VAT

II.
What is tax pyramiding? What is its basis in law? (5%)
Tax Pyramiding is the imposition of a tax upon another tax. It has no basis
in factor or in law (People v. Sandiganbayan, G.R. N. !5"5#"$ A%g%st
!&$ "''5). There is also tax pyramiding when sales taxes ate incorrectly
applied to goods several times from production to final sale, thus, shifting
the tax burden to the ultimate consumer.
(NOTA BENE: This concept pertains to the VAT law which is ecl!ded
"ro# the bar coverage, $!idelines "or %&&' Bar Ea#inations, (!ne )*,
%&&'+
VAT
IV
Ryal (ining is a VAT)r*gist*r*d dm*sti+ mining *ntity. ,n* - its
prd%+ts is sil.*r b*ing sld t th* Bang,o Sentral ng Pilipinas. It -il*d a +laim with
th* /IR -r tax r*-%nd n th* gr%nd that %nd*r 0*+tin !'& - th* Tax 1d*$ sal*s
- pr*+i%s m*tals t th* Bang,o Sentral ng Pilipinas ar* +nsid*r*d *xprt sal*s
s%b2*+t t 3*r)rat*d VAT.
Is Ryal (ining4s +laim m*ritri%s? 5xplain. (5%)
No, Royal ining!s claim is not meritorious because it is the sale to the "ang#o
$entral ng Pilipinas of gold and not silver which is considered export sales at %ero&rated
'(T (Tax R*-rm A+t$ Titl* IV$ 0*+tin !'&6"76a7687).
-NOTA BENE: EVAT is ecl!ded "ro# the Bar coverage, $!idelines "or %&&'
Bar Ea#ination, (!ne )*, %&&'+
VAT
VI
1ngr*ss *na+ts a law granting grad* s+hl and high s+hl st%d*nts a !'%
dis+%nt n all s+hl)pr*s+rib*d t*xtb9s p%r+has*d -rm any b9str*. Th* law
allws b9str*s t +laim in -%ll th* dis+%nt as a tax +r*dit.
!. I- a taxabl* y*ar a b9str* has n tax d%* n whi+h t apply th* tax
+r*dits$ +an th* b9str* +laim -rm th* /IR a tax r*-%nd in li*% -
tax +r*dit? 5xplain. (".5%).
No, the boo#store cannot claim from the "IR a tax refund in lieu of
tax credit. There is nothing in the law that grants a refund when the
boo#store has no tax liability against which the tax credit can be
used (./0 v. .entral 1!2on 3r!g, G.R. N. !5:&8;$ April !5$
"''5). ( tax credit is in the nature of a tax exemption and in case
of doubt, the doubt should be resolved in strictissimi juris against
the claimant.
". 1an th* /IR r*<%ir* th* b9str*s t d*d%+t th* am%nt - th*
dis+%nt -rm th*ir grss in+m*? 5xplain (".5%)
No. Tax credit which reduces the tax liability is different from a tax
deduction which merely reduces the tax base. $ince the law
allowed the boo#store to claim in full the discount as a tax credit,
the "IR is not allowed to expand or contract the legislative
mandate (./0 v. Bicolandia 3r!g .orp., G.R. N. !8='=#$ 2%ly
"!$ "''&> ./0 v. .entral 1!2on 3r!g .orp., G.R. N. !5:&8;$
April !5$ "''5).
#. I- a b9str* +ls*s its b%sin*ss d%* t lss*s with%t b*ing abl* t
r*+%p th* dis+%nt$ +an it +laim r*imb%rs*m*nt - th* dis+%nt -rm
th* g.*rnm*nt n th* gr%nd that with%t s%+h r*imb%rs*m*nt$ th*
law +nstit%t*s ta9ing - pri.at* prp*rty -r p%bli+ %s* with%t 2%st
+mp*nsatin? 5xplain. (5%)
( boo#store, closing its business due to losses, cannot claim reimbursement of the
discount from the government. If the business continues to operate at a loss and no other
taxes are due, thus compelling it to close shop, the credit can never be applied and will be
lost altogether -./0 v. .entral 1!2on 3r!g, G.R. N. !5:&8;$ April !5$ "''5). The
grant of the discount to the taxpayer is a mere privilege and can be revo#ed anytime.
VAT
?V
@ily4s Aashin$ In+. is a garm*nt man%-a+t%r* l+at*d and r*gist*r*d as a
0%bi+ /ay Ar**prt 5nt*rpris*s %nd*r R*p%bli+ A+t N. ;""; and a nn)VAT
taxpay*r. As s%+h$ it is *x*mpt -rm paym*nt - all l+al and natinal int*rnal
r*.*n%* tax*s. B%ring its p*ratins$ it p%r+has*d .ari%s s%ppli*s and mat*rials
n*+*ssary in th* +nd%+t - its man%-a+t%ring b%sin*ss. Th* s%ppli*rs - th*s* gds
shi-t*d t @ily4s Aashin In+. th* !'% VAT n th* p%r+has*d it*ms am%nting t
C5''$'''.''. @ily4s Aashin$ In+. -il*d with th* /IR a +laim -r r*-%nd -r th* inp%t
tax shi-t*d t it by th* s%ppli*rs.
I- y% w*r* th* 1mmissin*r - Int*rnal R*.*n%*$ will y% allw th*
r*-%nd? (5%)
Alt*rnati.* Answ*rD
No, I will not allow the refund. )nly '(T&Registered taxpayers are entitled to a
refund of their unapplied*unused Input '(T (Tax R*-rm A+t$ 0*+tin !!"6A7 6!::;7).
(lternative (nswer+
No. The exemption of ,ily!s -ashion, Inc. is only for taxes for which it is directly
liable. .ence, it can not claim exemption for a tax shifted to it, which is not at all
considered a tax to the buyer but a part of the purchase price. ,ily!s -ashion is not the
taxpayer in so far as the passed&on tax is concerned and therefore, it can not claim for a
refund of a tax merely shifted to it (Chil. A+*tyl*n* 1.$ In+. .. 1IR$ @)!:;';$ A%g. !;
!:=;).
-NOTA BENE: This concept pertains to the VAT law which is ecl!ded "ro# the Bar
coverage, $!idelines "or %&&' Bar Ea#inations, (!ne )*, %&&'+
VAT
?II
Gr**nhills 1ndmini%m 1rpratin in+rprat*d in "''! is a nn)st+9$
nn)pr-it ass+iatin - %nit wn*rs in Gr**nhills Tw*r$ 0an E%an 1ity. T b* abl*
t r*d%+* th* ass+iatin d%*s b*ing +ll*+t*d -rm th* %nit wn*rs$ th* /ard -
Bir*+trs - th* - th* +rpratin agr**d t l*as* part - th* gr%nd -lr - th*
+ndmini%m b%ilding t B5A 0a.ings /an9 -r C!"'$''' a mnth r C!.88 millin
-r th* y*ar$ starting Ean%ary "'';.
a) Is th* nn)st+9$ nn)pr-it ass+iatin liabl* -r .al%* add*d tax in
"'';? I- y%r answ*r is in th* n*gati.*$ is it liabl* -r anth*r 9ind - b%sin*ss tax?
(8%)
No. under RR N. !&)"''5$ liability for '(T arises only if the annual gross
receipts exceed P/.0 million. $econdly, under 0*+. !'&(A!a) NIR1$ the lease must be
pursuant to the ordinary course of trade or business of the taxpayer. The lease of the
ground floor to the ban# is a casual transaction.
The (ssociation is liable for the business tax of 12 if the gross receipt if the gross
receipts of the taxpayer do not exceed P/.0 million per annum (0*+. !!& NIR1).
b) Will th* ass+iatin b* liabl* -r .al%* add*d tax in "''= i- it in+r*as*s
th* r*ntal t C!5'$''' a mnth b*ginning Ean%ary "''=? 5xplain. (#%)
Alt*rnati.* answ*rD
No. (lthough the gross receipts will exceed P/.0 million (RR N. !&)"''5)
VAT 5?5(CT ARTI1@5
III.
$tate whether the following transactions are a3 '(T 4xempt, b3 sub5ect to '(T at
/627 or c3 sub5ect to '(T at 627
/. $ale of fresh vegetables by (ling Ining at the Pamilihan "ayan ng Tree
artine8. 9/2:
;. $ervices rendered by <a#e!s =onstruction =ompany, a contractor to the >orld
.ealth )rgani8ation in the renovation of its offices in anila. 9/2:
1. $ale of tractors and other agricultural implements by "ung#al Incorporated to
local farmers. 9/2:
?. $ale of RT> by =ely!s "outi@ue, a -ilipino dress designer, in her dress shop
and other outlets. 9/2:
0. -ees for lodging paid by students to "ahay&"ahayan Aormitory, a private
entity operating a student dormitory (monthly fee P/,0663. 9/2:
S!ggested Answers:
!. VAT *x*mpt. 0al* - agri+%lt%ral prd%+ts$ s%+h as -r*sh
.*g*tabl*s$ in th*ir riginal stat*$ - a 9ind g*n*rally %s*d as$ r
prd%+ing -ds -r h%man +ns%mptin is *x*mpt -rm VAT.
(0*+tin !':(+)$ NIR1).
". VAT at '%. 0in+* Ea9*4s 1nstr%+tin 1mpany has r*nd*r*d
s*r.i+*s t th* Wrld F*alth ,rgani3atin$ whi+h is an *ntity
*x*mpt*d -rm taxatin %nd*r int*rnatinal agr**m*nts t whi+h
th* Chilippin*s is a signatry$ th* s%pply - s*r.i+*s is s%b2*+t t
3*rp p*r+*nt ('%) rat*. (0*+. !'=6/7(#)$ NIR1).
#. VAT at !'%. Tra+trs and th*r agri+%lt%ral impl*m*nts -all
%nd*r th* d*-initin - gds whi+h in+l%d* all tangibl* b2*+ts
whi+h ar* +apabl* - p*+%niary *stimatin (0*+. !'&6A7(!)$ NIR1$
th* sal*s - whi+h ar* s%b2*+t t VAT at !'%.
8. This is s%b2*+t t VAT at !'%. This transa+tin als -alls %nd*r th*
d*-initin - gds whi+h in+l%d* all tangibl* b2*+ts whi+h ar*
+apabl* - p*+%niary *stimatin (0*+. !'&6A7(!)$ NIR1$ th* sal*s -
whi+h ar* s%b2*+t t VAT at !'%.
5. VAT 5x*mpt. Th* mnthly -** paid by *a+h st%d*nt -alls %nd*r th*
l*as* - r*sid*ntial %nits with a mnthly r*ntal p*r %nit nt
*x+**ding Chp=$'''$ whi+h is *x*mpt -rm VAT r*gardl*ss - th*
am%nt - aggr*gat* r*ntals r*+*i.*d by th* l*ssr d%ring th* y*ar.
(0*+. 8. !'#)!$ RR N. ;):5).
1,((5NTD
The problems do not call for a yes or no answer, (ccordingly, a bar
candidate who answered only '(T exempt, '(T at /62 or '(T at 62, as called for in the
problem without further reasons, should be given full credit.
VAT)B55(5B 0A@5
G%*stin N. !8D
Bnder the 'alue (dded Tax ('(T3, the tax is imposed on sales, barter, or
exchange of goods and services. The '(T is also imposed on certain transactions
Cdeemed&salesD. >hat are these so&called transactions Cdeemed salesDE
Answer:
The following transactions shall be deemed sale+
(a3 Transfer, use, or consumption not in the course of business of goods originally
intended for sale or for use in the course of business7
(b3 Aistribution or transfer to+
(/3 $hareholders or investors as share in the profits of '(T&registered
persons7 or
(;3 =reditors in payment of debt7
(c3 =onsignment of goods if actual sale is not made within F6 days following the
date such goods were consigned7 and
(d3 Retirement from or cessation of business, with respect to inventories of
taxable foods existing as of such retirement or cessation.
VAT TA?ATI,N
) ?I )
An ali*n *mply** - th* Asian B*.*lpm*nt /and (AB/) wh is r*tiring
sn has --*r*d t s*ll his +ar t y% whi+h h* imprt*d tax)-r** -r his p*rsnal
%s*. Th* pri.il*g* - *x*mptin -rm tax is grant*d t <%ali-i*d p*rsnal %s* %nd*r
th* AB/ 1hart*r whi+h is r*+gni3*d by th* tax a%thriti*s. I- y% d*+id* t
p%r+has* th* +ar$ is th* sal* s%b2*+t t tax?
5xplain. (5%)
0%gg*st*d Answ*rD
The sales transaction is sub5ect to value added tax ('(T3 under 0*+. !';H/I -
th* NIR1, although this provision is expressly excluded from the coverage of the ;660
bar exam.
The proceeds from the sale are sub5ect to income tax. The car is considered a
capital asset of the retiring alien employee because he is not engaged in the business of
buying and selling cars. .e therefore derived income, which should be report in his
income tax return. (0*+s. #" and #:$ NIR1)