What is the nature of value added taxes?

Indirect tax
o May be shifted or passed on to the buyer,
transferee or lessee of the goods, properties
or services.
Tax on consumption
Uses the tax credit method
o Invoice based
o An entity can credit against or subtract from
the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and
imports
o Output taxes input taxes = VAT to be paid
o If the input taxes exceed the output taxes,
the excess shall be carried over to the
succeeding quarter/s.
If the input taxes result from zero
rated or effectively zero rated
transactions OR from the
acquisitions of capital goods, any
excess over the output taxes shall
instead be refunded or credited
against other internal revenue taxes.
o Input taxes value added tax paid by a
VAT-registered person/entity in the course
of his/its trade or business on the
importation of goods or local services from a
VAT registered person.
o Output tax VAT on the sale of taxable
goods or services by any person registered
or required to register.

Mindanao
Geothermal v. CA

Who is liable to pay VAT? (sec.105)

VAT imposed on any person who:
1. Sells, barters or exchanges goods or properties in the
course of trade or business; or
2. Sells services in the course of trade or business; or
3. Imports goods, whether or not in the course of trade
or business
Ordinary course of trade or business
Means the regular conduct or pursuit of a commercial
or economic activity
Also includes transactions incidental thereto
Covers any person regardless whether or not the
person engaged therein is a nonstock, nonprofit
organization
Exceptions:
o If taxpayer is a non-resident alien, there is
no need for the regularity of conduct.
o Importation of goods (sec.107)
Case
CIR v. Magsaysay

MB Agunoy

CIR v.
COMASERCO

When sales of goods or

services do not occur within
the course of trade of
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 only through
the ordinary course of
business.
Sale of the Nissan Patrol is
said to be an isolated
transaction. However, it
does not follow that an
isolated transaction cannot
be an incidental transaction
for purposes of VAT
liability.
In the course of its business,
Mindanao II bought and
eventually sold a Nissan
Patrol. Prior to the sale, the
Nissan Patrol was part of
Mindanao IIs property,
plant, and equipment.
Therefore, the sale of the
Nissan Patrol is an
incidental transaction made
in the course of Mindanao
IIs business which should
be liable for VAT.
Non-stock, non-profit
organizations are liable to
pay VAT on the sale of
goods or services.

Distinguish between liability for the tax and burden for the
tax
What is transferred in VAT is not the liability for the
tax, but the tax burden.
Seller remains the person primarily and legally liable
for the payment of the tax. Ultimately, the final
purchaser bears the burden of the tax.

Doctrine
Sale of vessels not in the
ordinary course of business
-> sold because of
privatization
VAT bears direct relevance
to the taxpayers role in the
production chain

NORMAL VAT TRANSACTIONS 12%

A. Sale of goods and properties
a. Sec.106 (A)(1) The term goods and
properties shall mean all tangible and
intangible objects which are capable of
pecuniary estimation and shall include:
(PRREM)
1) Real properties held primarily
for sale to customers or held for
lease in the ordinary course of
trade or business;
2) The right or privilege to use
Patent, copyright, design or
model, plan, secret formula or
process, goodwill, trademark,
trade brand, or other like
property or right.
3) Right or the privilege to use in
the Philippines of any industrial,
commercial
or
scientific
Equipment;
4) The right or the privilege to use
Motion picture films, tapes and
discs ; and
5) Radio,
television,
satellite
transmission
and
cable
television time.
b. Sec.106 (B) - Transactions Deemed Sale
(SOCCR)
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;
2) Distribution or transfer to:
a) Shareholders or investors
as Share in the profits of
the
VAT
registered
persons; or
b) Creditors in payment of
debt
c) Consignment of goods if
actual sale is not made
within 60 days following
the date such goods were
consigned; and
d) Retirement from or
cessation of business,
with
respect
to
inventories of taxable
goods existing as of such
retirement or cessation.

MB Agunoy

B.

Sale of services
a. Sec.108 Sale of services in the course of trade
or business includes those performed or
rendered by:
1) Construction or service contractors
2) Stock, real estate, commercial,
customs and immigration brokers
3) Lessor of property, whether
personal or real
4) Warehousing services
5) Lessor
or
distributors
of
cinematographic films;
6) Persons engaged in milling,
processing,
manufacturing
or
repacking of goods for others;
7) Proprietors, operators, or keepers
of hotels
8) Proprietors, operators, or keepers
of restaurants, cafes, including
clubs and caterers
9) Dealers in securities
10) Lending investors
11) Transportation contractors on their
transport of goods or cargoes
12) Common carriers by air and sea
13) Sales of electricity by generation
companies,
transmission
and
distribution companies
14) Services of franchise grantees of
electric utilities, telephone and
telegraph, radio and television
broadcasting
and
all
other
franchise grantees
15) Non-life insurance companies
(except crop insurances)
16) Similar services regardless of
whether or not the performance
thereof calls for the exercise or use
of the physical or mental faculties
b. Also included are:
1) Lease or use of or right or
privilege to use any copyright,
patent, design, plan etc.
2) Lease or use of, or the right to use
of any industrial, commercial, or
scientific equipment
3) The supply of scientific, technical,
industrial
or
commercial
knowledge or information
4) The supply of any assistance that is
ancillary and subsidiary and is
furnished as a means of enabling
the application or enjoyment of
such property as enumerated in (2)
or any such knowledge or
information as mentioned in (3)

5)

6)

7)
8)

Note:

Supply of services by a nonresident person or his

employee in connection with
the use of property or rights
belonging
to,
or
the
installation or operation of
any brand, machinery or other
apparatus purchase from such
non-resident person
Supply of technical advice,
assistance
or
services
rendered in connection with
technical management or
administration
of
any
scientific,
industrial
or
commercial
undertaking,
venture, project or scheme
Lease of motion picture films,
tapes, discs
Lease or use of or the right to
use radio, television, satellite
transmission, cable television
time.

Services must be done in the course of business

Done
for
valuable
consideration
(actually/constructively received)

Case
CIR v. Sony

CIR v. Seagate

QC v. ABSCBN

CIR v.
COMASERCO
CIR v. SM
Prime Holdings
Sonza v. ABSCBN

C.

Importation
Sec. 107
a.

b.

MB Agunoy

Every importation of foods shall be

subject to VAT, whether for use in
business or not
Tax base:

Total value used by the BOC in

determining tariff and customs duty +
customs duties + excise tax + other
charges prior to removal of goods
from customs custody; OR

Based on landed costs, when the

customs duties are determined on the
basis of the quantity or volume of the
goods

Landed cost: invoice cost +

freight insurance + customs
duties + excise tax + other
charges prior to removal of
goods from customs custody.

San Roque v
CIR

Doctrine
Dole-out or subsidy from the
Singaporean company to the
Philippine company neither
constituted a sale of goods or
properties, nor a sale of services. Sony
not liable to pay VAT.
VAT shall be imposed on every
importation of goods, whether or not
in the course of trade or business. This
is unlike VAT on sale of goods or
properties which must be made in the
course of trade or business.
Radio and television broadcasting
companies who annual gross receipts
exceed P10 million are governed by
Sec.108. They are liable to pay VAT
and do not have the option to choose
between paying franchise tax or VAT.
Any sale of services for a fee,
remuneration or consideration is
subject to VAT, regardless of any
profit derived therefrom.
Lease of motion picture films, tapes
and discs did NOT equate to showing
or exhibition of motion pictures or
fims. SM not liable to pay VAT.
Professionals such as talent and
television and radio broadcasters are
liable to pay VAT.
Portion of SRPCs claim for tax
refund/credit for alleged unutilized
input VAT was attributable to a sale of
electricity to NPC that was made
during the testing period. Although the
sale was not a commercial sale or in
the course of business, it was a
transaction deemed sale (in this case it
was zero-rated).

Tax base:
b.
c.

Sale of goods gross sales

Sale of services gross receipt
o Total amount of money or its equivalent
representing the contract price,
compensation, service fee, rental or royalty
including the amount charged for materials
supplied with the services and deposits and
advanced payments actually or
constructively received.

ZERO-RATED TRANSACTIONS
For goods
A. Sec.106 (A)(2)
a. Export Sales.
1) The sale and actual shipment of goods from
the Philippines to a foreign country,
irrespective of any shipping arrangement that
may be agreed upon 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 goods or
services, and accounted for in accordance
with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
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 manufacturing, processing,
packing or repacking in the Philippines of
the said buyer's goods and paid for in
acceptable foreign currency and accounted
for in accordance with the rules and
regulations of the Bangko Sentral ng
Pilipinas (BSP);
3) Sale of raw materials or packaging materials
to export-oriented enterprise whose export
sales exceed seventy percent (70%) of total
annual production;
4) Sale of gold to BSP
5) Those considered export sales under
Executive Order NO. 226, otherwise known
as the "Omnibus Investment Code of 1987",
and other special laws; and
6) The sale of goods, supplies, equipment and
fuel to persons engaged in international
shipping or international air transport
operations.
b. Foreign Currency Denominated Sale.
A. sale to a nonresident of goods, except
those mentioned in Sections 149 and
150, assembled or manufactured in
the Philippines for delivery to a
resident in the Philippines, paid for in
acceptable foreign currency and
accounted for in accordance with the
rules and regulations of the BSP
a. note: this does not apply to
automobiles
and
nonessential goods subject to
excuse taxes
c.

MB Agunoy

For Services
A. Sec. 108 (B)
1) Processing, manufacturing or repacking
goods for other persons doing business
outside the Philippines which goods are
subsequently exported, where the services
are paid for in acceptable foreign currency
and accounted for in accordance with the
rules and regulations of the BSP;
2) Services other than those mentioned in the
preceding paragraph, rendered to a person
engaged in business conducted outside the
Philippines OR to a nonresident person not
engaged in business who is outside the
Philippines when the services are performed,
the consideration for which is paid for in
acceptable foreign currency and accounted
for in accordance with the rules and
regulations of the BSP
3) Services rendered to persons or entities
whose exemption under special laws or
international agreements to which the
Philippines is a signatory effectively subjects
the supply of such services to zero percent
(0%) rate;
4) Services rendered to persons engaged in
international shipping or international air
transport operations, including leases of
property for use thereof. [52]
5) Services performed by subcontractors and/or
contractors in processing, converting, of
manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of
total annual production.
6) Transport of passengers and cargo by air or
sea vessels from the Philippines to a foreign
country; and
7) Sale of power or fuel generated through
renewable sources of energy such as, but not
limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other
emerging energy sources using technologies
such as fuel cells and hydrogen fuels.

Sales to persons or entities whose exemption

under special laws or international agreements
to which the Philippines is a signatory
effectively subjects such sales to zero rate.

Distinguish between VAT rating and zero rating

Transactions which are taxed at zero-rate do not
result in any output tax. Input tax attributable to zerorated sales could be refunded or credited against other
internal revenue taxes at the option of the taxpayer.
Example:
o Taxpayer purchases materials from supplier
at P80. (cost 73 pesos +VAT)
Input tax: P7.30 (10% of 73 pesos)
(now 12%)
o Sells finished product in a zero rated
transaction for P110 (cost 100 pesos + VAT)
Allowed to recover both input tax
of P7.30 + output vat of 2.70 (10%
of the value he has added)
Total VAT: 10 pesos
Distinguish between VAT exemption and zero-rating
VAT exemption
Shall not bill any output tax
to his customers because the
said transaction is not subject
to VAT
Not entitled to any input tax
on such purchases despite
issuance of a VAT invoice or
receipt
Only removes the VAT at the
exempt stage, and it will
actually increase, rather than
reduce the total taxes paid by
the exempt firms business or
non-retail customers.
Only partial relief because the
purchaser is not allowed any
tax refund of or credit for
input taxes paid.
Registration is optional for
VAT-exempt person

Zero-rated sales
Shall not result in any output
tax
Input tax on his purchase of
goods, properties or services
related to such zero rated sale
shall be available as tax credit
or refund in accordance with
these regulations.
All VAT is removed from the
zero-rated goods, activity, or
frim.

Total relief for the purchaser

from the burden of the tax
Persons engaged in
transactions which are zerorated being subject to VAT
are required to register

Distinguish between zero-rated transactions and effectively

zero-rated transactions (differ as to source)
Zero-rated
Refer to the export sale of
goods and supply of services

Primarily intended to be
enjoyed by the seller who is
directly and legally liable,
MB Agunoy

Effectively zero-rated
Sale of goods or supply of
services to persons or entities
whose exemption under
special laws or international
agreements to which the
Philippines is a signatory
effectively subjects such
transaction to a zero rated
sale
Intended to benefit the
purchaser who, not being
directly and legally liable for

making such seller

internationally competitive

the payment of VAT, will

ultimately bear the burden of
the tax shifted by suppliers.

Cross-border doctrine
No VAT shall be imposed to form part of the cost of
goods destined for consumption outside of the
territorial border of the taxing authority. Actual
export of goods and services from the Philippines to a
foreign country must be free from VAT.
Ecozone territories shall be free from VAT.
Destination Principle
Goods and services are to be taxed only in the
country where they are consumed. Thus, exports are
zero-rated, while imports are taxed.
Consumption
o Use of a thing in a way that exhausts it.
o As applied to services, it means the
performance or successful completion of a
contractual duty.
Exceptions to destination principle Sec.108 (B)
o Deemed exceptions because although the
services are performed in the Philippines,
upon compliance with certain requirements,
sale of such services are zero-rated.
Case
Doctrine
Atlas
0% rate applies to the total sale of raw
Consolidated materials or packaging materials to an exportv. CIR
oriented enterprise and not just the percentage
of the sale in proportion to the actual exports
of the enterprise
CIR v.
Amex PH facilitated the collection and
American
payment of receivables belonging to its HK
Express
based foreign client and getting paid for it in
acceptable foreign currency. This falls under
sec.108 (B) zero-rated.
CIR v.
Placer Dome Canada engaged the services of
Placer Dome Placer Dome PH to perform clean-up and
rehabilitation. Court tuled that the sale of
services of PD Canada was zer-rated.
CIR v.
Burmeister was engaged in the operatioin of
Burmeister
power barges in Mindanao. SC denied their
claim on that ground that Sec.108 (B)2
required that the payer-recipient of the
services must be doing outside the Philippines.

CIR v.
Acesite
Hotel
Corporation
San Roque
v. CIR

Services other than processing, manufacturing,

or repacking of goods must be performed for
persons doing business outside the Philippines.
Acesite was the operator of a hotel. It leased a
portion of its premises to PAGCOR. Pursuant
to PAGCOR charter, Acesites sale of services
to PAGCOR was zero rated.
Effective zero rating is not intended as a
benefit to the person legally liable to pay the
tax, but to relieve certain exempt entities (like
NPC) from the burden of indirect tax so as to
encourage development of industries.

EXEMPT TRANSACTIONS
1.

2.

3.

4.

5.
6.

7.
8.

9.
10.

11.

12.

13.

14.

MB Agunoy

Sale or importation of agricultural and marine food products

in their original state, livestock and poultry of or king
generally used as, or yielding or producing foods for human
consumption. Products classified under this paragraph shall
be considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market. Polished and/or husked rice,
corn grits, raw cane sugar and molasses, ordinary salt and
copra shall be considered in their original state;
Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals generally considered as
pets);
Importation of personal and household effects belonging to
the residents of the Philippines returning from abroad and
nonresident citizens coming to resettle in the Philippines:
Provided, That such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household
effects (except any vehicle, vessel, aircraft, machinery other
goods for use in the manufacture and merchandise of any
kind in commercial quantity) belonging to persons coming
to settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival.
Services subject to percentage tax under Title V;
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into
raw sugar
Medical, dental, hospital and veterinary services except
those rendered by professionals.
Educational services rendered by private educational
institutions, duly accredited by DEPED, CHED or TESDA
and those rendered by government educational institutions;
Services rendered by individuals pursuant to an employeremployee relationship;
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
and do not earn or derive income from the Philippines;
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except those under Presidential Decree No.
529;
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as
well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct
farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the
production and/or processing of their produce;
Gross receipts from lending activities by credit or multipurpose cooperatives duly registered with the Cooperative
Development Authority;
Sales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital
contribution of each member does not exceed Fifteen
thousand pesos (P15, 000) and regardless of the aggregate
capital and net surplus ratably distributed among the
members;

15. Export sales by persons who are not VAT-registered;

16. Sale of real properties:

Not primarily held for sale to customers or held for

lease in the ordinary course of trade or business or

Real property utilized for low-cost and socialized

housing

Residential lot valued at P1,919,500 and below

House and lot, and other residential dwellings

valued at 3,199,200 and below.
17. Lease of a residential unit with a monthly rental not
exceeding 12,800.
18. Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of
paid advertisements;
19. Transport of passengers by international carriers;
20. Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof
for domestic or international transport operations;
21. Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations;
22. Services of bank, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries; an
23. Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts
do not exceed the amount of P1,919,500.
Additions by RR No. 04-07
1. Importation of life-saving equipment, safety and rescue
equipment and communication and navigational safety
equipment for shipping transport operations
2. Importation of capital equipment, machinery, spare parts
etc. to be used in the construction, repair or renovation of
any merchant marine vessel operated or to be operated in
domestic trade.
Additions by RA 7432 exemptions from VAT of sale of goods and
services to senior citizens. VAT exemption covers:
1. Purchase of medicines and such other essential medical
supplies
2. Professional fees of attending physicians in all private
hospitals, medical facilities, outpatient clinics and home
health care services
3. Professional fees of licensed professional health providing
home health care services
4. Medical and dental services and diagnostic and laboratory
fees in all private hospitals
5. Actual fare for land transportation travel
6. Actual transportation fare for domestic air transport services
and sea shipping vessels
7. Admission fees charged by theaters
8. Funeral and burial services for the death of the senior
citizen

Note: Sec. 109 (2)

A VAT-registered person may elect that Subsection (1) not apply to
its sale of goods or properties or services

Provided, that an election made under this subsection

shall be irrevocable for a period of three (3) years from
the quarter the election was made.

Distinguish between an exempt transaction and an exempt

party
Exempt transaction
Involves goods and services
which, by their nature, are
specifically listed in and
expressly exempted from
VAT, without regard to the
tax status of the party in
transaction.
Transaction is not subject to
VAT but seller is NOT
allowed any tax refund or
credit.
Case
Misamis
Oriental v. DOF
CIR v.
Philippine
Health Care
Providers
PAGCOR v.
CIR
First Planters
Pawnshop v.
CIR
RR 16-11

RR 13-12

RR 15-13
RR 04-07

Doctors subject to VAT

Hospitals are not St. Lukes case

Exempt party
A person or entity granted tax
exemption under the Tax
Code, a special law or an
international agreement and
by virtue of which its taxable
transactions become exempt
from the VAT.
Also not subject to VAT but
may be allowed a tax refund
or credit.

Doctrine
Between the Bureau of Food and Drug and
the BIR, the classification of the BIR
would prevail.
Transactions involving medical, dental,
hospital and veterinary services are VAT
exempt transactions. Here, Philippine
health care did not render such services but
merely arranged for the same. Thus, it is
not VAT-exempt.
PAGCOR was exempt from VAT by virtue
of its charter.
Pawnshops are non-bank financial
intermediaries (vat-exempt).
If two or more adjacent residential lots are
sold or disposed in favor of one buyer, for
the purpose of utilizing the lots as one
residential lot, the shall be exempt from
VAT only if the aggregate value of the lots
does not exceed P1,919,500.
If two or more adjacent residential lots are
sold or disposed in favor of one buyer from
the same seller within a 12-month period,
for the purpose of utilizing the lots as one
residential lot, the sale shall be exempt
from VAT only if the aggregate value of
the lots does not exceed 1,919,500.
Sale of parking lots in a condominium is a
separate and distinct transaction and is not
covered by the rules on threshold amount
not being a residential lot It is subject to
VAT regardless of selling price.
Transport of cargo by international carriers
is VAT-exempt but subject to percentage
tax.
In order to be VAT exempt, the imported
fuel and goods and supplies must be used
exclusively for the transport of foods and
or passengers from a port in the Philippines
directly to a foreign port without stopping
at any local port.

On Vat exemption of medical fees:

MB Agunoy

TAX CREDITS
Sec. 110 Tax Credits
A. Creditable Input Tax. 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 creditable against the output
tax:
a.
Purchase or importation of goods:
i. For sale; or
ii. For conversion into or intended to form
part of a finished product for sale
including packaging materials; or
iii. For use as supplies in the course of
business; or
iv. For use as materials supplied in the sale
of service; or
v. For use in trade or business for which
deduction
for
depreciation
or
amortization is allowed under this
Code.
b. Purchase of services on which a value-added tax
has been actually paid.
2.

The input tax on domestic purchase or importation of

goods or properties by a VAT-registered person shall be
creditable:
a. To the purchaser upon consummation of sale and
on importation of goods or properties; and
b. To the importer upon payment of the value-added
tax prior to the release of the goods from the
custody of the Bureau of Customs.
Provided, that the input tax on goods purchased or
imported in a calendar month for use in trade or
business for which deduction for depreciation is
allowed under this Code shall be spread evenly
over the a month of acquisition and the fifty-nine
(59) succeeding months if the aggregate
acquisition cost for such goods, excluding the
VAT component thereof, exceeds One million
pesos (P 1, 000, 000): Provided, however, That if
the estimated useful life of the capital good is less
than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over
such a shorter period: Provided, finally, that in the
case of purchase of services, lease or use of
properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the
compensation, rental, royalty or free.

3.

A VAT-registered person who is also engaged in

transactions not subject to the value-added tax shall be
allowed tax credit as follows:
a. Total input tax which can be directly attributed to
transactions subject to value-added tax; and
b. A ratable portion of any input tax which cannot
be directly attributed to either activity.

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 required to register under Section 236 of this Code.
(B) Excess Output or Input Tax.
If at the end of any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the Vat-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters. Provided, however, That any input tax
attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112.
(C) Determination of Creditable Input Tax.
The sum of the excess input tax carried over from the preceding
month or quarter and the input tax 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-added tax and other
adjustments, such as purchase returns or allowances and input tax
attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall
include not only those filed with the Bureau of Internal Revenue but
also those filed with other government agencies, such as the Board of
Investments and the Bureau of Customs.
SEC. 111. Transitional/Presumptive Input Tax Credits.
A.

B.

Transitional Input Tax Credits. - A person who becomes

liable to value-added tax or any person who elects to be a
VAT-registered person shall, subject to the filing of an
inventory according to rules and regulations prescribed by
the Secretary of finance, upon recommendation of the
Commissioner, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to two
percent (2%) of the value of such inventory or the actual
value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the
output tax.
Presumptive Input Tax Credits. - Persons or firms engaged
in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be
allowed a presumptive input tax, creditable against the
output tax, equivalent to four percent (4%) of the gross
value in money of their purchases of primary agricultural
products which are used as inputs to their production.
As used in this Subsection, the term 'processing' shall mean
pasteurization, canning and activities which through
physical or chemical process alter the exterior texture or
form or inner substance of a product in such manner as to
prepare it for special use to which it could not have been put
in its original form or condition.

The term "input tax" means the value-added tax due from or paid by a
VAT-registered person in the course of his trade or business on
importation of goods or local purchase of goods or services, including
lease or use of property, from a VAT-registered person. It shall also
include the transitional input tax determined in accordance with
Section 111 of this Code.

MB Agunoy

SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated Sales. - Any VATregistered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not
been applied against output tax.
Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods
of properties or services, and the amount of creditable input tax due or
paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the
volume of sales.
Provided, finally, That for a person making sales that are zero-rated
under Section 108(B) (6), the input taxes shall be allocated ratably
between his zero-rated and non-zero-rated sales.
(B) Cancellation of VAT Registration. - A person whose
registration has been cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status under Section
106(C) of this Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit certificate for any
unused input tax which may be used in payment of his other internal
revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes
shall be Made. - In proper cases, the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance
with Subsections (A) hereof.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax
Appeals.
(D) Manner of Giving Refund. - Refunds shall be made upon
warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by the
Chairman, Commission on audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, That refunds
under this paragraph shall be subject to post audit by the Commission
on Audit.

Requirements for a claim for VAT refund/credit (based on

Intel v. CIR):
1. Taxpayer is engaged in sales which are zero-rated or
effectively zero-rated
2. Taxpayer is VAT-registered
3. Claim must be filed within two years after the close
of the taxable quarter when such sales were made
4. Input taxes are due or paid
5. Input taxes are not transitional input taxes
6. Input taxes have not been applied against output taxes
during and in the succeeding quarters
7. Input taxes claimed are attributable to zero-rated or
effectively zero-rated sales
8. In certain type of zero-rated sales, the acceptable
foreign currency proceeds thereof had been duly
accounted in accordance with BSP rules
9. Where there are both zero-rated or effectively zerorated sales and taxable or exempt sales, and the input
taxes cannot be directly and entirely attributable to
any of these sales, the input taxes shall be
proportionately allocated on the basis of sales
volume.
PRESCRIPTIVE PERIOD FOR TAX REFUND/ CREDIT
Case
Atlas v. CIR
CIR v. Mirant
Pagbilao

CIR v. Aichi
Forging

Doctrine
Prescriptive period for filing administrative
and judicial claims shall be two years from
DATE OF FILING of VAT quarterly return.
Two-year prescriptive period in claims for
VAT refund/credit must be counted NOT
from the date of filing of the VAT quarterly
return but from the CLOSE OF TAXABLE
QUARTER when the revelant sales were
made.
Mandated compliance of administrative and
judicial claims with both the two-year
prescriptive period AND the 120-30 day
period rule.

Summary from CIR v. San Roque:

When ADMINISTRATIVE
claim filed with CIR
Before June 8, 2007
June 8, 2007 Sept 10, 2008
Sept 11, 2008 onwards
When JUDICIAL claim filed
with CTA
Before December 10, 2003
December 10, 2003 to
October 5, 2010

October 6, 2010 onwards

MB Agunoy

Applicable doctrine
Mirant (close of taxable
quarter)
Atlas (filing of return)
Mirant (close of taxable
quarter)
Applicable doctrine
Aichi (120+ 30 day periods
mandatory)
Tax payer need not wait for
lapse of 120 day period
before it could seek judicial
relief with CTA by way of
Petition for Review
Aichi (120+ 30 day periods
mandatory)

SEC. 113. Invoicing and Accounting Requirements for VATRegistered Persons.

(A) Invoicing Requirements. - A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange of goods
or properties; and
2. A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange of
services.
(B) Information Contained in the VAT Invoice or VAT Official
Receipt. - The following information shall be indicated in the VAT
invoice or VAT official receipt:
1. A statement that the seller is a VAT-registered person,
followed by his TIN; and
2. The total amount which the purchaser pays or is obligated
to pay to the seller with the indication that such amount
includes the value-added tax. Provided, That:
a. The amount of the tax shall be known as a
separate item in the invoice or receipt;
b. If the sale is exempt from value-added tax, the
term "VAT-exempt sale shall be written or
printed prominently on the invoice or receipt;
c. If the sale is subject to zero percent (0%) valueadded tax, the term "zero-rated sale" shall be
written or printed prominently on the invoice or
receipt.
d. If the sale involved goods, properties or services
some of which are subject to and some of which
are VAT zero-rated or VAT exempt, the invoice
or receipt shall clearly indicate the break-down of
the sale price between its taxable, exempt and
zero-rated components, and the calculation of the
value-added tax on each portion of the sale shall
be known on the invoice or receipt: Provided,
That the seller may issue separate invoices or
receipts for the taxable, exempt, and zero-rated
components of the sale.
3. The date of transaction, quantity, unit cost and description
of the goods or properties or nature of the service; and
4. In the case of sales in the amount of One thousand pesos
(P1,000) or more where the sale or transfer is made to a
VAT-registered person, the name, business style, if any,
address and Taxpayer Identification Number (TIN) of the
purchaser, customer or client.
(C) Accounting Requirements. - Notwithstanding the provisions of
Section 233, all persons subject to the value-added tax under Sections
106 and 108 shall, in addition to the regular accounting records
required, maintain a subsidiary sales journal and subsidiary purchase
journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required
by the Secretary of Finance.
(D) Consequence of Issuing Erroneous VAT Invoice or VAT
Official Receipt.
1. If a person who is not a VAT-registered persons issues an
invoice or receipt showing his TIN, followed by the word
"VAT";
a. The issuer shall, in addition to any liability to
other percentage taxes, be liable to:
i. The tax imposed in Section 106 or 108
without the benefit of any input tax
credit; and
ii. A 50% surcharge under Section 248(B)
of this Code;
MB Agunoy

b.

2.

The VAT shall, if the other requisite information

required under Subsection (B) hereof is shown on
the invoice or receipt, be recognized as an input
tax credit to the purchaser under Section 110 of
this Code.

If a VAT-registered person issues a VAT invoice or VAT

official receipt for a VAT-exempt transaction, but fails to
display prominently on the invoice or receipt the term 'VAT
exempt sale', the issuer shall be liable to account for the tax
imposed in section 106 or 108 as if Section 109 did not
apply.

(E) Transitional Period. - Notwithstanding Subsection (B) hereof,

taxpayers may continue to issue VAT invoices and VAT official
receipt for the period July 1, 2005 to December 31, 2005 in
accordance with Bureau of Internal Revenue administrative practices
that existed as of December 31, 2004.

SEC. 114. Return and Payment of Value-Added Tax. (A) In General. - Every person liable to pay the value-added tax
imposed under this Title shall file a quarterly return of the amount of
his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided,
however, That VAT-registered persons shall pay the value-added tax
on a monthly basis.
Any person, whose registration has been cancelled in accordance with
Section 236, shall file a return and pay the tax due thereon within
twenty-five (25) days from the date of cancellation of registration:
Provided, That only one consolidated return shall be filed by the
taxpayer for his principal place of business or head office and all
branches.
(B) Where to File the Return and Pay the Tax. - Except as the
Commissioner otherwise permits, the return shall be filed with and
the tax paid to an authorized agent bank, Revenue Collection Officer
or duly authorized city or municipal Treasurer in the Philippines
located within the revenue district where the taxpayer is registered or
required to register.
(C) Withholding of Value-added Tax. - The Government or any of
its political subdivisions, instrumentalities or agencies, including
government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold a final valueadded tax at the rate of five percent (5%) of the gross payment
thereof:
Provided, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this Section,
the payor or person in control of the payment shall be considered as
the withholding agent. The value-added tax withheld under this
Section shall be remitted within ten (10) days following the end of the
month the withholding was made.

10

SEC. 115. Power of the Commissioner to Suspend the Business

Operations of a Taxpayer.
The Commissioner or his authorized representative is hereby
empowered to suspend the business operations and temporarily close
the business establishment of any person for any of the following
violations:
A. In the case of a VAT-registered Person.
1. Failure to issue receipts or invoices;
2. Failure to file a value-added tax return as
required under Section 114; or
3. Understatement of taxable sales or receipts by
thirty percent (30%) or more of his correct
taxable sales or receipts for the taxable quarter.
B.

Failure of any Person to Register as Required under

Section 236.

The temporary closure of the establishment shall be for the duration

of not less than five (5) days and shall be lifted only upon
compliance with whatever requirements prescribed by the
Commissioner in the closure order.

Three instances when input tax is not 0% or 12%:

1.
2.
3.

Presumptive input tax

Transitional input tax
Final withholding tax

Case
CIR v. Manila
Mining

AT&T
Communications
v CIR
Kepco
Philippines v.
CIR
Panasonic v.
CIR

MB Agunoy

Doctrine
A sales or commercial invoice is a written
account of goods sold or services rendered
indicating the prices charged which is used
in the ordinary course of business
evidencing sale and transfer.
Receipt on the other hand is a written
acknowledgment of the fact of payment.
SC gave credence to sales invoices (not
official receipts) saying that sales invoices
are recognized commercial documents to
facilitate trade. They are proofs that a
business transaction has been concluded.
Only a VAT invoice might be presented to
substantiate a sale of goods or properties,
while only a VAT receipt could
substantiate a sale of services.
Term zero-rated sale must be imprinted,
and not merely written or stamped. Claim
for refund/credit substantiated by nonconforming invoices or receipts shall be
disallowed.

11