VAT Outline

Outline on Value Added Tax
SECTION 106: 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 on Sections 106 to 108 of this Code.

1) Republic Act 8241 which was incorporated into Republic Act 8424 or the National Internal Revenue Code of 1997
2) Tolentino v. CIR (August 25, 1994)
The print media was not targeted because there was really no imposition of a tax on it. There was merely a withdrawal of a privilege previously granted to them.
The VAT as an indirect tax does not go against the Constitution. The Constitution does not require absolute progressive taxation. It is merely an aim and therefore indirect taxes are permissible.
3) BIR 32-98: Donation Principle (Shimzu)
4) Revenue Regulation 7-95 as amended by 6-97
a. Restatement of the Code
b. Implementing Rules of VAT

SECTION 105: PERSONS LIABLE FOR VAT
Q: Who are liable to pay VAT?
A: Those who sell, barter or exchange goods, render services, import goods and lease goods or property.

Q: Distinguish direct tax from indirect tax.
A: Direct tax is paid by the person on whom they are imposed. Indirect taxes are paid by the final possessor. The tax can be shifter so it finally rests on the buyer.

1) BIR 243-88: Shifting of VAT to HDMF
a. HDMF was a government financial institution exempt from tax. However, since the VAT was implemented, its suppliers had been charging it for VAT. The BIR says that it is the importer or the person who renders service for a fee who pays the VAT. However, since it is an indirect tax, the amount to be paid is transferred to the buyer in the form of an addition. In essence, it is really the buyer who pays for the VAT.
2) BIR 151-91: Purchase of Prime Commodities from CDA
a. Members of the Cooperative Development Authority are exempt from direct taxes. However, they are liable for VAT because such is an indirect tax which results as an addition for the buyer. As such, the exemption privilege cannot be invoked in this case.
3) CIR v Gotamco (February 27, 1987)
The contractor who built the WHO building claims that it should not be assessed contractor’s 3% tax (excise tax) because it would amount to an indirect tax on WHO. WHO is an international agreement not subject to both direct and indirect taxes by virtue of a host agreement. BIR ruled that the contractor’s tax is an excise tax which is a tax on a privilege or exercise. It is a 3% tax on the contractor and which in the last analysis is paid by WHO as addition to the price. However, since it is WHO which is exempted, WHO will just have a refund of the VAT. The contractor still has to pay it.

Q: What is the meaning of “In the course of trade or business?”
A: It means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto by any person regardless of whether or not the person engaged therein is a nonstick, nonprofit private organization or government entity. Services rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the court of trade or business.

1) Revenue Audit Memorandum Order 1-86: Branch Operations of Foreign Corporation in the Philippines)
2) Imperial vs. Collector
Imperial was the owner of a camarin who leased it to some person. He was assessed taxes on it because he was allegedly engaged in the business of lease. Imperial was, however, a Minister in a foreign country which occupied most of his time. The SC ruled Imperial was not in the business of leasing. To engage in business is to embark on business or to employ oneself therein.

ISOLATED TRANSACTIONS
1) BIR 113-98: Sale by Liberty Broadcasting of Microwave Backbone
a. Sale of microwave backbone by Liberty Broadcasting for more liquidity was an isolated transaction. It was not in the regular course of trade or business because it was not engaged in the sale of such equipment. The said security backbone was essential in Liberty’s business.
b. If the equipment sold were old equipment, it is subject to VAT because it is normal for a business to dispose of old equipment it no longer needed.
2) Manila Polo Club vs. Meer (When there is No Profit involved)
The sale of food by Manila Polo Club is not subject to VAT because it did not receive profit by it. The Club was engaged in the business of providing its customers with a venue to play polo and other sports. The restaurant was merely for the convenience of the customers. The Club did not make profit by selling food because the price consisted of the cost of the food plus maintenance to preserve the restaurant. If the Club obtained profits through this sale of food, it would be subject to VAT.

OTHERS
1) Revenue Regulation 7-95 as amended by 6-97 (Amended VAT Regs)


REAL PROPERTY NOT SUBJECT TO VAT (NOT BINDING ANYMORE)
1) BIR 190-88
a. Family Shelter Development Corporation (FSDC) was engaged in the development of land in order to build houses on them and sell such.
b. FSDC was not subject to VAT because goods meant any tangible or movable objects which were capable of appropriation. Land and houses were not movable objects but real property.
c. This does not apply now because real property is specifically included in the VAT.
2) BIR 106-89: When real and personal property are not subject to VAT under 34 (c) (2) exchange
d. The exchange of real property with shares of stock is not subject to VAT because real property does not come within the purview of VAT taxable goods pursuant to Section 2(p) of Revenue Regulations No. 5-87. For the same reason, the exchanges of personal property or securities transfer of real or personal properties or securities by one corporation to another in pursuance of a merger or consolidation solely for the shares of stocks in the other corporation which is a party thereto shall be exempt from income tax.
e. The exchange of real property with shares of stock is not subject to VAT because real property does not come within the purview of VAT taxable goods pursuant to Section 2(p) of Revenue Regulations No. 5-87. For the same reason, the exchange of personal property or securities in exchanges for shams of stocks in another corporation which is a party to the merger or consolidation shall be exempt from VAT.

REAL PROPERTIES (KINDS WHICH ARE SUBJECT TO VAT)
1) BIR 112-88: Bowling: Development of Sports as a National Policy
a. Bowling alleys are not subject to percentage (amusement) tax because bowling is a sport.
b. Since bowling is a sport, it is not a business enterprise. It is not in the course of trade or business. Besides, the government has already recognized as a matter of national policy the development of sports and the encouragement of the people’s participation in sports. No VAT.
2) 204-88: Club Gymnastica
a. Club Gymnastica Inc was engaged in the promotion and development of gymnastics as a sport. Since gymnastics is a sport, Club Gymnastica is not a business enterprise and it is not subject to VAT.
3) BIR 71-89: Health services not subject to VAT – Sports Enterprise
a. Healthworld was engaged in a physical fitness program and maintaining physical fitness equipment and facilities. It gives instructions to clients on how to use the different equipment and facilities for a fee.
b. Healthworld’s activities do not constitute sale of services. As such, it is not subject to VAT.
4) BIR 84-88: Pharmacy
a. As long as the amount of sale of the pharmacy exceeds P200,000 it is subject to VAT regardless whether the buyers were confined or not.
5) RMC 7-88: Tourist Enterprises
a. A travel agent is required to pay 10% VAT on its receipts which should not include the price of the airline or ship tickets or the reimbursement of expenses which shall be limited to passport and visa fees for all types of passengers and hotel room charges, bus and/or car tour charges, guides fees, resort fees and meal charges for tourists provided that all the said expenses are properly supported by receipts. All other income or receipt shall pay the VAT.
6) BIR 41-98 (LPG)
a. LPG falls under Petroleum Products which is separate and distinct from Processed Gas. Sale and importation of LPG is exempt from VAT.
7) BIR 136-91: Sale of TV Airtime subject to VAT
a. Buying and selling airtime constitutes rendering of services for a consideration. Airtime is an intangible property but the sale of a specific airtime is considered as the sale of service because the buyer pays the TV station for use of TV broadcasting facilities.
b. Since it is a sale of service, it is subject to VAT.
8) RMC 79-91: Sale of TV Airtime subject to VAT
a. TV airtime is intangible personal property because it is a force of nature brought under control by science. The sale of airtime contemplates the use of the buyer of the facilities of the station owner and/or availment of the services of the latter. It is similar to the use of parking space facilities which is subject to VAT.
9) BIR 80-88: Vaccines
a. Sale of vaccines and other biologic for the use of livestock is subject to VAT. As a seller, it is required to register as a VAT taxpayer or if its gross sales for a 12-month period exceed P200,000. If the sale is less, it is subject to 2% excise tax.
10) BIR 272-88: Computation
a. The VAT cannot be discounted. This means that the computation of discount is based on the gross selling price and excludes the VAT. The VAT is imposed on the cost of the goods plus other charges.

SECTION 106: Rate and Base of Tax on Sale of Goods or Properties
(A) Rate and Base of Tax
There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
Q: What are goods and properties?
A: The term goods or properties shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:
a) Real Properties
a. Held primarily for
i. Sale to customers
ii. Held for lease in the ordinary course of trade or business
b. Intellectual Property (right or privilege to use)
i. Patent
ii. Copyright
iii. Design or Model
iv. Plan
v. Secret Formula or Process
vi. Goodwill
vii. Trademark
viii. Trade Brand
ix. Other Property Right
c. Right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment
d. Right or privilege to use motion picture films, films, tapes and discs
e. Radio, television, satellite transmission and cable television time

GOODS AND PROPERTIES (BIR RULINGS)

REAL PROPERTIES
1) Real Properties: Epifanio Gonzales book 1999 edition – p346-350
2) RCM 3-96: VAT Treatment of Real Property
a. Clarification of EVAT.
b. Read – Very helpful because it already includes the exceptions in question and answer form
3) Section 109 (w)
a. Exceptions to VAT on Sale of Real Properties
i. Sale of real properties not primarily held for sale to customers in the ordinary course of trade or business
ii. Sale of real properties not primarily held for lease in the ordinary course of trade or business
iii. Real property used for low-cost or socialized housing
iv. House and lot and other residential dwellings valued at P1,000,000 and below
4) Section 109 (y)
a. The following are not subject to VAT:
i. Sale, importation, printing or publication of books
ii. Sale, importation, printing or publication of 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.
1. This is why Buy and Sell Magazine doesn’t pay VAT – it doesn’t require payment for advertising.
5) Section 109 (z)
a. Sale or lease of real properties wherein the gross annual sales and/or receipts do not exceed P550,000 shall be exempt from VAT.
b. However, it will not be exempt from the 3% excise tax unless the sales or receipts do not exceed P100,000.
6) BIR 19-98: CREBA Sale of Property Subject to VAT
a. For sale of property, Gross Selling Price shall mean the consideration stated in the sales documents or the zonal value whichever is higher; provided, however, that in the absence of applicable zonal values, gross selling price refers to the market values shown in the latest tax declaration or the consideration whichever is higher.
b. Being a CREBA member only confirms the fact that you are engaged in the real estate business. As long as it’s a sale of real property in the course of trade or business (over P550,000), it’s subject to VAT.
7) BIR 60-98: Sale to BOC Subject to VAT
a. UPPS entered into a contract with the Bureau of Customs whereby the former would supply the latter personal computers with software and technical assistance, maintenance and training.
b. The contract between UPPS and BOC of sale of goods and services are transactions subject to the 10% VAT which may be shifted or passed on to BOC, VAT being an indirect tax. Consequently, BOC, being a government agency is required to deduct and withhold the VAT due at the rate of three percent (3%) of the gross payments on the purchase of goods and six percent (6%) on the gross receipts for services rendered by UPSS, which shall be creditable against the VAT liability of UPS.
8) BIR 110-98: Sale of Dwelling Below P1M and Non VAT Taxpayer Subject to 3% Percentage Tax
a. Company is developing a residential condominium wherein the selling prices are less than P1M.
b. Sale of property for less than P1M is not subject to VAT but subject to the 3% percentage tax.
9) BIR 5-88: Sale of Compounded Liquor
a. Compounded liquor is subject to VAT.
b. Abel: Of course, annual sale should be more than P550,000.
10) BIR 60-88: Veterinary Drugs
a. Veterinary drugs, biologicals, vitamins and disinfectants are subject to VAT.
b. Abel: Of course, annual sale should be more than P550,000.
11) BIR 291-82: Corn Germ
a. Corn germ is separated from the corn grits, corn grain and other corn parts. It is a by-product in the process of milling corns and not one of those considered in their original state.
b. Abel: In Section 109 (b), sale or importation of agricultural products in their original state are not subject to VAT. Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt shall be considered in their original state.
12) BIR 378-88: Purchase of Local Cigarettes for Export
a. Purchase of local cigarettes for export is not subject to VAT because it is the SELLER, NOT THE BUYER who pays for the VAT.
b. However, the buyer pays the amount of VAT in the form of additional cost which he has to pay in order to obtain the goods.
c. If you are not VAT-registered and you export the goods, you are exempt.
d. If you are VAT-registered, your are Zero-Rated and you can claim a refund or TAX credit of the VAT element added to the cost of cigarettes which are exported.
13) BIR 198-88: Sale of Sporstwear to Exporter Subject to VAT
a. ASTRA sells goods to GG Sportswear which in turn exports the goods. Since export sales do not extend the zero-rating privilege of the exporter to its suppliers, ASTRA is subject to VAT on its sale of goods to GG Sportswear. The fact that the said purchaser rejects the billing of the VAT will not exempt ASTRA from VAT.
14) BIR 3-89: Sale of Quarry Resources
a. Contractor used sand and gravel hauled from river bed to construction sites. The Construction is for the government.
b. Quarry resources subject to the 3% excise tax include sand and gravel whether removed from the river beds or quarried.
c. However, if you are merely engaged in hauling/transporting sand and gravel to be used exclusively for Government projects and in no case shall said products be disposed of commercially, you are not subject to the 3% excise tax because of special permit.
d. Hauling services are subject to 3% tax.
e. If you sell sand and gravel, you are subject to the 3% excise tax and VAT.
15) BIR 245-88: Samples Distributed Catsup Subject to VAT.
a. Free goods given in the course of trade or business for sales promotion is not subject to VAT because VAT is based on the gross selling price. The said freebies are not considered transactions deemed sale so no VAT.
b. VAT will only be imposed on the catsup for sale.
16) BIR 152-98: Sale of Dwelling less than P1M
a. Sale of house and lot in Grand Victoria Estates Subdivision for less than P1M is not subject to VAT.
b. This is pursuant to Section 109 (w)
17) BIR 174-98: Sale of Fish
a. Company is engaged in the sale and export of fish in their original state. It wants a tax credit for the VAT imposed by its suppliers.
b. VAT is an indirect tax. As such, it can be passed on to the buyers. The company cannot claim exemption from the input VAT passed by the suppliers.
c. Abel: Note that only the product is exempted (fish in its original state) and not the company itself. If the company itself was exempted from tax for various reasons (e.g. host agreement), it can avail of tax refund or tax credit. Here, the company cannot avail of such privileges.
18) VAT Ruling 37-1: Lease of Dormitory Space
a. Company is engaged in the business of leasing out commercial establishments and rents out stalls and office spaces to its various tenants. It also operates as a residential dormitory in which the boarders are charged P800-P1,000 per month and its total gross receipts per annum from operation of said dormitory exceeds P500,000.
b. The Tax Code exempts the lease of a residential unit with a monthly rental not exceeding P8,000 from VAT regardless of the aggregate rentals the lessor has received during the year.
c. Residential Units refer to apartments, houses, and/or lands on which another’s dwelling is located, used for residential purposes and shall include not only buildings, parts or units thereof used solely as dwelling places except motels, motel rooms, hotel and hotel rooms. Residential Units shall also include apartments, houses, building, parts or units thereof used for home industries, retail stores or other business purposes, if the tenant thereof and his family actually live therein and use them principally for dwelling purposes.
d. The term Unit shall mean an apartment unit in the case of apartments, house in the case of residential houses, per person in the case of dormitories, boarding houses and bed spaces, and per room in case of rooms for rent.
e. Since the company does not receive more than P8,000 rental per individual from its residential dormitory, such is exempt from VAT under Section 109 (x).
f. The company is not liable for 3% percentage tax under Section 116 because said Section does not apply to persons exempt from tax under Section 109 (a-y). It only applies to those exempted under Section 109 (z).

PATENTS, COPYRIGHTS, DESIGN, MODEL, ETC.
1) BIR 129-98: Royalty Payments – US Philippine Tax Treaty – Warner Studios Subject to VAT
a. Warner Brothers, a US company entered into an agreement with Studio, a local company, wherein the latter shall operate the former’s stores in the Philippines. Studio will have the privilege of selling copyrighted products. Studio will then pay royalties to Warner Brothers equivalent to a percentage of the aggregate gross sales of Philippine terms for each month and a pre-determined amount pre-paid upon the execution of the agreement.
b. Under the most favored nation provision of the RP-US Tax Treaty, the tax imposed on royalties derived by a resident of the US from sources within the Philippines shall be the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a Third State. The RP-Netherlands Tax Treaty provides that royalties arising in the Philippines and paid to a resident of Netherlands may also be taxed in the Philippines but such tax shall not exceed 15% of the gross amount of the royalties in all other cases.
c. Royalties means payments of any kind received as a consideration for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, or for the use of , or the right to use, any patent, trademark, design or model, plan, secret formula or process for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
d. Royalty payments by Studio to Warner Brothers are subject to the 15% preferential tax. However, the remittance of Studio to Warner of the said royalties is subject to VAT.
2) BIR 104-98: Royalty Payments Not Subject to VAT because of PEZA
a. Korean company which is PEZA registered buys telecommunication equipment, among others, from a foreign corporation.
b. The Special Economic Zone Act of 1993 states that business enterprises within the ECOZONE shall be imposed a 5% tax in lieu of all national taxes.
c. Since the Korean company is in the ECOZONE, it is exempt from all other taxes including indirect taxes and may not legally be passed VAT. It is not subject to VAT.

USE IN THE PHILIPPINES INDUSTRIAL, COMMERCIAL, SCIENTIFIC EQUIPMENT

MOTION PICTURES

RADIO, TELEVISION SATELLITE AND CABLE TELEVISION TIME
1) BIR 14-98: Government Airtime is Subject to VAT
a. Company regularly receives broadcast orders for airtime from the Philippine Information Agency (PIA).
b. Government entities and instrumentalities, including government-owned or controlled corporations are subject to VAT. PIA is subject to VAT in the sale of goods or services in the regular course of trade or business.
c. Sale of TV Airtime constitutes a rendition of services. As such, it is subject to VAT.
2) BIR 38-98: PLDT IT Trunkline Services
a. PLDT’s International Trunkline Products and Services to Internet Users fall within the contemplation of the term “Sale or Exchange of Services” which is subject to VAT.
b. The services are in the ordinary course of trade or business because the rendition of the services starts in the Philippines.
c. Thus, messages or conversation originating from the Philippines through the Internet or the International Trunklines is subject to VAT.
3) BIR 59-88: Advertising Agencies Gross Billings Subject to VAT
a. The Department of Finance has ruled that only 15% of an advertising agency’s gross billings constitute the gross receipts subject to the contractor’s tax. Since VAT is imposed on the gross receipts, it should be based on said 15% of gross billings.
4) BIR 85-88: Advertising Agencies
a. Advertising agencies are now subject to VAT on their gross receipts.

OTHERS
1) BIR 27-98: Purchase of Electric Cooperative is Subject to VAT Although Their Service is VAT Exempt
a. Electric cooperatives are exempted from VAT with regard to their sales of electricity and importation of machineries and equipment including spare parts thereof, which shall be used in the generation and distribution of electricity.
b. However, the local purchases by electric cooperatives of machineries, equipment and spare parts shall be subject to VAT even if they are to be used in the generation of electricity.


GROSS SELLING PRICE: HOW IS IT COMPUTED?

Q: What transactions are Zero Rated?
A: Export Sales, Foreign Currency Denominated Sale and Sales to persons or entities who should receive zero rate under special laws or international agreements.

ZERO RATED SALES
1) RMC 17-96
a. Read! Another question and answer document.

EXPORT SALES
1) BIR 113-94: Sale of Gold
a. If gold is exported by the mining company, it is zero rated.
b. If the gold is sold to the Central Bank, it is not deemed an export and is subject to VAT.
2) BIR 182-88: Export of Metallic Minerals Subject to VAT
a. Metallic minerals are subject to 5% excise tax on the market value.
b. If the metallic minerals are exported, the sale is zero rated.
3) BIR 87-170: Ice Subject to VAT
a. Ice is considered a processed food product and so is subject to VAT.
4) RMC 7-94: Sale of Fresh Water Subject to VAT because it is a mineral
a. “Minerals” means the things produced and prepared in a marketable state by simple treatment such as washing or drying, but without undergoing any chemical change or process or manufacturing, by the lessee, concessionaire o0r owner of mineral lands. It refers to the substances naturally occurring in nature.
b. “Agricultural Product” means that which is the direct result of husbandry and the cultivation of soil. It pertains to organic products through the cultivation of the soil.
c. Water is not an agricultural product as previously held by the BIR. Water, whether in the form of bottled mineral water or water delivered/supplied to inter-island and ocean-going vessels by persons engaged in the business of supplying water to the aforesaid inter-island and ocean-going vessels, shall be subject to VAT.

FOREIGN CURRENCY DENOMINATED SALE
1) BIR 32-98: Importation of Cherokee Jeep subject to VAT
a. Bureau of Investments authorized Transfarm to import 570 units of vehicles some of which are Cherokee Jeep.
b. The Cherokee Jeeps are subject to VAT.
c. They are also subject to excise tax. Importation of Cherokee Jeeps was previously exempted from excise tax up to 25 units for market test purposes. This number was lifted. However, this does not mean that jeeps more than 25 will not be subject to excise tax. It will still be subject to such tax because tax exemptions are looked upon with disfavor. Absent any specific law exempting an entity from tax, there is no exemption. It cannot be by implication.
2) BIR 33-98: Sale to PEZA Enterprise Zero Rated
a. Zenitaka is a domestic contractor which provides construction services to enterprises within the Economic Zone.
b. Sale of goods and services to entities in the Economic Zones are zero rated. The sale will not result in output tax for such entities. The domestic sales of construction services by Zenitaka, a VAT-registered general contractor to export companies registered within the PEZA, are zero-rated. The sale of services by Zenitaka shall not result in any output tax. However, the input tax on its purchases of goods, properties or services related to such zero-rated sale shall be available as a tax credit or refund in accordance with Revenue Regulations No. 7-95.
3) RMC 74-99
a. Tax Treatment of Sales Made By a VAT Registered Supplier From the Customs Territory to a PEZA Registered Enterprise Subject to 5% Special Tax Regime.
i. Sale of Goods shall be treated as an indirect export hence is considered subject to zero rate.
ii. Sale of Service shall be treated as subject to zero rate under the “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.
b. Tax Treatment of Sales if the Buyer is a PEZA Registered Enterprise not subject to the 5% special tax regime.
i. Sale of Goods shall be treated as an indirect export hence subject to zero rate.
ii. Sale of Service shall be treated subject to zero rate under the “Cross Border Doctrine.”
c. Sale of goods, property or services made by VAT registered supplier from Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter’s PEZA registration, is actually qualified and thus legally entitled to the zero percent VAT.
d. Tax Treatment of Sales Made by VAT-Exempt Supplier From the Customs Territory to PEZA Enterprise
i. Shall be exempt from VAT regardless of whether or not the PEZA buyer is subject to taxes under the NIRC or enjoying the 5% special tax regime or under the Cross Border Doctrine.
e. Tax Treatment of Sales Made By a PEZA Registered Enterprise
i. Sale of Goods by a PEZA Registered Enterprise to buyer from Customs Territory shall be treated as an importation made by the buyer an importer and shall be subject to VAT.
ii. Sale of Services to buyer from customs territory not contemplated in the 5% special regime so the seller is subject to VAT.
iii. Sale of Goods by PEZA Registered Enterprise to another PEZA Registered Enterprise shall be exempt from VAT.
iv. Sale of Service by PEZA Registered Enterprise to another PEZA Registered Enterprise
1. If the seller is subject to the 5% Special Tax Regime, the sale is exempt from VAT or any percentage tax.
2. If the seller is subject to tax under the NIRC, the sale is subject to zero rate pursuant to “Cross Border Doctrine” regardless of type or class of PEZA registration of enterprise.
4) BIR 9-98: Hitachi
a. Hitachi is registered with the PEZA. It pays royalties to Hitachi Ltd. of Japan.
b. Since Hitachi is a PEZA registered enterprise, it is exempt from VAT.
5) BIR 33-96: Vat Ruling: Penn EEI Export Oriented PEZA Firm
a. Cancelled Recalled
6) BIR 10-94: Creditable VAT
a. Republic Act No. 7649, as implemented by Revenue Regulations No. 10-93, requiring the withholding of creditable VAT, took effect on July 1, 1993, and applies only to income payments made after said date. Moreover, the 3% contractor's tax has been replaced by the 10% value-added tax imposed under Section 102 of the Tax Code, as amended by Executive Order No. 273 effective January 1, 1988. Accordingly, the collections and/or withholding of the 3% contractor's tax on the billings submitted in December, 1992 and March, 1993 but actually paid by the Department of Environment and Natural Resources (DENR) in January, 1993 and June, 1993, respectively are without legal basis.
7) BIR 06-97: MWSS Transfer of Right to Operate Waterworks Not Subject to VAT
a. MWSS transferred the right to operate its waterworks to various concessionaires for a fee. This involved the transfer of assets.
b. Such transfer of assets is not subject to VAT because not in the usual course of business.
8) BIR 321-88: Importation of Raw Material of Livestock and Poultry Feeds Subject to VAT Except Soya Beans and Fish Meal
a. The importation of synthetic amino acid DL-Methionine (feed grade) is subject to the value-added tax (VAT).
b. The VAT exemption privilege granted to the importation/sale of ingredients for livestock and poultry feeds is limited only to soya beans and fish meal. Accordingly, your importation of DL-Methionine which is an essential raw material in the production of livestock and poultry feeds is subject to VAT.
9) BIR 65-99
a. Mali ata. Non-stock, non-profit educational institutions shall be exempt from tax as regards to property actually, directly and exclusively used for such purposes.

EXEMPTION UNDER SPECIAL LAWS
1) BIR 78-89: CARE
a. CARE is a company soliciting funds and donations from the US and imported to the Philippines. There is an agreement between Philippines and US that importation made by this organization is not subject to tax.
b. CARE demanded that it not be assessed taxes on its purchases in the Philippines.
c. The Philippine-US agreement exempted CARE only on importations not purchases within the Philippines. As such, such sales are subject to VAT which CARE suppliers should have to pay.
2) BIR 244-88: Sale of Water to Enterprise in PEZA Subject to Zero Rate
a. Company is a foreign company which supplies deionized water to the PEZA. It gets its water from a local company.
b. The exemptions expressly granted are extended not only to the grantee but also to its supplier of goods. Example of zero-rated sales are sales of goods to a U.S. Military facility which is exempt from sales tax under the RP-US Military Bases Agreement.
c. The transaction is zero rated.
3) BIR 72-98: Davao Light Exempt From VAT Because of Charter
a. Davao Light is exempt from VAT because its charter provides that it will only be subjected to 2% tax in lieu of other taxes.
4) BIR 153-97: but see RMC 25-99

TRANSACTIONS DEEMED SALE
Q: What are the transactions deemed sale?
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.
Distribution or transfer to:
Shareholders or investors as share in the profits
Creditors in payment of debt
Consignment of goods if actual sale is not made within 60 days from start of consignment
Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.

1) BIR 63-93: Merger and Consolidation
a. SLIC, SLRDC and STRDC merged.
b. The transfer by SLRDC and STRDC of all their assets and liabilities to SLIC solely in exchange for the latter's shares of stock shall not give rise to the recognition of gain or loss pursuant to Section 34(c)(2) of the Tax Code. No gain or loss shall be recognized to SLRDC and STRDC upon the distribution of SLIC shares to SLRDC and STRDC stockholders in complete redemption of their stocks under Section 34(c)(2) of the Tax Code. No gain or loss shall be recognized to SLRDC and STRDC stockholders upon the exchange of their stocks solely for SLIC stocks under Section 34(c)(20) of the Tax Code, as amended.
c. The transfer of the assets, including tangible and movable properties, by SLRDC and STRDC to SLIC pursuant to the merger will not be subject to the value-added tax and any unused input tax of SLRDC and STRDC as of the effective date of merger, will be absorbed by SLIC as surviving corporation, pursuant to Section 5(b)(3) of Revenue Regulations No. 5-87.
2) BIR 472-93
a. BRC merged with Tagaytay Highlands wherein the former would be the surviving corporation. The assets of Tagaytay Highlands were transferred to BRC in exchange for stock.
b. BRC will absorb all the assets and liabilities of Tagaytay Highlands. The merger was not intended to evade taxes. As such, it is not subject to VAT.
3) Revenue Regulation 7-95 but see RMC 19-99

DETERMINATION OF THE TAX
1) Revenue Regulation 8-99
a. The VAT should not appear in the receipt. It should be included in the purchase price.



SECTION 107: VAT ON IMPORTATION

IN GENERAL
1) BIR 72-98: Importation of Equipment
a. Davao Light is exempt from VAT on its importation of machines because its charter provides that it will only be subjected to 2% tax in lieu of other taxes.
2) BIR 96-88: Food Additive
a. As importer of Industrial Essential Oil, Artificial Flavor and Food Additives (DC Compound 05888), your client, Actron Industries, Inc. is subject to the value-added tax (VAT) at the rate of 10% based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties and other charges pursuant to Section 101 of the Tax Code its amended by Executive Order No. 273. Said articles, however, are not subject to the excise tax imposed under Section 150(b) of the same Code and Section 145 thereof.
3) BIR 160-88: Importation Raw Materials for Feeds
a. Company imported Liquid Glucose Feedgrade and Sulfadamine feed additives which are raw materials in the manufacture of poultry feeds. Such importation is VAT because under Section l03(c) of the same Code, the exemption covers only the importation of manufactured fish, animal and poultry feeds but not the raw materials used in the manufacture of said feeds.
4) BIR 193-88: Importation of Raw Materials for Feeds
a. The exemption covers only the manufactured fish, animal or poultry feeds and not the raw materials used in making such feeds.
5) 131-88: Importation of Fiat Car Subject to VAT
a. Importation of Fiat car for personal purposes subject to VAT. The VAT is computed after all the other charges are computed.
6) BIR 128-98: Banole Importation Subject to VAT
a. Banole is a mineral oil not an agricultural product. As such, it is subject to VAT.
7) BIR 163-98: Computer Equipment Importation
a. Company is a thrift bank which is exempt from taxes on its operation. It exemption from VAT on its importation of computer equipment.
b. The company is liable for VAT. The exemption does not apply to VAT on the importation of computer equipment as it such is not a tax on the operations of the thrift bank. The tax is on the privilege of importing goods.
TRANSFERS OF GOODS BY TAX EXEMPT ENTITIES
1) BIR 100-95: Toyota Corolla
a. ADB, a tax-exempt entity, purchased a Toyota Corolla tax-free. It then seeks to sell the car to another entity which is not tax-exempt.
b. Transfers of goods from tax-exempt entities to non-exempt entities are subject to VAT. The buyer shall be liable to the VAT. This is similar to the sale of PEZA enterprise to Customs Territory.

SECTION 108: VAT ON SALE OF SERVICES

RATE AND BASE OF TAX

SALE AND EXCHANGE OF SERVICE
1) BIR 2-97: NAIA
a. Gross receipts of construction and service contractors like the MTOB Consortium are subject to VAT.
b. Services by a resident to a nonresident foreign client such as project studies, information services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, shall be subject to VAT.
c. Although 75% of NAIA 11 Terminal Construction Project is foreign funded by the OECF of Japan, gross receipts derived therefrom, including the OECF portion, shall remain subject to 10% VAT since the services being performed by the residents, in this case the MTOB consortium members, are not for a non-resident foreign clients but for MIAA. Gross receipts derived from the 25% peso portion of the project shall be subject to the 10% VAT also.
2) But See RMC 32-99
3) BIR 33-99: Sale of Service By PEZA Registered Company Should Be Within PEZA to Be Exempt
a. A PEZA registered company leased expat houses in Customs Territory. It asks if it is subject to VAT.
b. Sales of services, in order to avail of the benefits of exemption, should be made within the premises of the PEZA. Otherwise, it is subject to VAT. In this case, since the expat houses were outside the base, the sale of service is subject to VAT.
4) BIR 55-98: Enron Subic Power Corporation Not Subject to VAT
a. Enron Subic Power Corporation (ESPC) was a PEZA registered company. It entered into an agreement with NPC whereby the latter would buy all the electricity the former would produce. They also agreed that NPC would supply ESPC with power and fuel in order to generate the electricity required from the latter.
b. Since the conversion of fuel and generation and transmission of electricity by ESPC to NPC constitute the income producing activities of ESPC which took place in the power plants located within the SBF Zone, the fees paid to ESPC by NPC pursuant to the aforementioned Energy Conversion Agreement are subject to the 5% preferential tax rate imposed under Section 12C of R.A. 7227, as implemented by Revenue Regulations No. 195, as amended by Revenue Regulations No. 12-97.
c. The Preferential Tax Rate governs.
5) BIR 83-98: Royalties
a. Auntie Anne’s is a US company which sold its Philippine franchise to a local company.
b. Pursuant to the most favored nation provision of the RP-US Tax Treaty, the tax imposable on royalties by a resident of the United States from sources within the Philippines shall be the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a Third State. Article The RP-West Germany Tax Treaty provides that royalties arising in the Philippines and paid to a resident of West Germany may also be taxed in the Philippines, but the tax so charged shall not exceed 10% of the gross amount of royalties arising from the use of, or the right to use, any patent, trademark, design or commercial or scientific equipment or for information concerning industrial, commercial of scientific experience. As such, Auntie Anne’s is subject to 10% tax.
c. The remittance of the domestic company to the foreign company of the franchise fees based on gross sales shall be subject to VAT.
6) BIR 426-88: Engineering Contract
a. Company has an engineering contract with US Bases.
b. Pursuant to the RP-US Military Bases Agreement, your sale of services to the U.S. Military Base is exempt from VAT provided that you do not register as a VAT taxpayer, in accordance with Section 109(v) of the Tax Code. However, if you register as a VAT taxpayer, your sale to the U.S. Bases shall be zero-rated provided you apply for zero-rating, pursuant to Section 102(a)(3) of the same Code. Upon approval of your application for zero-rating, your billings to the U.S. Military Base shall not include the VAT as contemplated in Section 8(c)(2) of Revenue Regulations No. 5-87.
7) BIR 107-89: Previous BIR Rulings Modified
a. With respect to BIR Ruling No. 155-88 to the effect that VAT applies to reinsurance overriding commission which can be classified as charge for service, this Office, after a re-study, believes that the insurance company deriving said commission is not a seller but a buyer of service. Accordingly, said insurance company cannot be held liable for VAT because VAT applies only to sellers of services.
b. As regards BIR Ruling No. 186-88, the query propounded therein as to whether reinsurance commissions are subject to VAT is answered in the negative for the reason that the insurance company deriving the same is a buyer, not a seller of service. Under the VAT law, the seller of the service is the party subject to VAT.
c. Accordingly, BIR Ruling Nos. 155-88 and 186-88 are modified.
8) BIR 51-89: Broker of Jewelry
a. If you engage as a commission agent or broker of jewelry, you will be considered as a commercial broker. As such, your gross receipts will be subject to VAT. Gross receipts means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding VAT.
b. If you buy jewelry and sell them thereafter, your gross receipts will still be subject to VAT.
c. Finally, in extending credit or advances at interest to the owners of said articles, you shall be considered a lending investor subject to 5% tax based on gross income pursuant to Section 116 (formerly Section 175) of the same code.
9) BIR 48-94: Del Monte – Inward Remittance Subject to Zero Rate
a. Del Monte is a foreign corporation which has a domestic branch. The domestic branch makes sure that the bananas which the company buys from local companies are in accord with given standards. The local company gives the local companies advice and training for a fee which is deducted from the payments to them. The local company is paid the value of the training through inward remittance.
b. Services other than the processing, manufacturing or repackaging of goods for other persons doing business outside the Philippines, the consideration for which is paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines (now the Central Monetary Authority), shall be subject to the Value-Added Tax at zero percent. In substance, the sale of services is zerorated provided that it is paid for in acceptable foreign currency which is "inwardly remitted" and the remittal peso collections which are saved from being actually remitted abroad are likewise considered "inwardly remitted".
c. Thus, the transaction is subject to zero rate.
10) BIR 87-335: Manning Agency
a. Wrong. This is just says that lease of property is subject to tax.
11) BIR 79-88: Engineering Consultation Services Subject to VAT.
a. Engineering Consultation Services are subject to VAT.
12) BIR 83-88: Public Relations Agency Subject to VAT
a. Public Relations Agencies are subject to VAT based on their gross annual receipts.
13) BIR 250-88: Profession
a. A manager of various companies is subject to VAT because he is selling his services in the normal course of trade or business.
b. Services include those which require the exercise of mental or physical faculties.
14) BIR 163-88: Employment Agency
a. A private employment agency is subject to the 10% VAT on the amount of placement fee which for purposes of this tax will not include reimbursement of expenses which shall be limited to fees for passport/visa, medical examination, clearances, inoculation, trade and skill testing, airport terminal, performance bond premiums and notary public, provided that the said expenses are supported by receipts issued by the supplying company, or government agency in the name of the applicant worker. All other income or receipt shall be subject to VAT.
b. On the other hand, the agency is required to pay the 10% VAT on the entire placement fee if the abovementioned expenses are supported by receipts issued in the name of the agency.
15) BIR 59-88: Services Completely Rendered But Unpaid Shall Be Subject to VAT
a. Services completely rendered but unpaid are subject to VAT.
b. As regards the basis of the 10% VAT payable by an advertising agency, the Department of Finance has ruled that only 15% of its gross billings, constitute the gross receipts subject to the contractor's tax then payable by said agency since this amount is retained by the agency as its commission from media. Accordingly, and since the 10% VAT is based on gross receipts which means the total amount of money or its equivalent representing the contract price, compensation or service, said 15% of the gross billings of an advertising agency, likewise, constitutes the gross receipts of said agency for purposes of the 10% VAT.
16) BIR 332-88: Film Distributors
a. A cinematographer who has already rendered services but still unpaid is liable for VAT.

SEE SEC. 5 OF RA 8421

ZERO RATED SALES
1) RMC 17-96
2) BIR 161-88: Recruitment
a. Recruitment agency provides contract workers to employers abroad and charge the latter for services rendered.
b. If the recruitment agency is VAT registered and the payment is in foreign currency inwardly remitted to the Philippines in accordance with Central Bank regulations, said recruitment agency is subject zero rate.
c. Abel: A probable reason would be that such is like an export of goods or services.
3) BIR 107-88: Indent Commissions
a. Company is a branch or subsidiary of a foreign company. It acts as a broker for the mother company and the latter pays it indent commissions.
b. The commissions received by the company for soliciting orders from local companies are subject to 10% VAT provided they are paid for in foreign currency and inwardly remitted to the Philippines in accordance with Central Bank rules.
c. Abel: This should be zero rated. Typo siguro.
4) BIR 191-88
a. Ipil International is a domestic corporation which acts as the agent of Meng Hai which is a German company. Ipil handles the stevedoring of the vessels of its principal company when such ships arrive in the Philippines.
b. The services of Ipil are zero rated as long as Ipil is paid in foreign currency inwardly remitted to the Philippines and in accordance with the rules and regulations of the Central Bank.
5) BIR 44-98
a. Wrong citation. This is about donor’s tax and the donation of property to La Salle.

HOW IT IS COMPUTED
1) BIR 61-88
a. The tax base in computing the VAT on the sale of services is gross receipts which means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments, actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the value-added tax pursuant to Section 2(m) of Revenue Regulations No. 5-87 implementing Section 102(a)(3) of the Tax Code as amended by E.O. No. 273. Accordingly, in the foregoing illustration the value-added tax should be based on P17,415.88 which represents the gross payments made by your clients. However, your client may charge the input tax on your sale of services against their output tax on their sale of manufactured goods and other merchandise for resale pursuant to Section 10(5) of Revenue Regulations No. 5-87 implementing Section 104 of the Tax Code as amended.

Basic Salaries P12,256.00
13th month pay 1,020.71
4 days incentive pay 157.03
Sub-Total P13,433.74
Others: ECC/SSS/Medicare 723.87
Transportations 108.85
Holiday 854.88
Day-Off 279.48
P15,400.82
Agency Service Fee
15% x P13,433.74 2,015.06
Total gross receipts P17,415.88
10% VAT 1,741.59
Total collectible for the
account of client P19,157.47
2) BIR 363-88: Manpower Service
a. Company engaged in manpower service to various clients.
b. It is asking whether the VAT should be based on agency fees or gross receipts.
c. The law provides that the VAT should be based on gross receipts which means the total amount of money or its equivalent representing the contract price.
3) BIR 360-88: Development Bank Broker
a. As a wholly-owned subsidiary of the Development Bank of the Philippines (DBP) tasked as the sole marketing arm in the disposition of the Bank's acquired assets, the 10% VAT is imposed on the 5% service fee provided that the amount corresponding to it is billed separately.
b. On the other hand, as the sole marketing arm of Land Bank bonds, your company is classified as a broker in its management/arrangement fees. Hence, the value-added tax is imposed on the income, compensation or fee, received by the corporation, provided that such amount is billed separately.
c. However, if the whole amount for both transactions is reflected in the receipt, said amount is subject to VAT.
4) BIR 142-98: Marubeni
a. Marubeni Consortium won the bid to construct the LRT 1 Capacity Expansion Project. The contract provided for retention money where monthly payments shall be taken. The question is whether or not the retention money should be included in the computation of VAT.
b. No, VAT is imposed on gross receipts which means the money received by the person who rendered service as compensation. Gross receipts can be constructive wherein the money is already in the control of the service provider.
c. In this case, the retention money still wasn’t paid to Marubeni. As such, it could not be included in the gross receipts for the calculation of VAT.
5) 154-98: Government Payments
a. Question arises on how to treat Commissioner’s Privilege Fund (CPF). Will the VAT be based on the total payments + CPF or total payments only?
b. VAT should be based on gross receipts. Gross receipts are inclusive of CPF. It is included because the benefit is deemed to redound to the buyer.

CHANGE OF STATUS
1) BIR 124-98
a. Wrong citation. This deals with the documentary stamp tax of rural banks.

DETERMINATION OF THE TAX
1) Revenue Regulation 8-99: How to Show VAT as Part of the Bill

SPECIAL TOPICS
1) BIR 335-88: Joint Ventures
a. Equitable and Monark verbally entered into a joint venture.
b. Services of joint ventures are subject to VAT.
2) RMC 4-98: Subsistence Level
3) Revenue Regulation 2-98, Section 4.114: Withholding Tax on VAT
4) BIR 43-98: Japan Grant – Exemptions
a. Japan made a grant for the construction of the National Vocational Training Development Center.
b. The Philippines agreed to shoulder all the taxes of the Japanese involved in the project.
c. There is VAT imposed on the transaction. However, because of previous agreement, such VAT is shouldered by the Philippines through TESDA.
5) BIR 74-98: Sugar
a. Wrong Citation. This is about Local Water Districts and how they were hoping for tax exemption. Since there’s no specific law for exemption, the LWDs are not exempted from income taxes.
6) BIR 87-98: Asphalt is Exempt from VAT
a. Company regularly buys asphalt from Petrophil but withholds creditable VAT before payment. Petrophil claims the asphalt should be exempt from VAT.
b. Section 109 (c) provides that sale or importation of coal and natural gas, in whatever form and state and petroleum products (except lubricating oil, processed gas, grease, wax and petrolatum) subject to excise taxes. Under Section 2(l) of Revenue Regulations No. 8-96, the term "Petroleum products" includes among others, asphalts subject to excise tax at the rate of PO.56 per kilogram.
7) BIR 99-98: When to Pay
a. Best Telephone Directories Incorporated printed the directories of both Bayantel and Globe. It made solicitations for advertisements wherein they get paid for printing the clients’ ads.
b. The company is subject to VAT because it is engaged in the sale of service.
8) BIR 104-98: Royalties
a. Korean company which is PEZA registered buys telecommunication equipment, among others, from a foreign corporation.
b. The Special Economic Zone Act of 1993 states that business enterprises within the ECOZONE shall be imposed a 5% tax in lieu of all national taxes.
c. Since the Korean company is in the ECOZONE, it is exempt from all other taxes including indirect taxes and may not legally be passed VAT. It is not subject to VAT.
9) BIR 181-88: Corn Starch
a. Corn Starch is not one of those enumerated as in their original state. As such, it is considered a manufactured product and is subject to VAT.
10) BIR 291-88: Corn Germ
a. Corn Germ is merely a by-product. It is not considered in the original state so is subject to VAT.
11) BIR 250-88: Professional Services
a. Management of various companies is considered a sale of service which is subject to VAT.
12) BIR 122-98: VAT Exempt Cooperatives
a. Cooperatives were previously exempt from VAT. However, this changed with the advent of the 1997 NIRC.
b. Importation of a hoe is exempt from tax because it is farm equipment.
13) BIR 152-98: Dwelling Below P1M
a. Sale of house in Grand Victoria Subdivision is less than P1M so is exempted from VAT.
14) BIR 154-98: Government Payments
a. Commissioner’s Privilege Fund is part of Gross Payment so should be included in computing the VAT,
15) Revenue Regulation 8-99: How to Show VAT as Part of the Bill
16) BIR 174-98: Treatment of VAT Exempt Transactions, Supplies Passed on to VAT Exempt
a. Company exports fish and sells them to local companies.
b. The company is exempt from VAT because it exports fish. Input tax cannot be removed because VAT is an indirect tax which means the seller can shift the burden of paying it to others. It reaches the buyer not as a tax but an additional cost.