINATION OF GROSS SELLING PRICE OF GOODS
SUBJECT TO AD VALOREM TAX
Should the products be removed from the place of production without
payment of the tax, the owner or person having possession thereof This is actually an important provision because it determines your Tax
shall be liable for the tax due thereon. base for excise taxes.

That means the BIR can go after the buyer of the articles subject to (B) Determination of Gross Selling Price of Goods Subject to Ad
excise tax. Basically the excise taxes constitute as a lien to the Valorem Tax. – Unless otherwise provided, the price, excluding the
products which are removed and will follow wherever the product will VAT, at which the goods are sold at wholesale in the place of
go. Ultimately, the one possessing the product, of which no excise production or through their sales agents to the public shall constitute
taxes have been paid, will become liable for the excise taxes due. the gross selling price. If the manufacturer also sells or allows such
goods to be sold at wholesale in another establishment of which he is
SEC. 130. (2) Time for Filing of Return and Payment of the Tax. – the owner or in the profits of which he has an interest, the wholesale
Unless otherwise specifically allowed, the return shall be filed and the price in such establishment shall constitute the gross selling price. xxx
excise tax paid by the manufacturer or producer before removal of
domestic products from place of production: xxx Q: SO WHAT IS THE GROSS SELLING PRICE FOR AD VALOREM
TAX OR THE GSP? HERE ARE THE RULES:
This was what we were saying. Normally, even if it is a Private
warehouse, it should be a bonded warehouse. The Gross Selling Price refers to the whole sale price excluding Vat.
This is whether the goods is sold at the place of production or to any
We also have in the NIRC the payment for Petroleum products. establishment of which he is the owner or in the profits of which he has
an interest therein.
xxx Provided, that the excise tax on locally manufactured petroleum
products and indigenous petroleum levied under Sections 148 and 151 xxx Should such price be less than the cost of manufacture plus
(A) (4), respectively, of this Title shall be paid within 10 days from the expenses incurred until the goods are finally sold, then a proportionate
date of removal of such products for the period from January 1, 1998 margin of profit, not less than 10% of such manufacturing cost and
to June 30, 1998; within 5 days from the date of removal of such expenses shall be added to constitute the gross selling price.
products from July 1, 1998 to December 31, 1998; and, before removal
from the place of production of such products from January 1, 1999 Because there are times na mas maliit pa ang presyo kaysa sa cost of
and thereafter: xxx production mo. This is actually true when it comes to metallic products,
diba pabago bago ang presyo ng gold, normally, when that happens
Then also we have the Mineral products, there seems to be a you apply this provision.
difference between the Non-metallic minerals and Metallic minerals.
MANUFACTURER’S OR PRODUCER’S SWORN STATEMENT
(a) NON-METALLIC
(C) Manufacturer’s or Producer’s Sworn Statement. – Every
xxx Provided further that the excise tax on non-metallic mineral or manufacturer or producer of goods or products subject to excise taxes
mineral products, or quarry resources shall be due and payable upon shall file with the Commissioner on the date or dates designated by the
removal of such products from the locality where mined or extracted, latter, and as often as may be required, a sworn statement showing,
xxx among other information, the different goods or products manufactured
or produced and their corresponding gross selling price or market
Papaano mo malaman ang bayaran so diba you have to extract first? value, together with the cost of manufacture or production plus
So after extraction that is when you are going to pay the excise tax. expenses incurred or to be incurred until the goods or products are
finally sold.
(b) METALLIC
Why do we need a sworn statement? Because I think this is also an
xxx but with respect to the excise tax on locally produced or extracted additional protection on the part of the government such that the
metallic mineral or mineral products, the person liable shall file a return government can file for perjury on the declaration. It’s an added
and pay the tax within 15 days after the end of the calendar quarter protection on the part of the government.
when such products were removed subject to such conditions as may
be prescribed by rules and regulations to be promulgated by the Then we move to Section 131 for the Payment of Excise Taxes on
Secretary of Finance, upon recommendation of the Commissioner. xxx Imported Articles. This is medyo mahaba. You just read and I will just
discuss a portion of this.
So yung isa, upon removal, itong isa after the end of the calendar
quarter. When you talk about metallic mineral, it undergoes processing WHO PAYS THE EXCISE TAX ON IMPORTED ARTICLES?
pa diba? Unlike Quarry, diba ginakuha lang naman yang bato or
gamay lang man ang refinement. SEC. 131. Payment of Excise Taxes on Imported Articles. –

WHAT ABOUT THE PLACE OF FILING OF THE RETURN AND (A) Persons Liable. – Excise taxes on imported articles shall be paid
PAYMENT OF THE TAX? by the owner or importer to the Customs Officer, conformably with the
regulations of the Department of Finance and before the release of
SEC. 130. (3) Place for Filing of the Return and Payment of the such articles from the customs house, or by the person who is found in
Tax. – Except as the Commissioner otherwise permits, the return shall possession of articles which are exempt from excise taxes other than
be filed with and the tax paid to any authorized agent bank or Revenue those legally entitled to exemption.
Collection Officer, or duly authorized City or Municipal Treasurer in the
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ABAD_AMPARO_CONFESSOR_DULAY_GUMBOC_IBAY_MORTEJO_NARCA
SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
In the case of tax-free articles brought or imported into the Philippines What is the exception here? Importation of Cigars and Liquors made
by persons, entities, or agencies exempt from tax which are directly by a government-owned and operated duty free shop shall
subsequently sold, transferred or exchanged in the Philippines to non- only be exempted from duties but not excise taxes.
exempt persons or entities, the purchasers or recipients shall be
considered the importers thereof, and shall be liable for the duty and Anong pinagkaiba? Pag magimport even if mapunta siya sa mga
internal revenue tax due on such importation. xxx normal duty free shops, if it is cigars and liquors, it will be subjected to
excise tax. (?) But once the imported cigars and liquors are listed to
(1) The owner or the importer. So it is pretty much like your government-owned and operated duty free shops, they are exempted
VAT, before you will be able to remove the products that you from duties, but excise taxes must have to be paid.
have imported, you must be able to pay your VAT to the
BOC, it also works on the excise tax. Cigars and cigarettes, distilled spirits and wines within the premises of
all duty-free shops which are not labeled as herein above required, as
(2) By the person who is found in possession of articles well as tax and duty-free articles obtained from a duty free shop and
which are exempt from excise taxes other than those subsequently found in a non duty-free shop to be offered for resale
legally entitled to exemption. So what if there are excise shall be confiscated, and the perpetrator of such non-labeling or
tax exempt articles supposed to be imported but it is found re-selling shall be punishable under the applicable provisions of this
on some other persons, so who will pay? Those in Code.
possession of the articles.
Articles confiscated shall de destroyed using the most environmentally
(3) In the case of tax-free articles brought or imported into friendly method available in accordance with the rules and regulations
the Philippines by persons, entities, or agencies exempt to be promulgated by the Secretary of Finance, upon recommendation
from tax which are subsequently sold, transferred or of the Commissioners of Customs and Internal Revenue.
exchanged in the Philippines to non-exempt persons or
entities. So when these articles, cigars and liquors not labelled as required or is
found in a non-duty free shop to be offered for resale, WHAT ARE
Anong pinagkaiba niya sa number 2? THE EFFECTS?
 For number 2, it refers more of the person, 1. It will be confiscated
 But for number 3 it refers to tax-exempt entities, so I guess it 2. It will be destroyed
makes no difference naman diba? 3. The perpetrator shall be punished under the NIRC

Now, take note also in the provision, the importation of cigars and EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL
cigarettes distilled spirits, fermented liquors and wines in to the OF CERTAIN ARTICLES
Philippines, even if destined for tax and duty-free shops, shall be
subject to all applicable taxes, including excise tax due thereon. This is boring but you have to read this kasi lagi tong tinatanong ni
dean, something about exempted or conditions. I will not discuss
xxx The provision of any special or general law to the contrary everything but I will just choose details.
notwithstanding, the importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the Philippines, even if SEC. 133. Removal of Wines and distilled Spirits for Treatment of
destined for tax and duty free shops, shall be subject to all applicable Tobacco Leaf. - Upon issuance of a permit from the Commissioner
taxes, duties, charges, including excise taxes due thereon This shall and subject to the rules and regulations prescribed by the Secretary of
apply to cigars and cigarettes, distilled spirits, fermented liquors and Finance, manufacturers of cigars and cigarettes may withdraw from
wines brought directly into the duly chartered or legislated freeports of bond, free of excise local and imported wines and distilled spirits in
the Subic Special Economic and Freeport Zone, created under specific quantities and grades for use in the treatment of tobacco leaf
Republic Act No. 7227; the Cagayan Special Economic Zone and to be used in the manufacture of cigars and cigarettes; but such wines
Freeport, created under Republic Act No. 7922; and the Zamboanga and distilled spirits must first be suitably denatured.
City Special Economic Zone, created under Republic Act No. 7903,and
such other freeports as may hereafter be established or created by REQUIREMENTS FOR THE TAX FREE REMOVAL OF WINES AND
law: DISTILLED SPIRITS
1. The wines and distilled spirits are removed in specific
Provided, further, That nothwithstanding the provisions of Republic Act quantities and grades
Nos. 9400 and 9593, importations of cigars and cigarettes, distilled 2. The articles are for use in the treatment of tobacco leaf and
spirits, fermented liquors and wines made directly by a government- to be used in the manufacture of cigars and cigarettes
owned and operated duty-free shop, like the Duty-Free Philippines 3. The wines and distilled spirits must first be suitably
(DFP), shall be exempted from all applicable duties only: Provided, still denatured
further, That such articles directly imported by a government-owned 4. There must be a permit from the CIR
and operated duty-free shop like the Duty-Free Philippines, shall be 5. It must be subject to the rules and regulations must be
labeled 'duty-free' and 'not for resale': prescribed by the Secretary of Finance

Provided, finally, That the removal and transfer of tax and duty-free SEC. 134. Domestic Denatured Alcohol. - Domestic alcohol of not
goods, products, machinery, equipment and other similar articles other less than one hundred eighty degrees (180O) proof (ninety percent
than cigars and cigarettes, distilled spirits, fermented liquors and (90%) absolute alcohol) shall, when suitably denatured and rendered
wines, from one freeport to another freeport, shall not be deemed an unfit for oral intake, be exempt from the excise tax prescribed in
introduction into the Philippine customs territory. Section 141: Provided, however, That such denatured alcohol shall be
subject to tax under Section 106(A) of this Code: Provided, further,
When you talk about Cigars and Liquors, once they are imported, even That if such alcohol is to be used for motive power, it shall be taxed
if they are destined to free ports, this just means that the excise tax under Section 148(d) of this Code: Provided, finally, That any alcohol,
including the customs duties must have to be paid. previously rendered unfit for oral intake after denaturing but
subsequently rendered fit or oral intake after undergoing fermentation,
dilution, purification, mixture or any other similar process shall be taxed
under Section 141 of this Code and such tax shall be paid by the
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TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
person in possession of such reprocessed spirits. The liquor is made in the brewery, hindi ka man magbenta ng liquor sa
brewery mo diba, it is normally transferred to a storage area where
REQUIREMENTS SO THAT THIS DOMESTIC DENATURED they sell it from there or they start to distribute it from there. Usually,
ALCOHOL BE FREE FROM EXCISE TAX when that happens, the manufacturer or producer may avail of the
1. The product involved must be a domestic alcohol of not less provisionally excise tax exempt withdrawal.
than 180 degrees proof or 90% absolute alcohol
2. The alcohol must be suitably denatured and rendered unfit ny brewer may remove or transport from his brewery or other place of
for oral intake manufacture to a bonded warehouse used by him exclusively for the
3. It must not be used for motive power storage or sale in bulk of fermented liquors of his own manufacture,
any quantity of such fermented liquors, not less than 1,000 liters at one
What happens if you will use the alcohol for motive power? Then removal, without prepayment of the tax thereon and more importantly,
it will be taxed under Section 148 of the NIRC. under a permit which shall be granted by the Commissioner.

SEC. 135. Petroleum Products Sold to International Carriers and Now, after Section 140, all the rest are specific articles, or products
Exempt Entities or Agencies. - Petroleum products sold to the subject to Excise Tax. Yan ang masakit kasi I do not have discussion
following are exempt from excise tax: about these matters, but just refer to:
1. What are these articles
(a) International carriers of Philippine or foreign registry on their 2. What is the tax base
use or consumption outside the Philippines: Provided, That 3. What is the taxing
the petroleum products sold to these international carriers
shall be stored in a bonded storage tank and may be It is very boring, but sad to say you just have to read and be familiar of
disposed of only in accordance with the rules and that. And to make it more difficult for you guys, most of the provision
regulations to be prescribed by the Secretary of Finance, under Section 140 have been changed by the TRAIN law. Let us just
upon recommendation of the Commissioner; discuss on the new things introduced by the

(b) Exempt entities or agencies covered by tax treaties, TRAIN LAW ON THE EXCISE TAXES
conventions and other international agreements for their use
of consumption: Provided, however, That the country of said This was one of the hot issues under the TRAIN law, the vehicles. But I
foreign international carrier or exempt entities or agencies think only the low class or low end vehicles are being hit by the train
exempts from similar taxes petroleum products sold to law. When you talk about vehicles which are 4 million and above, there
Philippine carriers, entities or agencies; and is a mathematical computation presented by Top Gear that these high
end vehicles would tend to be cheaper by around 800,000 pesos.
(c) Entities which are by law exempt from direct and indirect
taxes. xxx Provided, that hybrid vehicles shall be subject to 50% of the
applicable excise tax rates on automobiles under this Section:
You just read the provision, this pertains to withdrawals of petroleum. Provided further , that purely electric vehicles and pick-ups shall be
Magwithdraw og petroleum from a bonded warehouse and THEY exempt from excise tax on automobiles.
MUST BE SOLD TO THE FOLLOWING:
As used in this Section –
(1) International Carriers. It doesn’t matter whether the carrier
is of Philippine or Foreign registry, what is important is that (a) Automobiles shall mean any 4 or more wheeled vehicle
the petroleum products are used or consumed outside of the regardless of seating capacity, which is propelled by
Philippines. Meaning for International freights only. gasoline, diesel, electricity or any other motive power:
Provided, that for purposes of this Act, buses, trucks cargo
Take note also that under this provision, the petroleum vans, jeepneys/jeepney substitutes, single cab chassis, and
products must be stored in a bonded storage house. The special purpose vehicles shall not be considered as
purpose of which if it is withdrawn without paying the automobiles.
necessary excise taxes, the bond will be the one to answer
to the BIR. Under the TRAIN law, one of the peculiar things for excise taxes is the
Hybrid Vehicles.
(2) Exempt entities or agencies covered by tax treaties,
conventions and other international agreements. But Parang pinapauso lang natin dito sa Pinas, kasi in the US hybrid
take note this is covered by the Rule on Reciprocity. vehicle is also a thing. It doesn’t have that power like gasoline or diesel
powered engines but actually they are more energy efficient. So if you
(3) Entities exempt by law from direct and Indirect taxes. will buy a hybrid vehicle, the law will give you an incentive and that is
50% of the excise taxes.
SEC. 138. Removal of Fermented Liquors to Bonded Warehouse. -
Any brewer may remove or transport from his brewery or other place of Another thing is electric vehicles are exempted from Excise Taxes.
manufacture to a bonded warehouse used by him exclusively for the So Kung meron mang Tesla dito sa Pilipinas, bumili ka, it is actually
storage or sale in bulk of fermented liquors of his own manufacture, tax free but how much does it cost?
any quantity of such fermented liquors, not less than one thousand
(1,000) liters at one removal, without prepayment of the tax thereon Also, the Pick-ups are also exempt from excise tax. I do not know why.
under a permit which shall be granted by the Commissioner. Such Ang pick ups daw useful daw siya sa mga farmers.
permit shall be affixed to every package so removed and shall be
cancelled or destroyed in such manner as the Commissioner may Take note also the definition of Automobiles, because it is possible
prescribe. Thereafter, the manufacturer of such fermented liquors shall that is a motor vehicle but not an automobile within the meaning of the
pay the tax in the same manner and under the same penalty and excise tax laws. Vehicle nga siya pero it will NOT be subjected to the
liability as when paid at the brewery. automobile excise tax. The buses, trucks cargo vans,
jeepneys/jeepney substitutes, single cab chassis, and special purpose
WHAT IS THE SITUATION HERE? vehicles shall not be considered as automobiles.

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SECOND EXAM TRANSCRIPT
TAXATION LAW II
Atty. Percy Donalvo, CPA || 3 Manresa 2017-2018
Another one is the Automobiles used in the Freeport zone: Provided, that this tax rate shall not apply to sweetened
beverages using high fructose corn syrup: Provided, further,
“Automobiles used exclusively in the free port zone shall be exempt that sweetened beverages using purely coconut sap sugar
from excise tax.” ang purely steviol glycosides shall be exempt from this tax:
and
And there is also another item subjected to Excise Tax and it is the
Non-Essential Services. (2) A tax of 12.00 per liter of volume capacity shall be levied,
assessed, and collected on sweetened beverages using
SEC. 46 of the Train Law. A new section designated as Section 150- purely high fructose corn syrup or in combination with any
A under Chapter VI, Title VI of the NIRC, as amended, is hereby caloric or non-caloric sweetener.
inserted as follows:
SWEETENED BEVERAGES INCLUDE BUT IS NOT LIMITED TO:
A new section designated as Section 150-A under Chapter VI, Title VI 1. Sweetened Juice Drinks
of the NIRC, as amended, is hereby inserted as follows: a. What about Minute Maid? What about yung Tang?
2. Sweetened tea
Assessed, and collected a tax equivalent to 5% based on the gross 3. All carbonated beverages
receipts derived from the performance of services, net of excise tax a. Coke, pepsi, RC etc.
and VAT, on invasive cosmetic procedures, surgeries, and body 4. Flavored Water
enhancements directed solely towards improving, altering or 5. Energy and Sports Drinks
enhancing the patient’s appearance and do not meaningfully promote 6. Other Powdered drinks not classified as milk, juice, tea, and
the proper function of the body or prevent or treat illness or disease: coffee
Provided, That this tax shall not apply to procedures necessary to 7. Cereal and grain beverages
ameliorate a deformity arising from, or directly related to, a congenital 8. Other non-alcoholic beverages that contain added sugar
or developmental defect or abnormality, a personal injury resulting
from an accident or trauma, or disfiguring disease, tumor, virus or WHAT ARE THE PRODUCTS EXCLUDED FROM THE SCOPE OF
infection: Provided further, that cases or treatments covered by the SWEETENED BEVERAGE TAX?
National Health Insurance Program shall not be subject to this tax.” 1. All milk products, including plain milk, infant formula milk,
follow – on milk, growing up milk, powdered milk, ready-to-
In short, this refers to THE TAX ON THE COSMETIC PROCEDURES drink milk and flavoured milk, fermented milk, soymilk, and
AND ENHANCEMENTS, yang mga plastic surgeries na yan. Belo, flavoured soymilk.
Calayan etc. 2. 100% natural fruit juices
3. 100% natural vegetable juices
But question, what if yung eyebrows na nasa video ng SM Lanang 4. Meal Replacement and medically indicated beverages
basement na luod maxado, have you seen that, is it covered by this 5. Ground coffee, instant soluble coffee, and pre-packaged
law? powdered coffee products

What about the pedicure or manicure, is it covered by this law? Murag At some point I thought taxable na ang instant coffee, but when I read
gwapo lagi na siya iexam. What do you think? this, nagduha-duha nako. Most of the instant coffees now is sugar with
coffee diba? Di na nimo malasahan ang kape specially Nescafe 3 in 1,
Kung magpaayos dahil sa Cleft palate, okay lang, it is considered as mas gusto ko ang Kopiko. (ako pod, aw )
deformity.

What if yung new fad ng mga guys sa Thailand, the penis whitening.
What the fuck is that?!

Because you have to think of this, what if it is a cosmetic procedure but


does not involve any surgery?

What if kung buttocks lang mag-inject inject? How do you define


invasive?
Actually Dean and I talked about it earlier, I asked, Dean what about
you? Sabi niya ay hindi kasi it is not invasive, it does not involve any
surgery.

Sabi ko Dean invasive man siya kasi ginatusok man, kita ninyo sa mall
diba and may dugo nga, it’s crazy. (you’re crazy, lels)

SWEETENED BEVERAGE

SEC. 47 of the Train Law. A new section designated as Section 150-


B under Chapter VI, Title VI of the NIRC, as amended, is hereby
inserted to read as follows:

SEC. 150 – B. Sweetened Beverages. –


(A) Rate and Base of Tax – Effective January 1, 2018:

(1) A tax of 6.oo per liter of volume capacity shall be levied,


assessed, and collected on sweetened beverages using
purely caloric sweeteners, and purely non-caloric
sweeteners, or a mix of caloric and non-caloric sweeteners:
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