TAX

2
MIDTERMS REVIEWER


Sources:
National Internal Revenue Code
De Leon-
Class Notes

Prepared by:
B2015 Academics Committee Tax 2 Reviewer Ops















MODULE 1 decedent, it shall include only property situated
in the Philippines.
TRANSFER TAXES
Classification of decedent
those imposed upon the gratuitous disposition SEC. 85. Gross Estate. - the value of the gross estate
of private property of the decedent shall be determined by including the
taxes levied on the transmission of property value at the time of his death of all property, real or
from a decedent or deceased to his heirs or from personal, tangible or intangible, wherever situated:
a donor to a donee Provided, however, that in the case of a nonresident
decedent who at the time of his death was not a
1. Estate taxation citizen of the Philippines, only that part of the entire
2. Donors tax gross estate which is situated in the Philippines shall
be included in his taxable estate.

I. ESTATE TAXATION (A) Decedent's Interest. - To the extent of the interest
therein of the decedent at the time of his death;
A.) BASIC PRINCIPLES OF ESTATE TAX
(B) Transfer in Contemplation of Death. - To the
extent of any interest therein of which the decedent
Estate tax is the tax on the right to transmit
has at any time made a transfer, by trust or otherwise,
property at death and on certain transfers which in contemplation of or intended to take effect in
are made by the statute the equivalent of possession or enjoyment at or after death, or of which
testamentary dispositions. he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or
Estate Tax is a tax imposed in the privilege that a for any period which does not in fact end before his
person is given in controlling to a certain extent, death (1) the possession or enjoyment of, or the right
the disposition of his property to take effect upon to the income from the property, or (2) the right,
death. It is an excise tax imposed on the act of either alone or in conjunction with any person, to
passing the ownership of property at the time of designate the person who shall possess or enjoy the
property or the income therefrom; except in case of a
death and not on the value of the property or
bonafide sale for an adequate and full consideration in
right. Estate tax should not be construed as a money or money's worth.
direct tax on the property of the decedent
although the tax is based thereon. (C) Revocable Transfer. -
(1) To the extent of any interest therein, of which the
Purpose and Justification decedent has at any time made a transfer (except in
case of a bona fide sale for an adequate and full
1) Benefit-received theory-considers the services consideration in money or money's worth) by trust or
rendered by the government in the distribution otherwise, where the enjoyment thereof was subject
of the estate of decedent, collected as tax at the date of his death to any change through the
exercise of a power (in whatever capacity
2) Privilege theory/State partnership theory-
exerciseable) by the decedent alone or by the
inheritance is not a right but a privilege granted decedent in conjunction with any other person
by the State (passive and silent partner in the (without regard to when or from what source the
accumulation of property) decedent acquired such power), t o alter, amend,
3)Ability to pay theory- receipt of inheritance revoke, or terminate, or where any such power is
places assets in the hands of the heirs and relinquished in contemplation of the decedent's death.
beneficiaries, creating an ability to pay tax (2) For the purpose of this Subsection, the power to
4) Redistribution of wealth theory- the receipt of alter, amend or revoke shall be considered to exist on
income contributes to inequalities in wealth and the date of the decedent's death even though the
incomes, the tax bringing more equality to exercise of the power is subject to a precedent giving
of notice or even though the alteration, amendment or
distribution of wealth
revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether
B.) DETERMINATION OF GROSS ESTATE or not on or before the date of the decedent's death
GROSS ESTATE - is the total value of all property, notice has been given or the power has been
whether real or personal, tangible or intangible, exercised. In such cases, proper adjustment shall be
belonging to the decedent at the time of his death, made representing the interests which would have
situated within or outside the Philippines, where been excluded from the power if the decedent had
such decedent was a resident or citizen of the lived, and for such purpose if the notice has not been
Philippines. in case of a non-resident alien
given or the power has not been exercised on or Classification of Taxpayers and Composition
before the date of his of Gross Estate
death, such notice shall be considered to have been
given, or the power exercised, on the date of his death. Gross Estate
Composition
(D) Property Passing Under General Power of (Sec. 85, NIRC)
Appointment. - To the extent of any property passing
under a general power of appointment exercised by Decedent Gross Estate
the decedent: (1) by will, or (2) by deed executed in
contemplation of, or intended to take effect in Resident citizen 1. ) Real property
possession or enjoyment at, or after his death, or (3) Nonresident citizen wherever situated
by deed under which he has retained for his life or any Resident alien 2.)Tangible personal
period not ascertainable without reference to his property wherever situated
death or for any period which does not in fact end 3.) Intangible personal property
before his death (a) the possession or enjoyment of, or wherever situated
the right to the income from, the property, or (b) the
right, either alone or in conjunction with any person,
to designate the persons who shall possess or enjoy Nonresident alien 1) Real property situated in the
the property or the income therefrom; except in case Philippines
of a bona fide sale for an adequate and full 2) Tangible personal property
consideration in money or money's worth. situated in the Philippines
3) Intangible personal property
(E) Proceeds of Life Insurance. - To the extent of the with situs in the Philippines,
amount receivable by the estate of the deceased, his unless excluded in the basis of
executor, or administrator, as insurance under reciprocity
policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained

the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in Velilla v Posadas
the policy of insurance, except when it is expressly SUMMARY: Arthur Graydon Moody was an
stipulated that the designation of the beneficiary is American resident who lived and maintained
irrevocable. business in the Philippines. He became inflicted
with leprosy and for fear of being confined in
(F) Prior Interests. - Except as otherwise specifically the Cullion Leper Colony, he surreptitiously left
provided therein, Subsections (B), (C) and (E) of this the Philippines. He stayed in Paris for three
Section shall apply to the transfers, trusts, estates,
months for treatment, and then moved in
interests, rights, powers and relinquishment of
powers, as severally enumerated and described
Calcutta, India. From Calcutta, he wrote a letter
therein, whether made, created, arising, existing, to Harry Wendt in Manila offering to sell his
exercised or relinquished before or after the shares in a domestic company. He stated in the
effectivity of this Code. letter that certainly Ill never return there to
live or enter business again. He died of his
(G) Transfers of Insufficient Consideration. - If any one disease in Calcutta. His estate consisted
of the transfers, trusts, interests, rights or powers principally of bonds and shares of stock of
enumerated and described in Subsections (B), (C) and domestic corporations, bank deposits and
(D) of this Section is made, created, exercised or other intangible personal property. During the
relinquished for a consideration in money or money's
probate of his will, the CIR assessed
worth, but is not a bona fide sale for an adequate and
full consideration in money or money's worth, there
inheritance and income taxes. The defense of
shall be included in the gross estate only the excess of his estate was that Moody was a non-resident
the fair market value, at the time of death, of the alien so his personal property is not taxable in
property otherwise to be included on account of such the Philippines. The Supreme Court ruled that
transaction, over the value of the consideration the CIR properly assessed his taxes because the
received therefor by the decedent. situs of his properties was the Philippines and
Maams notes>>> has to be in contemplation of death he was domiciled in the Philippines until his
death.
(H) Capital of the Surviving Spouse. - The capital of
the surviving spouse of a decedent shall not, for the
DOCTRINE: To effect the abandonment of ones
purpose of this Chapter, be deemed a part of his or her
domicile, there must be a deliberate and
gross estate.
provable choice of a new domicile, coupled
with actual residence in the place chosen, with
a declared and provable intent that it should be transfer or death taxes of every character or
ones fixed and permanent place of abode, description in respect of intangible personal
ones home. property owned by citizens of the Philippines not
residing in that foreign country.
The term 'deficiency' means: (a) the amount by which

tax imposed by this Chapter exceeds the amount
Coll v Lara shown as the tax by the donor upon his return; but the
SUMMARY: Miller was an american citizen who amount so shown on the return shall first be
had to stay in the Phiilppines due to his work. increased by the amount previously assessed (or
During his stay in the Phil,he acquired shares of Collected without assessment) as a deficiency, and
stock in domestic corporations. When Miller's decreased by the amounts previously abated,
will was admitted to probate, both in the US and refunded or otherwise repaid in respect of such tax, or
in the Phil., the ancillary administrator filed for (b) if no amount is shown as the tax by the donor, then
taxes. The CIR assessed the estate of esteate and the amount by which the tax exceeds the amounts
inheritance tax on the premise that Miller was a previously assessed, (or collected without
assessment) as a deficiency, but such amounts
resident of the Philippines at the time of his
previously assessed, or collected without assessment,
death. The SC ruled that Miller was a resident of shall first be decreased by the amount previously
the US at the time of his death. abated, refunded or otherwise repaid in respect of
such tax.
DOCTRINE: at the time that The National Internal
Revenue Code was promulgated in 1939, the Reciprocity clause
prevailing construction given by the courts to the The NIRC excludes intangible personal
"residence" was synonymous with domicile. and property with situs in the Philippines from the
that the two were used intercnangeably gross estate of a non-resident alien decedent if
there is reciprocity. There is reciprocity if: a) The
Rule of Reciprocity decedent at the time of his death was a resident
SEC. 104. Definitions. - For purposes of this Title, the citizen of a foreign country which at the time of
terms 'gross estate' and 'gifts' include real and his death did not impose an estate tax of any
personal property, whether tangible or intangible, or
character in respect of intangible personal
mixed, wherever situated: Provided, however, That
where the decedent or donor was a nonresident alien property of citizens of the Philippines not
at the time of his death or donation, as the case may residing in that foreign country; OR b) the laws of
be, his real and personal property so transferred but the foreign country of which the decedent was a
which are situated outside the Philippines shall not be resident citizen at the time of his death allow a
included as part of his 'gross estate' or 'gross gift': similar exemption from estate taxes of every
Provided, further, That franchise which must be character, in respect of intangible personal
exercised in the Philippines; shares, obligations or property owned by citizens of the Philippines not
bonds issued by any corporation or sociedad anonima residing in that foreign country.
organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds
Situs or location of property, Sec 104:
by any foreign corporation eighty-five percent (85%)
of the business of which is located in the Philippines;
*Real and personal property, whether tangible or
shares, obligations or bonds issued by any foreign intangible, or mixed, wherever situated, provided
corporation if such shares, obligations or bonds have that where the decedent (or donor) was a non-
acquired a business situs in the Philippines; shares or resident alien at the time of his death (or
rights in any partnership, business or industry donation), his real and personal property so
established in the Philippines, shall be considered as transferred but which are situated outside the
situated in the Philippines: Provided, still further, Philippines shall not be included as part of his
that no tax shall be collected under this Title in gross estate. (DeLeon)
respect of intangible personal property: (a) if the
decedent at the time of his death or the donor at
Intangible Assets with Situs Within the
the time of the donation was a citizen and resident
of a foreign country which at the time of his death
Philippines (Sec. 104, NIRC)
or donation did not impose a transfer tax of any 1. Franchise which must be exercised in the
character, in respect of intangible personal Philippines.
property of citizens of the Philippines not residing 2. Shares, obligations or bonds issued by any
in that foreign country, or (b) if the laws of the corporation or sociedad anonima organized or
foreign country of which the decedent or donor constituted in the Philippines in accordance with
was a citizen and resident at the time of his death its laws.
or donation allows a similar exemption from
3. Shares, obligations or bonds issued by any the taxable estate under the provisions of
foreign corporation 85% of the business of which 402(c) of the Revenue Act of 1918, 40 Stat. 1057,
is located in the Philippines. 1097. The amount of the additional tax was paid
4. Shares, obligations, or bonds issued by any by the executors and claim for refund was filed.
foreign corporation if such shares, obligations or The claim having been rejected, the executors
bonds have acquired a business situs in the brought this suit in the Court of Claims to recover
Philippines. the amount paid. The Court of Claims decided in
5. Shares or rights in any partnership, business favor of the executors
or industry established in the Philippines.
DOCTRINE: Whether a gift inter vivos was made
SPECIFIC ITEMS INCLUDED in the GROSS "in contemplation of death" within the meaning
ESTATE of the Revenue Act of 1918 depends upon the
donor's motive, to be determined in each case
Property owned by the decedent actually and from the circumstances, including his bodily and
physically present in his estate at the time of his mental condition. A gift is made "in
death such as land, buildings, shares of stock, contemplation of death" when the motive
vehicles, bank deposit, and the like. inducing it is of the sort that leads to
1. Decedent's Interest testamentary disposition, but not when the
refers to the extent of equity or ownership motive is merely to attain an object desirable to
participation of the decedent on any property the donor in his life, as where the immediate and
physically existing and present in the gross moving cause of transfers was the carrying out of
estate, whether or not in his possession, control a policy, long followed by the decedent in dealing
or dominion. It also refers to the value of any with his children, of making liberal girts to them
interest in property owned or possessed by the during his lifetime. A transfer may be "in
decedent at the time of his death (interest having contemplation of death" though not induced by a
value or capable of being valued or transferred). fear that death is near at hand.
Property not physically in the estate (these
have already been transferred during the lifetime Dizon vs. Posadas
of the decedent but are still subject to payment of SUMMARY:
estate tax) such as: After the death of his father, Luis Dison was
charged Php 2,808 as inheritance tax by the CIR,
2. Transfer in Contemplation of Death. w/c he paid under protest. Alleging that the
-includes donation mortis cause property he received from his deceased father
-include in the gross estate the value of property was donated to him by virtue of a gift intervivos,
transferred y the decedent during his lifetime in and not an inheritance, he sought to recover
anticipation of his death such as: what he paid. LC ruled in favor of the CIR, so he
a. Transfer of property in favor of another person, appealed to the SC Held: The gift to Dison, who
but the transfer was intended to take effect only was a forced heir, was considered an
upon the transferors death advancement. Under Sec. 1540 such gifts is
b. Transfer by gift intended to take effect at death, subject to tax.
or after death, or under which the donor
reserved the income or the right to designate the DOCTRINE:
persons who should enjoy the income. The law presumes that such gifts (made to those
(Note: There is no transfer in contemplation of who shall prove to be the heirs, devisees, legatees
death when the transfer of property is a bona or donees mortis causa of the donor) have been
fide sale for an adequate and full consideration in made in anticipation of inheritance to EVADE tax.
money or moneys worth.) Thus, to prevent this, they are added to the
resulting amount of the inheritance tax.
US vs. Wells
SUMMARY: John W. Wells, a resident of 3. Revocable Transfer. -
Menominee, Michigan, died on August 17, 1921. -It is a transfer where the terms of enjoyment of
The Commissioner of Internal Revenue assessed the property may be altered, amended, revoked
additional estate taxes, upon the ground that or terminated by the decedent. It is sufficient that
certain transfers by the decedent within two the decedent had the power to revoke though he
years prior to his death, were made in did not exercise the power.
contemplation of death and should be included in
 (These transfers do not actually convey full
ownership over the property transferred. Hence, Del Val vs. Del Val
they are still part of the gross estate of the SUMMARY: Decedent Gregorio took out a life
transferor). insurance policy on his life and designated
Andres as beneficiary. Gregorio died intestate.
4. Property Passing Under General Power of His other heirs claim that the proceeds of the
Appointment insurance policy should be included in Gregorios
-The power of appointment is general when the estate. The Court held that the proceeds belong
power of appointment authorizes the donee of to the beneficiary as his separate property and
the power to appoint any person he pleases. The should excluded from the estate of the insured-
donee of a general power of appointment holds decedent.
the appointed property with all the attributes of
ownership thus, the appointed property shall DOCTRINE: Proceeds of an insurance policy
form part of the gross estate of the donee belong exclusively to the beneficiary and not to
(beneficiary) upon his death. the estate of the person whose life was insured.
The civil code does not apply because the
5. Proceeds of Life Insurance. contract of life insurance is a special contract and
-Proceeds of life insurance taken out by the the destination of the proceeds is determined by
decedent on his own life should be included in special laws which deal exclusively with the
the gross estate if the following requisites are subject.
present: **When taxable
a. It must be an insurance on the a) Beneficiary is estate of deceased- amount
life of the decedent. receivable by the estat, his executor, or
b. The beneficiary must be either administrator as insurance under policies taken
of the following: out by the decedent upon his own life,
His estate irrespective of whether or not the insured
His executor retained the power of revocation
His administrator b) Beneficiary other than decedent- amount
Any third person provided that the designation receivable by any beneficiary except when it is
is not irrevocable (If silent, the designation of the expressly stipulated that the designation of
beneficiary is assumed to be revocable. beneficiary is irrevocable
Irrevocable designation of the beneficiary is
never assumed.) 6. Prior Interests.
Except as otherwise specifically provided therein,
Subsections (B), (C) and (E) of Section 86 shall
Proceeds
apply to the transfers, trusts, estates, interests,
of Life
rights, powers and relinquishment of powers, as
Insurance
severally enumerated and described therein,
Beneficiary Designation Gross whether made, created, arising, existing,
Estate exercised or relinquished before or after the
Estate Revocable or Included effectivity of this Code.
irrevocable
Executor Revocable or Included 7. Transfers of Insufficient Consideration. -
irrevocable When a sale or transfer (other than a bona fide or
Administrator Revocable or Included valid sale) was made for a price less than it FMV
irrevocable at the time of sale or transfer, the excess of the
3rd Party (i.e. Revocable Included FMV of the transferred property at the time of
wife) Irrevocable death over the value of the consideration
3rd Party Excluded received should be included in the gross estate.
For this purpose, the following FMVs shall be
used:
Art. 116, Family Code. All property acquired during a. FMV of the property at the time of transfer if
the marriage, whether the acquisition appears to have the consideration received is substantially the
been made, contracted or registered in the name of same with the FMV at the time of transfer, such
one or both spouses, is presumed to be conjugal
sale or transfer is considered a bona fide sale,
unless the contrary is proved.
hence, not subject to estate tax.
b. FMV of the property at the time of death If (1) Those acquired by onerous title during the
the consideration received is substantially lower marriage at the expense of the common fund, whether
or for less than full and adequate consideration the acquisition be for the partnership, or for only one
compared to the FMV at the time of the sale or of the spouses;
(2) Those obtained from the labor, industry, work or
transfer, such sale or transfer was made for
profession of either or both of the spouses;
insufficient consideration. In such case, the (3) The fruits, natural, industrial, or civil, due or
excess of the FMV at the time of death over the received during the marriage from the common
FMV at the time of sale or transfer should be property, as well as the net fruits from the exclusive
included in the gross estate of the decedent. property of each spouse;
- If there was no consideration received at the (4) The share of either spouse in the hidden treasure
date of transfer and such transfer was made in which the law awards to the finder or owner of the
contemplation of death, the FMV of the property property where the treasure is found;
at the date of death, not at the date of transfer, (5) Those acquired through occupation such as fishing
should be included in the gross estate of the or hunting;
(6) Livestock existing upon the dissolution of the
decedent.
partnership in excess of the number of each kind
- If there was no consideration received at the brought to the marriage by either spouse; and
date of transfer and such transfer was not made (7) Those which are acquired by chance, such as
in contemplation of death, such transfer shall winnings from gambling or betting. However, losses
be considered donation inter-vivos subject to therefrom shall be borne exclusively by the loser-
donors tax base on the FMV of the property at spouse.
the date the donation was made.
Art. 109 FC. The following shall be the exclusive
8. Capital of the Surviving Spouse. property of each spouse:
The capital of the surviving spouse of a (1) That which is brought to the marriage as his or her
own;
decedent shall not, for the purpose of this
(2) That which each acquires during the marriage by
Chapter, be deemed a part of his or her gross gratuitous title;
estate. (3) That which is acquired by right of redemption, by
barter or by exchange with property belonging to only
Claims against insolvent persons one of the spouses; and
A judicial declaration of insolvency is not (4) That which is purchased with exclusive money of
required but the incapacity of the debtor to pay the wife or of the husband.
his obligation should be proven.
-As a rule regardless of the amount the debtor is Art. 88 FC. The absolute community of property
unable to pay, the full amount of the claim, between spouses shall commence at the precise
moment that the marriage is celebrated. Any
against the insolvent person should be included
stipulation, express or implied, for the
in the gross estate of the decedent. The portion of commencement of the community regime at any other
the claim which is not collectible should be time shall be void.
allowed as a deduction from the gross estate.
Art. 92 FC. The following shall be excluded from the
Properties of spouses community property:
(1) Property acquired during the marriage by
Sec 85 (H) , NIRC. Capital of the Surviving Spouse. - gratuitous title by either spouse, and the fruits as well
The capital of the surviving spouse of a decedent shall as the income thereof, if any, unless it is expressly
not, for the purpose of this Chapter, be deemed a part provided by the donor, testator or grantor that they
of his or her gross estate. shall form part of the community property;
(2) Property for personal and exclusive use of either
Art. 75. Family Code. The future spouses may, in the spouse. However, jewelry shall form part of the
marriage settlements, agree upon the regime of community property;
absolute community, conjugal partnership of gains, (3) Property acquired before the marriage by either
complete separation of property, or any other regime. spouse who has legitimate descendants by a former
In the absence of a marriage settlement, or when the marriage, and the fruits as well as the income, if any,
regime agreed upon is void, the system of absolute of such property.
community of property as established in this Code
shall govern.

Art. 117 FC. The following are conjugal partnership
properties:
C. VALUATION OF THE GROSS ESTATE schools in the area increased the land value,
made it a choice for setting up residences, and
In General- Fair market Value at the time of showed increase in population upon the news
death spreading that the train station is going to be
built there whereas the values of the lots in
Real Property question were originally very cheap because they
were mere agricultural lots, some not even tilled
The higher value between: because they owners did not have farm animals.
FMV determined by the Commissioner; and The issue at hand is whether the court can
FMV as shown in the schedule of values fixed by substitute its own judgment for the findings of
the provincial and city assessors. the commissioners, or subject their report to
review.
If there is no zonal value, the taxable base is the
FMV that appears in the latest tax declaration. DOCTRINE:
"Compensation" means an equivalent for the
If there is an improvement, the value of value of the land (property) taken. Anything
improvement is the construction cost per beyond that is more and anything short of that is
building permit or the FMV per latest tax less than compensation. To compensate is to
declaration render something which is equal in value to that
taken or received. The word "just" is used to
Personal Property intensify the meaning of the word
FMV at the time of death "compensation;" to convey the idea that the
equivalent to be rendered for the property taken
Shares of stock shall be real, substantial, full, ample. "Just
Unlisted common share: Book value per share of compensation." therefore, as used in section 246
the issuing corporation. (Appraisal surplus shall of the Code of Civil Procedure, means a fair and
not be considered, as well as the assigned full equivalent for the loss sustained.
amount to preference share, if any). There is ample authority in the statute to
authorize the courts to change or modify the
Unlisted preference share: Par value per share report of the commissioners by increasing or
decreasing the amount of the award, if the facts
Listed share: FMV shall be the arithmetic mean of the case will justify such change or
between the highest and lowest quotation at a modification.
date nearest the date of death, if none is available Evidence of other sales made in good faith is
on the date of death itself competent if the character of such parcels as sites
for business purposes, dwellings, or for whatever
Right to usufruct, use or habitation, other use which enhances the pecuniary value of
In accordance with the latest Basic Standard the condemned land is sufficiently similar to the
Mortality Table and annuity taking into account latter that it may be reasonably assumed that the
the probable life of the beneficiary, to be price of the condemned land would be
approved by the Secretary of Finance upon approximately near the price brought by the
recommendation of the Insurance Commissioner parcels sold.
The market value of the condemned land is all
Manila Railroad Co. vs. Velasquez that the owner is entitled to. Evidence that the
SUMMARY: Manila Railroad Company wanted locality may become a business or a choice
adjoining pieces of land to be expropriated to the residential district when its history over a period
government for their use in line with the of years shows that there are large tracts of
constriction of a railroad station at the site of agricultural land in the vicinity which have never
Lucena, Province of Tayabas. The company in been appropriated for any of those purposes,
question is contesting the P81k just does not justify appraising such land at figures
compensation amount arrived at by the which would be worth it if such development
commissioners. [The court here discusses the were an actual fact
modes of arriving at such amount]. The lower
court relied upon the finding of the
commissioners, which MRC feels to be greatly in
excess of its value because the construction of
EXCLUSIONS AND EXEMPTIONS FROM THE 2. Benefits received by members from the SSS by
GROSS ESTATE reason of death (RA 1792).
3. Amounts received from Philippine and US
A. Exclusions under Secs. 85 and 86, NIRC governments for war damages.
4. Amounts received from the US Veterans
1. Exclusive property of the surviving spouse Administration.
5. Benefits received from the Philippines and US
In case of married decedents, the composition of government for damages suffered during WW II
the gross estate shall be: (RA 4917).
6. Retirement benefits of officials/ employees of a
private firm (RA 4917).
Particulars Gross
7. Payments from the Philippines of US
Estate
government to the legal heirs of the deceased of
Exclusive properties of the decedent Included WW II Veterans and deceased civilian for
supplies/ services furnished to the US and
Exclusive properties of the surviving Excluded Philippine Army (RA 136).
spouse 8. Life insurance proceeds on life insurance
policy taken out by the decedent himself, upon
Common properties of the decedent Included his own life, where the beneficiary is a third
and the surviving spouse person and is irrevocably designated.
9. Life insurance proceeds on Insurance policy
(group insurance) taken out by employer on the
2. Property outside the Philippines of a non- employees life, whoever the beneficiary maybe,
resident alien decedent whether the designation as beneficiary is
Sec. 85, NIRC Provided, however, that in the case of a revocable or irrevocable.
nonresident decedent who at the time of his death
was not a citizen of the Philippines, only that part of
the entire gross estate which is situated in the TAX RATES of ESTATE TAX under Section 84
Philippines shall be included in his taxable estate.

There shall be levied, assessed, collected and
3. Intangible personal property in the Philippines paid upon the transfer of the net estate as
of a non-resident alien under the Reciprocity Law. determined in accordance with Sections 85 and
86 of every decedent, whether residenr or
B. Exemption under Sec. 87, NIRC nonresident of the Philippines, a tax based on the
SEC. 87 Exemption of Certain Acquisitions and value of such net estate, as computed in
Transmissions.
accordance with the ff. Schedule:
The following shall not be taxed:
(A) The merger of usufruct in the owner of the
If net estate is:
naked title; OVER BUT NOT THE TAX PLUS
(B) The transmission or delivery of the inheritance OVER SHALL BE
or legacy by the fiduciary heir or legatee to the
fideicommissary; - P 200,000 Exempt -
(C) The transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance P 200,000 500,000 P 0 5% of excess
with the desire of the predecessor; and over P200,000
(D) All bequests, devises, legacies or transfers to
social welfare, cultural and charitable institutions,
P 500,000 2,000,000 15,000 8% of excess
no part of the net income of which insures to the
over P500,000
benefit of any individual: Provided, however, That
not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be used P2,000,000 5,000,000 135,000 11% of excess
by such institutions for administration purposes. over P2,000,000


P 5,000,000 10,000,000 465,000 15% excess over
C. Exclusions under special laws
P 5,000,000
1. Proceeds of life insurance and benefits
received by members of GSIS (RA 728).
 10,000,000 - 1,215,000 20% of excess
P 200,000 threshold be allowed to be claimed as
over P a deduction under claims against estate
P10,000,000 -Funeral expenses also include:
-Mourning apparel of the surviving spouse and
unmarried minor children of the deceased
bought and used on the occasion of the burial
D. DEDUCTIONS FROM GROSS ESTATE -Expenses of the wake preceding the burial
including food
Summary -Fees for religious rites and ceremonies prior to
Allowable Deductions interment
from the Gross Estate -Cost of burial plot, tombstone, mausoleum, but
not their upkeep
-Publication and telecommunication charges for
Citizen and Nonresident Alien Decedents death notices
Resident -Interment and/ or cremation charges
Decedents -All other expenses incurred for the performance
of the rites and ceremonies incident to the
I. ORDINARY I. ORDINARY DEDUCTIONS:
DEDUCTIONS: 1. Proportionate Deductions for interment
1. Expenses, Losses, Expenses, Losses, Indebtedness, (Note: Medical expenses as of the last illness will
Indebtedness, Taxes, Taxes, etc. (ELITe) computed as: not form part of funeral expenses but should be
etc. claimed as medical expenses)
a. Funeral Expenses Gross Estate (Phils.) x ELITe
b. Judicial expenses (world) 2. Judicial expenses
c. Claims against the Gross Estate (World) -administration expenses essential in the
estate settlement of the estate or necessarily incurred
d. Claims against the 2.Transfer for public use
for but not limited to: a) collection of the assets
insolvent person 3.Vanishing deduction
of the estate; b) payment of debts; and c)
e. Taxes 4.RA 4917 Not allowed
f. Losses distribution of the remainder among those
2. Transfer for public entitled thereto. These expenses should be
use supported by receipts, invoices or by a sworn
3. Vanishing statement of account issued and signed by the
deduction creditor.
4. RA 4917 -other judicial expenses:
-actual judicial or court expenses
II. SPECIAL III. SPECIAL DEDUCTIONS: -attorneys fees
DEDUCTIONS -Not allowed
-expenses of administration such as, but not
1. Standard
Deduction limited to
2. Family Home -inventory taking of assets comprising
3. Medical Expenses the gross estate
-payment of debts of the estate
-distribution of the estate among the
ORDINARY DEDUCTIONS heirs
A. ELITE -accountants fee
(Expenses, Losses, Indebtedness, Taxes, etc.) -clerks hire
-cost of preserving and distributing the
1. Funeral expenses estate
-Actual funeral expenses (paid or unpaid) up to -cost of string or maintaining the
the time of interment, or an amount equal to 5% property of the estate
of the gross estate, whichever is lower, but in no -brokerage fees
case to exceed p 200,000.
-To be considered actual, the funeral expenses 3. Indebtedness or claims against the estate
must be paid out of the estate, not by somebody -Requisites for deductibility:
or out of contributions from friends and relatives a. It must be valid in law and enforceable in court
-Any amount in excess of P 200,000 shall not be against him (decedent) when he was alive.
allowed as a deduction as funeral expenses.
Neither shall the unpaid portion in excess of the
b. It must not have been condoned by the schedule of its receivable showing the unpaid
creditor or the action to collect from the balance of the decedent-debtor.
decedent must not have been prescribed. d) Where the settlement is made through the
c. If the indebtedness arises from a debt Court in a testate or intestate proceeding,
instrument, it must be notarized, except for loans pertinent documents filed with the Court
granted by financial institutions where evidencing the claims against the estate, and the
notarization is not part of the business practice/ Court Order approving the said claims, if already
policy of the financial institution-lender. issued.
d. If contracted within 3 years before the death of
the decedent, a statement under oath (by 4. Claims against an insolvent person
executor/ administrator) must be executed and -Requisites for deductibility
must be attached therewith a statement showing For purposes of estate taxation, a judicial
the disposition of the proceeds of the loan. declaration of insolvency is not required but
(Note: Unpaid funeral and medical expenses shall a) The incapacity of the debtor to pay his
not be deductible under this category.) obligation should be proven.
b) The full amount owed by the insolvent must
Substantiation Requirements first be included in the decedents gross estate.
In case of simple loan (including advances): c) If the insolvent could only pay partial amount,
a) The debt instrument must be duly notarized at the full amount owed shall be included in the
the time the indebtedness was incurred, such as gross estate, and the amount uncollectible shall
promissory note or contract of loan, except for be allowed as a deduction.
loans granted by financial institutions where
notarization is not part of the business practice/ 5. Unpaid mortgages or indebtedness on
policy of the financial institution-lender property
b) Duly notarized Certification from the creditor -To be allowed as a deduction, the decedents
as to the unpaid balance of the debt, uncludign gross estate must include the FMV of the
interest as of the time of death. property encumbered. The amount allowed as a
c.) In accordance with the requirements as deduction would be the outstanding debt or
prescribed in existing internal revenue issuances, mortgage.
proof of financial capacity of the creditor to lend -In case unpaid mortgage payable is being
the amount at the time the loan was granted, as claimed by the estate, verification must be made
well as its latest audited balance sheet with a as to who was the beneficiary of the loan
detailed schedule of its receivable showing the proceeds. If the loan is found to be merely an
unpaid balance of the decedent-debtor. accommodation loan, the value of the unpaid
d) A statement under oath executed by the loan must be included as receivable of the estate.
administrator or executor of the estate reflecting -If there is legal impediment to recognize the
the disposition of the proceeds of the loan if said same as receivable of the estate, said unpaid
loan was contracted within 3 years prior to the obligation/ mortgage payable shall not be
death of the decedent. allowed as a deduction from the gross estate.
-In all instances, the mortgaged property, to the
If the unpaid obligation arose from purchase of extent of the decedents interest therein, should
good or services: always form part of the gross estate.
a) Pertinent documents evidencing the purchase
of goods or service, such as sales invoice/ 6. Taxes
delivery receipt (for sale of goods), or contract -unpaid taxes that accrued prior to the death of
for the services agreed to be rendered (for sale of the decedent. However the following are not
service), as duly acknowledged, executed and allowed as a deduction:
signed by decedent-debtor and creditor, and -income tax on income received after death
statement of account given by the creditor as -property taxes accrued after death
duly received by the decedent-debtor. -estate tax
b) Duly notarized Certification from the creditor
as to the unpaid balance of the debt, including
interest as of the time of death. C
c) Certified true copy of the latest audited
balance sheet of the creditor with a detailed

7. Losses determined and paid by the prior decedent or by
-amount deductible is the value of the property the donor as the case may be
lost
6. No previous vanishing deduction on the
Requisites for deductibility: property
a) Arising exclusively from: -no such deduction on the property, or the
i. Acts of God such as fire, storm, property given in exchange therefore, was
shipwreck and other similar casualty allowed in determining the value of the net estate
ii. Acts of man such as robbery, theft, of the prior decedent
embezzlement
b) Not compensated by insurance or otherwise Vanishing Deduction Rates
c) Not claimed as a deduction in an income tax
Period from receipt to Rate %
return of the estate subject to income tax
decedents death
d) Occurred during the settlement of the estate
e) Occurred before the last day for the payment Within one year 100
of estate tax (6 months after the death of
decedent) Beyond one year to 2 years 80

B. Transfer for Public Use Beyond 2 years to 3 years 60
-dispositions in a last will and testament or
transfers to take effect after the death in favor of Beyond 3 years to 4 years 40
the government of the Philippines or any political
subdivision thereof. Beyond 4 years to 5 years 20
-Before it is allowed as a deduction from the
gross estate, same amount shall be included first D. Amounts received by heirs under RA 4917
in the computation of the gross estate -Any amount received by the heir(s) from the
decedents employer as a consequence of the
C. Vanishing Deductions death of the decedent-employee in accordance
-deduction for property previously taxed with RA 4917, provided that the amount of
-Allowed as a deduction to minimize the effect of separation benefit is included as part of the gross
or as a remedy against double taxation estate of the decedent.

Requisites for deductibility: SPECIAL DEDUCTIONS
1. Death
-the present decedent died within 5 years from A. Standard Deduction
the date of death of the prior decedent or date of -The law allows a standard deduction of P
gift 1,000,000. No qualification, condition nor
2. Identity of property requisite whatsoever.
-the property with respect to which deduction is
sought can be identified as the one received from B. Family Home
the prior decedent, or from the donor, or as the -The amount of family home allowable as
property acquired in exchange for the original deduction would be whichever is lower of P
property so received 1,000,000 or FMV at the time of the decedents
3. Located in the Philippines death, of the family home and the land on which
-the property on which vanishing deduction is it stands.
being claimed must be located in the Philippines -For purposes of regulations, actual occupancy of
4. Inclusion of property the house or house and lot as the family
-the property must have formed part of the gross residence shall not be considered interrupted or
estate situated in the Philippines of the prior abandoned in such cases as temporary absence
decedent or have been included in the total from the constituted family home due to travel
amount of the gifts of the donor made within 5 studies or work abroad.
years prior to the present decedents death
5. Previous taxation of the property Unmarried Head of a Family
-the estate tax on the prior succession, or the -An unmarried man or woman with one or both
donors tax on the gift must have been finally parents, or with one or more brothers or sisters,
or with one or more legitimate, recognized
natural or legally adopted children living with C. Medical Expenses
and dependent upon him or her for the chief -All medical expenses (cost of medicines, hospital
support bills, doctors fees, etc.) incurred (whether paid
-where such brothers or sisters or children are or unpaid) within 1 year before the death of the
not more than 21 years old, unmarried and not decedent shall be allowed as a deduction,
gainfully employed or where such children, provided:
brothers or sisters, regardless of age are -that the same are duly substantiated with
incapable of self-support because of mental or official receipts for services rendered by the
physical defect, OR decedents attending physicians, invoices,
-any of the beneficiaries mentioned in Art. 154 of statement of account duly certified by the
the Family Code who is living in the family home hospital, and such other documents in support
and dependent upon the head of the family for thereof
legal support -and provided further, that the total amount
thereof, whether paid or unpaid, does not exceed
Beneficiaries of family home: P 500,000
-Husband and wife, or the head of a family; and Requisites for deductibility:
-Their parents, ascendants, descendants 1. Incurred by the decedent within 1 year prior to
including legally adopted children, brothers and his death
sisters, whether the relationship be legitimate or 2. Substantiated by receipts
illegitimate, who are living in the family home
and who depend upon the head of the family for NET SHARE OF THE SURVIVING SPOUSE
legal support -The amount deductible is the net share of the
surviving spouse in the conjugal partnership
Limitation property. Net share of the surviving spouse is
-For purposes of availing of family home neither an ordinary or special deduction.
deduction to the extent allowable, a person may -The net share is equivalent to 50% of the
constitute only one family home. conjugal property after deducting the obligations
chargeable to such property.
Requisites for deductibility -The share of the surviving spouse must be
1. The decedent was married or if dingle, was removed to ensure that only the decedents
head of the family interest in the estate is taxed.
2. Along with the decedent, any of the
beneficiaries must be dwelling in the family ALLOWABLE DEDUCTIONS FOR NONRESIDENT
home ALIEN DECEDENT
3. The family home as well as the land on which it -The value of the net estate of a
stands must be owned by the decedent. decedent who is a non-resident alien in the
Therefore, the FMV of the family home should Philippines shall be determined by deducting
have been included in the computation of the from the value of that part of his gross estate
decedents gross estate. which at the time of his death is situated in the
4. The family home must be the actual residential Philippines the following items of deduction:
home of the decedent and his family at the time
of his death, as certified by the Barangay Captain F.) TAX CREDIT FOR FOREIGN ESTATE
of the locality where the family home is situated. TAXATION
5. The total value of the family home must be
included as part of the gross estate of the Section 86 E) Tax Credit for Estate Taxes paid to a
decedent; and Foreign Country.
6. Allowable deduction must be in an amount (1) In General. - The tax imposed by this Title shall
equivalent to the current FMV of the family home be credited with the amounts of any estate tax
as declared or included in the gross estate, or the imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit
extent of the decedents interest (whether
taken under this Section shall be subject to each of
conjugal/ community or exclusive property), the following limitations:
whichever is lower, but not exceeding P (a) The amount of the credit in respect to the tax
1,000,000. paid to any country shall not exceed the same
proportion of the tax against which such credit is
taken, which the decedent's net estate situated
within such country taxable under this Title bears
to his entire net estate; and six (6) months from the decedent's death.
(b) The total amount of the credit shall not exceed A certified copy of the schedule of partition and the
the same proportion of the tax against which such order of the court approving the same shall be
credit is taken, which the decedent's net estate furnished the Commissioner within thirty (30) after
situated outside the Philippines taxable under this the promulgation of such order.
Title bears to his entire net estate.

G. NOTICE OF DEATH, RETURN, PAYMENT of (C) Extension of Time. - The Commissioner shall
TAX, SANCTIONS have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days
for filing the return.
SEC. 89. Notice of Death to be Filed. - In all cases

of transfers subject to tax, or where, though exempt
(D) Place of Filing. - Except in cases where the
from tax, the gross value of the estate exceeds
Commissioner otherwise permits, the return
Twenty thousand pesos (P20,000), the executor,
required under Subsection (A) shall be filed with an
administrator or any of the legal heirs, as the case
authorized agent bank, or Revenue District Officer,
may be, within two (2) months after the decedent's
Collection Officer, or duly authorized Treasurer of
death, or within a like period after qualifying as
the city or municipality in which the decedent was
such executor or administrator, shall give a written
domiciled at the time of his death or if there be no
notice thereof to the Commissioner.
legal residence in the Philippines, with the Office of

the Commissioner.
SEC. 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject
SEC. 91. Payment of Tax. -
to the tax imposed herein, or where, though exempt
(A) Time of Payment. - The estate tax imposed by
from tax, the gross value of the estate exceeds Two
Section 84 shall be paid at the time the return is
hundred thousand pesos (P200,000), or regardless
filed by the executor, administrator or the heirs.
of the gross value of the estate, where the said

estate consists of registered or registrable property
(B) Extension of Time. - When the Com
such as real property, motor vehicle, shares of stock
missioner finds that the payment on the due date of
or other similar property for which a clearance
the estate tax or of any part thereof would impose
from the Bureau of Internal Revenue is required as
undue hardship upon the estate or any of the heirs,
a condition precedent for the transfer of ownership
he may extend the time for payment of such tax or
thereof in the name of the transferee, the executor,
any part thereof not to exceed five (5) years, in case
or the administrator, or any of the legal heirs, as the
the estate is settled through the courts, or two (2)
case may be, shall file a return under oath in
years in case the estate is settled extrajudicially. In
duplicate, setting forth:
such case, the amount in respect of which the
(1) The value of the gross estate of the decedent at
extension is granted shall be paid on or before the
the time of his death, or in case of a nonresident, not
date of the expiration of the period of the extension,
a citizen of the Philippines, of that part of his gross
and the running of the Statute of Limitations for
estate situated in the Philippines;
assessment as provided in Section 203 of this Code
(2) The deductions allowed from gross estate in
shall be suspended for the period of any such
determining the estate as defined in Section 86; and
extension.
(3) Such part of such information as may at the time
Where the taxes are assessed by reason of
be ascertainable and such supplemental data as
negligence, intentional disregard of rules and
may be necessary to establish the correct taxes.
regulations, or fraud on the part of the taxpayer, no
Provided, however, That estate tax returns showing
extension will be granted by the Commissioner.
a gross value exceeding Two million pesos
If an extension is granted, the Commissioner may
(P2,000,000) shall be supported with a statement
require the executor, or administrator, or
duly certified to by a Certified Public Accountant
beneficiary, as the case may be, to furnish a bond in
containing the following: (a) Itemized assets of the
such amount, not exceeding double the amount of
decedent with their corresponding gross value at
the tax and with such sureties as the Commissioner
the time of his death, or in the case of a nonresident,
deems necessary, conditioned upon the payment of
not a citizen of the Philippines, of that part of his
the said tax in accordance with the terms of the
gross estate situated in the Philippines; (b) Itemized
extension.
deductions from gross estate allowed in Section 86;

and (c) The amount of tax due whether paid or still
(C) Liability for Payment - The estate tax imposed
due and outstanding.
by Section 84 shall be paid by the executor or

administrator before delivery to any beneficiary of
(B) Time for filing. - For the purpose of
his distributive share of the estate. Such beneficiary
determining the estate tax provided for in Section
shall to the extent of his distributive share of the
84 of this Code, the estate tax return required under
estate, be subsidiarily liable for the payment of such
the preceding Subsection (A) shall be filed within
portion of the estate tax as his distributive share
bears to the value of the total net estate. mortgage, by way of gifts inter vivos or mortis
For the purpose of this Chapter, the term 'executor' causa, legacy or inheritance, unless a certification
or 'administrator' means the executor or from the Commissioner that the tax fixed in this
administrator of the decedent, or if there is no Title and actually due thereon had been paid is
executor or administrator appointed, qualified, and show, and they shall immediately notify the
acting within the Philippines, then any person in Commissioner, Regional Director, Revenue District
actual or constructive possession of any property of Officer, or Revenue Collection Officer or Treasurer
the decedent. of the city or municipality where their offices are
located, of the non-payment of the tax discovered
SEC. 92. Discharge of Executor or Administrator by them. Any lawyer, notary public, or any
from Personal Liability. - If the executor or government officer who, by reason of his official
administrator makes a written application to the duties, intervenes in the preparation or
Commissioner for determination of the amount of acknowledgment of documents regarding partition
the estate tax and discharge from personal liability or disposal of donation inter vivos or mortis causa,
therefore, the Commissioner (as soon as possible, legacy or inheritance, shall have the duty of
and in any event within one (1) year after the furnishing the Commissioner, Regional Director,
making of such application, or if the application is Revenue District Officer or Revenue Collection
made before the return is filed, then within one (1) Officer of the place where he may have his principal
year after the return is filed, but not after the office, with copies of such documents and any
expiration of the period prescribed for the information whatsoever which may facilitate the
assessment of the tax in Section 203 shall not notify collection of the aforementioned tax. Neither shall a
the executor or administrator of the amount of the debtor of the deceased pay his debts to the heirs,
tax. The executor or administrator, upon payment legatee, executor or administrator of his creditor,
of the amount of which he is notified, shall be unless the certification of the Commissioner that
discharged from personal liability for any deficiency the tax fixed in this Chapter had been paid is shown;
in the tax thereafter found to be due and shall be but he may pay the executor or judicial
entitled to a receipt or writing showing such administrator without said certification if the credit
discharge. is included in the inventory of the estate of the
deceased.
SEC. 93. Definition of Deficiency. - As used in this
Chapter, the term 'deficiency' means: SEC. 96. Restitution of Tax Upon Satisfaction of
(a) The amount by which the tax imposed by this Outstanding Obligations. - If after the payment of
Chapter exceeds the amount shown as the tax by the estate tax, new obligations of the decedent shall
the executor, administrator or any of the heirs upon appear, and the persons interested shall have
his return; but the amounts so shown on the return satisfied them by order of the court, they shall have
shall first be increased by the amounts previously a right to the restitution of the proportional part of
assessed (or collected without assessment) as a the tax paid.
deficiency and decreased by the amount previously
abated, refunded or otherwise repaid in respect of SEC. 97. Payment of Tax Antecedent to the
such tax; or Transfer of Shares, Bonds or Rights. - There shall
(b) If no amount is shown as the tax by the executor, not be transferred to any new owner in the books of
administrator or any of the heirs upon his return, or any corporation, sociedad anonima, partnership,
if no return is made by the executor, administrator, business, or industry organized or established in
or any heir, then the amount by which the tax the Philippines any share, obligation, bond or right
exceeds the amounts previously assessed (or by way of gift inter vivos or mortis causa, legacy or
collected without assessment) as a deficiency; but inheritance, unless a certification from the
such amounts previously assessed or collected Commissioner that the taxes fixed in this Title and
without assessment shall first be decreased by the due thereon have been paid is shown.
amounts previously abated, refunded or otherwise If a bank has knowledge of the death of a person,
repaid in respect of such tax. who maintained a bank deposit account alone, or
jointly with another, it shall not allow any
SEC. 94. Payment before Delivery by Executor or withdrawal from the said deposit account, unless
Administrator. - No judge shall authorize the the Commissioner has certified that the taxes
executor or judicial administrator to deliver a imposed thereon by this Title have been paid:
distributive share to any party interested in the Provided, however, That the administrator of the
estate unless a certification from the Commissioner estate or any one (1) of the heirs of the decedent
that the estate tax has been paid is shown. may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty
SEC. 95. Duties of Certain Officers and Debtors. - thousand pesos (P20,000) without the said
Registers of Deeds shall not register in the Registry certification. For this purpose, all withdrawal slips
of Property any document transferring real shall contain a statement to the effect that all of the
property or real rights therein or any chattel joint depositors are still living at the time of
withdrawal by any one of the joint depositors and - the value of the gross estate of the decedent at
such statement shall be under oath by the said the time of his death, or in case of a non-resident
depositors. foreigner, of that part of his gross estate situated
in the Philippines
Notice of Death: -the deductions allowed therefrom; and
WHEN: in all cases of transfers subject to tax or -such other information as may be necessary to
where, though exempt from tax, the gross value establish the correct taxes
of the estate exceeds P20,000 CERTIFICATION BY A CERTIFIED PUBLIC
WHO: the executor, administrator or any of the ACCOUNTANT - where the value of the gross
legal heirs estate exceeds P2 Million, the estate tax return
WHEN: within 2 months after the decedents shall be supported with a statement duly
death or within a like period after qualifying as certified by certified public accountant
such executor or administrator containing the following:
WHAT: give a written notice to the -itemized assets of the decedent with their
Commissioner corresponding gross valu at the time of his death,
or in the case of a non-resident foreigner, of the
De Leon notes part of his gross estate situated in the
Estate Tax Returns Philippines;
BY WHOM - an estate tax return under oath is -itemized deductions allowed therefrom; and
required by law to be filed by the executor, -the amount of tax due whether paid or still due
administrator or any of the legal heirs and outstanding
- Where the gross value of the estate exceeds COPIES - the return shall be filed in triplicate, 2
P200,000 though exempt from the estate tax or copies for the BIR and 1 copy for the taxpayer.
- Regardless of the gross value of the estate,
where the said estate consists of registered or
registerable real property, such as real property,
motor vehicle, shares of stock or other similar
property for which a clearance from the Bureau
of Internal Revenue is required as a condition
precedent for the transfer of ownership hereof in
the name of the transferee
WHEN - the return shall be filed within 6
months from the decendents death. the tax shall
be paid at the time the return is filed by the
executor, administrator or the heirs, or within
such extension as may be granted by the
Commissioner, but not to exceed 5 years in case
the estate is settled through the courts, or 2 years
in case the estate is settled extra-judicially. The
executor, administrator or any of the legal heirs,
as the case may be, is required to give a written
notice of death to the Commissioner within 2
months after the decedents death or after
qualifying as such executor or administrator
WHERE - Except in cases where the
Commissioner of Internal Revenue otherwise
permits, the return shall be filed with an
authorized or Accredited Agent Bank or Revenue
District Officer, Revenue Collection Officer, or
duly authorized treasurer of the city or
municipality where the decedent was domiciled
at the time of his death, or if there be no legal
residence in the Philippines, with the Office of the
Commissioner of Internal Revenue
CONTENTS - the return shall set forth:
MODULE 2- whether such imported goods are for use in
business or not.
VALUE ADDED TAX
Essential Features of VAT

A. Concept of VAT Nature
1) It is a privilege tax imposed directly not on
Sec 4.105-2, RR 16-2005 the thing or service but on the act of the seller,
Nature and Characteristics of VAT. VAT is a tax on
transferor, importer, or lessor who is exclusively
consumption levied on the sale, barter, exchange or
lease of goods or properties and services in the
made liable for its payment, although the burden
Philippines and on importation of goods into the of the tax is borne ultimately by the consumer
Philippines. The seller is the one statutorily liable for 2) It is an ad valorem tax, the amount or sale
the payment of the tax but the amount of the tax may being based on the gross selling price or gross
be shifted or passed on to the buyer, transferee or value in money of goods or properties, or gross
lessee of the goods, properties or services. This rule receipts from performance of services
shall likewise apply to existing contracts of sale or 3) It is an indirect tax. It may be shifted to the
lease of goods, properties or services at the time of the consumer in the absence of any showing that the
effectivity of RA No. 9337. However, in the case of latter is exempt from indirect tax
importation, the importer is the one liable for the VAT.
a) Party statutorily liable is the seller, and hence
he cannot claim exemption because the
Contex Corp v CIR consumer is tax exempt
SUMMARY: Contex Corp, a Non-VAT taxpayer b)Seller may choose to absorb the VAT and not
under RA 7227, filed an application for refund pass it on to his buyers to make his prices
or tax credit of the input VAT it paid when it competitive
purchased supplies and materials necessary for
its business. Advantages of VAT
1) Eliminates cascading problem under the old
DOCTRINE: VAT is an indirect tax. As such, the sales tax
amount of tax paid on the goods, properties or 2)It is a neutral between different goods,
services bought, transferred, or leased may be properties, and services or businesses, therefore
shifted or passed on by the seller, transferor, or more equitable; applies to all persons
lessor to the buyer, transferee or lessee. An 3) Establishes wider tax base; taxation is more
indirect tax, such as the VAT, is a tax on fair and equitable
consumption of goods, services, or certain 4) Simple and easy to administer (only 2 tax
transactions involving the same. rates)
Petitioners claim for exemption from VAT for 5) Expected to generate larger revenues
its purchases of supplies and raw materials is
incongruous with its claim that it is VAT- Important features
Exempt, for only VAT-Registered entities can 1) All persons liable to VAT shall register with
claim Input VAT Credit/Refund. While it is true the appropriate RDO
that the petitioner should not have been liable 2) Provides for 2 rates: 0% for export sales and
for the VAT inadvertently passed on to it by its sales and services that are 0 rated or effectively
supplier since such is a zero-rated sale on the zero-rated
part of the supplier, the petitioner is not the 3) VAT registered person is entitled to credit
proper party to claim such VAT refund. Rather, input taxes (VAT invoice or OR)
it is the petitioners suppliers who are the 4) Consumption type VAT
proper parties to claim the tax credit and 5) All goods, properties, and services are subject
accordingly refund the petitioner of the VAT to tax at all levels of distribution
erroneously passed on to the latter. 6) Total value of the goods is subject to tax only
once
Definition 7) CIR may determine the appropriate tax base in
Value-added tax is a consumption tax imposed at certain cases
every stage of the distribution process on the 8) CIR may suspend or temporarily close
sale, barter, exchange, or lease of goods or businesses for violations of VAT law/regulations
properties and rendition of services in the course 9) Returns shall be filed with and the tax paid to
of trade or business, or the importation of goods, duly authorized agent banks
 in acceptable foreign currency and accounted for in
Constitutionality of VAT accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
Juan David v Exec Sec and CIR (3) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales exceed
(missing digest)
seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas
B. TAXABLE TRANSACTIONS (BSP); and
(5) Those considered export sales under Executive
Sale of goods- SECTION 106 NIRC Order NO. 226, otherwise known as the Omnibus
SEC. 106, NIRC. . Value-Added Tax on Sale of Goods Investment Code of 1987, and other special laws; and
or Properties. - (6) The sale of goods, supplies, equipment and fuel to
(A) Rate and Base of Tax. - There shall be levied, persons engaged in international shipping or
assessed and collected on every sale, barter or international air transportation
exchange of goods or properties, value-added tax
equivalent to ten percent (10%) of the gross selling (b) Foreign Currency Denominated Sale. - The phrase
price or gross value in money of the goods or 'foreign currency denominated sale' means sale to a
properties sold, bartered or exchanged, such tax to be nonresident of goods, except those mentioned in
paid by the seller or transferor. Sections 149 and 150, assembled or manufactured in
(1) The term 'goods' or 'properties' shall mean all the Philippines for delivery to a resident in the
tangible and intangible objects which are capable of Philippines, paid for in acceptable foreign currency
pecuniary estimation and shall include: and accounted for in accordance with the rules and
(a) Real properties held primarily for sale to regulations of the Bangko Sentral ng Pilipinas (BSP).
customers or held for lease in the ordinary course of
trade or business; (c) Sales to persons or entities whose exemption
(b) The right or the privilege to use patent, copyright, under special laws or international agreements to
design or model, plan, secret formula or process, which the Philippines is a signatory effectively
goodwill, trademark, trade brand or other like subjects such sales to zero rate.
property or right;
(c) The right or the privilege to use in the Philippines (B) Transactions Deemed Sale. - The following
of any industrial, commercial or scientific equipment; transactions shall be deemed sale:
(d) The right or the privilege to use motion picture (1) Transfer, use or consumption not in the course of
films, tapes and discs; and business of goods or properties originally intended for
(e) Radio, television, satellite transmission and cable sale or for use in the course of business;
television time. (2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of
The term 'gross selling price' means the total the VAT-registered persons; or
amount of money or its equivalent which the (b) Creditors in payment of debt;
purchaser pays or is obligated to pay to the seller in (3) Consignment of goods if actual sale is not made
consideration of the sale, barter or exchange of the within sixty (60) days following the date such goods
goods or properties, excluding the value-added tax. were consigned; and
The excise tax, if any, on such goods or properties (4) Retirement from or cessation of business, with
shall form part of the gross selling price. respect to inventories of taxable goods existing as of
such retirement or cessation.
(2) Zero-rated Sales of Goods or Properties. The
following sales by VAT-registered persons shall be (C) Changes in or Cessation of Status of a VAT-
subject to zero percent (0%) rate: registered Person. - The tax imposed in Subsection (A)
of this Section shall also apply to goods disposed of or
(a) Export Sales. - The term 'export sales' means: existing as of a certain date if under circumstances to
(1) The sale and actual shipment of goods from the be prescribed in rules and regulations to be
Philippines to a foreign country, irrespective of any promulgated by the Secretary of Finance, upon
shipping arrangement that may be agreed upon which recommendation of the Commissioner, the status of a
may influence or determine the transfer of ownership person as a VAT-registered person changes or is
of the goods so exported and paid for in acceptable terminated.
foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and (D) Sales Returns, Allowances and Sales Discounts. -
regulations of the Bangko Sentral ng Pilipinas (BSP); The value of goods or properties sold and
(2) Sale of raw materials or packaging materials to a subsequently returned or for which allowances were
nonresident buyer for delivery to a resident local granted by a VAT-registered person may be deducted
export-oriented enterprise to be used in from the gross sales or receipts for the quarter in
manufacturing, processing, packing or repacking in which a refund is made or a credit memorandum or
the Philippines of the said buyer's goods and paid for refund is issued. Sales discount granted and indicated
in the invoice at the time of sale and the grant of
which does not depend upon the happening of a "The phrase 'sale or exchange of services' means the
future event may be excluded from the gross sales performance of all kinds of services in the Philippines
within the same quarter it was given. for others for a fee, remuneration or consideration,
including those performed or rendered by
(E) Authority of the Commissioner to Determine the construction and service contractors; stock, real
Appropriate Tax Base. - The Commissioner shall, by estate, commercial, customs and immigration brokers;
rules and regulations prescribed by the Secretary of lessors of property, whether personal or real;
Finance, determine the appropriate tax base in cases warehousing services; lessors or distributors of
where a transaction is deemed a sale, barter or cinematographic films; persons engaged in milling,
exchange of goods or properties under Subsection (B) processing, manufacturing or repacking goods for
hereof, or where the gross selling price is others; proprietors, operators or keepers of hotels,
unreasonably lower than the actual market value. motels, rest-houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment
Importation parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors;
SEC. 107. Value-Added Tax on Importation of Goods,
transportation contractors on their transport of goods
NIRC.
or cargoes, including persons who transport goods or

cargoes for hire and other domestic common carriers
(A) In General. - There shall be levied, assessed and
by land relative to their transport of goods or cargoes;
collected on every importation of goods a value-added
common carriers by air and sea relative to their
tax equivalent to ten percent (10%) based on the total
transport of passengers, goods or cargoes from one
value used by the Bureau of Customs in determining
place in the Philippines to another place in the
tariff and customs duties plus customs duties, excise
Philippines; sales of electricity by generation
taxes, if any, and other charges, such tax to be paid by
companies, transmission, and distribution companies;
the importer prior to the release of such goods from
services of franchise grantees of electric utilities,
customs custody: Provided, That where the customs
telephone and telegraph, radio and television
duties are determined on the basis of the quantity or
broadcasting and all other franchise grantees except
volume of the goods, the value-added tax shall be
those under Section 119 of this Code and non-life
based on the landed cost plus excise taxes, If any.
insurance companies (except their crop insurances),

including surety, fidelity, indemnity and bonding
(B) Transfer of Goods by Tax-exempt Persons. - In the
companies; and similar services regardless of whether
case of tax-free importation of goods into the
or not the performance thereof calls for the exercise
Philippines by persons, entities or agencies exempt
or use of the physical or mental faculties. The phrase
from tax where such goods are subsequently sold,
'sale or exchange of services' shall likewise include:
transferred or exchanged in the Philippines to non-
(1) The lease or the use of or the right or privilege to
exempt persons or entities, the purchasers,
use any copyright, patent, design or model plan, secret
transferees or recipients shall be considered the
formula or process, goodwill, trademark, trade brand
importers thereof, who shall be liable for any internal
or other like property or right;
revenue tax on such importation. The tax due on such
(2) The lease or the use of, or the right to use of any
importation shall constitute a lien on the goods
industrial, commercial or, scientific equipment;
superior to all charges or liens on the goods,
(3) The supply of scientific, technical, industrial or
irrespective of the possessor thereof.
commercial knowledge or information;
(4) The supply of any assistance that is ancillary and
Sale of Services subsidiary to and is furnished as a means of enabling
SEC. 108, NIRC. Value-added Tax on Sale of Services the application or enjoyment of any such property, or
and Use or Lease of Properties. right as is mentioned in subparagraph (2) or any such
(A) Rate and Base of Tax. - There shall be levied, knowledge or information as is mentioned in
assessed and collected, a value-added tax equivalent subparagraph (3);
to ten percent (10%) of gross receipts derived from (5) The supply of services by a nonresident person or
the sale or exchange of services, including the use or his employee in connection with the use of property
lease of properties: Provided, That the President, or rights belonging to, or the installation or operation
upon the recommendation of the Secretary of Finance, of any brand, machinery or other apparatus
shall, effective January 1, 2006, raise the rate of value- purchased from such nonresident person;
added tax to twelve percent (12%), after any of the (6) The supply of technicai advice, assistance or
following conditions has been satisfied: services rendered in connection with technical
(i) Value-added tax collection as a percentage of Gross management or administration of any scientific,
Domestic Product (GDP) of the previous year exceeds industrial or commercial undertaking, venture,
two and four-fifth percent (2 4/5%); or project or scheme;
(ii) National government deficit as a percentage of (7) The lease of motion picture films, films, tapes and
GDP of the previous year exceeds one and one-half discs; and
percent (1 1/2%).
(8) The lease or the use of or the right to use radio, Meaning of In the Course of Trade or Business. The
television, satellite transmission and cable television term in the course of trade or business means the
time. regular conduct or pursuit of a commercial or
economic activity, including transactions incidental
"Lease of properties shall be subject to the tax herein thereto, by any person regardless of whether or not
imposed irrespective of the place where the contract the person engaged therein is a non-stock, non-profit
of lease or licensing agreement was executed if the private organization (irrespective of the disposition of
property is leased or used in the Philippines. its net income and whether or not it sells exclusively
"The term 'gross receipts' means the total amount of to members or their guests), or government entity.
money or its equivalent representing the contract Non-resident persons who perform services in the
price, compensation, service fee, rental or royalty, Philippines are deemed to be making sales in the
including the amount charged for materials supplied course of trade or business, even if the performance of
with the services and deposits and advanced services is not regular.
payments actually or constructively received during
the taxable quarter for the services performed or to be CIR v CA 242 scra 289
performed for another person, excluding value-added Summary: CIR was trying to tax Atlas Mining
tax. manufacturers and contractors tax for lending
its steel balls and leasing dumptrucks
(B) Transactions Subject to Zero Percent (0%) Rate. -
respectively
The following services performed in the Philippines
by VAT-registered persons shall be subject to zero
percent (0%) rate: Doctrine: To be liable for both taxes, one must
(1) Processing, manufacturing or repacking goods for be doing busines. The intent just has to be for
other persons doing business outside the Philippines profit and/or that it may be considered the
which goods are subsequently exported, where the first of many transactions. Steel balls were just
services are paid for in acceptable foreign currency to accommodate so it was not considered for
and accounted for in accordance with the rules and profit. Dumptrucks continuously gave profit as
regulations of the Bangko Sentral ng Pilipinas (BSP); shown in the books.
(2) Services other than those mentioned in the
preceding paragraph rendered to a person engaged in
CIR v CA 329 scra 237
business conducted outside the Philippines or to a
nonresident person not engaged in business who is SUMMARY: Commonwealth Management and
outside the Philippines when the services are Services Corporation was organized by
performed, the consideration for which is paid for in Philamlife to perform collection, consultative
acceptable foreign currency and accounted for in and other technical services, including
accordance with the rules and regulations of the functioning as its internal auditor, and that of
Bangko Sentral ng Pilipinas (BSP); its other affiliates. BIR assessed COMASERCO
(3) Services rendered to persons or entities whose for deficiency VAT for the year 1988.
exemption under special laws or international COMASERCO protested claiming that it is not
agreements to which the Philippines is a signatory engage in business as it was not rendering
effectively subjects the supply of such services to zero
service for profit but instead on
percent (0%) rate;
(4) Services rendered to persons engaged in reimbursement-of-cost basis only. CTA agreed
international shipping or international air transport with the CIR. However, on appeal, CA sided
operations, including leases of property for use with COMASERCO and ruled that it was not
thereof; liable to pay VAT for it was not engaged in the
(5) Services performed by subcontractors and/or business of selling services. SC reversed the CA
contractors in processing, converting, or ruling and reinstate the CTA ruling because
manufacturing goods for an enterprise whose export profit is not a factor in determining whether
sales exceed seventy percent (70%) of total annual one is engaged in business or not.
production;
(6) Transport of passengers and cargo by air or sea
DOCTRINE: The term "in the course of trade or
vessels from the Philippines to a foreign country; and
(7) Sale of power or fuel generated through renewable business" requires the regular conduct or
sources of energy such as, but not limited to, biomass, pursuit of a commercial or an economic
solar, wind, hydropower, geothermal, ocean energy, activity, regardless of whether or not the entity
and other emerging energy sources using technologies is profit-oriented. VAT is a tax on transactions,
such as fuel cells and hydrogen fuels. imposed at every stage of the distribution
process on the sale, barter, exchange of goods
Concept of in the course of trade or business or property, and on the performance of
Sec 4.105-3, RR 16-2005
services, even in the absence of profit SEC. 105, NIRC. Persons Liable. - Any person who, in
attributable thereto. the course of trade or business, sells barters,
A domestic corporation that provided exchanges, leases goods or properties, renders
technical, research, management and technical services, and any person who imports goods shall be
assistance to its affiliated companies and subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
received payments on a reimbursement-of-cost
The value-added tax is an indirect tax and the amount
basis, without any intention of realizing profit, of tax may be shifted or passed on to the buyer,
is subject to VAT on services rendered transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing
CS Garments v CIR contracts of sale or lease of goods, properties or
SUMMARY: Petitioner CS Garments received services at the time of the effectivity of Republic Act
an assessment notice from CIR requiring it to No. 7716.
pay VAT for the sale of its motor vehicle to its The phrase 'in the course of trade or business' means
General Manager. Petitioner filed a written the regular conduct or pursuit of a commercial or an
protest with the CIR. When the latter failed to economic activity, including transactions incidental
rule on the protest within the prescribed thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, nonprofit
period, petitioner appealed to CTA for the
private organization (irrespective of the disposition of
cancellation of the assessment notice. its net income and whether or not it sells exclusively
Petitioner argued that the proceeds of the sale to members or their guests), or government entity.
of its motor vehicle to its General Manager The rule of regularity, to the contrary
cannot be subject to VAT since it was not made notwithstanding, services as defined in this Code
in the ordinary conduct of its trade or business rendered in the Philippines by nonresident foreign
considering that petitioner is primarily persons shall be considered as being course of trade
engaged in the manufacture and sale of or business.
garments for export. The sale of the Mercedez
Benz was an isolated transaction and Sec 4.106-9, RR 16-2005
undertaken only once in order to dispose SEC. 4.106-9. Allowable Deductions from Gross Selling
petitioner's capital asset. The CTA however Price. In computing the taxable base during the
found the sale of the motor vehicle subject to month or quarter, the following shall be allowed as
VAT, it being an incidental transaction under deductions from gross selling price:
(a) Discounts determined and granted at the time of
Sec. 105 of the NIRC.
sale, which are expressly indicated in the invoice, the
amount thereof forming part of the gross sales duly
DOCTRINE: Transactions that are made recorded in the books of accounts.
incidental to the pursuit of a commercial or Sales discount indicated in the invoice at the time of
economic activity are also considered as sale, the grant of which is not dependent upon the
entered into in the course of trade or business. happening of a future event, may be excluded from the
"Incidental" means something else as primary; gross sales within the same month/quarter it was
something necessary, appertaining to, or given.
depending upon another, which is termed the (b) Sales returns and allowances for which a proper
principal. Hence, an isolated transaction is not credit or refund was made during the month or
quarter to the buyer for sales previously recorded as
necessarily disqualified from being made
taxable sales.
incidentally in the course of trade or business.

Once an activity has been identified as a
D. TAX on SALE OF GOODS AND PROPERTIES
business, any supply[sales] made while
--> covers both actual sale and deemed sale
carrying it on is likely to be made in the course
why deemed sale?- in order to plug a leakage
or furtherance of business. No distinction is
for VAT purposes because Government is
made between capital and revenue items. Thus,
effectively short changed.
a supply[ sales] in the course or furtherance of

business includes: (1) the disposition of the
Sec 106 NIRC see provision under B. taxable
assets and liabilities of a business; (2) the
transactions
disposition of a business as going concern; and

(3) anything done in connection with the
termination or intended termination of a Sec 4.106-1, RR 16-2005
SEC. 4.106-1. VAT on Sale of Goods or Properties.
business.
VAT is imposed and collected on every sale, barter or
exchange, or transactions deemed sale of taxable
C. PERSONS LIABLE goods or properties at the rate of 10% of the gross
selling price or gross value in money of the goods or tax, if any, on such goods or properties shall form part
properties sold, bartered, or exchanged, or deemed of the gross selling price
sold in the Philippines.
Sec 4.106-3 and 9, RR 16-2005
Concept of goods/properties SEC. 4.106-3. Sale of Real Properties. Sale of real
Section 106 (A) (1) properties held primarily for sale to customers or held
(1) The term 'goods' or 'properties' shall mean all for lease in the ordinary course of trade or business of
tangible and intangible objects which are capable of the seller shall be subject to VAT.
pecuniary estimation and shall include: In the case of sale of real properties on the installment
(a) Real properties held primarily for sale to plan, the real estate dealer shall be subject to VAT on
customers or held for lease in the ordinary course of the installment payments, including interest and
trade or business; penalties, actually and/or constructively received by
(b) The right or the privilege to use patent, copyright, the seller.
design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like Sale of residential lot exceeding P1,500,000.00,
property or right; residential house and lot or other residential
(c) The right or the privilege to use in the Philippines dwellings exceeding P2,500,000.00, where the
of any industrial, commercial or scientific equipment; instrument of sale (whether the instrument is
(d) The right or the privilege to use motion picture nominated as a deed of absolute sale, deed of
films, tapes and discs; and conditional sale or otherwise) is executed on or after
(e) Radio, television, satellite transmission and cable July 1, 2005, shall be subject to 10% VAT.
television time. Installment sale of residential house and lot or other
residential dwellings exceeding
P1,000,000.00, where the instrument of sale (whether
Sec 4.106-2 and 3, RR-16-2005
the instrument is nominated as a deed of absolute
SEC. 4.106-2. Meaning of the Term Goods or
sale, deed of conditional sale or otherwise) was
Properties. The term goods or properties refers to
executed prior to July 1, 2005, shall be subject to 10%
all tangible and intangible objects which are capable
VAT.
of pecuniary estimation and shall include, among

others:
Sale of real property on installment plan means sale
(1) Real properties held primarily for sale to
of real property by a real estate dealer, the initial
customers or held for lease in the ordinary course of
payments of which in the year of sale do not exceed
trade or business;
twenty-five percent (25%) of the gross selling price.
(2) The right or the privilege to use patent, copyright,

design or model, plan, secret formula or process,
However, in the case of sale of real properties on the
goodwill, trademark, trade brand or other like
deferred-payment basis, not on the installment plan,
property or right;
the transaction shall be treated as cash sale which
(3) The right or the privilege to use any industrial
makes the entire selling price taxable in month of sale.
commercial or scientific equipment;

(4) The right or the privilege to use motion picture
Sale of real property by a real estate dealer on a
films, films, tapes and discs; and
deferred payment basis, not on the installment plan
(5) Radio, television, satellite transmission and cable
means sale of real property, the initial payments of
television time.
which in the year of sale exceed twenty-five percent
(25%) of the gross selling price.
Requirements for taxability of transactions
1. there must be a sale either actual or deemed Initial payments means payment or payments which
sale the seller receives before or upon execution of the
2. must be in the course of trade/business instrument of sale and payments which he expects or
3. for use or consumption in the Philippines is scheduled to receive in cash or property (other than
4. not exempt under international law, treaty. evidence of indebtedness of the purchaser) during the
Check if exempt under section 109 year when the sale or disposition of the real property
was made. It covers any down payment made and

includes all payments actually or constructively
received during the year of sale, the aggregate of
Meaning of Gross Selling Price which determines the limit set by law.
Sec 106 (A) (1)
The term 'gross selling price' means the total amount Initial payments do not include the amount of
of money or its equivalent which the purchaser pays mortgage on the real property sold except when such
or is obligated to pay to the seller in consideration of mortgage exceeds the cost or other basis of the
the sale, barter or exchange of the goods or property to the seller, in which case, the excess shall
properties, excluding the value-added tax. The excise be considered part of the initial payments.
 out of retained earnings on or after January 1, 1996
Also excluded from initial payments are notes or other and distributed by the company to its shareholders
evidence of indebtedness issued by the purchaser to shall be subject to VAT based on the zonal value or fair
the seller at the time of the sale. market value at the time of distribution, whichever is
applicable.
Pre-selling of real estate properties by real estate ii. Creditors in payment of debt or obligation.
dealers shall be subject to VAT in accordance with (3) Consignment of goods if actual sale is not made
rules prescribed above. within 60 days following the date such goods were
consigned. Consigned goods returned by the
Real estate dealer includes any person engaged in consignee within the 60-day period are not deemed
the business of buying, developing, selling, exchanging sold;
real properties as principal and holding himself out as (4) Retirement from or cessation of business with
a full or part-time dealer in real estate. respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of
Transmission of property to a trustee shall not be such retirement or cessation, whether or not the
subject to VAT if the property is to be merely held in business is continued by the new owner or successor.
trust for the trustor and/or beneficiary. However, if The following circumstances shall, among others, give
the property transferred is one for sale, lease or use in rise to transactions deemed sale for purposes of this
the ordinary course of trade or business and the Section;
transfer constitutes a completed gift, the transfer is
subject to VAT as a deemed sale transaction pursuant i. Change of ownership of the business. There is a
to Sec. 4.106-7(a)(1) of these Regulations. The change in the ownership of the business when a single
transfer is a completed gift if the transferor divests proprietorship incorporates; or the proprietor of a
himself absolutely of control over the property, i.e., single proprietorship sells his entire business.
irrevocable transfer of corpus and/or irrevocable
designation of beneficiary. ii. Dissolution of a partnership and creation of a new
partnership which takes over the business.
(b) The Commissioner of Internal Revenue shall
Transactions Deemed Sale
determine the appropriate tax base in cases where a
Sec 106 (B) NIRC transaction is deemed a sale, barter or exchange of
(B) Transactions Deemed Sale. - The following
goods or properties under Sec. 4.106-7 paragraph (a)
transactions shall be deemed sale:
hereof, or where the gross selling price is
(1) Transfer, use or consumption not in the course of unreasonably lower than the actual market value. The
business of goods or properties originally intended for gross selling price is unreasonably lower than the
sale or for use in the course of business; actual market value if it is lower by more than 30% of
(2) Distribution or transfer to: the actual market value of the same goods of the same
(a) Shareholders or investors as share in the profits of
quantity and quality sold in the immediate locality on
the VAT-registered persons; or
or nearest the date of sale.
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made For transactions deemed sale, the output tax shall be
within sixty (60) days following the date such goods based on the market value of the goods deemed sold
were consigned; and as of the time of the occurrence of the transactions
(4) Retirement from or cessation of business, with enumerated in Sec. 4.106-7(a)(1),(2), and (3) of these
respect to inventories of taxable goods existing as of
Regulations. However, in the case of retirement or
such retirement or cessation. cessation of business, the tax base shall be the
acquisition cost or the current market price of the
Sec 4.106-7, RR 16-2005 goods or properties, whichever is lower.
Transactions Deemed Sale.
(a) The following transactions shall be deemed sale In the case of a sale where the gross selling price is
pursuant to Sec. 106 (B) of the unreasonably lower than the fair market value, the
Tax Code: actual market value shall be the tax base.
(1) Transfer, use or consumption not in the course of
business of goods or properties originally intended for
sale or for use in the course of business. Transfer of
E. Tax on Importation
goods or properties not in the course of business can
take place when VAT-registered person withdraws SEC. 107, NIRC. Value-Added Tax on Importation of
goods from his business for his personal use; Goods. -
(2) Distribution or transfer to: (A) In General. - There shall be levied, assessed and
i. Shareholders or investors share in the profits of collected on every importation of goods a value-added
VAT-registered person; tax equivalent to ten percent (10%) based on the total
Property dividends which constitute stocks in trade or value used by the Bureau of Customs in determining
properties primarily held for sale or lease declared tariff and customs duties plus customs duties, excise
taxes, if any, and other charges, such tax to be paid by
the importer prior to the release of such goods from (c) Sale, transfer or exchange of imported goods by
customs custody: Provided, That where the customs tax-exempt persons. In the case of goods imported
duties are determined on the basis of the quantity or into the Philippines by VAT-exempt persons, entities
volume of the goods, the value-added tax shall be or agencies which are subsequently sold, transferred
based on the landed cost plus excise taxes, If any. or exchanged in the Philippines to non-exempt
persons or entities, the latter shall be considered the
(B) Transfer of Goods by Tax-exempt Persons. - In the importers thereof and shall be liable for VAT due on
case of tax-free importation of goods into the such importation. The tax due on such importation
Philippines by persons, entities or agencies exempt shall constitute a lien on the goods, superior to all
from tax where such goods are subsequently sold, charges/or liens, irrespective of the possessor of said
transferred or exchanged in the Philippines to non- goods.
exempt persons or entities, the purchasers,
transferees or recipients shall be considered the Requirements for taxability of Transactions
importers thereof, who shall be liable for any internal 1. must be on importation
revenue tax on such importation. The tax due on such
2. need not be in the course of trade or business
importation shall constitute a lien on the goods
superior to all charges or liens on the goods,
irrespective of the possessor thereof. F. TAX ON SERVICES
SEC. 108, NIRC. Value-added Tax on Sale of Services
and Use or Lease of Properties.
Sec 4.107-1, RR 16-2005
(A) Rate and Base of Tax. - There shall be levied,
VAT on Importation of Goods.
assessed and collected, a value-added tax equivalent
(a) In general. VAT is imposed on goods brought into
to ten percent (10%) of gross receipts derived from
the Philippines, whether for use in business or not.
the sale or exchange of services, including the use or
The tax shall be based on the total value used by the
lease of properties: Provided, That the President,
BOC in determining tariff and customs duties, plus
upon the recommendation of the Secretary of Finance,
customs duties, excise tax, if any, and other charges,
shall, effective January 1, 2006, raise the rate of value-
such as postage, commission, and similar charges,
added tax to twelve percent (12%), after any of the
prior to the release of the goods from customs
following conditions has been satisfied:
custody.
(i) Value-added tax collection as a percentage of Gross

Domestic Product (GDP) of the previous year exceeds
In case the valuation used by the BOC in computing
two and four-fifth percent (2 4/5%); or
customs duties is based on volume or quantity of the
(ii) National government deficit as a percentage of
imported goods, the landed cost shall be the basis for
GDP of the previous year exceeds one and one-half
computing VAT. Landed cost consists of the invoice
percent (1 1/2%).
amount, customs duties, freight, insurance and other

charges. If the goods imported are subject to excise
"The phrase 'sale or exchange of services' means the
tax, the excise tax shall form part of the tax base.
performance of all kinds of services in the Philippines

for others for a fee, remuneration or consideration,
The same rule applies to technical importation of
including those performed or rendered by
goods sold by a person located in a Special Economic
construction and service contractors; stock, real
Zone to a customer located in a customs territory.
estate, commercial, customs and immigration brokers;

lessors of property, whether personal or real;
No VAT shall be collected on importation of goods
warehousing services; lessors or distributors of
which are specifically exempted under Sec. 109 (1) of
cinematographic films; persons engaged in milling,
the Tax Code.
processing, manufacturing or repacking goods for

others; proprietors, operators or keepers of hotels,
(b) Applicability and payment. The rates prescribed
motels, rest-houses, pension houses, inns, resorts;
under Sec. 107 (A) of the Tax
proprietors or operators of restaurants, refreshment
Code shall be applicable to all importations
parlors, cafes and other eating places, including clubs
withdrawn from customs custody.
and caterers; dealers in securities; lending investors;

transportation contractors on their transport of goods
The VAT on importation shall be paid by the importer
or cargoes, including persons who transport goods or
prior to the release of such goods from customs
cargoes for hire and other domestic common carriers
custody.
by land relative to their transport of goods or cargoes;

common carriers by air and sea relative to their
Importer refers to any person who brings goods into
transport of passengers, goods or cargoes from one
the Philippines, whether or not made in the course of
place in the Philippines to another place in the
his trade or business. It includes non-exempt persons
Philippines; sales of electricity by generation
or entities who acquire tax-free imported goods from
companies, transmission, and distribution companies;
exempt persons, entities or agencies.
services of franchise grantees of electric utilities,
telephone and telegraph, radio and television and accounted for in accordance with the rules and
broadcasting and all other franchise grantees except regulations of the Bangko Sentral ng Pilipinas (BSP);
those under Section 119 of this Code and non-life (2) Services other than those mentioned in the
insurance companies (except their crop insurances), preceding paragraph rendered to a person engaged in
including surety, fidelity, indemnity and bonding business conducted outside the Philippines or to a
companies; and similar services regardless of whether nonresident person not engaged in business who is
or not the performance thereof calls for the exercise outside the Philippines when the services are
or use of the physical or mental faculties. The phrase performed, the consideration for which is paid for in
'sale or exchange of services' shall likewise include: acceptable foreign currency and accounted for in
(1) The lease or the use of or the right or privilege to accordance with the rules and regulations of the
use any copyright, patent, design or model plan, secret Bangko Sentral ng Pilipinas (BSP);
formula or process, goodwill, trademark, trade brand (3) Services rendered to persons or entities whose
or other like property or right; exemption under special laws or international
(2) The lease or the use of, or the right to use of any agreements to which the Philippines is a signatory
industrial, commercial or, scientific equipment; effectively subjects the supply of such services to zero
(3) The supply of scientific, technical, industrial or percent (0%) rate;
commercial knowledge or information; (4) Services rendered to persons engaged in
(4) The supply of any assistance that is ancillary and international shipping or international air transport
subsidiary to and is furnished as a means of enabling operations, including leases of property for use
the application or enjoyment of any such property, or thereof;
right as is mentioned in subparagraph (2) or any such (5) Services performed by subcontractors and/or
knowledge or information as is mentioned in contractors in processing, converting, or
subparagraph (3); manufacturing goods for an enterprise whose export
(5) The supply of services by a nonresident person or sales exceed seventy percent (70%) of total annual
his employee in connection with the use of property production;
or rights belonging to, or the installation or operation (6) Transport of passengers and cargo by air or sea
of any brand, machinery or other apparatus vessels from the Philippines to a foreign country; and
purchased from such nonresident person; (7) Sale of power or fuel generated through renewable
(6) The supply of technical advice, assistance or sources of energy such as, but not limited to, biomass,
services rendered in connection with technical solar, wind, hydropower, geothermal, ocean energy,
management or administration of any scientific, and other emerging energy sources using technologies
industrial or commercial undertaking, venture, such as fuel cells and hydrogen fuels.
project or scheme;
(7) The lease of motion picture films, films, tapes and Sec 4.108-1, RR 16-2005
discs; and VAT on the Sale of Services and Use or Lease of
(8) The lease or the use of or the right to use radio, Properties. Sale or exchange of services, as well as
television, satellite transmission and cable television the use or lease of properties, as defined in Sec. 108
time. (A) of the Tax Code shall be subject to VAT, equivalent
to 10% of the gross receipts (excluding VAT).
"Lease of properties shall be subject to the tax herein
imposed irrespective of the place where the contract

of lease or licensing agreement was executed if the Meaning of Sale or Exchange of Services
property is leased or used in the Philippines.
"The term 'gross receipts' means the total amount of Sec 4.108-2 and 3, RR 16-2005
money or its equivalent representing the contract SEC. 4.108-2. Meaning of Sale or Exchange of
price, compensation, service fee, rental or royalty, Services. The term sale or exchange of services
including the amount charged for materials supplied means the performance of all kind of services in the
with the services and deposits and advanced Philippines for others for a fee, remuneration or
payments actually or constructively received during consideration, whether in kind or in cash, including
the taxable quarter for the services performed or to be those performed or rendered by the following:
performed for another person, excluding value-added (1) construction and service contractors;
tax. (2) stock, real estate, commercial, customs and
immigration brokers;
(B) Transactions Subject to Zero Percent (0%) Rate. - (3) lessors of property, whether personal or real;
The following services performed in the Philippines (4) persons engaged in warehousing services;
by VAT-registered persons shall be subject to zero (5) lessors or distributors of cinematographic films;
percent (0%) rate: (6) persons engaged in milling, processing,
(1) Processing, manufacturing or repacking goods for manufacturing or repacking goods for others;
other persons doing business outside the Philippines (7) proprietors, operators, or keepers of hotels,
which goods are subsequently exported, where the motels, rest houses, pension houses, inns, resorts,
services are paid for in acceptable foreign currency theaters, and movie houses;
(8) proprietors or operators of restaurants, SEC. 4.108-3. Definitions and Specific Rules on
refreshment parlors, cafes and other eating places, Selected Services.
including clubs and caterers; a. Lessors of Property. All forms of property for
(9) dealers in securities; lease, whether real or personal, are liable to VAT
(10) lending investors; subject to the provisions of Sec. 4.109-1(B)(1)(v) of
(11) transportation contractors on their transport of these Regulations.
goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common Real estate lessor includes any person engaged in
carriers by land relative to their transport of goods or the business of leasing or subleasing real property.
cargoes;
(12) common carriers by air and sea relative to their Lease of property shall be subject to VAT regardless of
transport of passengers, goods or cargoes from one the place where the contract of lease or licensing
place in the Philippines to another place in the agreement was executed if the property leased or
Philippines; used is located in the Philippines.
(13) sales of electricity by generation, transmission,
and/or distribution companies; VAT on rental and/or royalties payable to non-
(14) franchise grantees of electric utilities, telephone resident foreign corporations or owners for the sale of
and telegraph, radio and/or television broadcasting services and use or lease of properties in the
and all other franchise grantees, except franchise Philippines shall be based on the contract price agreed
grantees of radio and/or television broadcasting upon by the licensor and the licensee. The licensee
whose annual gross receipts of the preceding year do shall be responsible for the payment of VAT on such
not exceed Ten Million Pesos (P10,000,000.00), and rentals and/or royalties in behalf of the non-resident
franchise grantees of gas and water utilities; foreign corporation or owner in the manner
(15) non-life insurance companies (except their crop prescribed in Sec. 4.114-2(b) hereof.
insurances), including surety, fidelity, indemnity and
bonding companies; and Non-resident lessor/owner refers to any person,
(16) similar services regardless of whether or not the natural or juridical, an alien, or a citizen who
performance thereof calls for the exercise or use of establishes to the satisfaction of the Commissioner of
the physical or mental faculties. Internal Revenue the fact of his physical presence
abroad with a definite intention to reside therein, and
The phrase sale or exchange of services shall who owns/leases properties, real or personal,
likewise include: whether tangible or intangible, located in the
(1) The lease or the use of or the right or privilege to Philippines.
use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade In a lease contract, the advance payment by the lessee
brand or other like property or right; may be:
(2) The lease or the use of, or the right to use any (i) a loan to the lessor from the lessee, or
industrial, commercial or scientific equipment; (ii) an option money for the property, or
(3) The supply of scientific, technical industrial or (iii) a security deposit to insure the faithful
commercial knowledge or information; performance of certain obligations of the lessee to the
(4) The supply of any assistance that is ancillary and lessor, or
subsidiary to and is furnished as a means of enabling (iv) pre-paid rental.
the application or enjoyment of any such property, or
right as is mentioned in subparagraph (2) hereof or If the advance payment is actually a loan to the lessor,
any such knowledge or information as is mentioned in or an option money for the property, or a security
subparagraph (3) hereof; deposit for the faithful performance of certain
(5) The supply of services by a non-resident person or obligations of the lessee, such advance payment is not
his employee in connection with the use of property subject to VAT. However, a security deposit that is
or rights belonging to, or the installation or operation applied to rental shall be subject to VAT at the time of
of any brand, machinery or other apparatus its application.
purchased from such nonresident person; If the advance payment constitutes a pre-paid rental,
(6) The supply of technical advice, assistance or then such payment is taxable to the lessor in the
services rendered in connection with technical month when received, irrespective of the accounting
management or administration of any scientific, method employed by the lessor.
industrial or commercial undertaking, venture,
project or scheme; (b) Warehousing service means rendering personal
(7) The lease of motion picture films, films, tapes, and services of a warehouseman such as:
discs; and (1) engaging in the business of receiving and storing
(8) The lease or the use of, or the right to use, radio, goods of others for compensation
television, satellite transmission and cable television or profit;
time.

(2) receiving goods and merchandise to be stored in RA No. 9136 (EPIRA). They shall include all
his warehouse for hire; or Independent Power Producers (IPPs) and NPC/Power
(3) keeping and storing goods for others, as a business Sector Assets and Liabilities Management Corporation
and for use. (PSALM)-owned generation facilities.

(c) A miller, who is a person engaged in milling for Transmission companies refers to any person or
others (except palay into rice, corn into corn grits, and entity that owns and conveys
sugarcane into raw sugar), is subject to VAT on sale of electricity through the high voltage backbone system
services. If the miller is paid in cash for his services, and/or subtransmission assets, e.g. NPC or TRANSCO.
VAT shall be based on his gross receipts for the month Subtransmission assets shall refer to the facilities
or quarter. If he receives a share of the milled related to the power delivery service below the
products instead of cash, VAT shall be based on the transmission voltages and based on the functional
actual market value of his share in the milled assignment of asset including, but not limited to step-
products. Sale by the owner or the miller of his share down transformers used solely by load customers,
of the milled product (except rice, corn grits and raw associated switchyard/substation, control and
sugar) shall be subject to VAT. protective equipment, reactive compensation
equipment to improve power factor, overhead lines,
(d) All receipts from service, hire, or operating lease of and the land where such facilities/equipments are
transportation equipment not subject to the located. These include NPC assets linking the
percentage tax on domestic common carriers and transmission system and the distribution system
keepers of garages imposed under Sec. 117 of the Tax which are neither classified as generation or
Code shall be subject to VAT. transmission.

Common carrier refers to persons, corporations, Distribution companies refer to persons or entities
firms or associations engaged in the business of which operate a distribution system in accordance
carrying or transporting passengers or goods or both, with the provisions of the EPIRA. They shall include
by land, water, or air, for compensation, offering their any distribution utility such as an electric cooperative
services to the public and shall include transportation organized pursuant to Presidential Decree No. 269, as
contractors. amended, and/or under RA No. 6938, or as otherwise
provided in the EPIRA, a private corporation, or a
Common carriers by land with respect to their gross government-owned utility or existing local
receipts from the transport of passengers including government unit which has an exclusive franchise to
operators of taxicabs, utility cars for rent or hire operate a distribution system in accordance with the
driven by the lessees (rent-a-car companies), and EPIRA.
tourist buses used for the transport of passengers
shall be subject to the percentage tax imposed under For this purpose, a distribution system refers to the
Sec. 117 of the Tax Code, but shall not be liable for system of wires and associated facilities belonging to a
VAT. franchised distribution utility extending between the
delivery points on the transmission or
(e) Domestic common carriers by air and sea are subtransmission system or generator connection and
subject to 10% VAT on their gross receipts from their the point of connection to the premises of the end-
transport of passengers, goods or cargoes from one users.
place in the Philippines to another place in the
Philippines. Gross Receipts under this Subsection (f) shall refer
to the following:
(f) Sale of electricity by generation, transmission, and
distribution companies shall be subject to 10% VAT (a) Total amount charged by generation companies
on their gross receipts; Provided, That sale of power for the sale of electricity and related ancillary
or fuel generated through renewable sources of services; and/or
energy such as, but not limited to, biomass, solar,
wind, hydropower, geothermal, ocean energy, and (b) Total amount charged by transmission companies
other emerging energy sources using technologies for transmission of electricity and related ancillary
such as fuel cells and hydrogen fuels shall be subject services; and/or
to 0% VAT.
(c) Total amount charged by distribution companies
Generation companies refers to persons or entities and electric cooperatives for distribution and supply
authorized by the Energy of electricity, and related electric service. The
Regulatory Commission (ERC) to operate facilities universal charge passed on and collected by
used in the generation of electricity. For this purpose, distribution companies and electric cooperatives shall
generation of electricity refers to the production of be excluded from the computation of the Gross
electricity by a generation company or a co- Receipts.
generation facility pursuant to the provisions of the
(g) Dealers in securities and lending investors shall be (i) Non-life insurance companies including surety,
subject to VAT on the basis of their gross receipts. fidelity, indemnity and bonding companies are subject
However, for Dealer in Securities, the term gross to VAT. They are not liable to the payment of the
receipts means gross selling price less cost of the premium tax under Sec. 123 of the Tax Code.
securities sold..
Non-life insurance companies including surety,
Dealer in securities means a merchant of stock or fidelity, indemnity and bonding
securities, whether an individual partnership or companies, shall include all individuals, partnerships,
corporation, with an established place of business, associations, or corporations, including professional
regularly engaged in the purchase of securities and reinsurers defined in Sec. 280 of PD 612, otherwise
their resale to customers, that is, one who as a known as The Insurance Code of the Philippines,
merchant buys securities and sells them to customers mutual benefit associations and government-owned
with a view to the gains and profits that may be or controlled corporations, engaging in the business of
derived therefrom. property insurance, as distinguished from insurance
on human lives, health, accident and insurance
Lending investor includes all persons other than appertaining thereto or connected therewith which
banks, non-bank financial intermediaries, finance shall be subject to the percentage tax under Sec. 123
companies and other financial intermediaries not of the Tax Code.
performing quasi-banking functions who make a
practice of lending money for themselves or others at The gross receipts from non-life insurance shall mean
interest. total premiums collected, whether paid in money,
notes, credits or any substitute for money.
(h) Services of franchise grantees of telephone and
telegraph, radio and/or television broadcasting, toll Non-life reinsurance premiums are subject to VAT.
road operations and all other franchise grantees, Insurance and reinsurance commissions, whether life
except gas and water utilities, shall be subject to VAT or non-life, are subject to VAT.
in lieu of franchise tax, pursuant to Sec. 20 of RA
No.7716, as amended. However, franchise grantees of VAT due from the foreign reinsurance company is to
radio and/or television broadcasting whose annual be withheld by the local insurance company and to be
gross receipts of the preceding year do not exceed Ten remitted to the BIR in accordance with Sec. 4.114-
Million Pesos (P10,000,000.00) shall not be subject to 2(b)(2) hereof by filing the Monthly Remittance
VAT, but to the three percent (3%) franchise tax Return of Value-Added Tax Withheld (BIR Form
imposed under Sec. 119 of the Tax Code, subject to the 1600).
optional registration provisions under Sec. 9.236-1(c)
hereof. (j) Pre-need Companies are corporations registered
with the Securities and Exchange
Likewise, franchise grantees of gas and water utilities Commission and authorized/licensed to sell or offer
shall be subject to two percent for sale pre-need plans, whether a single plan or
(2%) franchise tax on their gross receipts derived multi-plan. They are engaged in business as seller of
from the business covered by the law granting the services providing services to plan holders by
franchise pursuant to Sec. 119 of the Tax Code. managing the funds provided by them and making
payments at the time of need or maturity of the
Gross receipts of all other franchisees, other than contract.
those covered by Sec. 119 of the Tax
Code, regardless of how their franchises may have As service providers, the compensation for their
been granted, shall be subject to the 10% VAT services is the premiums or payments received from
imposed under Sec. 108 of the Tax Code. This includes the plan holders.
among others, the Philippine and Amusement Gaming
Corporation (PAGCOR), and its licensees or (k) Health Maintenance Organizations (HMOs) are
franchisees. entities, organized in accordance with the provisions
of the Corporation Code of the Philippines and
Franchise grantees of telephone and telegraph shall licensed by the appropriate government agency,
be subject to VAT on their gross receipts derived from which arranges for coverage or designated managed
their telephone, telegraph, telewriter exchange, care services needed by plan holders/members for
wireless and other communication equipment fixed prepaid membership fees and for a specified
services. However, amounts received for overseas period of time.
dispatch, message, or conversation originating from
the Philippines are subject to the percentage tax HMOs gross receipts shall be the total amount of
under Sec. 120 of the Tax Code and hence exempt money or its equivalent representing the service fee
from VAT. actually or constructively received during the taxable
period for the services performed or to be performed
for another person, excluding the value-added tax.
The compensation for their services representing preservation for the market, such as freezing,
their service fee, is presumed to be the total amount drying, salting, broiling, roasting, smoking or
received as enrollment fee from their members plus stripping. Polished and/or husked rice, corn grits,
other charge received. raw cane sugar and molasses, ordinary salt, and
copra shall be considered in their original state;
Requirements for taxability of service
transactions (B) Sale or importation of fertilizers; seeds,
seedlings and fingerlings; fish, prawn, livestock and
1. service must be performed in the Philippines
poultry feeds, including ingredients, whether locally
2. must be in the course of trade or business produced or imported, used in the manufacture of
3. must be for a valuable consideration actually finished feeds (except specialty feeds for race
or constructively received horses, fighting cocks, aquarium fish, zoo animals
4. not exempt and other animals generally considered as pets);

Meaning of Gross Receipts (C) Importation of personal and household effects
belonging to the residents of the Philippines
Sec 4.108-4, RR 16-2005 returning from abroad and nonresident citizens
Definition of Gross Receipts. -Gross receipts refers to coming to resettle in the Philippines: Provided, That
the total amount of money or its equivalent such goods are exempt from customs duties under
representing the contract price, compensation, service the Tariff and Customs Code of the Philippines;
fee, rental or royalty, including the amount charged
for materials supplied with the services and deposits (D) Importation of professional instruments and
applied as payments for services rendered and implements, wearing apparel, domestic animals,
advance payments actually or constructively received and personal household effects (except any vehicle,
during the taxable period for the services performed vessel, aircraft, machinery, other goods for use in
or to be performed for another person, excluding VAT. the manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming
Constructive receipt occurs when the money to settle in the Philippines, for their own use and
consideration or its equivalent is placed at the control not for sale, barter or exchange, accompanying such
of the person who rendered the service without persons, or arriving within ninety (90) days before
restrictions by the payor. The following are examples or after their arrival, upon the production of
of constructive receipts: evidence satisfactory to the Commissioner, that
(1) deposit in banks which are made available to the such persons are actually coming to settle in the
seller of services without restrictions; Philippines and that the change of residence is bona
(2) issuance by the debtor of a notice to offset any fide;
debt or obligation and acceptance thereof by the seller
as payment for services rendered; and (E) Services subject to percentage tax under Title V;
(3) transfer of the amounts retained by the payor to
the account of the contractor. (F) Services by agricultural contract growers and
milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;
G. EXEMPT TRANSACTIONS
(G) Medical, dental, hospital and veterinary services
Categories of exempt transactions except those rendered by professionals;

1. Transaction specific (H) Educational services rendered by private
viewed from the perspective of the transaction educational institutions, duly accredited by the
itself Department of Education (DEPED), the Commission
on Higher Education (CHED), the Technical
Education And Skills Development Authority
SEC. 109. Exempt Transactions. - (1) Subject to the
(TESDA) and those rendered by government
provisions of subsection (2) hereof, the following
educational institutions;
transactions shall be exempt from the value-added

tax:
(I) Services rendered by individuals pursuant to an
(A) Sale or importation of agricultural and marine
employer-employee relationship;
food products in their original state, livestock and

poultry of a kind generally used as, or yielding or
(P) Sale of real properties not primarily held for
producing foods for human consumption; and
sale to customers or held for lease in the ordinary
breeding stock and genetic materials therefor.
course of trade or business, or real property utilized
Products classified under this paragraph shall be
for low-cost and socialized housing as defined by
considered in their original state even if they have
Republic Act No. 7279, otherwise known as the
undergone the simple processes of preparation or
Urban Development and Housing Act of 1992, and
other related laws, residential lot valued at One members as well as sale of their produce, whether in
million five hundred thousand pesos (P1,500,000) its original state or processed form, to non-members;
and below, house and lot, and other residential their importation of direct farm inputs, machineries
dwellings valued at Two million five hundred and equipment, including spare parts thereof, to be
thousand pesos (P2,500,000) and below: Provided, used directly and exclusively in the production and/or
That not later than January 31, 2009 and every processing of their produce;
three (3) years thereafter, the amounts herein
stated shall be adjusted to their present values (M) Gross receipts from lending activities by credit or
using the Consumer Price Index, as published by the multi-purpose cooperatives duly registered with the
National Statistics Office (NSO); Cooperative Development Authority;

(Q) Lease of a residential unit with a monthly rental (N) Sales by non-agricultural, non-electric and non-
not exceeding Ten thousand pesos (P10,000) credit cooperatives duly registered with the
Provided, That not later than January 31, 2009 and Cooperative Development Authority: Provided, That
every three (3) years thereafter, the amount herein the share capital contribution of each member does
stated shall be adjusted to its present value using not exceed Fifteen thousand pesos (P15,000) and
the Consumer Price Index as published by the regardless of the aggregate capital and net surplus
National Statistics Office (NSO); ratably distributed among the members;

(O) Export sales by persons who are not VAT- (S) Sale, importation or lease of passenger or cargo
registered; vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international
(R) Sale, importation, printing or publication of transport operations;
books and any newspaper, magazine, review or (T) Importation of fuel, goods and supplies by persons
bulletin which appears at regular intervals with engaged in international shipping or air transport
fixed prices for subscription and sale and which is operations;
not devoted principally to the publication of paid
advertisements; (U) Services of banks, non-bank financial
intermediaries performing quasi-banking functions,
(V) Sale or lease of goods or properties or the and other non-bank financial intermediaries;
performance of services other than the transactions
mentioned in the preceding paragraphs, the gross (2) A VAT-registered person may elect that Subsection
annual sales and/or receipts do not exceed the (1) not apply to its sale of goods or properties or
amount of One million five hundred thousand pesos services: Provided, That an election made under this
(P1,500,000): Provided, That not later than January Subsection shall be irrevocable for a period of three
31, 2009 and every three (3) years thereafter, the (3) years from the quarter the election was made.
amount herein stated shall be adjusted to its
present value using the Consumer Price Index as SIMPLIFIED:
published by the National Statistics Office (NSO); VAT transactions are classified as follows
1. TAXABLE TRANSACTION-
a.) Rate 12%- sale, barter, exchanges of goods or
2.Entity Specific- properties, leases goods or properties, services
viewed from the perspective of the parties to and importation are transactions subject to VAT
the transaction at rate of 12% output tax.
b.) Rate 0%- sales by VAT-registered person
Section 109 NIRC. subject to zero-percentage called the zero-rated
(J) Services rendered by regional or area sale
headquarters established in the Philippines by

multinational corporations which act as supervisory,
communications and coordinating centers for their

affiliates, subsidiaries or branches in the Asia-Pacific 2.EXEMPT TRANSACTIONS- an exempt
Region and do not earn or derive income from the transaction means that the transaction though
Philippines; involving sale, barter, exchanges of goods or
properties, leases of goods or properties, services
(K) Transactions which are exempt under and importation are not subject to VAT. There is
international agreements to which the Philippines is a no output tax, the seller is not liable and at the
signatory or under special laws, except those under same time not allowed any tax credit on VAT or
Presidential Decree No. 529; input tax.


(L) Sales by agricultural cooperatives duly registered
with the Cooperative Development Authority to their
H. Computation of Tax
 Meaning of output tax, input tax, course of his trade or business on importation of
excess output/ input goods or local purchase of goods or services,
including lease or use of property, from a VAT-
registered person. It shall also include the
Section 110. Tax Credits. -
transitional input tax determined in accordance
with Section 111 of this Code.
A. Creditable Input Tax. -
The term 'output tax' means the value-added tax
(1) Any input tax evidenced by a VAT invoice or due on the sale or lease of taxable goods or
official receipt issued in accordance with Section properties or services by any person registered or
113 hereof on the following transactions shall be required to register under Section 236 of this Code.
creditable against the output tax:
(B) Excess Output or Input Tax. - If at the end of any
(a) Purchase or importation of goods: taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the Vat-registered
(i) For sale; or person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding
(ii) For conversion into or intended to form part of a quarter or quarters. any input tax attributable to
finished product for sale including packaging the purchase of capital goods or to zero-rated sales
materials; or by a VAT-registered person may at his option be
refunded or credited against other internal revenue
(iii) For use as supplies in the course of business; or taxes, subject to the provisions of Section 112.

(iv) For use as materials supplied in the sale of (C) Determination of Creditable Input Tax. - The sum
service; or of the excess input tax carried over from the
preceding month or quarter and the input tax
(v) For use in trade or business for which deduction creditable to a VAT-registered person during the
for depreciation or amortization is allowed under taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for value-
this Code, except automobiles, aircraft and yachts.
added tax and other adjustments, such as purchase
returns or allowances and input tax attributable to
(b) Purchase of services on which a value-added tax
exempt sale.
has been actually paid.
The claim for tax credit referred to in the foregoing
(2) The input tax on domestic purchase of goods or paragraph shall include not only those filed with the
properties shall be creditable: Bureau of Internal Revenue but also those filed with
other government agencies, such as the Board of
(a) To the purchaser upon consummation of sale Investments the Bureau of Customs.
and on importation of goods or properties; and (b)
To the importer upon payment of the value-added Section 110-6 and 7, RR 16-2005
tax prior to the release of the goods from the
custody of the Bureau of Customs.
SECTION 4.110-6. Determination of the Output Tax
and VAT Payable and Computation of VAT Payable
However, in the case of purchase of services, lease or Excess Tax Credits. In a sale of goods or
or use of properties, the input tax shall be creditable properties, the output tax is computed by
to the purchaser, lessee or licensee upon payment multiplying the gross selling price as defined in
of the compensation, rental, royalty or fee. these Regulations by the regular rate of VAT. For
sellers of services, the output tax is computed by
(3) A VAT-registered person who is also engaged in multiplying the gross receipts as defined in these
transactions not subject to the value-added tax shall Regulations by the regular rate of VAT.
be allowed tax credit as follows:
In all cases where the basis for computing the
(a) Total input tax which can be directly attributed output tax is either the gross selling price or the
to transactions subject to value-added tax; and gross receipts, but the amount of VAT is
erroneously billed in the invoice, the total invoice
(b) A ratable portion of any input tax which cannot amount shall be presumed to be comprised of the
be directly attributed to either activity. gross selling price/gross receipts plus the correct
amount of VAT. Hence, the output tax shall be
The term 'input tax' means the value-added tax due computed by multiplying the total invoice amount
from or paid by a VAT-registered person in the by a fraction using the rate of VAT as numerator
and one hundred percent (100%) plus rate of VAT amounting to 40 is carried over to the succeeding
as the denominator. Accordingly, the input tax that month.
can be claimed by the buyer shall be the corrected
amount of VAT computed in accordance with the Output Tax Computation
formula herein prescribed.

Output tax the VAT due on sale, leaser or
There shall be allowed as a deduction from the
exchange of taxable goods or properties or
output tax the amount of input tax deductible as
determined under Sec. 4.110-1 to 4.110-5 of these services by any person registered or required
Regulations to arrive at VAT payable on the to register under Sec 236 of Tax Code.
monthly VAT declaration and the quarterly VAT
returns, subject to the limitations set forth in Input tax the VAT due on or paid by a VAT-
Section 4.110-7. registered entity on importation of goods or
local purchase of goods properties or services,
SECTION 4.110-7. VAT Payable (Excess Output)t or including lease or use of property in the course
Excess Input Tax. of his trade or business. It shall also include the
transitional input tax determined in
(a) If at the end of any taxable quarter the output accordance with Sec 111 of Tax Code,
tax exceeds the input tax, the excess shall be paid by presumptive input tax and deferred input tax
the VAT-registered person. from previous period.

Illustration: Basis of VAT
Nature of Tax Base
For a given taxable quarter ABC Corp. has output Transaction(s)
VAT of 100 and input VAT of 80. Since output tax
Sale of goods or Gross selling price
exceeds the input tax for such taxable quarter, all of
the input tax may be utilized to offset against the properties
output tax. Thus, the net VAT payable is 100 minus Sale of services Gross receipts
80 = 20. Importation Total landed cost
(1) On sale of goods, properties or services
(b) If the input tax inclusive of input tax carried the output tax on sale of goods as well as sale
over from the previous quarter exceeds the output of services and use or lease of properties
tax, the input tax inclusive of input tax carried over during the month or quarter (taxable period)
from the previous quarter that may be credited in shall be computed by multiplying the total
every quarter shall not exceed seventy percent amount indicated in the invoice or receipt by
(70%) of the output tax; Provided, That, the excess
12%.
input tax shall be carried over to the succeeding
quarter or quarters; Provided, however, that any

input tax attributable to zero-rated sales by a VAT- (2) General formula
registered person may at his option be refunded or
applied for a tax credit certificate which may be SALE OF GOODS
used in the payment of internal revenue taxes, Gross sales
subject to the limitations as may be provided for by Less:
law, as well as, other implementing rules. Sales discounts
Sales returns
Net sales
Add: Excise tax, if any

Tax Base
x Vat Rate
Illustration:
Output VAT
For a given taxable quarter XYZ Corp. has output
Less: Input VAT
VAT of 100 and input VAT of 110. Since input tax VAT Payable (Excess
exceeds the output tax for such taxable quarter, the input tax)
70% limitation is imposed to compute the amount
of input tax which may be utilized. The total
allowable input tax which may be utilized is 70
(70% of the output tax). Thus, the net VAT payable SALE OF SERVICES
is 100 less 70 = 30. The unutilized input tax
Cash received (actual
or constructive) Section 106. Value-Added Tax on Sale of Goods or
Deposits/ Advance Properties. -
payments for future
projects (A) Rate and Base of Tax. - There shall be levied,
Materials charged for assessed and collected on every sale, barter or
services exchange of goods or properties, value-added tax
equivalent to ten percent (10%) of the gross selling
Gross receipts
price or gross value in money of the goods or
x VAT Rate properties sold, bartered or exchanged, such tax to
Output VAT be paid by the seller or transferor.
Less: Input VAT
VAT Payable (Excess (1) The term 'goods' or 'properties' shall mean all
input tax) tangible and intangible objects which are capable of
pecuniary estimation and shall include:
Note: Receivables (For Sale of Services),
although earned, are not included in the (a) Real properties held primarily for sale to
computation of VAT payable customers or held for lease in the ordinary course
of trade or business;

DEALER IN SECURITIES AND LENDING
(b) The right or the privilege to use patent,
INVESTORS
copyright, design or model, plan, secret formula or
Gross Selling Price process, goodwill, trademark, trade brand or other
Less: Acquisition cost like property or right;
of securities sold for
the month or quarter (c) The right or the privilege to use in the
Balance Philippines of any industrial, commercial or
Add: Other income or scientific equipment;
incidental income
Gross Income (d) The right or the privilege to use motion picture
x VAT rate films, tapes and discs; and
Output VAT
Less: Input VAT (e) Radio, television, satellite transmission and
cable television time.
VAT Payable

The term 'gross selling price' means the total
amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of the
Excess output/ input tax goods or properties, excluding the value-added tax.
1) If at the end of any taxable quarter the The excise tax, if any, on such goods or properties
output tax exceeds the input tax, the excess shall form part of the gross selling price.
shall be paid by the VAT-registered person.
(2) The following sales by VAT-registered persons
2) If the input tax exceeds the output tax, the shall be subject to zero percent (0%) rate:
excess shall be carried over to the succeeding
quarter or quarters. Any input tax attributable (a) Export Sales. - The term 'export sales' means:
to zero-rated sales by a VAT-registered person
may at his option be refunded or applied for a (1) The sale and actual shipment of goods from the
tax credit certificate which may be used in the Philippines to a foreign country, irrespective of any
payment of internal revenue taxes, subject to shipping arrangement that may be agreed upon
the limitations provided in Sec. 112 (G), as well which may influence or determine the transfer of
ownership of the goods so exported and paid for in
as other implementing rules.
acceptable foreign currency or its equivalent in

goods or services, and accounted for in accordance
I. Rates of Vat with the rules and regulations of the Bangko Sentral
Ten Percent (10%) ng Pilipinas (BSP);
Section 106 (A), NIRC
Section 108 (A), NIRC (2) Sale of raw materials or packaging materials to
a nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in including persons who transport goods or cargoes
manufacturing, processing, packing or repacking in for hire another domestic common carriers by land,
the Philippines of the said buyer's goods and paid air and water relative to their transport of goods or
for in acceptable foreign currency and accounted cargoes; services of franchise grantees of telephone
for in accordance with the rules and regulations of and telegraph, radio and television broadcasting
the Bangko Sentral ng Pilipinas (BSP); and all other franchise grantees except those under
Section 119 of this Code; services of banks, non-
(3) Sale of raw materials or packaging materials to bank financial intermediaries and finance
export-oriented enterprise whose export sales companies; and non-life insurance companies
exceed seventy percent (70%) of total annual (except their crop insurances), including surety,
production; fidelity, indemnity and bonding companies; and
similar services regardless of whether or not the
(4) Sale of gold to the Bangko Sentral ng Pilipinas performance thereof calls for the exercise or use of
(BSP); and the physical or mental faculties. The phrase 'sale or
exchange of services' shall likewise include:
(5) Those considered export sales under Executive
Order NO. 226, otherwise known as the Omnibus (1) The lease or the use of or the right or privilege
Investment Code of 1987, and other special laws. to use any copyright, patent, design or model, plan
secret formula or process, goodwill, trademark,
trade brand or other like property or right;
(b) Foreign Currency Denominated Sale. - The
phrase 'foreign currency denominated sale' means
sale to a nonresident of goods, except those (2) The lease of the use of, or the right to use of any
mentioned in Sections 149 and 150, assembled or industrial, commercial or scientific equipment;
manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable (3) The supply of scientific, technical, industrial or
foreign currency and accounted for in accordance commercial knowledge or information;
with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP). (4) The supply of any assistance that is ancillary
and subsidiary to and is furnished as a means of
(c) Sales to persons or entities whose exemption enabling the application or enjoyment of any such
under special laws or international agreements to property, or right as is mentioned in subparagraph
which the Philippines is a signatory effectively (2) or any such knowledge or information as is
subjects such sales to zero rate. mentioned in subparagraph (3);

Section 108. Value-added Tax on Sale of Services (5) The supply of services by a nonresident person
and Use or Lease of Properties. - or his employee in connection with the use of
property or rights belonging to, or the installation
(A) Rate and Base of Tax. - There shall be levied, or operation of any brand, machinery or other
assessed and collected, a value-added tax equivalent apparatus purchased from such nonresident
to ten percent (10%) of gross receipts derived from person.
the sale or exchange of services, including the use or
lease of properties. (6) The supply of technical advice, assistance or
services rendered in connection with technical
The phrase 'sale or exchange of services' means the management or administration of any scientific,
performance of all kinds or services in the industrial or commercial undertaking, venture,
Philippines for others for a fee, remuneration or project or scheme;
consideration, including those performed or
rendered by construction and service contractors; (7) The lease of motion picture films, films, tapes
stock, real estate, commercial, customs and and discs; and
immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or (8) The lease or the use of or the right to use radio,
distributors of cinematographic films; persons television, satellite transmission and cable
engaged in milling processing, manufacturing or television time.
repacking goods for others; proprietors, operators
or keepers of hotels, motels, resthouses, pension
Lease of properties shall be subject to the tax herein
houses, inns, resorts; proprietors or operators of
imposed irrespective of the place where the
restaurants, refreshment parlors, cafes and other
contract of lease or licensing agreement was
eating places, including clubs and caterers; dealers
executed if the property is leased or used in the
in securities; lending investors; transportation
Philippines.
contractors on their transport of goods or cargoes,
The term 'gross receipts' means the total amount of (5) Those considered export sales under Executive
money or its equivalent representing the contract Order NO. 226, otherwise known as the Omnibus
price, compensation, service fee, rental or royalty, Investment Code of 1987, and other special laws.
including the amount charged for materials
supplied with the services and deposits and (b) Foreign Currency Denominated Sale. - The
advanced payments actually or constructively phrase 'foreign currency denominated sale' means
received during the taxable quarter for the services sale to a nonresident of goods, except those
performed or to be performed for another person, mentioned in Sections 149 and 150, assembled or
excluding value-added tax. manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable
foreign currency and accounted for in accordance
Zero Percent (0%)
with the rules and regulations of the Bangko Sentral
Section 106(A)(2), NIRC ng Pilipinas (BSP).
Section 108 (B), NIRC
Section 4.106-5, RR 16-2005 (c) Sales to persons or entities whose exemption
Section 4.108-5, RR 16-2005 under special laws or international agreements to
which the Philippines is a signatory effectively
Section 106. Value-Added Tax on Sale of Goods or subjects such sales to zero rate.
Properties. -
(A) Rate and Base of Tax. - There shall be levied,
assessed and collected on every sale, barter or Section 108. Value-added Tax on Sale of Services
exchange of goods or properties, value-added tax and Use or Lease of Properties. -
equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or (B) Transactions Subject to Zero Percent (0%) Rate -
properties sold, bartered or exchanged, such tax to The following services performed in the Philippines
be paid by the seller or transferor. by VAT- registered persons shall be subject to zero
percent (0%) rate.
(2) The following sales by VAT-registered persons
shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods

for other persons doing business outside the
(a) Export Sales. - The term 'export sales' means:
Philippines which goods are subsequently exported,

where the services are paid for in acceptable
(1) The sale and actual shipment of goods from the
foreign currency and accounted for in accordance
Philippines to a foreign country, irrespective of any
with the rules and regulations of the Bangko Sentral
shipping arrangement that may be agreed upon
ng Pilipinas (BSP);
which may influence or determine the transfer of
ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in (2) Services other than those mentioned in the
goods or services, and accounted for in accordance preceding paragraph, the consideration for which is
with the rules and regulations of the Bangko Sentral paid for in acceptable foreign currency and
ng Pilipinas (BSP); accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas
(2) Sale of raw materials or packaging materials to a (BSP);
nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in (3) Services rendered to persons or entities whose
manufacturing, processing, packing or repacking in exemption under special laws or international
the Philippines of the said buyer's goods and paid agreements to which the Philippines is a signatory
for in acceptable foreign currency and accounted effectively subjects the supply of such services to
for in accordance with the rules and regulations of zero percent (0%) rate;
the Bangko Sentral ng Pilipinas (BSP);
(4) Services rendered to vessels engaged
(3) Sale of raw materials or packaging materials to exclusively in international shipping; and
export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
(5) Services performed by subcontractors and/or
production;
contractors in processing, converting, of

manufacturing goods for an enterprise whose
(4) Sale of gold to the Bangko Sentral ng Pilipinas
export sales exceed seventy percent (70%) of total
(BSP); and
annual production.

SECTION 4.106-5. Zero-Rated Sales of Goods or

Properties. A zero-rated sale of goods or
properties (by a VAT-registered person) is a taxable exported by the latter, as evidenced by landing
transaction for VAT purposes, but shall not result in certificates or similar commercial documents;
any output tax. However, the input tax on purchases Provided, further, That without actual exportation
of goods, properties or services, related to such the following shall be considered constructively
zero-rated sale, shall be available as tax credit or exported for purposes of these provisions: (1) sales
refund in accordance with these Regulations. to bonded manufacturing warehouses of export-
oriented manufacturers; (2) sales to export
The following sales by VAT-registered persons shall processing zones; (3) sales to registered export
be subject to zero percent (0%) rate: traders operating bonded trading warehouses
supplying raw materials in the manufacture of
a) Export sales. "Export Sales" shall mean: export products under guidelines to be set by the
Board in consultation with the Bureau of Internal
Revenue (BIR) and the Bureau of Customs (BOC);
(1) The sale and actual shipment of goods from the (4) sales to diplomatic missions and other agencies
Philippines to a foreign country, irrespective of any and/or instrumentalities granted tax immunities, of
shipping arrangement that may be agreed upon locally manufactured, assembled or repacked
which may influence or determine the transfer of
products whether paid for in foreign currency or
ownership of the goods so exported, paid for in
not.
acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance
with the rules and regulations of the For purposes of zero-rating, the export sales of
BangkoSentralngPilipinas (BSP); registered export traders shall include commission
income. The exportation of goods on consignment
shall not be deemed export sales until the export
(2) The sale of raw materials or packaging materials products consigned are in fact sold by the
to a non-resident buyer for delivery to a resident consignee; and Provided, finally, that sales of goods,
local export-oriented enterprise to be used in properties or services made by a VAT-registered
manufacturing, processing, packing or repacking in
supplier to a BOI-registered
the Philippines of the said buyer's goods, paid for in
manufacturer/producer whose products are 100%
acceptable foreign currency, and accounted for in exported are considered export sales. A certification
accordance with the rules and regulations of the to this effect must be issued by the Board of
BSP; Investment (BOI) which shall be good for one year
unless subsequently re-issued by the BOI.
(3) The sale of raw materials or packaging materials
to an export-oriented enterprise whose export sales (6) The sale of goods, supplies, equipment and fuel
exceed seventy percent (70%) of total annual to persons engaged in international shipping or
production; international air transport operations; Provided,
That the same is limited to goods, supplies,
Any enterprise whose export sales exceed 70% of equipment and fuel pertaining to or attributable to
the total annual production of the preceding taxable the transport of goods and passengers from a port
year shall be considered an export-oriented in the Philippines directly to a foreign port without
enterprise. docking or stopping at any other port in the
Philippines; Provided, further, that if any portion of
(4) Sale of gold to the BSP; and such fuel, goods or supplies is used for purposes
other than that mentioned in this paragraph, such
(5) Transactions considered export sales under portion of fuel, goods and supplies shall be subject
Executive Order No. 226, otherwise known as the to 10% VAT.
Omnibus Investments Code of 1987, and other
special laws. (b) "Foreign Currency Denominated Sale".
"Foreign Currency Denominated Sale" means the
"Considered export sales under Executive Order No. sale to a non-resident of goods, except those
226" shall mean the Philippine port F.O.B. value mentioned in Secs. 149 and 150 of the Tax Code,
determined from invoices, bills of lading, inward assembled or manufactured in the Philippines for
letters of credit, landing certificates, and other delivery to a resident in the Philippines, paid for in
commercial documents, of export products acceptable foreign currency and accounted for in
exported directly by a registered export producer, accordance with the rules and regulations of the
or the net selling price of export products sold by a BSP.
registered export producer to another export
producer, or to an export trader that subsequently Sales of locally manufactured or assembled goods
exports the same; Provided, That sales of export for household and personal use to Filipinos abroad
products to another producer or to an export trader and other non-residents of the Philippines as well
shall only be deemed export sales when actually as returning Overseas Filipinos under the Internal
Export Program of the government paid for in including leases of property for use thereof;
convertible foreign currency and accounted for in Provided, however, that the services referred to
accordance with the rules and regulations of the herein shall not pertain to those made to common
BSP shall also be considered export sales. carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the
(c) "Sales to Persons or Entities Deemed Tax- Philippines to another place in the Philippines, the
exempt under Special Law or International same being subject to 10% VAT under Sec. 108 of
Agreement". Sales of goods or property to the Tax Code;
persons or entities who are tax-exempt under
special laws, e.g. sales to enterprises duly registered (5) Services performed by subcontractors and/or
and accredited with the Subic Bay Metropolitan contractors in processing, converting, or
Authority (SBMA) pursuant to R.A. No. 7227, sales manufacturing goods for an enterprise whose
to enterprises duly registered and accredited with export sales exceed seventy percent (70%) of the
the Philippine Economic Zone Authority (PEZA) or total annual production;
international agreements to which the Philippines
is signatory, such as, Asian Development Bank (6) Transport of passengers and cargo by domestic
(ADB), International Rice Research Institute (IRRI), air or sea carriers from the Philippines to a foreign
etc., shall be effectively subject to VAT at zero-rate. country. Gross receipts of international air carriers
doing business in the Philippines and international
SECTION 4.108-5. Zero-Rated Sale of Services. sea carriers doing business in the Philippines are
still liable to a percentage tax of three percent (3%)
(a) In general. A zero-rated sale of service (by a based on their gross receipts as provided for in Sec.
VAT-registered person) is a taxable transaction for 118 of the Tax Code but shall not to be liable to
VAT purposes, but shall not result in any output tax. VAT; and
However, the input tax on purchases of goods,
properties or services related to such zero-rated (7) Sale of power or fuel generated through
sale shall be available as tax credit or refund in renewable sources of energy such as, but not
accordance with these Regulations. limited to, biomass, solar, wind, hydropower,
geothermal and steam, ocean energy, and other
(b) Transactions Subject to Zero Percent (0%) VAT emerging sources using technologies such as fuel
Rate. The following services performed in cells and hydrogen fuels; Provided, however, that
the Philippines by a VAT-registered person shall be zero-rating shall apply strictly to the sale of power
subject to zero percent (0%) VAT rate: or fuel generated through renewable sources of
energy, and shall not extend to the sale of services
(1) Processing, manufacturing or repacking goods related to the maintenance or operation of plants
for other persons doing business outside the generating said power.
Philippines, which goods are subsequently
exported, where the services are paid for in
acceptable foreign currency and accounted for in Effectively Zero-rated Transactions
accordance with the rules and regulations of the Requisites for effective zero-rating
BSP; Section 4.106-6, RR 16-2005
Section 4.108-6, RR 16-2005
(2) Services other than processing, manufacturing
or repacking rendered to a person engaged in
SECTION 4.106-6. Meaning of the Term "Effectively
business conducted outside the Philippines or to a
Zero-rated Sale of Goods and Properties". The
non-resident person not engaged in business who is
term "effectively zero-rated sale of goods and
outside the Philippines when the services are
properties" shall refer to the local sale of goods and
performed, the consideration for which is paid for
properties by a VAT-registered person to a person
in acceptable foreign currency and accounted for in
or entity who was granted indirect tax exemption
accordance with the rules and regulations of the
under special laws or international agreement.
BSP;
Under these Regulations, transactions which,
although not involving actual export, are considered
(3) Services rendered to persons or entities whose as "constructive export" shall be entitled to the
exemption under special laws or international benefit of zero-rating, such as local sales of goods
agreements to which the Philippines is a signatory and properties to persons or entities covered under
effectively subjects the supply of such services to pars. (a) no. (3) (sale to export-oriented
zero percent (0%) rate; enterprises), (a) no. (6) (sale of goods, supplies,
equipment and fuel to persons engaged in
(4) Services rendered to persons engaged in international shipping or international air transport
international shipping or air transport operations, operations), (b) (Foreign Currency Denominated
Sale) and (c) (Sales to Tax-Exempt Persons or (2) EO 161 provides that goods sold directly to
Entities) of the preceding section. the Asian Development Bank shall not be
subject to sales tax, and services rendered,
Except for Export Sale under Sec. 4.106-5(a) and under contracts entered into with the said
Foreign Currency Denominated Sale under Sec. bank, shall not be subject to contractors tax.
4.106-5(b), other cases of zero-rated sales shall Hence, sale of goods and services to ADB are
require prior application with the appropriate BIR
effectively zero-rated.
office for effective zero-rating. Without an approved
application for effective zero-rating, the transaction

otherwise entitled to zero-rating shall be Effectively zero-rated sale of service
considered exempt. The foregoing rule This refers to the local sale of services by a
notwithstanding, the Commissioner may prescribe VAT-registered person to a person or entity
such rules to effectively implement the processing granted indirect tax exemption under special
of applications for effective zero-rating. laws or international agreement.

SECTION 4.108-6. Effectively Zero-Rated Sale of (1) The concerned taxpayer must seek prior
Services. The term "effectively zero-rated sales of approval or prior confirmation from the
services" shall refer to the local sale of services by a appropriate offices of the BIR so that a
VAT-registered person to a person or entity who transaction is qualified for effective zero-
was granted indirect tax exemption under special
rating. Without an approved application for
laws or international agreement. Under these
Regulations, effectively zero-rated sale of services effective zero-rating, the transaction shall be
shall be limited to local sales to persons or entities considered exempt/
that enjoy exemptions from indirect taxes under (2) Effective zero-rating is not intended as a
subparagraph (b) nos. (3), (4) and (5) of this benefit to the person legally liable to pay the
Section. The concerned taxpayer must seek prior tax, but to relieve certain entities from the
approval or prior confirmation from the burden of indirect tax so as to encourage the
appropriate offices of the BIR so that a transaction development of particular industries.
is qualified for effective zero-rating. Without an
approved application for effective zero-rating, the Destination principle or cross border
transaction otherwise entitled to zero-rating shall
doctrine
be considered exempt. The foregoing rule
notwithstanding, the Commissioner may prescribe The onus of taxation is in the country where
such rules to effectively implement the processing goods, properties and services are destined,
of applications for effective zero-rating. used or consumed. This is the reason why
under our VAT law, goods, properties and
services destined to, used or consumed abroad
Effectively zero-rated sale of goods or are subject to 0% VAT.
properties
This refers to the local sale of goods and Sales of goods, properties, or services by a
properties by a VAT-registered person to a VAT registered supplier to a BOI registered
person or entity who was granted indirect tax exporter
exemption under special laws or international A VAT-registered supplier can be accorded
agreements. automatic VAT zero-rating without applying
for and securing prior approval for zero-rating,
Exemption granted under special laws (e.g., provided all the following conditions are met:
sales to enterprise duly registered and 1. The supplier must be VAT-registered.
accredited with Subic Bay Metropoltian 2. The BOI-registered buyer must
Authority and Philippine Economic Zone likewise be VAT-registered
Authority or international agreements) are 3. The buyer must be a BOI-registered
extended not only to the grantee but also to its manufacturer/ producer whose
supplier of goods. Thus: products are 100% exported. For this
purpose, a Certification to this effect
(1) In the case of sale of goods to a U.S. military must be issued by the BOI and which
facility which was exempt from sales tax under Certification shall be good for 1 year
the former RP-Military Bases Agreement, the unless subsequently re-issued by the
exemption of the grantee extended to the seller BOI
and, therefore, the sale was zero-rated. 4. The BOI-registered buyer shall furnish
each of its suppliers with a copy of the
 aforementioned BOI Certification Claims for refund and issuance of tax
which shall serve as authority for the credit certificate, Section 112, NIRC;
supplier to avail of the benefits of zero- Section 4-112-1, RR 16-2005
rating for its sales to said BOI-
registered buyers Zero-rated or Effectively Zero-rated
5. The VAT-registered supplier shall issue Transactions (within 2 years from
for each sale to BOI-registered the close of the taxable quarter
manufacturer/ exporter a duly- when sales were made) (cash refund
registered VAT invoice with the words or TCC)
zero-rated stamped thereon. The
supplier must also indicate in the VAT Capital Goods (within 2 years from
invoice the name and BOI-registry the close of the taxable quarter
number of the buyer. when sales were made) (cash refund
or TCC)
Zero-rated Transactions
The transaction which could be a sale or Cancellation of VAT registration due
exchange of goods or services is subject to to retirement from or cessation of
0% VAT. business (within 2 years from the
date of cancellation) (TCC only)
1. The transaction shall not give rise to
output tax. In short, the amount of the CIR has 120 days from date of
zero-rated transaction that appears on submission of complete documents
the invoice shall be multiplied with 0%. within which to grant refund or
2. The input tax on purchases of such issue a TCC; Appeal to the CTA
zero-rated transaction shall be within 30 days from denial or from
deducted from the amount of input tax expiration of 120 day period.
due for the period.
3. Any excess of input tax shall be carried
over against the output tax in the Section 110. Tax Credits. -
following month or quarter.
4. The input tax may be claimed as a tax A. Creditable Input Tax. -
credit or as a tax refund.
(1) Any input tax evidenced by a VAT invoice or
official receipt issued in accordance with Section
113 hereof on the following transactions shall be
J. Tax Credits and Refunds creditable against the output tax:
Input tax credit (12%) Section 110,
NIRC; Section 4.110-1 and 2, RR 16- (a) Purchase or importation of goods:
2005
(i) For sale; or
Presumptive input tax (1.5%)
Section 111 (B), NIRC (ii) For conversion into or intended to form part of a
finished product for sale including packaging
Creditable withholding tax (3%, 6%, materials; or
8.5%, 10%), Section 114(C);
Section 4.114-2, RR 16-2005 (iii) For use as supplies in the course of business; or

Payments of government agencies (iv) For use as materials supplied in the sale of
and GOCCs service; or
Purchase of goods 3%
Purchase of services 6% (v) For use in trade or business for which deduction
for depreciation or amortization is allowed under
Public works contractor 8.5%
this Code, except automobiles, aircraft and yachts.
Non-resident lessors 12%

(b) Purchase of services on which a value-added tax
Transitional input tax (on beg has been actually paid.
inventory), Section 111 (A), NIRC
(2) The input tax on domestic purchase of goods or The claim for tax credit referred to in the foregoing
properties shall be creditable: paragraph shall include not only those filed with the
Bureau of Internal Revenue but also those filed with
(a) To the purchaser upon consummation of sale other government agencies, such as the Board of
and on importation of goods or properties; and Investments the Bureau of Customs.

(b) To the importer upon payment of the value- SECTION 4.110-1. Credits For Input Tax. "Input
added tax prior to the release of the goods from the tax" means the VAT due on or paid by a VAT-
custody of the Bureau of Customs. registered person on importation of goods or local
purchases of goods, properties, or services,
including lease or use of properties, in the course of
However, in the case of purchase of services, lease
his trade or business. It shall also include the
or use of properties, the input tax shall be creditable
transitional input tax and the presumptive input tax
to the purchaser, lessee or licensee upon payment
determined in accordance with Sec. 111 of the Tax
of the compensation, rental, royalty or fee.
Code.

(3) A VAT-registered person who is also engaged in

It includes input taxes which can be directly
transactions not subject to the value-added tax shall
attributed to transactions subject to the VAT plus a
be allowed tax credit as follows:
ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt
(a) Total input tax which can be directly attributed activity.
to transactions subject to value-added tax; and
Any input tax on the following transactions
(b) A ratable portion of any input tax which cannot evidenced by a VAT invoice or official receipt issued
be directly attributed to either activity. by a VAT-registered person in accordance with Secs.
113 and 237 of the Tax Code shall be creditable
The term 'input tax' means the value-added tax due against the output tax:
from or paid by a VAT-registered person in the
course of his trade or business on importation of (a) Purchase or importation of goods
goods or local purchase of goods or services,
including lease or use of property, from a VAT-
(1) For sale; or
registered person. It shall also include the
transitional input tax determined in accordance
with Section 111 of this Code. (2) For conversion into or intended to form part of a
finished product for sale, including packaging
materials; or
The term 'output tax' means the value-added tax
due on the sale or lease of taxable goods or
properties or services by any person registered or (3) For use as supplies in the course of business; or
required to register under Section 236 of this Code.
(4) For use as raw materials supplied in the sale of
(B) Excess Output or Input Tax. - If at the end of any services; or
taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the Vat-registered (5) For use in trade or business for which deduction
person. If the input tax exceeds the output tax, the for depreciation or amortization is allowed under
excess shall be carried over to the succeeding the Tax Code,
quarter or quarters. any input tax attributable to
the purchase of capital goods or to zero-rated sales (b) Purchase of real properties for which a VAT has
by a VAT-registered person may at his option be actually been paid;
refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112.
(c) Purchase of services in which a VAT has actually
been paid;
(C) Determination of Creditable Input Tax. - The sum
of the excess input tax carried over from the
(d) Transactions "deemed sale" under Sec. 106 (B)
preceding month or quarter and the input tax
of the Tax Code;
creditable to a VAT-registered person during the
taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for value- (e) Transitional input tax allowed under Sec. 4.111
added tax and other adjustments, such as purchase (a) of these Regulations;
returns or allowances and input tax attributable to
exempt sale. (f) Presumptive input tax allowed under Sec. 4.111
(b) of these Regulations;
(g) Transitional input tax credits allowed under the this Code, deduct and withhold the value-added tax
transitory and other provisions of these due at the rate of three percent (3%) of the gross
Regulations. payment for the purchase of goods and six percent
(6%) on gross receipts for services rendered by
SECTION 4.110-2. Persons Who Can Avail contractors on every sale or installment payment
of the Input Tax Credit. The input tax credit on which shall be creditable against the value-added
importation of goods or local purchases of goods, tax liability of the seller or contractor: Provided,
properties or services by a VAT-registered person however, That in the case of government public
shall be creditable: works contractors, the withholding rate shall be
eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of
(a) To the importer upon payment of VAT prior to
properties or property rights to nonresident
the release of goods from customs custody;
owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For this
(b) To the purchaser of the domestic goods or purpose, the payor or person in control of the
properties upon consummation of the sale; or payment shall be considered as the withholding
agent.
(c) To the purchaser of services or the lessee or
licensee upon payment of the compensation, rental, The value-added tax withheld under this Section
royalty or fee. shall be remitted within ten (10) days following the
end of the month the withholding was made.
Section 111. Transitional/Presumptive Input Tax
Credits. - SECTION 4.114-2. Withholding of VAT on
Government Money Payments and Payments to
(B) Presumptive Input Tax Credits. - Non-Residents.

(1) Persons or firms engaged in the processing of (a) The government or any of its political
sardines, mackerel and milk, and in manufacturing subdivisions, instrumentalities or agencies,
refined sugar and cooking oil, shall be allowed a including government-owned or controlled
presumptive input tax, creditable against the output corporations (GOCCs) shall, before making payment
tax, equivalent to one and one-half percent (1 on account of each purchase of goods and/or of
1/2%) of the gross value in money of their services taxed at 10% VAT pursuant to Secs. 106
purchases of primary agricultural products which and 108 of the Tax Code, deduct and withhold a
are used as inputs to their production. final VAT due at the rate of five percent (5%) of the
gross payment thereof.
As used in this Subsection, the term 'processing'
shall mean pasteurization, canning and activities The five percent (5%) final VAT withholding rate
which through physical or chemical process alter shall represent the net VAT payable of the seller.
the exterior texture or form or inner substance of a The remaining five percent (5%) effectively
product in such manner as to prepare it for special accounts for the standard input VAT for sales of
use to which it could not have been put in its goods or services to government or any of its
original form or condition. political subdivisions, instrumentalities or agencies
including GOCCs, in lieu of the actual input VAT
(2) Public works contractors shall be allowed a directly attributable or ratably apportioned to such
presumptive input tax equivalent to one and one- sales. Should actual input VAT exceed five percent
half percent (1 1/2%) of the contract price with (5%) of gross payments, the excess may form part
respect to government contracts only in lieu of of the sellers' expense or cost. On the other hand, if
actual input taxes therefrom. actual input VAT is less than 5% of gross payment,
the difference must be closed to expense or cost.
Section 114. Return and Payment of Value-Added
Tax. - (b) The government or any of its political
subdivisions, instrumentalities or agencies,
(C) Withholding of Creditable Value-added Tax. - including GOCCs, as well as private corporations,
The Government or any of its political subdivisions, individuals, estates and trusts, whether large or
instrumentalities or agencies, including non-large taxpayers, shall withhold ten percent
government-owned or -controlled corporations (10%) VAT with respect to the following payments:
(GOCCs) shall, before making payment on account
of each purchase of goods from sellers and services (1) Lease or use of properties or property rights
rendered by contractors which are subject to the owned by non-residents;
value-added tax imposed in Sections 106 and 108 of
(2) Services rendered to local insurance companies, paid attributable to such sales, except transitional
with respect to reinsurance premiums payable to input tax, to the extent that such input tax has not
non-residents; and been applied against output tax: Provided, however,
That in the case of zero-rated sales under Section
(3) Other services rendered in the Philippines by 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1)
non-residents. and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the
In remitting VAT withheld, the withholding agent
Bangko Sentral ng Pilipinas (BSP): Provided,
shall use BIR Form No. 1600 Remittance Return of
further, That where the taxpayer is engaged in zero-
VAT and Other Percentage Taxes Withheld.
rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of properties or
VAT withheld and paid for the non-resident services, and the amount of creditable input tax due
recipient (remitted using BIR Form No. 1600), or paid cannot be directly and entirely attributed to
which VAT is passed on to the resident withholding any one of the transactions, it shall be allocated
agent by the non-resident recipient of the income, proportionately on the basis of the volume of sales.
may be claimed as input tax by said VAT-registered
withholding agent upon filing his own VAT Return,
(B) Capital Goods. - A VAT-registered person may
subject to the rule on allocation of input tax among
apply for the issuance of a tax credit certificate or
taxable sales, zero-rated sales and exempt sales.
refund of input taxes paid on capital goods
The duly filed BIR Form No. 1600 is the proof or
imported or locally purchased, to the extent that
documentary substantiation for the claimed input
such input taxes have not been applied against
tax or input VAT.
output taxes. The application may be made only
within two (2) years after the close of the taxable
Nonetheless, if the resident withholding agent is a quarter when the importation or purchase was
non-VAT taxpayer, said passed-on VAT by the non- made.
resident recipient of the income, evidenced by the
duly filed BIR Form No. 1600, shall form part of the
(C) Cancellation of VAT Registration. - A person
cost of purchased services, which may be treated
whose registration has been cancelled due to
either as an "asset" or "expense", whichever is
retirement from or cessation of business, or due to
applicable, of the resident withholding agent.
changes in or cessation of status under Section
106(C) of this Code may, within two (2) years from
VAT withheld under this Section shall be remitted the date of cancellation, apply for the issuance of a
within ten (10) days following the end of the month tax credit certificate for any unused input tax which
the withholding was made. may be used in payment of his other internal
revenue taxes.
Section 111. Transitional/Presumptive Input Tax
Credits. - (D) Period within which Refund or Tax Credit of
Input Taxes shall be Made. - In proper cases, the
(A) Transitional Input Tax Credits. - A person who Commissioner shall grant a refund or issue the tax
becomes liable to value-added tax or any person credit certificate for creditable input taxes within
who elects to be a VAT-registered person shall, one hundred twenty (120) days from the date of
subject to the filing of an inventory according to submission of complete documents in support of
rules and regulations prescribed by the Secretary of the application filed in accordance with Subsections
finance, upon recommendation of the (A) and (B) hereof.
Commissioner, be allowed input tax on his
beginning inventory of goods, materials and In case of full or partial denial of the claim for tax
supplies equivalent for eight percent (8%) of the refund or tax credit, or the failure on the part of the
value of such inventory or the actual value-added Commissioner to act on the application within the
tax paid on such goods, materials and supplies, period prescribed above, the taxpayer affected may,
whichever is higher, which shall be creditable
within thirty (30) days from the receipt of the
against the output tax. decision denying the claim or after the expiration of
the one hundred twenty day-period, appeal the
Section 112. Refunds or Tax Credits of Input Tax. - decision or the unacted claim with the Court of Tax
Appeals.-
(A) Zero-rated or Effectively Zero-rated Sales. - any
VAT-registered person, whose sales are zero-rated (E) Manner of Giving Refund. - Refunds shall be
or effectively zero-rated may, within two (2) years made upon warrants drawn by the Commissioner
after the close of the taxable quarter when the sales or by his duly authorized representative without
were made, apply for the issuance of a tax credit the necessity of being countersigned by the
certificate or refund of creditable input tax due or Chairman, Commission on audit, the provisions of
the Administrative Code of 1987 to the contrary (c) Where to file the claim for refund/tax credit
notwithstanding: Provided, That refunds under this certificate
paragraph shall be subject to post audit by the
Commission on Audit. Claims for refunds/tax credit certificate shall be
filed with the appropriate BIR office (Large
SECTION 4.112-1. Claims for Refund/Tax Credit Taxpayers Service (LTS) or Revenue District Office
Certificate of Input Tax. (RDO)) having jurisdiction over the principal place
of business of the taxpayer; Provided, however, that
(a) Zero-rated and Effectively Zero-rated Sales of direct exporters may also file their claim for tax
Goods, Properties or Services credit certificate with the One Stop Shop Center of
the Department of Finance; Provided, finally, that
A VAT-registered person whose sales of goods, the filing of the claim with one office shall preclude
properties or services are zero-rated or effectively the filing of the same claim with another office.
zero-rated may apply for the issuance of a tax credit
certificate/refund of input tax attributable to such (d) Period within which refund or tax credit
sales. The input tax that may be subject of the claim certificate/refund of input taxes shall be made
shall exclude the portion of input tax that has been
applied against the output tax. The application In proper cases, the Commissioner of Internal
should be filed within two (2) years after the close Revenue shall grant a tax credit certificate/refund
of the taxable quarter when such sales were made. for creditable input taxes within one hundred
twenty (120) days from the date of submission of
In case of zero-rated sales under Secs. complete documents in support of the application
106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)(b) and filed in accordance with subparagraph (a) above.
Sec. 108(B)(1) and (2) of the Tax Code, the
payments for the sales must have been made in In case of full or partial denial of the claim for tax
acceptable foreign currency duly accounted for in credit certificate/refund as decided by the
accordance with the BSP rules and regulations. Commissioner of Internal Revenue, the taxpayer
may appeal to the Court of Tax Appeals (CTA)
Where the taxpayer is engaged in both zero-rated within thirty (30) days from the receipt of said
or effectively zero-rated sales and in taxable denial, otherwise the decision shall become final.
(including sales subject to final withholding VAT) or However, if no action on the claim for tax credit
exempt sales of goods, properties or services, and certificate/refund has been taken by the
the amount of creditable input tax due or paid Commissioner of Internal Revenue after the one
cannot be directly and entirely attributed to any one hundred twenty (120) day period from the date of
of the transactions, only the proportionate share of submission of the application with complete
input taxes allocated to zero-rated or effectively documents, the taxpayer may appeal to the CTA
zero-rated sales can be claimed for refund or within 30 days from the lapse of the 120-day
issuance of a tax credit certificate. period.

In the case of a person engaged in the transport of (e) Manner of giving refund
passenger and cargo by air or sea vessels from the
Philippines to a foreign country, the input taxes Refund shall be made upon warrants drawn by the
shall be allocated ratably between his zero-rated Commissioner of Internal Revenue or by his duly
sales and non-zero-rated sales (sales subject to authorized representative without the necessity of
regular rate, subject to final VAT withholding and being countersigned by the Chairman, Commission
VAT-exempt sales). on Audit (COA), the provision of the Revised
Administrative Code to the contrary
(b) Cancellation of VAT registration notwithstanding; Provided, that refunds under this
paragraph shall be subject to post audit by the COA.
A VAT-registered person whose registration has
been cancelled due to retirement from or cessation K. Compliance Requirements
of business, or due to changes in or cessation of Registration with the BIR, Section
status under Sec. 106 (C) of the Tax Code may, 236, NIRC
within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for
any unused input tax which he may use in payment
Record-keeping requirements
of his other internal revenue taxes; Provided,
however, that he shall be entitled to a refund if he
Invoices and receipts, Section 113
has no internal revenue tax liabilities against which (A); Section 4.113-1 and 2, RR 16-
the tax credit certificate may be utilized. 2005
 Consequences of issuing erroneous the Revenue Collection Officer, or duly authorized
VAT invoice or VAT official receipt, Treasurer of the city of municipality where each
Section 113, D, NIRC; Section 4.113- place of business or branch is registered.
4, RR 16-2005
(C) Registration of Each Type of Internal Revenue
Filing of return and payment of tax, Tax. - Every person who is required to register with
the Bureau of Internal Revenue under Subsection
Section 114 (A) and (B), NIRC
(A) hereof, shall register each type of internal
In general file quarterly within 25 revenue tax for which he is obligated, shall file a
days from close of quarter return and shall pay such taxes, and shall updates
Pay monthly within 10 days from such registration of any changes in accordance with
close of quarter Subsection (E) hereof.
Where AAB, RCO, Local Treasurer
within the revenue district where (D) Transfer of Registration. - In case a registered
taxpayer is registered person decides to transfer his place of business or
his head office or branches, it shall be his duty to
update his registration status by filing an
Section 236. Registration Requirements. - application for registration information update in
the form prescribed therefor.
(A) Requirements. - Every person subject to any
internal revenue tax shall register once with the (E) Other Updates. - Any person registered in
appropriate Revenue District Officer: accordance with this Section shall, whenever
applicable, update his registration information with
the Revenue District Office where he is registered,
(1) Within ten (10) days from date of employment,
specifying therein any change in type and other
or
taxpayer details.

(2) On or before the commencement of business, or

(F) Cancellation of Registration. - The registration of
any person who ceases to be liable to a tax type
(3) Before payment of any tax due, or shall be cancelled upon filing with the Revenue
District Office where he is registered an application
(4) Upon filing of a return, statement or declaration for registration information update in a form
as required in this Code. prescribed therefor.

The registration shall contain the taxpayer's name, (G) Persons Commencing Business. - Any person,
style, place of residence, business and such other who expects to realize gross sales or receipts
information as may be required by the subject to value-added tax in excess of the amount
Commissioner in the form prescribed therefor. prescribed under Section 109(z) of this Code for the
next 12-month period from the commencement of
A person maintaining a head office, branch or the business, shall register with the Revenue
facility shall register with the Revenue District District Office which has jurisdiction over the head
Officer having jurisdiction over the head office, office or branch and shall pay the annual
brand or facility. For purposes of this Section, the registration fee prescribed in Subsection (B) hereof.
term 'facility' may include but not be limited to
sales outlets, places of production, warehouses or (H) Persons Becoming Liable to the Value-added Tax.
storage places. - Any person, whose gross sales or receipts in any
12-month period exceeds the amount prescribed
(B) Annual Registration Fee. - An annual registration under Subsection 109(z) of this Code for exemption
fee in the amount of Five hundred pesos (P500) for from the value-added tax shall register in
every separate or distinct establishment or place of accordance with Subsection (A) hereof, and shall
business, including facility types where sales pay the annual registration fee prescribed within
transactions occur, shall be paid upon registration ten (10) days after the end of the last month of that
and every year thereafter on or before the last day period, and shall be liable to the value-added tax
of January: Provided, however, That cooperatives, commencing from the first day of the month
individuals earning purely compensation income, following his registration.
whether locally or abroad, and overseas workers
are not liable to the registration fee herein imposed. (I) Optional Registration of Exempt Person. - Any
person whose transactions are exempt from value-
The registration fee shall be paid to an authorized added tax under Section 109(z) of this Code; or any
agent bank located within the revenue district, or to person whose transactions are exempt from the
value-added tax under Section 109(a), (b), (c), and promulgated by the Secretary of Finance, upon
(d) of this Code, who opts to register as a VAT recommendation of the Commissioner.
taxpayer with respect to his export sales only, may
update his registration information in accordance In cases where a registered taxpayer dies, the
with Subsection (E) hereof, not later than ten (10) administrator or executor shall register the estate
days before the beginning of the taxable quarter of the decedent in accordance with Subsection (A)
and shall pay the annual registration fee prescribed hereof and a new Taxpayer Identification Number
in Subsection (B) hereof. (TIN) shall be supplied in accordance with the
provisions of this Section.
In any case, the Commissioner may, for
administrative reasons, deny any application for In the case of a nonresident decedent, the executor
registration including updates prescribed under or administrator of the estate shall register the
Subsection (E) hereof. estate with the Revenue District Office where he is
registered: Provided, however, That in case such
For purposes of Title IV of this Code, any person executor or administrator is not registered,
who has registered value-added tax as a tax type in registration of the estate shall be made with the
accordance with the provisions of Subsection (C) Taxpayer Identification Number (TIN) supplied by
hereof shall be referred to as VAT-registered person the Revenue District Office having jurisdiction over
who shall be assigned only one Taxpayer his legal residence.
Identification Number.
Only one Taxpayer identification Number (TIN)
(J) Supplying of Taxpayer Identification Number shall be assigned to a taxpayer. Any person who
(TIN). - Any person required under the authority of shall secure more than one Taxpayer Identification
this Code to make, render or file a return, statement Number shall be criminally liable under the
or other document shall be supplied with or provision of Section 275 on 'Violation of Other
assigned a Taxpayer Identification Number (TIN) Provisions of this Code or Regulations in General'.
which he shall indicate in such return, statement or
document filed with the Bureau of Internal Revenue Section 113. Invoicing and Accounting
for his proper identification for tax purposes, and Requirements for VAT-Registered Persons.
which he shall indicate in certain documents, such
as, but not limited to the following: (A) Invoicing Requirements. - A VAT-registered
person shall, for every sale, issue an invoice or
(1) Sugar quedans, refined sugar release order or receipt. In addition to the information required
similar instruments; under Section 237, the following information shall
be indicated in the invoice or receipt:
(2) Domestic bills of lading;
(1) A statement that the seller is a VAT-registered
(3) Documents to be registered with the Register of person, followed by his taxpayer's identification
Deeds of Assessor's Office; number (TIN); and

(4) Registration certificate of transportation (2) The total amount which the purchaser pays or is
equipment by land, sea or air; obligated to pay to the seller with the indication
that such amount includes the value-added tax.
(5) Documents to be registered with the Securities
and Exchange Commission; SECTION 4.113-1. Invoicing Requirements.

(6) Building construction permits; (A) A VAT-registered person shall issue:

(7) Application for loan with banks, financial (1) A VAT invoice for every sale, barter or exchange
institutions, or other financial intermediaries; of goods or properties; and

(8) Application for mayor's permit; (2) A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange of
(9) Application for business license with the services.
Department of Trade & Industry; and
Only VAT-registered persons are required to print
(10) Such other documents which may hereafter be their TIN followed by the word "VAT" in their
required under rules and regulations to be invoice or official receipts. Said documents shall be
considered as a "VAT Invoice" or VAT official
receipt. All purchases covered by invoices/receipts be duly recorded in the subsidiary sales journal. The
other than VAT Invoice/VAT Official Receipt shall total amount of "deemed sale" shall be included in
not give rise to any input tax. the return to be filed for the month or quarter.

VAT invoice/official receipt shall be prepared at In the case of Sec. 4.106-7(a) (4) an inventory shall
least in duplicate, the original to be given to the be prepared and submitted to the RDO who has
buyer and the duplicate to be retained by the seller jurisdiction over the taxpayer's principal place of
as part of his accounting records. business not later than 30 days after retirement or
cessation from business.
(B) Information contained in VAT invoice or VAT
official receipt. The following information shall An invoice shall be prepared for the entire
be indicated in VAT invoice or VAT official receipt: inventory, which shall be the basis of the entry into
the subsidiary sales journal. The invoice need not
(1) A statement that the seller is a VAT-registered enumerate the specific items appearing in the
person, followed by his TIN; inventory, but it must show the total amount. It is
sufficient to just make a reference to the inventory
(2) The total amount which the purchaser pays or is regarding the description of the goods. However,
obligated to pay to the seller with the indication the sales invoice number should be indicated in the
that such amount includes the VAT; Provided, That: inventory filed and a copy thereof shall form part of
this invoice. If the business is to be continued by the
new owners or successors, the entire amount of
(a) The amount of tax shall be shown as a separate output tax on the amount deemed sold shall be
item in the invoice or receipt; allowed as input taxes. If the business is to be
liquidated and the goods in the inventory are sold
(b) If the sale is exempt from VAT, the term "VAT- or disposed of to VAT-registered buyers, an invoice
exempt sale" shall be written or printed or instrument of sale or transfer shall to prepared
prominently on the invoice or receipt; citing the invoice number wherein the tax was
imposed on the deemed sale. At the same time the
(c) If the sale is subject to zero percent (0%) VAT, tax paid corresponding to the goods sold should be
the term "zero-rated sale" shall be written or separately indicated in the instrument of sale.
printed prominently on the invoice or receipt;
Example: "A", at the time of retirement, had 1,000
(d) If the sale involves goods, properties or services pieces of merchandise which was deemed sold at a
some of which are subject to and some of which are value of P20,000.00 with an output tax of P2,000.00.
VAT zero-rated or VAT-exempt, the invoice or After retirement, "A" sold to "B", 500 pieces for
receipt shall clearly indicate the break-down of the P12,000.00. In the contract of sale or invoice, "A"
sale price between its taxable, exempt and zero- should state the sales invoice number wherein the
rated components, and the calculation of the VAT on output tax on "deemed sale" was imposed and the
each portion of the sale shall be shown on the corresponding tax paid on the 500 pieces is
invoice or receipt. The seller has the option to issue P1,000.00, which is included in the P12,000.00, or
separate invoices or receipts for the taxable, he should indicate it separately as follows:
exempt, and zero-rated components of the sale.
Gross selling price P11,000.00
(3) In the case of sales in the amount of one
thousand pesos (P1,000.00) or more where the sale VAT previously paid on "deemed sale" 1,000.00
or transfer is made to a VAT-registered person, the
name, business style, if any, address and TIN of the

purchaser, customer or client, shall be indicated in
addition to the information required in (1) and (2)
of this Section. Total P12,000.00

SECTION 4.113-2. Invoicing and Recording In this case, "B" shall be entitled only to P1,000 as
Deemed Sale Transactions. In the case of Sec. input tax and not 1/11 of P12,000.00
4.106-7(a) (1) of these Regulations, a memorandum
entry in the subsidiary sales journal to record Consequences of issuing erroneous VAT
withdrawal of goods for personal use is required. In invoice or VAT official receipt, Section 113, D,
the case of Sec. 4.106-7(a) (2) and (3) of these NIRC; Section 4.113-4, RR 16-2005
Regulations, an invoice shall be prepared at the
time of the occurrence of the transaction, which Section 113. Invoicing and Accounting
should include, all the information prescribed in Requirements for VAT-Registered Persons.
Sec. 4.113-1. The data appearing in the invoice shall
(A) Invoicing Requirements. - A VAT-registered shall be liable to pay VAT thereon. The purchaser
person shall, for every sale, issue an invoice or shall be entitled to claim an input tax credit on his
receipt. In addition to the information required purchase.
under Section 237, the following information shall
be indicated in the invoice or receipt: Section 114. Return and Payment of Value-Added
Tax.
(1) A statement that the seller is a VAT-registered
person, followed by his taxpayer's identification (A) In General. - Every person liable to pay the
number (TIN); and value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or
(2) The total amount which the purchaser pays or is receipts within twenty-five (25) days following the
obligated to pay to the seller with the indication close of each taxable quarter prescribed for each
that such amount includes the value-added tax. taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly
(B) Accounting Requirements. - Notwithstanding the basis.
provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, Any person, whose registration has been cancelled
in addition to the regular accounting records in accordance with Section 236, shall file a return
required, maintain a subsidiary sales journal and and pay the tax due thereon within twenty-five (25)
subsidiary purchase journal on which the daily days from the date of cancellation of registration:
sales and purchases are recorded. The subsidiary Provided, That only one consolidated return shall
journals shall contain such information as may be be filed by the taxpayer for his principal place of
required by the Secretary of Finance. business or head office and all branches.

SECTION 4.113-4. Consequences of Issuing (B) Where to File the Return and Pay the Tax. -
Erroneous VAT Invoice or VAT Official Receipt. Except as the Commissioner otherwise permits, the
return shall be filed with and the tax paid to an
authorized agent bank, Revenue Collection Officer
(A) Issuance of a VAT Invoice or VAT Receipt by a or duly authorized city or municipal Treasurer in
non-VAT person. If a person who is not VAT- the Philippines located within the revenue district
registered issues an invoice or receipt showing his where the taxpayer is registered or required to
TIN, followed by the word "VAT", the erroneous register.
issuance shall result to the following:

(1) The non-VAT person shall be liable to: Input Tax Credit
Any input tax evidenced by a VAT invoice or
(i) the percentage taxes applicable to his official receipt issued by a VAT-registered
transactions; person in accordance with SEC. 113 and Sec
237 on the following transactions shall be
(ii) VAT due on the transactions under Sec. 106 or creditable against the output tax:
108 of the Tax Code, without the benefit of any (a) purchase or importation of goods:
input tax credit; and (1) for sale; or
(2) for conversion into or intended to form
(iii) a 50% surcharge under Sec. 248 (B) of the Tax part of a finished product for sale including
Code; packaging materials; or
(3) for use as supplies in the course of
(2) VAT shall be recognized as an input tax credit to business; or
the purchaser under Sec. 110 of the Tax Code,
(4) for use as materials supplied in the sale
provided the requisite information required under
Subsection 4.113 (B) of these Regulations is shown of service; or
on the invoice or receipt. (5) for use in trade or business for which
deduction for depreciation or amortization
(B) Issuance of a VAT Invoice or VAT Receipt on an is allowed under Sec. 34 (F), NIRC
Exempt Transaction by a VAT-registered Person. (b) Purchase of real properties for which VAT
If a VAT-registered person issues a VAT invoice or has actually been paid
VAT official receipt for a VAT-exempt transaction, (c) Purchase of services on which a VAT has
but fails to display prominently on the invoice or actually been paid
receipt the words "VAT-exempt sale", the (d) Transactions deemed sale under Sec. 106
transaction shall become taxable and the issuer (B) of NIRC
(e) Transitional input tax allowed under Sec. period, or who voluntarily register even if
111 (A) of NIRC their turnover does not exceed P 1,500,000
(f) Presumptive input tax allowed under Sec. shall be entitled to a transitional input tax
111 (B) of NIRC on the inventory on hand as of the
(g) Transitional input tax credits allowed effectivity of their VAT registration, on the
under transitory provisions and other following:
provisions of Rev. Regs. No. 16-2005 a. goods purchased for resale in their
present condition
In case the taxpayer is also engaged in b. materials purchased for further
transactions not subject to VAT, a ratable processing, but which have not yet
portion of any input tax which cannot be undergone processing
directly attributed to either activity will be c. goods which have been manufactured
computed under an apportionment formula. by the taxpayer
d. goods in process for sale
Persons who can avail of the input tax e. goods and supplies for use in the
credit course of the taxpayers trade or
1. Importer upon payment of the VAT prior to business as a VAT-registered person
the release of goods from the custody of 2. The transitional input tax shall be 2% of
Bureau of Customs. the value of the beginning inventory on
2. Purchaser of the domestic goods or hand or actual VAT paid on such goods,
properties upon consummation of sale materials and supplies, whichever is
3. Purchaser of services or the lessee or higher, which amount shall be creditable
licensee upon payment of the compensation, against the output tax of the VAT-
rental, royalty r fee. registered person.
3. The value allowed for income tax purposes
Input tax attributable to VAT-exempt on inventories shall be the basis for the
transactions cannot be credited against output computation of the 2% transitional input
tax but should be treated as part of cost or tax, excluding goods that are exempt from
expense. VAT under Sec. 109.



Presumptive input tax credit Taxpayers required to register under VAT
Persons or firms engaged in the processing of 1. Generally, all persons engaged in the
sardines, mackerel, and milk, and in selling of goods or rendering of services.
manufacturing of refined sugar, cooking oil, 2. Any person starting a business with
and packed noodle-based instant meals shall expected gross sales or receipts of more
be allowed a presumptive input tax, creditable than P 1,500,00 in the next 12 months.
against the output tax, equivalent to 4% of the 3. Franchise grantees of radio/ television
gross value in money of their purchases of broadcasting companies whose annual
preliminary agricultural products which are gross receipts exceed P 10,000,000.
used as inputs to their production. 4. Any person engaged in business with gross
sales or receipts of more than 1,500,000 in
The term processing means pasteurization, any of the 12-month period covered.
canning, and activities which through physical
or chemical process alter the exterior texture In relation to this particular case, the following
or form or inner substance of a product in such procedure should be observed relative to the
manner as to prepare it for special use to registration:
which it could not have been put in its original a. The annual registration fee shall be payable
form or condition. within 10 days after the end of the last
month of the period
Transitional input tax credit on beginning b. Taxpayers shall be liable to VAT starting
inventories the first day of the month following the
1. Taxpayers who became VAT-registered registration
persons upon exceeding the minimum
turnover of P 1,500,000 in any 12-month Effects of failure to register as VAT taxpayer
1. The taxpayer is liable to pay VAT on the
sale of goods or rendering of services.
2. The VAT paid on purchases of goods or
services cannot be deducted on VAT
imposed on sale of goods or services.
3. VAT cannot be billed separately to
customers.
4. The taxpayer is penalized through the
imposition of fines and penalties.

Filing returns and payment of VAT
1. Imported goods payable prior to the
release of imported goods from the custody
of Bureau of Customs
2. On sale of goods, properties or services
payable at the time of declaration or filing.
The VAT declaration may be:
a. Monthly declaration 20 days after the
end of each month of the first two
months of the quarter.
b. Quarterly declaration 15 days after
the end of the quarter covering all
transactions of the quarter
3. Excess input tax of the first month of the
quarter shall be carried as tax credit on the
second month and shall not be refundable.
4. Excess input tax of the second month of the
quarter shall be carried over as tax credit
on the first month of the next quarter and
not the quarterly return.


MODULE 3 a tai of one-sixteenth (1/16) of a centavo for
every bottle of soft drink corked." Municipal
OTHER PERCENTAGE Ordinance No. 27 collects "on soft drinks
produced or manufactured within the
TAXES territorial jurisdiction of this municipality a tax
of ONE CENTAVO (P0.01) on each gallon (128

fluid ounces, U.S.) of volume capacity." CFI and
A. CONCEPT OF PERCENTAGE TAX SC dismissd the complaint and found all of
Deleon notes: these valid.
DEFINITION: taxes measured by a DOCTRINE: An ordinance which prescribes a
certain percentage of the gross selling set ratio between the amount of the tax and the
price or gross value in money of goods volume of sale of the taxpayer is an example of
sold, bartered, exchanged or imported a percentage tax.
or gross receipts or earnings derived by
any person engaged in the sale of

services. B. PERCENTAGES IMPOSED
NATURE: privilege taxes, imposed on 1. Tax on persons exempt from VAT
the privilege to sell commodities or SEC. 116. Tax on Persons Exempt from Value-
services Added Tax (VAT). - Any person whose sales or
BASIS: based on gross receipts except receipts are exempt under Section 109(1)(V) of this
Code from the payment of value-added tax and who
where the basis of tax is the total
is not a VAT-registered person shall pay a tax
premium collected. equivalent to three percent (3%) of his gross
quarterly sales or receipts: Provided, That
City of Manila vs. Intergas Services, Inc. cooperatives shall be exempt from the three percent
SUMMARY: Respondent sold at retail in Manila (3%)gross receipts tax herein imposed.
cooking appliances and LPGs from the 4th
quarter of 1949 to the 4th quarter of 1951. In 2. Percentage tax on domestic carriers and
accordance with Ordinance No. 1925, as keepers of garages
amended by Ordinance No. 3364, it paid SEC. 117. Percentage Tax on Domestic Carriers
quarterly license fees to the City Treasurer. and Keepers of Garages. - Cars for rent or hire
However, in the computation of the fees due, it driven by the lessee; transportation contractors,
did not include its sale of LPGs. Petitioner including persons who transport passengers for
instituted an action for the collection of a sum hire, and other domestic carriers by land for the
transport of passengers (except owners of bancas
of money, by way of deficiency municipal tax,
and owners of animal-drawn two wheeled vehicle),
against Respondent before CFI Manila. CFI and keepers of garages shall pay a tax equivalent to
ruled in favor of Petitioner and sentenced three percent (3%) of their quarterly gross receipts.
Respondent to pay the sum of 8 361 as
deficiency tax dye from 1952, including 50 as The gross receipts of common carriers derived from
surcharge, and costs. Respondent appealed the their incoming and outgoing freight shall not be
decision. subjected to the local taxes imposed under Republic
DOCTRINE: Percentage tax is based on a given Act No. 7160, otherwise known as the Local
ratio between the gross income and the burden Government Code of 1991.
imposed upon the taxpayer. It is different from In computing the percentage tax provided in this
Section, the following shall be considered the
graduated tax, which imposes fixed amounts
minimum quarterly gross receipts in each particular
for corresponding ranges of gross sales.
case:

Pepsi Cola Bottling Company, Inc. vs. Mun. Jeepney for hire
of Tanauan 1. Manila and other cities: P2,400
SUMMARY: Pepsi-Cola Bottling Company filed 2. Provincial: P1,200
a complaint to declare Section 2 of the Local Public utility bus
Autonomy Act unconstitutional as an undue Not exceeding 30 passengers: P3,600
delegation of taxing authority, and to declare Exceeding 30 but not exceeding 50: P6,000
Ordinances Nos. 23 and 27, series of 1962, of Exceeding 50 passenger: P7,200
the municipality of Tanauan, Leyte, null and Taxis -
1. Manila and other cities: P3,600
void. Municipal Ordinance No. 23 collects
2. Provincial: P 2,400
"from soft drinks producers and manufacturers

 3. Percentage tax on international carriers (1) Government. - Amounts paid for messages
(by virtue of an international treaty) transmitted by the Government of the Republic of
SEC. 118 Percentage Tax on International the Philippines or any of its political subdivisions or
Carriers. - instrumentalities;
(A) International air carriers doing business in the (2) Diplomatic Services. - Amounts paid for
Philippines shall pay a tax of three percent (3%) of messages transmitted by any embassy and consular
their quarterly gross receipts. offices of a foreign government;
(B) International shipping carriers doing business (3) International Organizations. - Amounts paid for
in the Philippines shall pay a tax equivalent to three messages transmitted by a public international
percent (3%) of their quarterly gross receipts. organization or any of its agencies based in the
Philippines enjoying privileges, exemptions and

immunities which the Government of the
4. Tax on franchises Philippines is committed to recognize pursuant to
SEC. 119. Tax on Franchises. - Any provision of an international agreement; and
general or special law to the contrary (4) News Services. - Amounts paid for messages
notwithstanding, there shall be levied, assessed and from any newspaper, press association, radio or
collected in respect to all franchises on radio and/or television newspaper, broadcasting agency, or
television broadcasting companies whose annual newstickers services, to any other newspaper, press
gross receipts of the preceding year does not exceed association, radio or television newspaper
Ten million pesos (P10,000,000), subject to Section broadcasting agency, or newsticker service or to a
236 of this Code, a tax of three percent (3%) and on bona fide correspondent, which messages deal
gas and water utilities, a tax of two percent (2%) on exclusively with the collection of news items for, or
the gross receipts derived from the business the dissemination of news item through, public
covered by the law granting the franchise: Provided, press, radio or television broadcasting or a
however, That radio and television broadcasting newsticker service furnishing a general news
companies referred to in this Section shall have an service similar to that of the public press.
option to be registered as a value-added taxpayer

and pay the tax due thereon:Provided, further, That
6. Tax on banks and non-bank financial
once the option is exercised, said option shall be
irrevocable. intermediaries performing quasi-
banking functions (also called gross
The grantee shall file the return with, and pay the receipts tax)
tax due thereon to the Commissioner or his duly SEC. 121. Tax on Banks and Non-Bank Financial
authorized representative, in accordance with the Intermediaries Performing Quasi-Banking
provisions of Section 128 of this Code, and the Functions. - There shall be collected a tax on gross
return shall be subject to audit by the Bureau of receipts derived from sources within the
Internal Revenue, any provision of any existing law Philippines by all banks and non-bank financial
to the contrary notwithstanding. intermediaries in accordance with the following
schedule:

5. Tax on overseas dispatch, messages or (a) On interest, commissions and discounts from
conversation originating from the lending activities as well as income from financial
Philippines leasing, on the basis of remaining maturities of
SEC. 120. Tax on Overseas Dispatch, Message or instruments from which such receipts are derived:
Conversation Originating from the Philippines. - - Maturity Period is 5 years or less: 5%
(A) Persons Liable. - There shall be collected upon - Maturity Period is more than 5 years: 1%
every overseas dispatch, message or conversation (b) On dividends and equity shares and net income
transmitted from the Philippines by telephone, of subsidiaries 0%
telegraph, telewriter exchange, wireless and other (c) On royalties, rentals of property, real or
communication equipment service, a tax of ten personal, profits, from exchange and all other items
percent (10%) on the amount paid for such treated as gross income under Section 32 of this
services. The tax imposed in this Section shall be Code 7%
payable by the person paying for the services (d) On net trading gains within the taxable year on
rendered and shall be paid to the person rendering foreign currency, debt securities, derivatives, and
the services who is required to collect and pay the other similar financial instruments 7%
tax within twenty (20) days after the end of each
quarter. Provided, however, That in case the maturity period
referred to in paragraph (a) is shortened thru pre-
termination, then the maturity period shall be
reckoned to end as of the date of pre-termination
(B) Exemptions. - The tax imposed by this Section for purposes of classifying the transaction and the
shall not apply to: correct rate of tax shall be applied accordingly.
 reinsurance by a company that has already paid the
Provided, finally, That the generally accepted tax; nor upon doing business outside the
accounting principles as may be prescribed by the Philippines on account of any life insurance of the
Bangko Sentral ng Pilipinas for the bank or non- insured who is a nonresident, if any tax on such
bank financial intermediary performing quasi- premium is imposed by the foreign country where
banking functions shall likewise be the basis for the the branch is established nor upon premiums
calculation of gross receipts. collected or received on account of any reinsurance
, if the insured, in case of personal insurance,
Nothing in this Code shall preclude the resides outside the Philippines, if any tax on such
Commissioner from imposing the same tax herein premiums is imposed by the foreign country where
provided on persons performing similar banking the original insurance has been issued or perfected;
activities." nor upon that portion of the premiums collected or
received by the insurance companies on variable
contracts (as defined in section 232(2) of
7. Tax on other non-bank financial
Presidential Decree No. 612), in excess of the
intermediaries amounts necessary to insure the lives of the
Sec. 122. Tax on Other Non-Bank Financial variable contract workers.
Intermediaries. There shall be collected a tax of
five percent (5%) on the gross receipts derived by Cooperative companies or associations are such
other nonbank financial intermediaries doing as are conducted by the members thereof with the
business in the Philippines, from interest, money collected from among themselves and solely
commissions, discounts and all other items treated as for their own protection and not for profit.
gross income under this code: Provided, that
interests, commissions and discounts from lending
9. Tax on agents of foreign insurance
activities, as well as income from financial leasing,
shall be taxed on the basis of remaining maturities of companies
the instruments from which such receipts are derived, SEC. 124. Tax on Agents of Foreign Insurance
in accordance with the following schedule: Companies. - Every fire, marine or miscellaneous
maturity period is 5 years or less: 5% insurance agent authorized under the Insurance
maturity period is more than 5 years: 1% Code to procure policies of insurance as he may
have previously been legally authorized to transact
Provided, however, that in case the maturity period is on risks located in the Philippines for companies
shortened thru pretermination, then the maturity not authorized to transact business in the
period shall be reckoned to end as of the dateof Philippines shall pay a tax equal to twice the tax
pretermination for purposes of classifying the imposed in Section 123: Provided, That the
transaction and the correct rate shall be applied provision of this Section shall not apply to
accordingly. reinsurance: Provided, however, That the
provisions of this Section shall not affect the right of
Provided, finally, that the generally accepted an owner of property to apply for and obtain for
accounting principles as may be prescribed by the himself policies in foreign companies in cases
Securities and Exchange Commission for other non- where said owner does not make use of the services
bank financial intermediaries shall likewise be the of any agent, company or corporation residing or
basis for the calculation of gross receipts. doing business in the Philippines. In all cases where
owners of property obtain insurance directly with
Nothing in this code shall preclude the Commissioner foreign companies, it shall be the duty of said
from imposing the same tax herein provided on owners to report to the Insurance Commissioner
persons performing similar financing activities. and to the Commissioner each case where
insurance has been so effected, and shall pay the tax

of five percent (5%) on premiums paid, in the
8. Tax on life insurance premiums manner required by Section 123.
SEC. 123. Tax on Life Insurance Premiums. -
There shall be collected from every person, 10. Amusement taxes
company or corporation (except purely cooperative
SEC. 125. Amusement Taxes. - There shall be
companies or associations) doing life insurance
collected from the proprietor, lessee or operator of
business of any sort in the Philippines a tax of five
cockpits, cabarets, night or day clubs, boxing
percent (5%) of the total premium collected,
exhibitions, professional basketball games, Jai-Alai
whether such premiums are paid in money, notes,
and racetracks, a tax equivalent to:
credits or any substitute for money; but premiums

refunded within six (6) months after payment on
(a) Eighteen percent (18%) in the case of cockpits;
account of rejection of risk or returned for other
(b) Eighteen percent (18%) in the case of cabarets,
reason to a person insured shall not be included in
night or day clubs;
the taxable receipts; nor shall any tax be paid upon
(c) Ten percent (10%) in the case of boxing with the second paragraph hereof, file a true and
exhibitions: Provided, however, That boxing correct return with the Commissioner in the
exhibitions wherein World or Oriental manner or form to be prescribed by the Secretary of
Championships in any division is at stake shall be Finance, and pay within the same period the total
exempt from amusement tax: Provided, further, amount of tax so deducted and withheld.
That at least one of the contenders for World or
Oriental Championship is a citizen of the Philippines 12. Tax on sale, barter or exchange of shares
and said exhibitions are promoted by a citizen/s of of stock listed and traded through the
the Philippines or by a corporation or association at local stock exchange (also called stock
least sixty percent (60%) of the capital of which is
transactions tax) or through initial public
owned by such citizens;
(d) Fifteen percent (15%) in the case of
offering (also called IPO tax)
professional basketball games as envisioned in SEC. 127. Tax on Sale, Barter or Exchange of
Presidential Decree No. 871: Provided, however, Shares of Stock Listed and Traded through the
That the tax herein shall be in lieu of all other Local Stock Exchange or through Initial Public
percentage taxes of whatever nature and Offering. -
description; and (A) Tax on Sale, Barter or Exchange of Shares of
(e) Thirty percent (30%) in the case of Jai-Alai and Stock Listed and Traded through the Local Stock
racetracks of their gross receipts, irrespective, of Exchange. - There shall be levied, assessed and
whether or not any amount is charged for collected on every sale, barter, exchange, or other
admission. disposition of shares of stock listed and traded
through the local stock exchange other than the sale
For the purpose of the amusement tax, the term by a dealer in securities, a tax at the rate of one-half
"gross receipts" embraces all the receipts of the of one percent (1/2 of 1%) of the gross selling price
proprietor, lessee or operator of the amusement or gross value in money of the shares of stock sold,
place. Said gross receipts also include income from bartered, exchanged or otherwise disposed which
television, radio and motion picture rights, if any. A shall be paid by the seller or transferor.
person or entity or association conducting any
activity subject to the tax herein imposed shall be (B) Tax on Shares of Stock Sold or Exchanged
similarly liable for said tax with respect to such Through Initial Public Offering. - There shall be
portion of the receipts derived by him or it. levied, assessed and collected on every sale, barter,
The taxes imposed herein shall be payable at the exchange or other disposition through initial public
end of each quarter and it shall be the duty of the offering of shares of stock in closely held
proprietor, lessee or operator concerned, as well as corporations, as defined herein, a tax at the rates
any party liable, within twenty (20) days after the provided hereunder based on the gross selling price
end of each quarter, to make a true and complete or gross value in money of the shares of stock sold,
return of the amount of the gross receipts derived bartered, exchanged or otherwise disposed in
during the preceding quarter and pay the tax due accordance with the proportion of shares of stock
thereon. sold, bartered, exchanged or otherwise disposed to
the total outstanding shares of stock after the listing

in the local stock exchange:
11. Tax on winnings Up to 25%: 4%
SEC. 126. Tax on Winnings. - Every person who Over 25% but not over 33 1/3%: 2%
wins in horse races shall pay a tax equivalent to ten Over 33 1/3%: 1%
percent (10%) of his winnings or 'dividends', the The tax herein imposed shall be paid by the issuing
tax to be based on the actual amount paid to him for corporation in primary offering or by the seller in
every winning ticket after deducting the cost of the secondary offering.
ticket: Provided, That in the case of winnings from For purposes of this Section, the term 'closely held
double, forecast/quinella and trifecta bets, the tax corporation' means any corporation at least fifty
shall be four percent (4%). In the case of owners of percent (50%) in value of outstanding capital stock
winning race horses, the tax shall be ten percent or at least fifty percent (505) of the total combined
(10%) of the prizes. voting power of all classes of stock entitled to vote
The tax herein prescribed shall be deducted from is owned directly or indirectly by or for not more
the 'dividends' corresponding to each winning than twenty (20) individuals.
ticket or the 'prize' of each winning race horse For purposes of determining whether the
owner and withheld by the operator, manager or corporation is a closely held corporation, insofar as
person in charge of the horse races before paying such determination is based on stock ownership,
the dividends or prizes to the persons entitled the following rules shall be applied:
thereto. (1) Stock Not Owned by Individuals. - Stock owned
The operator, manager or person in charge of horse directly or indirectly by or for a corporation,
races shall, within twenty (20) days from the date partnership, estate or trust shall be considered as
the tax was deducted and withheld in accordance
being owned proportionately by its shareholders, C. COMPLIANCE REQUIREMENTS
partners or beneficiaries.
SEC. 128. Returns and Payment of Percentage
(2) Family and Partnership Ownerships. - An
Taxes. -
individual shall be considered as owning the stock
(A) Returns of Gross Sales, Receipts or Earnings and
owned, directly or indirectly, by or for his family, or
Payment of Tax. -
by or for his partner. For purposes of the paragraph,
(1) Persons Liable to Pay Percentage Taxes. - Every
the 'family of an individual' includes only his
person subject to the percentage taxes imposed
brothers and sisters (whether by whole or half-
under this Title shall file a quarterly return** of the
blood), spouse, ancestors and lineal descendants.
amount of his gross sales, receipts or earnings and
(3) Option. - If any person has an option acquire
pay the tax due thereon within twenty-five (25)
stock, such stock shall be considered as owned by
days after the end of each taxable quarter: Provided,
such person. For purposes of this paragraph, an
That in the case of a person whose VAT registration
option to acquire such an option and each one of a
is cancelled and who becomes liable to the tax
series of options shall be considered as an option to
imposed in Section 116 of this Code, the tax shall
acquire such stock.
accrue from the date of cancellation and shall be
(4) Constructive Ownership as Actual Ownership. -
paid in accordance with the provisions of this
Stock constructively owned by reason of the
Section.
application of paragraph (1) or (3) hereof shall, for
(2) Person Retiring from Business. - Any person
purposes of applying paragraph (1) or (2), be
retiring from a business subject to percentage tax
treated as actually owned by such person; but stock
shall notify the nearest internal revenue officer, file
constructively owned by the individual by reason of
his return and pay the tax due thereon within
the application of paragraph (2) hereof shall not be
twenty (20) days after closing his business.
treated as owned by him for purposes of again
(3) Exceptions. - The Commissioner may, by rules
applying such paragraph in order to make another
and regulations, prescribe:
the constructive owner of such stock.
(a) The time for filing the return at intervals other

than the time prescribed in the preceding
(C) Return on Capital Gains Realized from Sale of
paragraphs for a particular class or classes of
Shares of Stocks. -
taxpayers after considering such factors as volume
(1) Return on Capital Gains Realized from Sale of
of sales, financial condition, adequate measures of
Shares of Stock Listed and Traded in the Local Stock
security, and such other relevant information
Exchange. - It shall be the duty of every stock broker
required to be submitted under the pertinent
who effected the sale subject to the tax imposed
provisions of this Code; and
herein to collect the tax and remit the same to the
(b) The manner and time of payment of percentage
Bureau of Internal Revenue within five (5) banking
taxes other than as hereinabove prescribed,
days from the date of collection thereof and to
including a scheme of tax prepayment.
submit on Mondays of each week to the secretary of
(4) Determination of Correct Sales or Receipts. -
the stock exchange, of which he is a member, a true
When it is found that a person has failed to issue
and complete return which shall contain a
receipts or invoices, or when no return is filed, or
declaration of all the transactions effected through
when there is reason to believe that the books of
him during the preceding week and of taxes
accounts or other records do not correctly reflect
collected by him and turned over to the Bureau Of
the declarations made or to be made in a return
Internal Revenue.
required to be filed under the provisions of this
(2) Return on Public Offerings of Share Stock. - In
Code, the Commissioner, after taking into account
case of primary offering, the corporate issuer shall
the sales, receipts or other taxable base of other
file the return and pay the corresponding tax within
persons engaged in similar businesses under
thirty (30) days from the date of listing of the
similar situations or circumstances, or after
shares of stock in the local stock exchange. In the
considering other relevant information may
case of secondary offering, the provision of
prescribe a minimum amount of such gross
Subsection (C)(1) of this Section shall apply as to
receipts, sales and taxable base and such amount so
the time and manner of the payment of the tax.
prescribed shall be prima facie correct for purposes

of determining the internal revenue tax liabilities of
(D) Common Provisions. - any gain derived from the
such person.
sale, barter, exchange or other disposition of shares

of stock under this Section shall be exempt from the
(B) Where to File. - Except as the Commissioner
tax imposed in Sections 24(C), 27(D)(2),
otherwise permits, every person liable to the
28(A)(7)(c), and 28(B)(5)(c) of this Code and from
percentage tax under this Title may, at his option,
the regular individual or corporate income tax. Tax
file a separate return for each branch or place of
paid under this Section shall not be deductible for
business, or a consolidated return for all branches
income tax purposes.
or places of business with the authorized agent
bank, Revenue District Officer, Collection Agent or
duly authorized Treasurer of the city or
municipality where said business or principal place
of business is located, as the case may be.

**Revenue Regulations 4-2002
The monthly percentage tax returns of
taxpayers shall be filed, and taxes paid,
not later than the 20th day following the
end of each month
Deleon notes
The Commissioner of Internal revenue
is given the authority to prescribe, by
rules and regulations, other than as
stated, in meritorious cases, the time
for filing percentage tax returns for a
particular class or classes of taxpayers,
and the manner and time of payment of
percentage taxes including a scheme of
tax prepayment
When to file:
o Formerly, the filing of the quarterly
percentage tax return of the amount
of gross sales, receipts or earnings
and the payment of the tax due
thereon must be made within 25
days after the end of each taxable
quarter (sec. 128[a])
o It is now filed monthly except in the
case of
Overseas communication tax
(sec.120) and amusement tax
within 20 days after the end of
each quarter (sec. 125)
Tax on winnings within 20 days
from the date the tax was
deducted and withheld (sec.126)
Tax on sale etc. of shares of stock
listed and traded in the local
stock exchange 5 banking days
from the date of collection
o Filed not later than the 20th day
following the end of each month
Where to file: authorized agent bank,
the revenue district officer, revenue
collection officer or duly authorized
treasurer of the city or municipality
where said business or principal place
of business is located
Persons retiring from business notify
the nearest internal revenue officer, file
their returns and pay the tax due
thereon within 20 days after closing
their business.


MODULE 4 B. RATES AND BASIS OF TAXES
** We only reproduced in this reviewer the provisions
DOCUMENTARY STAMP that maam discussed in class but the table below
includes all the documents subject to tax as provided
TAXES in the NIRC.
SEC. 174. Stamp Tax on Original Issue of Shares
of Stock. - On every original issue, whether on
A. PRELIMINARY TOPICS organization, reorganization or for any lawful
purpose, of shares of stock by any association,
Definition company or corporation, there shall be collected a
SEC. 173. Stamp Taxes Upon Documents, Loan documentary stamp of One peso (P1.00) on each
Agreements, Instruments and Papers. - Upon Two hundred pesos (P200), or fractional part
documents, instruments, loan agreements and thereof, of the par value, of such shares of stock:
papers, and upon acceptances, assignments, sales Provided, That in the case of the original issue of
and transfers of the obligation, right or property shares of stock without par value, the amount of the
incident thereto, there shall be levied, collected and documentary stamp tax herein prescribed shall be
paid for, and in respect of the transaction so had or based upon the actual consideration for the
accomplished, the corresponding documentary issuance of such shares of stock:Provided, further,
stamp taxes prescribed in the following Sections of That in the case of stock dividends, on the actual
this Title, by the person making, signing, issuing, value represented by each share.
accepting, or transferring the same wherever the
document is made, signed, issued, accepted or SEC. 175. Stamp Tax on Sales, Agreements to Sell.
transferred when the obligation or right arises from Memoranda of Sales, Deliveries or Transfer of
Philippine sources or the property is situated in the Shares or Certificates of Stock. - On all sales, or
Philippines, and the same time such act is done or agreements to sell, or memoranda of sales, or
transaction had: Provided, That whenever one party deliveries. Or transfer of shares or certificates of
to the taxable document enjoys exemption from the stock in any association, company, or corporation,
tax herein imposed, the other party who is not or transfer of such securities by assignment in
exempt shall be the one directly liable for the tax. blank, or by delivery, or by any paper or agreement,
or memorandum or other evidences of transfer or

sale whether entitling the holder in any manner to
Nature and Purpose the benefit of such stock, or to secure the future
De Leon notes: payment of money, or for the future transfer of any
It is an excise or privilege tax because it stock, there shall be collected a documentary stamp
is really imposed on the privilege to tax of Seventy-five-centavos (P0.75) on each Two
enter into a transaction rather than on hundred pesos (P200), or fractional part thereof, of
document. the document is only taxed the par value of such stock: Provided, That only one
because of the transaction tax shall be collected on each sale or transfer of
The purpose of the law in imposing stock from one person to another, regardless of
stamp taxes is to raise revenue whether or not a certificate of stock is issued,
indorsed, or delivered in pursuance of such sale or
It may be a tax on the documents, or
transfer: and Provided, further, That in the case of
the transactions themselves stock without par value the amount of the
documentary stamp tax herein prescribed shall be
Persons Liable equivalent to twenty-five percent (25%) of the
Section 173, NIRC see provision above documentary stamp tax paid upon the original issue
De Leon notes: of said stock.
There is no statutory taxpayer. Both the
person issuing and the one to whom Section 176. Stamp Tax on Bonds, Debentures,
the document is issued may be made Certificate of Stock or Indebtedness Issued in
Foreign Countries. - On all bonds, debentures,
liable to the tax. The tax is imposed
certificates of stock, or certificates of indebtedness
against the person making, signing,
issued in any foreign country, there shall be
issuing, accepting or transferring the collected from the person selling or transferring the
document or facility evidencing the same in the Philippines, such as tax as is required
transaction. If the party assuming by law on similar instruments when issued, sold or
payment is tax exempt, the other party transferred in the Philippines.
in the document who is not exempt
becomes liable. If both of them are Section 177. Stamp Tax on Certificates of Profits
exempt, then no one pays the tax. or Interest in Property or Accumulations. - On all
certificates of profits, or any certificate or
memorandum showing interest in the property or stamp tax of Thirty centavos (P0.30) on each Two
accumulations of any association, company or hundred pesos (P200), or fractional part thereof, of
corporation, and on all transfers of such certificates the face value of any such bill of exchange or letter
or memoranda, there shall be collected a of credit, or the Philippine equivalent of such face
documentary stamp tax of Fifty centavos (P0.50) on value, if expressed in foreign currency.
each Two hundred pesos (P200), or fractional part
thereof, of the face value of such certificate or SEC. 186. Stamp Tax on Policies of Annuities and
memorandum. Pre-Need Plans. - On all policies of annuities, or
other instruments by whatever name the same may
Section 178. Stamp Tax on Bank Checks, Drafts, be called, whereby an annuity may be made,
Certificates of Deposit not Bearing Interest, and transferred or redeemed, there shall be collected a
Other Instruments. - On each bank check, draft, or documentary stamp tax of Fifty centavos (P0.50) on
certificate of deposit not drawing interest, or order each Two hundred pesos (P200), or fractional part
for the payment of any sum of money drawn upon thereof, of the premium or installment payment or
or issued by any bank, trust company, or any person contract price collected. On pre-need plans, the
or persons, companies or corporations, at sight or documentary stamp tax shall be Twenty centavos
on demand, there shall be collected a documentary (P0.20) on teach Two hundred pesos (P200), or
stamp tax of One peso and fifty centavos (P1.50). fractional part thereof, of the premium or
contribution collected.
SEC. 179. Stamp Tax on All Debt Instruments. - On
every original issue of debt instruments, there shall Section 187. Stamp Tax on Indemnity Bonds. - On
be collected a documentary stamp tax on One peso all bonds for indemnifying any person, firm or
(P1.00) on each Two hundred pesos (P200), or corporation who shall become bound or engaged as
fractional part thereof, of the issue price of any such surety for the payment of any sum of money or for
debt instruments: Provided, That for such debt the due execution or performance of the duties of
instruments with terms of less than one (1) year, any office or position or to account for money
the documentary stamp tax to be collected shall be received by virtue thereof, and on all other bonds of
of a proportional amount in accordance with the any description, except such as may be required in
ration of its term in number of days to three legal proceedings, or are otherwise provided for
hundred sixty-five (365) days: Provided, further, herein, there shall be collected a documentary
That only one documentary stamp tax shall be stamp tax of Thirty centavos (P0.30) on each Four
imposed on either loan agreement, or promissory pesos (P4.00), or fractional part thereof, of the
notes issued to secure such loan. premium charged.
For purposes of this section, the term debt
instrument shall mean instruments representing Section 193. Stamp Tax on Powers of Attorney. -
borrowing and lending transactions including but On each power of attorney to perform any act
not limited to debentures, certificates of whatsoever, except acts connected with the
indebtedness, due bills, bonds, loan agreements, collection of claims due from or accruing to the
including those signed abroad wherein the object of Government of the Republic of the Philippines, or
contract is located or used in the Philippines, the government of any province, city or
instruments and securities issued by the municipality, there shall be collected a documentary
government of any of its instrumentalities, deposit stamp tax of Five pesos (P5.00).
substitute debt instruments, certificates or other
evidences of deposits that are either drawing Section 194. Stamp tax on Leases and Other
interest significantly higher than the regular savings Hiring Agreements. - On each lease, agreement,
deposit taking into consideration the size of the memorandum, or contract for hire, use or rent of
deposit and the risks involved or drawing interest any lands or tenements, or portions thereof, there
and having a specific maturity date, orders for shall be collected a documentary stamp tax of Three
payment of any sum of money otherwise than at pesos (P3.00) for the first Two thousand pesos
sight or on demand, promissory notes, whether (P2,000), or fractional part thereof, and an
negotiable or non-negotiable, except bank notes additional One peso (P1.00) for every One
issued for circulation. Thousand pesos (P1,000) or fractional part thereof,
in excess of the first Two thousand pesos (P2,000)
Section 182. Stamp Tax on Foreign Bills of for each year of the term of said contract or
Exchange and Letters of Credit. - On all foreign agreement.
bills of exchange and letters of credit (including
orders, by telegraph or otherwise, for the payment Section 195. Stamp Tax on Mortgages, Pledges
of money issued by express or steamship and Deeds of Trust. - On every mortgage or pledge
companies or by any person or persons) drawn in of lands, estate, or property, real or personal,
but payable out of the Philippines in a set of three heritable or movable, whatsoever, where the same
(3) or more according to the custom of merchants shall be made as a security for the payment of any
and bankers, there shall be collected a documentary definite and certain sum of money lent at the time
or previously due and owing of forborne to be paid, proper allowance of any encumbrance, does not
being payable and on any conveyance of land, exceed One thousand pesos (P1,000) fifteen pesos
estate, or property whatsoever, in trust or to be (P15.00).
sold, or otherwise converted into money which (b) For each additional One thousand Pesos
shall be and intended only as security, either by (P1,000), or fractional part thereof in excess of One
express stipulation or otherwise, there shall be thousand pesos (P1,000) of such consideration or
collected a documentary stamp tax at the following value, Fifteen pesos (P15.00).
rates: When it appears that the amount of the
(a) When the amount secured does not exceed Five documentary stamp tax payable hereunder has
thousand pesos (P5,000), Twenty pesos (P20.00). been reduced by an incorrect statement of the
(b) On each Five thousand pesos (P5,000), or consideration in any conveyance, deed, instrument
fractional part thereof in excess of Five thousand or writing subject to such tax the Commissioner,
pesos (P5,000), an additional tax of Ten pesos provincial or city Treasurer, or other revenue
(P10.00). officer shall, from the assessment rolls or other
On any mortgage, pledge, or deed of trust, where reliable source of information, assess the property
the same shall be made as a security for the of its true market value and collect the proper tax
payment of a fluctuating account or future advances thereon.
without fixed limit, the documentary stamp tax on
such mortgage, pledge or deed of trust shall be Section 197. Stamp Tax on Charter Parties and
computed on the amount actually loaned or given at Similar Instruments. - On every charter party,
the time of the execution of the mortgage, pledge or contract or agreement for the charter of any ship,
deed of trust, additional documentary stamp tax vessel or steamer, or any letter or memorandum or
shall be paid which shall be computed on the basis other writing between the captain, master or
of the amount advanced or loaned at the rates owner, or other person acting as agent of any ship,
specified above: Provided, however, That if the full vessel or steamer, and any other person or persons
amount of the loan or credit, granted under the for or relating to the charter of any such ship, vessel
mortgage, pledge or deed of trust shall be computed or steamer, and on any renewal or transfer of such
on the amount actually loaned or given at the time charter, contract, agreement, letter or
of the execution of the mortgage, pledge or deed of memorandum, there shall be collected a
trust. However, if subsequent advances are made on documentary stamp tax at the following rates:
such mortgage, pledge or deed of trust, additional (a) If the registered gross tonnage of the ship, vessel
documentary stamp tax shall be paid which shall be or steamer does not exceed one thousand (1,000)
computed on the basis of the amount advanced or tons, and the duration of the charter or contract
loaned at the rates specified above: Provided, does not exceed six (6) months, Five hundred pesos
however, That if the full amount of the loan or (P500); and for each month or fraction of a month
credit, granted under the mortgage, pledge or deed in excess of six (6) months, an additional tax of Fifty
of trust is specified in such mortgage, pledge or pesos (P50.00) shall be paid.
deed of trust, the documentary stamp tax (b) If the registered gross tonnage exceeds one
prescribed in this Section shall be paid and thousand (1,000) tons and does not exceed ten
computed on the full amount of the loan or credit thousand (10,000) tons, and the duration of the
granted. charter or contract does not exceed six (6) months,
One thousand pesos (P1,000); and for each month
Section 196. Stamp tax on Deeds of Sale and or fraction of a month in excess of six (6) months, an
Conveyances of Real Property. - On all additional tax of One hundred pesos (P100) shall be
conveyances, deeds, instruments, or writings, other paid.
than grants, patents or original certificates of (c) If the registered gross tonnage exceeds ten
adjudication issued by the Government, whereby thousand (10,000) tons and the duration of the
any land, tenement, or other realty sold shall be charter or contract does not exceed six (6) months,
granted, assigned, transferred or otherwise One thousand five hundred pesos (P1,500); and for
conveyed to the purchaser, or purchasers, or to any each month or fraction of a month in excess of six
other person or persons designated by such (6) months, an additional tax of One hundred fifty
purchaser or purchasers, there shall be collected a pesos (P150) shall be paid.
documentary stamp tax, at the rates herein below
prescribed, based on the consideration contracted Section 198. Stamp Tax on Assignments and
to be paid for such realty or on its fair market value Renewals of Certain Instruments. - Upon each and
determined in accordance with Section 6(E) of this every assignment or transfer of any mortgage, lease
Code, whichever is higher: Provided, That when one or policy of insurance, or the renewal or
of the contracting parties is the Government the tax continuance of any agreement, contract, charter, or
herein imposed shall be based on the actual any evidence of obligation or indebtedness by
consideration. altering or otherwise, there shall be levied, collected
(a) When the consideration, or value received or and paid a documentary stamp tax, at the same rate
contracted to be paid for such realty after making as that imposed on the original instrument.


De Leon notes:
Documents subject to tax:
Original issue of P200.00, or fraction part thereof, of P1.00
shares of stock with the par value of such shares or the
par value actual consideration received in case
of no par value shares or the actual
value represented by the share in the
case of stock dividends
Sales, agreements to On each P200.00, or fractional part P1.50
sell, memoranda of thereof, of the par value of such stock
sales, deliveries or
transfer of shares or If without par value 25% of the tax
certificates of stock paid upon original issue of said stock
Bonds, debentures, Such tax as is required by law on Same as those required by
certificates of stock similar instruments when issued, sold, law on instruments
or indebtedness or transferred in the Philippines transacted in the
issued in foreign Philippines
countries
Certificates of profits On each P200.00, or fractional part P0.50
or interest in thereof, of the face value of such
property or certificate of memorandum
accumulations
Bank checks, drafts, P1.50
certificates of deposit
not bearing interest,
and other
instruments
Debt instruments On each P200.00, or fractional part P1.00
thereof, of the issue price of every
original issue of any debt instrument
Bills of exchange or On each 200.00 or fractional part P0.30
drafts thereof, of the face value
Acceptance of bills of On each P200.00 or fractional part P0.30
exchange and others thereof, of the face value of any such
bill of exchange or order, or the
Philippine equivalent of such value, if
expressed in foreign currency
Foreign bills of On each P200.00, or fractional part P0.50
exchange and letters thereof, of the face value of any such
of credit bill of exchange or letter of credit, or
the Philippine equivalent of such face
value, if expressed in foreign currency
Life insurance Amount of DST rate P1,000.00
policies insurance
Does not exceed Exempt
P100,000.00
Exceeds P10.00
P100,000.00 but
does not exceed
P300,000.00
Exceeds P25.00
P300,000.00 but
does not exceed
 P500,000.00
Exceeds P50.00
P500,000.00 but
does not exceed
P750,000.00
Exceeds P75.00
P750,000.00 but
does not exceed
P1,000,000.00
Exceeds P100.00
P1,000,000.00

Policies of insurance Or each P4.00, or fractional part P0.50

upon property thereof, of the amount of the premium
charged
Fidelity bonds and On each P4.00, or fractional part P0.50
other insurance thereof, of the premium charged
policies
Policies of annuities On each P200.00 or fractional part P0.50
thereof, of the premium or installment
payment or contract price collected
Pre-need plans on each P500.00, or P0.20
fractional part thereof, of the
premium or contribution collected
plan
Indemnity bonds On each P4.00 or fractional part P0.30
thereof, of the premium charged
Certificates by any P15.00
customs officer,
surveyor, notary
public, etc.
Warehouse receipts On each warehouse receipt P15.00
On each warehouse receipt the None
amount of which does not exceed
P200.00 in any one calendar month
Jai-alai, horse race On each ticket if the cost is not more P0.10
tickets, lotto, or than P1.00
other authorized On each ticket if the cost of which is P0.10
number games more than P1.00 additional tax on
every P1.00 or fractional part thereof
Bills of ladings or On each set, if the value of goods
receipts Exceeds P100.00 and does not exceed P1.00
P1,000.00
Exceeds P1,000.00 P10.00
Proxies On each P15.00
Powers of attorney On each P5.00
Leases and other For the first P2,000.00 or fractional P3.00
hiring agreements part thereof
For every P1,000.00 or fractional part P1.00
thereof in excess of the first
P2,000.00, for each year of the term of
said contract or agreement, an
additional tax of
Mortgages, pledges If the amount secured does not exceed P20.00
and deeds of trust P5,000.00
On each P5,000.00, or fractional part P10.00
 thereof in excess of P5,000.00, an
additional tax of
Deeds of sale and If the consideration or value does not P15.00
conveyances exceed P1,000.00
For each additional P1,000.00 or P15.00
fractional part thereof in excess of
P1,000.00 of such consideration or
value
Charter parties and P500.00
similar instruments If the registered gross tonnage of the P50.00
ship, vessel or steamer does not
exceed 1,000 tons, and the duration of
the charter or contract does not
exceed six months and for each month
or fraction of a month in excess of six
months, an additional tax of
If the registered tonnage exceeds P1,000.00
1,000 tons and does not exceed
10,000 tons, and the duration of the
charter or contract does not exceed 6
months

And for each month or fraction of a P100.00
month in excess of six months, an
additional tax of
If the registered gross tonnage P1,500.00
exceeds 10,000 tons and the duration
of the contract or charter does not
exceed six months

And for each month or fraction of a P150.00
month in excess of six months, an
additional tax of
Assignments and The same rate as that imposed on the
renewals of original instrument
instruments
Revenue Regulations 9-94 (Omnibus taxable transaction, subject to the higher
agreement rule, which generally states that documentary stamp tax.
when the loan and collateral is only in one
document, then only the higher DST shall be Section 9 purchase on installment basis loan
agreements or promissory notes the aggregate of
paid, and not both)
which does not exceed P250,000.00 executed by an
Section 5. Stamp tax on issuance of Certificates of individual for his purchase, on installment, of a house,
Stock A documentary stamp tax shall be imposed lot, motor vehicle, appliance or furniture, for his
only on fully paid shares of stock at P2.00 on each personal use or that of his family and not for business,
P200, or fractional part thereof, of the par value of the resale, barter or hire, shall be exempt from the
certificate of stock. In the case of original issuance of payment of the documentary stamp tax imposed
stock without par value, the tax base shall be the under Section 180 of the Tax Code, as amended.
actual consideration received by the association, For this purpose, where several promissory notes
company, or corporation of the issuance of such stock, have been executed to secure a loan agreement or
and in the case of stock dividends on the actual value where such promissory notes pertain to the same
represented by each share. object, the value shall be aggregated and the
The documentary stamp tax is imposed on the promissory notes shall be taken as one. where the
privilege of issuing shares of stock; it accrues at the purchase on installment exceeds P250.00, the whole
time the shares are issued. Therefore, the delivery of purchase price shall be subject to the documentary
the certificates of stock to stockholders is not stamp tax prescribed under Section 180 of the Tax
essential for the documentary stamp tax to attach. Code, as amended.

Section 6. Stamp tax on all loan agreements All Section 10 Government Instruments and
loan agreements, whether made or signed in the Securities instruments and securities issued by the
Philippines, or abroad when the obligation or right government or any of its instrumentalities are subject
arises from Philippine sources or the property or to the documentary stamp tax of P0.30 on each P200
object of the contract is located or used in the or fractional part thereof, of the face value of any such
Philippines shall be subject to the documentary stamp securities of instruments.
tax of P0.30 on each P200.00 or fractional part
thereof, of the face value of any such agreements,

pursuant to section 180 in relation to Section 173 of Filinvest v CIR (mentioned by maam)
the Tax Code There was a loan between affiliate companies
In cases where no formal loa agreements or evidence by a board resolution and debit and
promissory notes have been executed to cover credit credit memorandums. The Supreme Court in this
facilities, the documentary stamp tax shall be based case held that this transaction was subject to
on the amount of drawings or availment of the DST, since debit or credit memorandums fall
facilities, which may be evidenced by credit/debit under the concept of loan agreements.
memo, advice or drawings by any form of check or
withdrawal slip, under Section 180 of the Tax Cose, as
Revenue Regulations 04-99
amended.
Subject: payment of capital gains tax and
Section 7 Loan secured by a promissory note In documentary stamp tax on extrajudicial
cases where a loan agreement and a promissory note foreclosure sale of capital assets initiated
are simultaneously issued and executed, the loan by banks, finance and insurance
having been secured by the promissory note, only one companies
documentary stamp tax shall be imposed on either Section 4 Documentary stamp tax
loan agreement or promissory note, whichever will 1) In case the mortgagor exercises his right of
yield a higher tax. redemption, the transaction shall only be subject to
the P15.00 documentary stamp tax imposed under
Section 8 Loan agreements/ promissory notes Section 188 of the Tax Code of 1997 because no land
secured by a pledge/mortgage where only one or realty was sold or transferred for a consideration.
instrument was prepared, made, signed and executed 2) In case of non-redemption, the corresponding
to cover a loan agreement/ promissory note, documentary stamp tax shall be levied, collected and
pledge/mortgage, the documentary stamp tax paid by the person making, signing, issuing, accepting,
prescribed in Section 195 of the Tax Code, as or transferring the real property wherever the
amended, shall be paid and computed on the full document is made, signed, issued, accepted or
amount of the loan or credit granted. In this regard, transferred where the property is situated in the
the instrument shall be treated as covering only one
Philippines; Provided, that whenever one party to the filing them; certified copies and other certificates
taxable document enjoys exemption from the tax, the placed upon documents, instruments and papers for
other party thereto who is not exempt shall be the the national, provincial, city or municipal
one directly liable for the tax. The tax return governments, made at the instance and for the sole
prescribed under the Code shall be filed within 10 use of some other branch of the national, provincial,
days after the close of the month following the lapse city or municipal governments; and certificates of the
of the one year redemption period, and the tax due assessed value of lands, not exceeding Two hundred
under Section 196 of the Tax Code of 1997 shall be pesos (P200) in value assessed, furnished by the
paid based on the bid price at the same time the provincial, city or municipal Treasurer to applicants
aforesaid return is filed. for registration of title to land.
(c) Borrowing and lending of securities executed
Revenue Memorandum Circular 47-97 under the Securities Borrowing and lending Program
of a registered exchange, or in accordance with
The documentary stamp tax on original
regulations prescribed by the appropriate regulatory
issues of certificates of stock as provided authority: Provided, however, That any borrowing or
under Section 175 of the Tax Code lending of securities agreement as contemplated
attaches upon acceptance of the hereof shall be duly covered by a master securities
stockholders subscription in the capital borrowing and lending agreement acceptable to the
stock of a corporation regardless of the appropriate regulatory authority, and which
physical issuance and delivery to the agreements is duly registered and approved by the
stockholder of the certificate of stock Bureau of Internal Revenue. (BIR).
evidencing his stockholding. (d) Loan agreements or promissory notes, the
aggregate of which does not exceed Two hundred fifty
thousand pesos (P250,000), or any such amount as
C. DOCUMENTS AND PAPERS NOT may be determined by he Secretary of Finance,
SUBJECT TO TAX executed by an individual for his purchase on
installment for his personal use or that of his family
and not for business or resale, barter or hire of a
SEC. 199. Documents and Papers Not Subject to
Stamp Tax. - The provisions of Section 173 to the house, lot, motor vehicle, appliance or furniture:
contrary notwithstanding, the following instruments, Provided,however, That the amount to be set by the
documents and papers shall be exempt from the Secretary of Finance shall be in accordance with a
documentary stamp tax: relevant price index but not to exceed ten percent
(a) Policies of insurance or annuities made or granted (10%) of the current amount and shall remain in
by a fraternal or beneficiary society, order, force at least for three (3) years.
association or cooperative company, operated on the (e) Sale, barter or exchange of shares of stock listed
lodge system or local cooperation plan and organized and traded through the local stock exchange
and conducted solely by the members thereof for the (f) Assignment or transfer of any mortgage, lease or
exclusive benefit of each member and not for profit. policy of insurance, or the renewal or continuance of
(b) Certificates of oaths administered to any any agreement, contract, charter, or any evidence of
government official in his official capacity or of obligation or indebtedness, if there is no change in the
acknowledgment by any government official in the maturity date or remaining period of coverage from
performance of his official duties, written appearance that of the original instrument.
in any court by any government official, in his official (g) Fixed income and other securities traded in the
capacity; certificates of the administration of oaths to secondary market or through an exchange.
any person as to the authenticity of any paper (h) Derivatives: Provided, That for purposes of this
required to be filed in court by any person or party exemption, repurchase agreements and reverse
thereto, whether the proceedings be civil or criminal; repurchase agreements shall be treated similarly as
papers and documents filed in courts by or for the derivatives.
national, provincial, city or municipal governments; (i) Interbranch or interdepartmental advances within
affidavits of poor persons for the purpose of proving the same legal entity.
poverty; statements and other compulsory (j) All forebearances arising from sales or service
information required of persons or corporations by contracts including credit card and trade
the rules and regulations of the national, provincial, receivables:Provided, That the exemption be limited
city or municipal governments exclusively for to those executed by the seller or service provider
statistical purposes and which are wholly for the use itself.
of the bureau or office in which they are filed, and not (k) Bank deposit accounts without a fixed term or
at the instance or for the use or benefit of the person maturity.
(l) All contracts, deeds, documents and transactions signed, issued, accepted, or transferred, and the tax
related to the conduct of business of the Banko thereon shall be paid at the same time the aforesaid
Sentral ng Pilipinas. return is filed.
(m) Transfer of property pursuant to Section 40(c)(2) (C) Where to File. - Except in cases where the
of the National Internal Revenue Code of 1997, as Commissioner otherwise permits, the aforesaid tax
amended. return shall be filed with and the tax due shall be paid
(n) Interbank call loans with maturity of not more through the authorized agent bank within the
than seven (7) days to cover deficiency in reserves territorial jurisdiction of the Revenue District Office
against deposit liabilities, including those between or which has jurisdiction over the residence or principal
among banks and quasibanks. place of business of the taxpayer. In places where
there is no authorized agent bank, the return shall be
filed with the Revenue District Officer, collection
D. COMPLIANCE REQUIREMENTS agent, or duly authorized Treasurer of the city or
municipality in which the taxpayer has his legal
Time and Manner of Payment of residence or principal place of business.
Documentary Stamp Tax (D) Exception. - In lieu of the foregoing provisions of
Section 4 Revenue Regulations 09-94 the this Section, the tax may be paid either through
documentary stamp tax shall be paid by the purchase purchase and actual affixture; or by imprinting the
and affixture of the documentary stamp(s) to the stamps through a documentary stamp metering
document or instrument taxed or to such other machine, on the taxable document, in the manner as
papers as may be indicated by law or regulations as may be prescribed by rules and regulations to be
the proper recipients of the stamp and by the promulgated by the Secretary of Finance, upon
subsequent cancellation of the documentary stamp recommendation of the Commissioner.
which may be done by writing, stamping or Deleon notes of sec. 200 NIRC:
perforating the date of the cancellation across the face by whom payable - the tax shall be paid
of each stamp in such a manner that part of the by the person making, signing, issuing,
writing, impression, or perforation shall be on the accepting or transferring such obligation,
stamp itself and partly on the document to which the
right or property. in other words, both
stamp is attached.
the person who issued the document and
If, however, the amount of the documentary stamp tax
due on the taxable document is P10.00 or more, the the person to whom it is issued de liable
documentary stamp tax shall be paid by the taxpayer for the tax. in case, however, one party to
at the time the act is done or transaction had, and the taxable document enjoys exemption
instead of affixing actual documentary stamp on the from the tax, the other party thereto who
face of the taxable document, the information shown is not exempted shall be the one directly
on the evidence of payment of the documentary liable for the tax (sec. 173)
stamp tax due on the document, that is, the official when - except as otherwise provided by
receipt number of the evidence of payment, date of rules and regulations, the tax return shall
payment, amount paid, and the name of the payor,
be filed and the tax due shall be paid at
shall be written on the face of the document or on any
the same time within 5 days after the
suitable space in the document.
close of the month when the taxable

document was made, signed, issued,
Filing of return and payment of tax
accepted or transferred. in lieu of the
Section 200. Payment of Documentary Stamp Tax. -
(A) In General. - The provisions of Presidential Decree
foregoing, the tax may be paid either
No. 1045 notwithstanding, any person liable to pay through purchase and actual affixture, or
documentary stamp tax upon any document subject imprinting the stamps through a
to tax under Title VII of this Code shall file a tax return documentary stamp metering machine
and pay the tax in accordance with the rules and on the taxable document
regulations to be prescribed by the Secretary of where - except in cases where the
Finance, upon recommendation of the Commissioner. commissioner otherwise permits, the tax
(B) Time for Filing and Payment of the Tax. - Except as return shall be
provided by rules and regulations promulgated by the filed and the tax due shall be paid
Secretary of Finance, upon recommendation of the
through an authorized agent bank within
Commissioner, the tax return prescribed in this
Section shall be filed within 5 days after the close of
the territorial jurisdiction over the
the month when the taxable document was made, residence or principal place of business
 of the taxpayer. in places where there is share(s) of stock; and 3) stamp tax on jai-
no authorized agent bank, the return alai, horse race, lotto or other authorized
shall be filed with the revenue district number games - to be remitted by the
officer, revenue collection officer, or duly proprietor or operators. Whenever one
authorized treasurer of the city or of the parties to the taxable document or
municipality where the taxpayer has transaction is included in any of the
his/its legal residence principal place of entities enumerated in the Regulations,
business. such entities will be responsible for the
exception: in lieu of the foregoing remittance of the DST.
provisions, the tax may be paid either The "on-line electronic DST imprinting
through purchase and actual affixture, or machine", unless expressly exempted by
by imprinting the stamps through a the Commissioner, will be used in the
documentary stamp metering machine, payment and remittance of the DST by
on the taxable document, in the manner the following class of taxpayers: a) bank,
as may be prescribed by the rules and quasi-bank or non-bank financial
regulations to be promulgated by the intermediary, finance company,
Secretary of Finance, upon insurance, surety, fidelity, or annuity
recommendation of the Commissioner. company; b) the Philippine Stock
Revenue Regulations 09-00 Exchange (in the case of shares of stock
Subject: identifies the persons liable for and other securities traded in the local
the Documentary Stamp Tax (DST) and stock exchange); c) shipping and airline
the mode of payment/remittance of the companies; d) pre-need company (on
said tax under certain conditions sale of pre-need plans); and e) other
In general, it may be imposed on the industries as may be required by the
transaction itself or upon the document Commissioner.
underlying such act. Any of the parties to
the taxable transaction will be liable and Effect of failure to stamp taxable document
responsible for the payment and SEC. 201. Effect of Failure to Stamp Taxable
remittance of the full amount of the tax Document. - An instrument, document or paper which
due. is required by law to be stamped and which has been
signed, issued, accepted or transferred without being
However, whenever one of the parties to
duly stamped, shall not be recorded, nor shall it or
the taxable transaction is exempt from any copy thereof or any record of transfer of the same
the DST, the other party who is not be admitted or used in evidence in any court until the
exempt shall be the one directly liable for requisite stamp or stamps are affixed thereto and
the said tax. If the tax-exempt party is cancelled.
one of the persons constituted as agent of
the Commissioner for the collection of No notary public or other officer authorized to
the tax, he shall be required to collect and administer oaths shall add his jurat or
remit the DST. Failure on his part to acknowledgment to any document subject to
collect and remit the DST would make documentary stamp tax unless the proper
documentary stamps are affixed thereto and
him personally liable for the tax and the
cancelled.
penalties prescribed under Title X of the
Tax Code. Deleon notes:
Such failure does not render the document
The DST on the specified cases will be
invalid or void. but in such case, the following
remitted as follows: 1) stamp tax on
shall be the effects:
bonds, debentures, certificates of
the document, instrument, or paper or
indebtedness, deposit substitute, or other
any record or transfer of the same shall
similar instruments - to be remitted by
not be recorded in the government
the person who issued the instrument; 2)
registry
stamp tax on original issue of shares of
such document, instrument, or paper or
stock in a corporation - to be remitted by
any record or transfer of the same shall
the corporation which issued the
 not be admitted or used in evidence in
any court until the requisite stamp or
stamps shall have been affixed thereon
and cancelled (par. 1 sec. 201)
no notary public or other officer
authorized to administer oaths shall add
his jurat or acknowledgment until the
document is properly stamped (par. 2
sec. 201)
in case of failure to affix the proper
documentary stamps to a document or
instrument, there shall, for every
violation, be imposed in addition to the
amount of tax required to be paid, an
amount equivalent to 25% of such
unpaid amount as surcharge (sec. 248a)
and 20% interest per annum from the
date prescribed for payment until the
amount is fully paid (sec.249a).