TAXATION II

PART III
VALUE-ADDED TAX
Sections 105-115 of the NIRC, amended by RA No. 9337
Implemented by RR No. 16-05 as amended by RR No. 4-07
I. PRELIMINARY MATTERS
a. Nature and characteristic of VAT in general
Sec. 4.105.-2 of RR No. 16-05
SECTION 4.105-2. Nature and Characteristics of VAT. VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the Philippines. The seller is the one statutorily liable for the payment of the
tax but the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA No. 9337. However, in the case
of importation, the importer is the one liable for the VAT.
CASES: CIR vs. Magsaysay Lines GR No. 146984 dated July 28, 2006
Pursuant to a government program of privatization, NDC, a VAT-registered entity created for the purpose of selling real property, decided to sell to
private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC
shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels. The vessels were constructed for the NDC between
1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and
leased, on a bareboat basis, to the NMC. The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions
for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." Magsaysay Lines, Inc., offered to
buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed
composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong . The bid was approved by the Committee on
Privatization, and a Notice of Award was issued to Magsaysay Lines.
VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage.It is the end user
of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these
goods or services who in turn may credit their own VAT liability (or input
VAT) from the VAT payments they receive from the final consumer (or output VAT).The final purchase by the end consumer represents the final link in
a production chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal adequacy through the
collection of taxes on every level of consumption,yet assuages the manufacturers or providers of goods and services by enabling them to pass on
their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability.
CIR vs. Seagate Technology (Phils) GR No. 153866 February 11, 2005
The VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every importation of goods, whether or not in the course of trade
or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or
business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services
by the seller, transferor or lessor.It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services. As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in
terms of its nature as a tax on consumption.
b. VAT as an indirect tax
CASE: Contex vs. CIR GR No. 151135 dated July 2, 2004
VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed
on by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which primarily taxes an
individuals ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain
transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures. Further, in indirect taxation, there is a need to
distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the
selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such
as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or consumer
of

REVIEWER TAX 2- YUMI

such goods or services who, although not directly and legally liable for the
payment thereof, ultimately bears the burden of the tax.
c. Persons Liable (Sec. 105)
Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any
person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act
No. 7716.
i. Persons liable in general
CASE: CIR vs. CA and Commonwealth Management Services
Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter to perform collection, consultative and other
technical services, including functioning as an internal auditor, of Philamlife and its other affiliates. On January 24, 1992, the Bureau of Internal
Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT). COMASERCO's annual corporate
income tax return ending December 31, 1988 indicated a net loss in its operations. COMASERCO asserted that the services it rendered to Philamlife
and its affiliates, relating to collections, consultative and other technical assistance, including functioning as an internal auditor, were on a "no-profit,
reimbursement-of-cost-only" basis. It averred that it was not engaged id the business of providing services to Philamlife and its affiliates.
COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of
services. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net
loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT.
ii. Who are required to register for VAT (Sec. 236 G) [Sec. 9.236-1 of RR
No. 16-05]
Sec. 236 (G)
Any person, who expects to realize gross sales or receipts subject to value- added tax in excess of the amount prescribed under Section 109(z) of this
Code for the next 12-month period from the commencement of the business, shall register with the Revenue District Office which has jurisdiction over
the head office or branch and shall pay the annual registration fee prescribed in Subsection (B) hereof.
Sec. 9.236-1 of RR No. 16-05
(a) In general. Any person who, in the course of trade or business, sells, barters, exchanges goods or properties, or engages in the sale of services
subject to VAT imposed in Secs. 106 and 108 of the Tax Code shall register with the appropriate RDO using the appropriate BIR forms and pay an
annual registration fee in the amount of Five Hundred Pesos (P500) using BIR Form No. 0605 for every separate or distinct establishment or place of
business (save a warehouse without sale transactions) before the start of such business and every year thereafter on or before the 31st day of
January.
Any person who maintains a head or main office and branches in different places shall register with the RDO which has jurisdiction over the place
wherein the main or head office or branch is located. However, the registration fee shall be paid to any accredited bank in the Revenue District where
the head office or branch is registered provided that in areas where there are no accredited banks, the same shall be paid to the RDO, collection
agent, or duly authorized treasurer of the municipality where each place of business or branch is situated.
Each VAT-registered person shall be assigned only one TIN. The branch
shall use the 9-digit TIN of the Head Office plus a 3-digit Branch Code.
(b) Mandatory:
Any person who, in the course of trade or business, sells, barters or exchanges goods or properties or engages in the sale or exchange of services
shall be liable to register if:
i. His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code, have
exceeded One million five hundred thousand pesos (P1,500,000.00); or
ii. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under
Sec. 109 (1)(A) to (U) of the Tax Code, will exceed One million five hundred thousand pesos (P1,500,000.00).

Every person who becomes liable to be registered under paragraph (1) of this subsection shall register with the RDO which has jurisdiction over the
head office or branch of that person, and shall pay the annual registration fee prescribed in subsection 9.236-1(a) hereof. If he fails to register, he
shall be liable to pay the output tax under Secs. 106 and/or 108 of the Tax Code as if he were a VAT-registered person, but without the benefit of input
tax credits for the period in which he was not properly registered.
Moreover, franchise grantees of radio and television broadcasting, whose gross annual receipt for the preceding calendar year exceeded
P10,000,000.00, shall register within thirty (30) days from the end of the calendar year.
iii. Optional VAT Registration (Sec. 236 H) [Sec. 9.236-1 of RR No. 16-05]
(c) Optional VAT Registration.
(1) Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VATregistered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for
every separate and distinct establishment.
(2) Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his
transactions which would have been exempt under Section 109(1) of the Tax Code, as amended. [Sec. 109(2)]
(3) Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos
(P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall
be irrevocable. (Sec. 119, Tax Code)
Any person who elects to register under this subsections (1) and (2) above
shall not be allowed to cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the
registration fee prescribed under sub-paragraph (a) of this Section, unless they have already paid at the beginning of the year. In any case, the
Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration.
d.
Meaning of the phrase in the course of trade of business (Sec.
105)
Sec. 4.105-3 of RR No. 16-05 - Meaning of "In the Course of Trade or Business". The term "in the course of trade or business" means the regular
conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business, even if the
performance of services is not regular.
CASE: CIR vs. Magsaysay Lines GR No. 146984 dated July 28, 2006
Interpretation of the term In the Course of Trade or Business. VAT is not a singular-minded tax on every transactional level. Its assessment bears
direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent
incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of
trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as
a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or
services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since
the accumulation of output VAT arises in the first place only through the ordinary course of trade or business. Is the sale subject to VAT ?
No. The sale is not subject to VAT.
"course of business" or "doing business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was
involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. It
should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. This finding is confirmed by the Revised Charter of
the NDC which bears no indication that the NDC was created for the primary purpose of selling real property.