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If the annual gross sales or receipts does not exceed P1.5 million, he shall be liable instead for the 3% percentage tax on small business enterprises (see Section 116, Tax Code). 2 This shall be discussed in greater detail under Input Vat PM REYES NOTES ON TAXATION II: VALUE-ADDED TAX BY PIERRE M ARTIN DE LEON REYES This reviewer is a compilation of personal notes in Taxation Two and notes and lectures from Atty. Gruba and Atty. Montero and research and memoranda made during the authors internship at SyCip Salazar Gatmaitan and Hernandez (SSGH) . References have also been made to the following books: DE LEON & DE LEON, JR. THE FUNDAMENTALS OF TAXATION (2012); DE LEON & DE LEON, JR. COMPREHENSIVE REVIEW OF TAXATION (2010); VITUG & ACOSTA. TAX LAW AND JURISPRUDENCE (2006); DOMONDON, TAXATION VOLUME II: INCOME TAX (2009); CO-UNTIAN, JR. TAX DIGEST (2009); MAMALATEO , REVIEWER ON TAXATION (2008). This reviewer is best used with SACADALAN-CASASOLA, NIRC AND OTHER LAWS (2012). Possessors are granted the right to reproduce and distribute this reviewer as well as the right to convert the work to any medium for the purpose of preservation and/or continued distribution provided that the authors name remains clearly associated with the wor k and that no alterations of the form and content are made.
As differentiated by the Supreme Court in CIR BENGUET CORPORATION [JULY 14, 2006]:
Input VAT or input tax represents the actual payments, costs and expenses incurred by a VATregistered taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VAT-registered person/entity in the course of his/its trade or business on the importation of goods or local purchases of goods or services from a VAT-registered person. On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally becomes liable for 10% (now 12%) of the selling price as output VAT or output tax. Hence, "output tax" is the value-added tax on the sale of taxable goods or services by any person registered or required to register under the Tax Code.
2. The right or privilege to use patent, copyright, design or model, plan, secret formula or process, good will, trademark, trade brand, or other like property or right 3. The right or privilege to use in the Philippines of any industrial, commercial or scientific equipment 4. The right or the privilege to use motion picture files, films tapes and discs 5. Radio, television, satellite transmission and cable television line (see SECTION 106(A)(1), T AX CODE)
transactions deemed
Basic Elements
Q5.What are the elements of a VAT-taxable sale?3
1. Sale of goods and services, lease of property including deemed sale transactions 2. In the course of trade or business4 (except importation5) and including incidental transactions 3. The transaction is not a VAT zero-rated or a VAT-exempt transaction.
1. Transfer of goods or properties not in the course of business (originally intended for sale or for use in the course of business) 2. Property dividends (transfer to shareholders as share in the profits of VAT-registered persons or to creditors in payment of debt) 3. Consignment of goods without the sale being made within 60 days 4. Retirement from or cessation of business with respect to inventories of taxable goods existing (see SECTION 106(B), T AX CODE) Q5.2.1. San Roque Power entered into a purchase power agreement with NAPOCOR to develop the hydroelectric potential of the Lower Agno River. During the testing period, electricity was transferred by San Roque to NAPOCOR. Can the transfer be considered a sale of electricity? Yes. In SAN ROQUE POWER CORP. V. CIR [NOVEMBER 25, 2009], the Supreme Court held that although the transfer was not a commercial sale, the NIRC does not limit the definition of sale to commercial transactions in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of VAT, does not limit the term sale to commercial sales, rather it extends the term to transactions that are deemed sale. In the said case, it was undisputed that San Roque transferred to NPC all the electricity that was produced during the trial period. The fact that it was not transferred through a commercial sale or in the normal course of business does not deflect from the fact that such transaction is deemed as a sale.
One more element should be added: the annual gross sales or receipts must exceed P1.5 million. Otherwise, it is subject to the 3% percentage tax on small business enterprises. 4 As opposed to isolated transactions. Note, however, that services rendered by non-resident foreign persons shall be considered as being rendered in the course of trade or business. 5 An importation is VAT-taxable whether made in the course of trade or business or not.
No. In CIR V. CA AND COMASERCO [MARCH 30, 2000] , the Supreme Court opined that VAT is a tax on transactions imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The definition of the term in the course of trade or business applies to all transactions. Even a non-stock, non-profit corporation or government entity is liable to pay VAT for the sale of goods and services. In this case, even if the services rendered for a fee were on a reimbursement-on-cost arrangement and without realizing profit, the payments are still subject to VAT. Q5.4.2. Sony Philippines engaged the services of several advertising companies. Due to dire economic conditions, Sony International Singapore (SIS) gave Sony Philippines a dole-out to pay for said advertising expenses. Sony Philippines claimed as input VAT credits that VAT paid for the advertising expenses. The CIR disallowed this and assessed Sony Philippines deficiency VAT on the reimbursable received by it from SIS. The CIR contends that the reimbursable was a fee for a VATtaxable activity. Is the CIR correct? No. The Supreme Court held in CIR v. SONY PHILIPPINES [NOVEMBER 17, 2010] that Sony Philippines cannot be deemed to have received the reimbursable as a fee for a VAT-taxable activity. The absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursable. The Supreme Court distinguished this from CIR V. CA AND COMASERCO [MARCH 30, 2000] where even if there was similarly a reimbursement on cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines, not SIS.
No. In CIR V. MAGSAYSAY LINES [JULY 28, 2006], the Supreme Court found that any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT. In this case, the sale of the vessels was an isolated transaction, not done in the ordinary course of NDCs business and is thus not subject to VAT.
Note that services rendered by non-resident foreign persons shall be considered as being rendered in the course of trade or business.
Q8.2. What is the basis if the consideration of a sale is not wholly in money as in a partexchange or barter transaction?
The base is the price that would have been charged in an open market sale for purely monetary consideration.
VAT-taxable sale of real properties Q8.3. Is the sale of real properties subject to VAT?
Yes as to the sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller. In the case of sale of real properties on the installment plan, the real estate dealer shall be subject to VAT on the installment payments, including interest and penalties, actually and/or constructively received by the seller.(see SECTION 4.106-3, RR 162005 [SEPTEMBER 1, 2005]) Q8.3.1. What is the gross selling price for the sale of real properties subject to VAT? The gross selling price shall mean the consideration stated in the sales document or the fair market value,7 whichever is higher. (see SECTION 4.106-4, RR 16-2005 [SEPTEMBER 1, 2005]) Q8.3.2. How is VAT imposed on real property transactions? 1. If cash or deferred payment (payment is more than 25%), then the VAT on the whole amount is already imposed 2. If installment (less than 25% for a year), then the VAT is imposed on each payment 3. There is no VAT imposed on Section 40(C)(2) exchanges. Q8.3.3. Assuming transaction,
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VAT-taxable transactions VAT-taxable sale of goods Q8.Give the basis of VAT on sale, barter or exchange of goods or properties.
The base is the gross selling price or gross value in money of the taxable goods or properties sold, bartered or exchanged.
a is
The fair market value shall mean whichever is the higher of (1) the fair market value as determined by the CIR (zonal value) or (2) the air market value as shown in the schedule of values of the provincial and city assessors (real property tax declaration). In the absence of a zonal value, gross selling price shall refer to the market value shown in the latest real property tax declaration or the consideration, whichever is higher.
presumed as a sale of one residential lot, house and lot or residential dwelling. Q8.3.6. Is the sale of the parking lot included in the sale of a condominium unit? No. The sale of parking lots is a separate and distinct transaction and is not covered by the rules on the threshold amount not being a residential lot, house and lot, or a residential dwelling and thus should be subject to VAT regardless of the amount of selling price. (see RR 13-2012 [OCTOBER 12, 2012])
VAT-taxable sale of services including lease of properties Q9.Give the basis of VAT on sale of services and use or lease of properties?
The basis shall be the gross receipts derived from the sale or exchange of services including the use or lease of properties. (see Section 108(A), Tax Code)
Q9.2. Is the place of execution of the contract of lease material on the VAT-taxability of the use or lease of a property?
No. The use or lease of properties shall be subject to VAT irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines.
Previously 1.5 million. New figure is based on the amendment introduced by RR 16-2011 [May 7, 2004] on the new thresholds for VAT exemptions on the sale of real property. 9 Previously 2.5 million. 10 This value has not been changed by the amendments.
the
exempt
SECTION 109(A) TO (V) provides for the following: a) Sale or importation of agricultural and marine food products in their original state.13 b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds14 c) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad d) Importation of professional instruments and implements, wearing apparel, domestic animals and personal household effects belonging to
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Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code.
Those underlined are the notable VAT-exempt transactions. These enumeration is exclusive. 13 Such products are still considered in their original state even if they have undergone simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking, or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original state. 14 Does not include specialty feeds for race hourses, fighting cocks, aquarium fish, zoo animals, and other animals generally considered as pets.
g) h)
i) j) k)
l) m)
n)
Q10.3. Are medical services rendered b doctors registered with the PRC and legal services rendered by lawyers registered with the IBP subject to VAT?
No. RR 7-2004 [MAY 7, 2004] excludes services by doctors registered with the PRC and services by lawyers registered with the IBP as well as GPPs for the sole and exclusive purport of practising law or medicine from the coverage of VAT on services
o) p)
q) r)
s)
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But see Q10.3 on VAT exemption of doctors registered with the PRC and lawyers registered with the IBP. 16 Provided that the share capital contribution of each member does not exceed P15,000 17 Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27, 2011]. 18 Previously 2.5 million. Amended by RR 16-2011 [OCTOBER 27, 2011]. 19 Previously P10,000. Amended by RR 16-2011 [OCTOBER 27, 2011].
Includes engine, equipment, and spare parts thereof for domestic or international transport operations. 21 Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27, 2011]. 22 Note that in FIRST PLANTERS PAWNSHOP VS. CIR [JULY 30, 2008], the Supreme Court held that First Planters Pawnshop was subject to VAT as it was a lending investor. It must be noted that the factual circumstances of the said case pertained to a taxable period prior to RA No. 9238. What is important to note in this case is that the Supreme Court stated that pawnshops should now be treated as non-bank financial intermediaries and, as such, not subject to VAT.
Q10.8. S and ABS-CBN entered into an agreement where S will provide his services exclusively to ABS-CBN as a talent for the latters TV and radio shows. Is he liable to pay VAT?
No provided that there exists no employer-employee relationship between S and ABS-CBN. In SONZA V. ABS-CBN [JUNE 10, 2004], the Supreme Court held that an independent contractor is liable to pay VAT. Section 109 only exempts from VAT services rendered pursuant to an employer-employee relationship.
In transactions taxed at a 10% rate (now 12%), when at the end of any given taxable quarter the output VAT exceeds the input VAT, the excess shall be paid to the government; when the input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for the succeeding quarter or quarters. On the other hand, transactions which are taxed at zero-rate do not result in any output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other internal revenue taxes at the option of the taxpayer
Q11.4. Enumerate the requisites that must be complied with in order to be entitled to a refund or issuance of a TCC for input VAT due or paid attributable to zero-rated or effectively zero-rated sales.
1. There must be zerorated or effectively zerorated sales; 2. Input taxes were incurred or paid; 3. Such input taxes are directly attributable to zerorated or effectively zerorated sales; 4. Input taxes were not applied against any output VAT liability; and 5. The claim for refund was filed within the twoyear prescriptive period. (see SITEL PHILIPPINES CORPORATION CASE NO. 7623, MARCH 3, 2010])
V.
CIR [CTA
Zero-rated Effectively zero-rated generally refers to the refers to the sale of goods export sale of goods and or supply of services to supply of services persons or entities whose
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5.
6.
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SUMMARY OF VAT TREATMENT OF SALES OF GOODS AND SERVICES TO AND BY PEZA-REGISTERED ENTERPRISES WITHIN AND WITHOUT THE ECOZONE 24 Sale of Goods VAT - registered supplier from customs territory to PEZA registered enterprise (regardless of whether or not the PEZA - registered enterprise is subject to the 5% "in lieu of all tax" regime) VAT-exempt supplier from customs territory to PEZAregistered enterprise (regardless of whether or not the PEZA-registered buyer is subject to tax under the NIRC, or to the 5% special tax regime) 0% VAT Sale of Services 0% VAT
VAT exempt
VAT exempt
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Original summary made by Atty. B.P. Panigbatan. Updated and annotated by PM Reyes during 2011 SyCip Internship.
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VAT exempt
Q11.5.3. Benguet Corporation treated its sale of gold to the BSP as export sales and as such, they are zero-rated. The BIR issued a VAT Ruling affirmed such treatment. This was reiterated in subsequent rulings. BIR then disallowed refund of input VAT contending that a subsequent ruling was issued revoking the zero-rated status and that this could retroact because no prejudice would result to Benguet as it can offset it against its output and that it can claim the same as cost. Is the BIR correct? No. In CIR V. BENGUET CORPORATION [JULY 14, 2006], the Supreme Court found that (1) Benguet did not have enough output to offset the input VAT it accumulated precisely because believing it was zerorated it did not pass on output VAT and (2) assuming that that there is a right to refund overpaid income tax which would result if additional cost is taken up, only 32% of the amount would be recovered and it does not solve Benguets other disadvantageous situations. IN this regard, Supreme Court differentiated VAT rating and zero-rating. A taxpayer subject to 10% (now 12%) output VAT on its sales of goods and services may recover its input VAT costs by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover its input VAT costs by filing a refund or tax credit with the BIR. In said case, by providing for retroactive
application of the VAT ruling declaring sales of gold to the CB as subject to 10% VAT (12%), Benguets application for refund/tax credit was denied. Clearly, the retroactive application is prejudicial to Benguet. Q11.5.4. Acesite is the operator of Holiday Inn Hotel. It leases part of its premises to PAGCOR and caters food and beverages to its patrons. Acesite contends that the sale of food and beverages to PAGCOR is zero-rated and thus entitling them to claim a tax refund/credit. Is Acesite correct? Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16, 2007], the Supreme Court stated that services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate shall be subject to 0%. Since the law clearly provides for PAGCORs exemption, the sale of services of Acesite to PAGCOR is effectively zero-rated. Hence, Acesite may refund the VAT it paid on its sale of food and beverages to PAGCOR.
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3.
4.
Q11.6.2. American Express Philippines (AMEX-P) is a Philippine Branch of AMEX International. AMEX-P is a servicing unit of AMEX Hong Kong (AMEX-HK) and facilitates the collections of AMEX-HK receivables from card members in the Philippines. AMEX-P claimed a refund for its input taxes arising from zerorated sales of services to AMEXHK. CIR argues that AMEX-Ps services must be consumed abroad in order to be zero-rated. Is the CIR correct? No. In AMERICAN EXPRESS I NTERNATIONAL V. CIR [JUNE 29, 2005], the Supreme Court opined that while as a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax such that goods and services are taxed only in the country where they are consumed, exceptions to the destination principle are found in Section 108(B) of the 1997 Tax Code. In this case, Amex Phils. facilitated in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client, Amex HK, and getting paid for it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. As such, they are deemed exceptions because although the services are performed in the Philippines, the sales of such services are considered zero-rated. Q11.6.3. Placer Dome Inc (PDI) owns 39.9% of Marcopper. It undertook to clean-up and rehabilitate the Makalupnit and Boac Rivers in Marinduque which was affected by its mining operations. PDI engaged the services of Placer Dome Technical Services Limited (PD Canada), a non-resident foreign corporation in Canada which, in turn, engaged the services of Placer Dom Technical Services Philippines (PD Philippines). PD Philippines filed for a claim for tax credit/refund and contends that its sale of services to Placer Dome Canada was zero-rated. The CIR invokes the destination principle, contending that Placer
5. 6.
7.
Note that CIR V. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR M INDANAO, INC. [JANUARY 22, 2007] added this requisite
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Yes provided it meets the following requisites: 1. the services must be other than processing, manufacturing or repacking of goods; 2. payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and 3. the recipient of such services is doing business outside the Philippines. In SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE NO. 7623, MARCH 3, 2010], ACCENTURE VS. COMMISSIONER OF I NTERNAL REVENUE [C.T.A. CASE NO. 7046, SEP. 22, 2009], PARLANCE SYSTEMS VS. COMMISSIONER OF I NTERNAL REVENUE [C.T.A. CASE NO. 7459, JUL. 9, 2009], business process outsourcing companies were refused a refund of their excess input VAT because their sale of services were not zero-rated because they failed to prove that their clients were non-resident foreign corporations doing business outside the Philippines.
Input VAT Q12. What is the tax credit method in relation to the VAT?
Under the tax credit method, an entity can credit against or subtract from the VAT charged on its sales
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Q12.1. Give the three possible scenarios that may arise in computing the VAT payable.
If at the end of any taxable month or quarter: Output tax = input tax Output tax > input tax Output tax < input tax No VAT payable The excess shall be paid by the VAT-registered person The excess shall be carried over to the succeeding quarter or quarters
Note that if input vat results from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option.
Q12.2. Section 8 of RA No. 9337, otherwise known as the Expanded VAT Law, imposes a 70% limitation on the input tax. Thus, a VAT taxpayer can credit his input tax only up to the extent of 70% of the output tax. It was argued that (1) this makes the VAT regressive and unconstitutional and (2) it in effect leads to a retention of tax collection in the hands of VATregistered establishments which violates the principle that a tax should be for public purposes.
Q12.3. Is the source of the money used to pay the input tax paid for a business expense by a company material to a claim for excess input VAT?
No. In CIR v. SONY PHILIPPINES [NOVEMBER 17, 2010], Sony Philippines claimed as input VAT credits the VAT it paid for the advertising expenses using reimbursables from its affiliate in Singapore. The CIR disallowed this and assessed Sony Philippines deficiency VAT. The Supreme Court held that it is evident under Section 110 of the Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business expense. Sony incurred such advertising expense. Where the money came from is another matter all together but will definitely not change the VAT effect.
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As explained in ABAKADA GURO PARTY LIST V. ERMITA [SEPTEMBER 1, 2005] , the VAT system was previously a single stage system under a cost deduction method and was payable only by the original sellers. Now, the VAT system is a multi-stage system a mixture of the cost deduction method and the tax credit method. 27 Again, input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax is the tax due to the person when he sells goods.
Q12.4. Is a taxpayer entitled to a refund of excess input tax for rendition of services to an entity which the law exempts from indirect taxes?
Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16, 2007], the Supreme Court held that given that PAGCOR was exempt from indirect taxes, the
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Q12.5. Explain the rule on the apportionment of input VAT on mixed transactions and illustrate its application?
SECTION 4.110-4 OF RR16-2005 [SEPTEMBER 1, 2005] provides that a VAT-registered taxpayer who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: 1. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit Exception: Input taxes that can be directly attributable to VAT taxable sales to the Government or any of its political subdivisions, instrumentalities or agencies shall not be credited against output taxes arising from sales to nonGovernment entities. 2. If any input tax cannot be directly attributed to either a VAT-taxable or VAT-exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit.
The creditable input VAT available for each of the respective type of transactions entered into by ABC Corp are as follows: 1. For the sales subject to 12% VAT (i) actual input of P5,000 and (ii) ratable portion of P5,000 2. For the sales subject to 0% VAT (i) actual input VAT of 3,000 and (ii) ratable portion of P5,000 3. For sale of exempt goods no input VAT is creditable as the transactions are VAT-exempt 4. For the sales to government no input VAT is creditable as the law imposes a 5% FWT obligation on the government agency-payor. Q12.5.1. In the above illustration, how was the ratable portion of creditable input VAT for VATtaxable and zero-rated sales computed? For input VAT creditable on VAT-taxable sales:
For input VAT creditable on VAT zero-rated sales To illustrate: ABC Corporation had the following sales during the month: Sale to private entities subject to 12% - P100,000 Sale to private entities subject to 0% - P100,000 Sale of exempt goods - P100,000 Sale to govt subject to 5% FWT - P100,000 Total Sales for the month - P400,000 The following input taxes were passed on by its VAT suppliers: Input tax on taxable goods at 12% Input tax on zero-rated sales - P5,000 - P3,000
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(now 5%) from the payments still due. The JV disputed this and argued that all the receipts issued to LVM would have made JV subject to VAT and, hence, LVM could claim such as input tax. Can LVM rightfully deduct the amount representing the withholding VAT due on its transaction with DPWH?
No. In LVM CONSTRUCTION CORPORATION V. SANCHEZ [DECEMBER 5, 2011], the Supreme Court held that as an entity which dealt directly with the government insofar as the main constract was concerned, LVM was itself required by law to pay the 8.5% (now 5%) VAT which was withheld by DPWH. Given that the JV complied with their own obligation when they paid their VAT from their gross receipts and the fact that the contract between LVM and the JV did not stipulate any obligation on LVM assuming the VAT, LVM has no basis to withhold payments. Although the burden to pay an indirect tax like the VAT can be passed on, the liability to pay the same remains with the seller. IN this case, both LVM and the JV are liable for their respective VAT obligations as respective sellers.
Q13.2. Is a party dealing with a government entity deprived of its entitlement to the input VAT it accumulated considering the VAT withholding tax mechanism?
The 7% difference (12%-5%) is the presumed input VAT cost of the entity dealing with the government agency. If the actual input VAT is below 7%, then the taxpayer will realize additional income. However, if the actual input VAT is above 7%, then the difference between the actual input VAT and the 7% is considered as additional cost.
Q13.3. LVM Construction Corp. was engaged by the DPWH for the construction of roads and bridges. LVM subcontracted one of the projects to a Joint Venture. After completion, the JV demanded full payment to which LVM responded that they discovered that no deductions for VAT were made on previous payments and as such they were going to deduct 8.5%
Q14.1. Fort Bonifacio Development Corp (FBDC) is a real estate developer that bought from the national government a parcel of land which used to be a military reservation. At the time of the sale, there was yet no VAT on sales of real property. Subsequently, when VAT was already imposed on sales of real property, FBDC sold two parcels of land to Metro Pacific Corp. FBDC claimed transitional
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VAT Refunds Q16. What are the requirements for a claim for VAT refund/credit?
1. The taxpayer is engaged in sales which are zerorated or effectively zero-rated 2. The taxpayer is VAT-registered 3. The claim must be filed within two years after the close of the taxable quarter when such sales were made 4. The input taxes are due or paid; 5. The input taxes are not transitional input taxes 6. The input taxes have not been applied against output taxes during and in the succeeding quarters 7. The input taxes claimed are attributable to zerorated or effectively zero-rated sales 8. In certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B); Sections 108(B)(1) and (2)] 9. Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume. (See INTEL T ECHNOLOGY PHILIPPINES 27, 2007])
V.
CIR [APRIL
Q16.1. In claims for VAT refund/credit, what is the reckoning point for the two-year prescriptive period?
The reckoning period is from the close of the taxable when the relevant sales were made. In CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, 2008], Mirant generated power which it sells to NAPOCOR in which connection it secured the services of Mitsubishi Corporation of Japan. In the belief that its sale of
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Administrative claim filed with the CIR w/in 2 years from the close of the taxable quarter when the relevant sales were made
Submission of additional relevant supporting documents w/in 60 days from filing of claim
Appeal to CTA Division w/in 30 days from receipt of notice of denial or from lapse of 120 days of inaction counted from submission of documents to CIR. The appeal need not be made within the 2 year prescriptive period.
Q16.2. What is the period within which tax refund/credit of input taxes shall be made?
SECTION 112(C) provides that: 1. The CIR shall grant a tax credit certificate/refund for creditable input taxes within 120 days from the date of submission of complete documents in support of the application. 2. In case of full or partial denial of the claim for tax credit certificate/refund: a) The taxpayer may appeal to the CTA within 30 days from the receipt of said denial, otherwise the decision shall be come final
Follow mode of appeal to CTA En Banc up to SC Q16.2.1. Aichi Forging is a VATregistered corporation engaged in manufacturing and processing of steel. Aichi filed a tax credit/refund for its unutilized input tax from purchases and importation attributed to its zero-rated sales. The CIR and CTA ruled that the administrative and judicial claims were filed beyond the period allowed by law. Moreover, the CIR puts in issue the fact that the administrative claim and the judicial claim were filed on the same day. The CIR
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Note that previously in ATLAS CONSOLIDATED MINING V. CIR [JUNE 8, 2007] , the rule was that the two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales was counted from the date of filing of the return
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Q16.3. For a claim for tax refund/credit, is it sufficient that the applicant was able to prove entitlement to the grant of the claim under substantive law?
No. In WESTERN MINDANAO POWER CORP. V. CIR [JUNE 13, 2012], WMPC filed for a claim for refund of excess and unutilized input VAT. The CIR objected to this contending that WMPC was not entitled to such in view of its failure to comply with invoicing requirements, particularly the failure of the invoice covering its zero-rated sales to show the word zerorated. WMPC argues that such was not an indispensable requirement to establish the claim. The Supreme Court held that in a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax credit. Hence, the mere fact that petitioners application for zerorating has been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming the refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well as by revenue regulations implementing them. Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or
In Mirant
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Q17.1. Is there a difference between an invoice and official receipt for purposes of substantiation?
Yes. In CIR v. MANILA MINING CORPORATION [AUGUST 31, 2005], the Supreme Court defined a sales or commercial invoice is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services. A receipt on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer. In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], in ruling on Kepcos contention that an invoice and an official receipt are interchangeable, the Supreme Court stated that only a VAT invoice might be presented to substantiate a sale of goods or properties, while only a VAT receipt could substantiate a sale of services. The VAT invoice is the sellers best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyers best evidence of the payment of goods or services received from the seller. Even though VAT invoices and receipts are normally issued by the supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction), and the best means to prove the input VAT payments (proof of payment). Hence, VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used alternatively
Administrative Provisions Q17. What information should be contained in the VAT invoice or VAT official receipt?
1. A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); 2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: a) The amount of the tax shall be shown as a separate item in the invoice or receipt; b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed prominently on the invoice or receipt; c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt; d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VATexempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the valueadded tax on each portion of the sale shall be shown on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zerorated components of the sale. 3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and 4. In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of the purchaser, customer or client.
Q17.2. Kepco filed a claim for refund of unutilized input VAT based on its zero-rated sale of power to NAPOCOR. A substantial portion of the claim was denied for having been supported by VAT invoices which only had the INT-VAT stamped and not printed. There were also certain sales by Kepco which failed to indicate the words zero-rated. Is Kepco entitled to the claim for refund?
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Q17.3. What are the consequences of issuing erroneous VAT invoices or VAT official receipts?
1. If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word VAT, the erroneous issuance shall result to the following: a) The Non-VAT person shall be liable to the: i. ii. iii. percentage taxes applicable VAT due on the transactions without the benefit of any input tax credit 50% surcharge as penalty
b) The VAT shall, if the other requisite information required is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser. 2. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the term VAT-exempt Sale, the issuer shall be liable to account for the VAT imposed. The purchaser shall be entitled to claim an input tax credit on said purchase.
Q18. What are the rules to follow with regard to the return and payment of VAT?
SECTION 114(A) provides for the who will file the return and pay the VAT and when shall the return be filed and the tax be paid. 1. VAT returns shall be filed by persons liable to pay VAT. 2. A quarterly VAT return of the amount of his gross sales or receipts within 25 days after the close of each taxable quarter prescribed for each taxpayer.
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