TAXATION1

VALUE–ADDED TAX VAT-registered person, but without the benefit of input tax credits for the
period in which he was not properly registered.
VAT – indirect tax and the amount of tax may be shifted or For franchise grantees of radio and television broadcasting,
passed to the buyer, transferee, or lessee of the goods, VAT registration is mandatory when the gross annual receipts exceed
properties, or services.1 ₱10,000,000. Such grantee must register within 30 days from the end of
the taxable year.
I. Nature and Characteristics (Sec. 105): 3. Optional VAT registration:
1. Tax on consumption of goods, properties, or a. Any VAT-exempt person who elect to be
services; VAT-registered;
2. Indirect tax that may be shifted or passed on by the b. Any VAT-registered person but enters into
seller to the buyer, transferee, or lessee of the transactions which are VAT-exempt may
goods, properties, or services; opt that the VAT apply to his transactions
3. Collected through the tax credit method – OVAT – which would have been exempt;
IVAT = VAT due; c. Franchisees of radio or TV or both whose
4. It is not a cascading tax. What has been subjected to annual gross receipts of the preceding year
VAT before is not thereafter further subjected to do not exceed ₱10M derived from the
VAT. There is no tax pyramiding; business covered by the law granting the
5. It is not a tax on tax; franchise may opt for VAT registration.
6. It is a transparent form of sales tax; Once registered, however, it shall be
7. It adheres to the Cross-Border Doctrine and irrevocable.
Destination Principle which states that no VAT ***Notes: In (a) and (b), once such person registers as a VAT payer, he
shall be imposed to form part of the cost of goods shall not be allowed to cancel his registration for the next 3 years.
destined for consumption outside the territorial 4. Persons required to register as non-VAT or VAT-
border of the taxing authority; exempt persons:
***Notes: According to the Destination Principle, goods and services are
taxed only in the country where these are consumed. Hence, PEZA- a. VAT-exempt persons under Sec. 109;
registered enterprises are VAT-exempt and no VAT can be passed on to b. Radio and TV broadcasting whose annual
them.2 gross receipts do not exceed ₱10M and do
No VAT shall be imposed to form part of the cost of goods not opt to be VAT registered;
destined for consumption outside of the territorial border of the taxing
authority. Hence, actual export of goods and services from the
c. PEZA and other ecozone registered
Philippines to a foreign country must be free of VAT; while, those enterprises enjoying the preferential tax rate
destined for use or consumption within the Philippines shall be imposed of 5% in lieu of all taxes;
with VAT.3 d. SBMA and other freeport zone-registered
Under the Cross Border Doctrine, no VAT shall be imposed to enterprises enjoying the preferential tax rate
form part of the cost of the goods destined for consumption outside the
territorial border of the taxing authority. 4 of 5% in lieu of all taxes.
While the liability on VAT is imposed on one person, the
burden may be passed on to another. III. Imposition of VAT
II. Registration 1. VAT is imposed on a sale or transaction entered
1. Persons liable – any person who, in the course of into by a person in the course of any trade or
his business, sells, barters, exchanges, or leases business. It is a transaction in the course of trade or
goods or properties, or renders services and any business if it is:
person who imports goods a. Regularly conducted; and
2. Mandatory VAT registration: b. Undertaken in pursuit of a commercial or
a. Gross sales or receipts for the past 12 economic activity.
months, other than those that are exempt, 2. Incidental transactions to the pursuit of a
have exceeded ₱3,000,000.00 effective 1 commercial or economic activity are also
January 2018; or considered as entered into in the course of trade or
b. There are reasonable grounds to believe business.
***Notes: Guide: if the asset sold is an inventory or Property, Plant, and
that the gross sales or receipts for the next Equipment, subject the sale to VAT.
12 months, other than those exempt, exceed It is therefore immaterial whether the primary purpose of a
the above stated amount. corporation indicates that it receives payments for services rendered to its
***Notes: Failure to register under the above cited circumstances shall affiliates on a reimbursement-on-cost basis only, without realizing profit,
make the person concerned liable to pay the output tax as if he were a for purposes of determining liability for VAT. As long as the entity
provides services for a fee, remuneration, or consideration, then the
1
Section 105, NIRC. service rendered is subject to VAT.5
2
RA 7916 (Sec. 8).
The phrase “in the course of trade or business” means the
3 regular conduct or pursuit of a commercial or an economic activity,
Toshiba Information Equipment (Phils.), Inc. v. CIR, 157594, 9 March 2010.
4
Atlas Consolidated Mining and Development Corporation v. CIR, 141104, 8
5
June 2007. CIR v. Sony Phils., Inc. 635 SCRA 234 (2010).
 TAXATION2
including transactions incidental thereto, by any person regardless of Gross SP of the sale, barter, or exchange of real property – the
whether or not the person engaged therein is a nonstock, nonprofit private consideration stated in the sales document or the FMV, whichever is
organization (irrespective of the disposition of its net income and whether higher.
or not it sells exclusively to members or their guests), or government If the VAT is not billed separately in the document of sale, the
entity.6 SP stated therein shall be deemed inclusive of VAT. If the GSP, however,
The rule of regularity, to the contrary notwithstanding, services is based on the zonal or market value of the property, the zonal or market
as defined in this Code rendered in the Philippines by nonresident foreign value shall be deemed exclusive of VAT.
persons shall be considered as being rendered in the course of trade or b. The right or the privilege to use patent,
business.7 copyright, design or model, plan, secret
Mindanao II’s sale of the Nissan Patrol is said to be an isolated
transaction. However, it does not follow that an isolated transaction formula or process, goodwill, trademark,
cannot be an incidental transaction for purposes of VAT liability. Indeed, trade brand, or other like property or right;
a reading of Section 105 of the 1997 Tax Code would show that a c. The right or privilege to use any industrial,
transaction "in the course of trade or business" includes "transactions commercial, or scientific equipment;
incidental thereto."8
Mindanao II’s business is to convert the steam supplied to it by
d. The right or privilege to use motion picture
PNOC-EDC into electricity and to deliver the electricity to NPC. In the films, films, tapes, and discs; and
course of its business, Mindanao II bought and eventually sold a Nissan e. Radio, TV, satellite transmission, and cable
Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s TV time.
property, plant, and equipment. Therefore, the sale of the Nissan Patrol is
an incidental transaction made in the course of Mindanao II’s business 3. Zero-Rated Sales – taxable transaction for VAT
which should be liable for VAT.9 purposes but shall not result in any output tax;
IV. 12% VAT on Sale of Goods or Properties (Sec. 106): however, the input tax on purchases of goods,
1. Requisites for the imposition of VAT: properties, or services, related to such zero-rated
a. The seller must be VAT-registered, or he is sale, shall be available as tax credit or refund.
VAT-registrable; Automatically Zero-Rated Effectively Zero-Rate
b. The goods or properties sold may either be Transactions Transactions
tangible or intangible which are capable of Refer to the actual export Refer to the local sale of
pecuniary estimation; sale of goods and supply of goods or supply of services
c. The sale must be undertaken in the course services; by a VAT-registered
of trade or business; person to persons who
d. The sale must have been done in the were granted indirect tax
Philippines; exemption under special
e. The sale must be for use or consumption in laws or international
the Philippines; agreement to which the
f. The sale must not be a zero-rated sale; and Philippines is a signatory;
g. The sale must not be VAT-exempt. When applied to the tax When applied to the tax
2. Goods or Properties include: base, the rate results in no base, the rate results in no
a. Real properties held primarily for sale to tax chargeable against the tax chargeable against the
customers or held for lease in the ordinary purchaser; purchaser;
course of trade or business; The seller charges no The seller charges no
***Notes: Sale of Real Properties are subjected to VAT when: output tax but can claim a output tax but can claim a
i. Sale of real property held primarily for sale to customers or refund of or a TCC for the refund of or a TCC for the
held for lease in the ordinary course of trade or business of
the seller;
VAT previously charged VAT previously charged
ii. Sale of residential lot with gross SP exceeding ₱1.5M by the suppliers. by the suppliers.
beginning 1/1/18); or ***Notes: If the claim for refund or TCC is based on the existence of
iii. Sale of residential house and lot with gross SP exceeding zero-rated sales by the TP, but it fails to comply with the invoicing
₱2.5M beginning 1/1/18. requirements in the issuance of sales invoices, its claim for TCC or
Sale of adjacent residential lots, house and lots, or other refund of VAT on its purchases shall be denied considering that the
residential dwellings although covered by different titles or tax invoice it is issuing to its customers does not depict its being a VAT-
declarations, or covered by one or separate DOAS, when sold to the same registered TP whose sales are classified as zero-rated sales. Nonetheless,
buyer, shall be presumed as one sale of one residential lot, house and lot, this treatment is without prejudice to the right of the TP to charge the
or other residential dwelling. input taxes to the appropriate expense account or asset account subject to
Installment and pre-selling of real properties shall also be depreciation, whichever is applicable.10
subject to VAT.
Zero-Rated Export Sales of Goods or Properties:
a. The sale and actual shipment of goods from the
6 Philippines to a foreign country, irrespective of any
Mindanao II Geothermal Partnership v. Commissioner Of Internal Revenue,
G.R. No. 193301, 11 March 2013. shipping arrangement that may be agreed upon
7
Supra. which may influence or determine the transfer of
8
Supra.
9 10
Supra. CIR v. American Express Intl., Inc., 152609, 29 June 2005.
 TAXATION3
ownership of the goods so exported and paid for in 5. Allowable deductions from GSP:
acceptable foreign currency or its equivalent in a. Discounts determined and granted at the
goods or services, and accounted for in accordance time of sale and expressly indicated in the
with the rules and regulations of the Bangko Sentral invoice;
ng Pilipinas (BSP); b. Sales returns and allowances for which a
b. Sale of raw materials or packaging materials to a proper credit or refund was made during the
nonresident buyer for delivery to a resident local month or quarter to the buyer for sales
export-oriented enterprise to be used in previously recorded as taxable sales.
manufacturing, processing, packing or repacking in V. VAT on the Sale of Services and Use or Lease of
the Philippines of the said buyer’s goods and paid Properties (108)
for in acceptable foreign currency and accounted 1. Requisites for sale to be subjected to VAT:
for in accordance with the rules and regulations of a. Seller must be VAT-registered or VAT-
the Bangko Sentral ng Pilipinas (BSP); registrable and his gross annual receipts
c. Sale of raw materials or packaging materials to exceeds ₱3,000,000.00;
export-oriented enterprise whose export sales b. The sale must be performed in the course of
exceed seventy percent (70%) of total annual trade or business;
production; c. The sale must be for a valuable
d. Those considered export sales under Executive consideration actually or constructively
Order No. 226, otherwise known as the Omnibus received;
Investment Code of 1987, and other special laws; d. The sale must have been done and for use
and or consumption in the Philippines;
e. The sale of goods, supplies, equipment and fuel to e. The sale must not be considered as zero-
persons engaged in international shipping or rated sale;
international air transport f. The sale must not be VAT-exempt;
operations: Provided, That the goods, supplies, g. In the case of lease of properties, the
equipment and fuel shall be used for international property being leased should be located in
shipping or air transport operations. the Philippines irrespective of the place
***Notes: Any sale of goods, properties, or services made by a VAT-
registered supplier from the Philippine Territory to any registered where the contract of lease or licensing
enterprise operating in the Ecozone regardless of the class or type of the agreement was executed.
latter’s PEZA registration, is actually qualified and thus legally entitled to
the 0% VAT. 2. Zero–Rated Sale of Services:
a. These transactions are VATable but shall
4. Transactions-deemed Sale:
not result in an output tax. However, the
a. Transfer, use, or consumption not in the
input tax on purchases of goods, properties,
course of business of goods or properties
or services related to such zero-rated sale
originally intended for sale or for use in the
shall be available as tax credit or refund;
course of business;
b. Transactions [108 (B)]:
b. Distribution or transfer to:
i. Processing, manufacturing or
i. Shareholders or investors share in
repacking goods for other
the profits of VAT-registered
persons doing business outside
person;
the Philippines which goods are
ii. Creditors in payment of debt or
subsequently exported, where the
obli.
services are paid for in acceptable
c. Consignment of goods if actual sale is not
foreign currency and accounted
made within 60 days following the date
for in accordance with the rules
such goods were consigned;
and regulations of the Bangko
d. Retirement from or cessation of business
Sentral ng Pilipinas (BSP);
with respect to all goods on hands whether
ii. Services other than those
or not the business is continued by the new
mentioned in the preceding
owner or successor; these circumstances
paragraph, rendered to a person
give rise to transactions deemed sale:
engaged in business conducted
i. Change of ownership of the
outside the Philippines or to a
business;
nonresident person not engaged
ii. Dissolution of a partnership and
in business who is outside the
creation of a new partnership which
Philippines when the services are
takes over the business.
performed, the consideration for
 TAXATION4
which is paid for in acceptable i. The processing, manufacturing,
foreign currency and accounted or repacking of goods must be
for in accordance with the rules performed in the Philippines;
and regulations of the Bangko ii. The recipient of said services is
Sentral ng Pilipinas (BSP); another person doing business
iii. Services rendered to persons or outside the Philippines;
entities whose exemption under iii. The goods which were processed,
special laws or international manufactured, or repacked are
agreements to which the subsequently exported; and
Philippines is a signatory iv. The services rendered are paid
effectively subjects the supply of for in acceptable foreign currency
such services to zero percent and accounted for in accordance
(0%) rate; with the rules and regulations of
iv. Services rendered to persons the BSP.
engaged in international shipping e. Conditions for Zero-Rating of Sale of
or international air transport Services [108(B)(2)] (Exception to the
operations, including leases of Destination Principle):
property for use i. The services rendered must be
thereof: Provided, That these other than processing,
services shall be exclusive for manufacturing, or repacking of
international shipping or air goods;
transport operations; ii. The services must be performed
v. Services performed by in the Philippines;
subcontractors and/or contractors iii. The services must be rendered to
in processing, converting, or a person engaged in business
manufacturing goods for an conducted outside the Philippines
enterprise whose export sales or to a nonresident person not
exceed seventy percent (70%) of engaged in business who is
total annual production; outside the Philippines when the
vi. Transport of passengers and services are performed; and
cargo by domestic air or sea iv. The consideration for which it is
vessels from the Philippines to a paid for is in acceptable foreign
foreign country; currency and accounted for in
vii. Sale of power or fuel generated accordance with the rules and
through renewable sources of regulations of the BSP.
energy such as, but not limited to,
VI. VAT Rules:
biomass, solar, wind,
1. Lessors of Properties, real or personal;
hydropower, geothermal, ocean
a. Advance Payment in a Lease Contract – if
energy, and other emerging
the advance payment is actually a loan to
energy sources using
the lessor, or an option money for the
technologies such as fuel cells
property, or a security deposit for the
and hydrogen fuels.
***Notes: Gross receipts of international air carriers doing business in
faithful performance of certain obligations
the Philippines and international sea carriers doing business in the of the lessee, such payment is not subject to
Philippines are still liable to 3% OPT based on their gross receipts but VAT; however, a security deposit applied
shall not be liable to VAT (118) to rental is subject to VAT at the time of its
c. Effectively Zero-Rated Sale of Services – application;
refers to the local sale of services by a b. VAT on Rent and/or Royalties payable to
VAT-registered person to a person or entity resident foreign corporations or owners –
who was granted indirect tax exemption VAT is based on the contract price agreed
under special laws or international upon by the licensor and the licensee. The
agreement; licensee shall pay the VAT in behalf of the
d. Conditions for Zero-Rating of Sale of nonresident foreign corporation or owner;
Services [108(B)(1)]: c. Payment for Software Transactions subject
to VAT – the following payments for
 TAXATION5
computer software transactions shall be other domestic common carriers by land relative to their transport of
subject to VAT: goods.
Foreign international carriers shall be subject to 3%
i. Royalty payments for the use of a international carriers tax under 118.
copyright over a software; Domestic carriers with international flight shall be subject to
ii. Payments made to resellers, 0% VAT.
distributors, or retailers who are 5. Sale of Electricity;
engaged in the trade or business of a. Sale of power or fuel generated through
distributing or selling software; and renewable sources of energy such as, but
iii. Payments for services rendered in not limited to, biomass, solar, wind,
the Philippines in connection with hydropower, geothermal, ocean energy, and
software purchased. (see RMC 44- other emerging energy sources using
2005)
***Notes: Lease of property shall be subject to VAT regardless of the technologies such as fuel cells and
place where the contract of lease or licensing agreement was executed if hydrogen fuels shall be subject to 0% VAT;
the property leased or used is located in the Philippines. (RR 16-2005) b. Gross Receipts:
These rules are in addition to those provided for under Section i. Total amount charged by
109(Q) on lease of residential units.
generation companies for the sale
2. Lessors or Distributors of Cinematographic Films; of electricity and related ancillary
a. Only lessors or distributors of services;
cinematographic films are subject to VAT; ii. Total amount charged by
legislative intent never included cinema or transmission companies for
theater operators or proprietors in the transmission of electricity and
coverage of VAT; related ancillary services;
***Notes: VAT is not imposed on persons already covered by the iii. Total amount charged by
amusement tax. distribution companies and electric
The Local Government Code, in transferring the power to tax
gross receipts derived by cinema or theater operators or proprietor from cooperatives for distribution and
admission tickets to the local government, did not intend to treat cinema supply of electricity, and related
or theater houses as a separate class. No distinction must, therefore, be electric service;
made between the places of amusement taxed by the national government ***Notes: The universal charge passed on and collected by distribution
and those taxed by the local government.11 companies and electric cooperatives shall be excluded from the
3. Dealers in Securities and Lending Investors; computation of their Gross Receipts.
a. For dealers in securities: Refer to RMC 62-2012 for the report of gross receipts relative
to power generation and distribution.
Gross Receipts = Gross SP – Cost
of Securities Sold; 6. Services of Franchise Grantees;
b. Lending investor is the same as a lending a. Franchise grantees of radio and/or TV
company; broadcasting whose annual gross receipts if
c. Pawnshops – not subject to VAT but the preceding year do not exceed ₱10M
subject to percentage tax on gross receipts shall not be subject to VAT, but once the
from 0% to 5%, as the case may be (RA franchisee optionally registers as a VAT-
9238); TP, such option shall be irrevocable;
4. Transportation Contractors on their Transport of b. Franchisees of gas and water are subject to
Goods or Cargoes; 2% OPT (119);
a. All receipts from service, hire, or operating c. Franchisees of telephone and telegraph
lease of transportation equipment not companies for overseas dispatch, message,
subject to percentage tax on domestic or conversation originating from the
carriers and keepers of garages under 117 Philippines are subject to OPT (120);
are subject to VAT; d. PAGCOR is VAT-exempt;
b. Transport of passengers of domestic
7. Non-Life Insurance Companies Subject to VAT;
common carriers by land shall not subject
to VAT (117); a. Non-Life Insurance Companies:
i. Marine, fire, and casualty;
c. Transport of passengers of domestic
common carriers by air and sea shall be ii. Surety, fidelity, indemnity, and
bonding;
subject to VAT;
***Notes: Transportation contractors on their transport of goods or iii. Mutual benefits associations;
cargoes includes persons who transport goods or cargoes for hire and iv. GOCCs engaged in the business of
non-life insurance;
11
CIR v. SM Prime Holdings, Inc., 613 SCRA 774.
 TAXATION6
v. Non-stock, Non-profit For the purposes of the threshold amount, the husband and wife
organizations and cooperatives shall be considered separate taxpayers.
Refer to RR 19-1999 and RMC 64-2012 for more details.
engaged in the business of non-life
insurance; and VII. VAT–Exempt Transactions:
vi. All other persons engaged in the 1. VAT-Exempt transactions – sale of goods or
non-life insurance business properties and/or services and the use or lease of
b. Gross Receipts = total premiums collected; properties that is not subject to VAT and the seller
but does not include: is not allowed any tax credit of VAT on purchases.
i. Premiums refunded within 6 VAT-Exempt Transactions VAT-Exempt Party/Entity
months after payment on account Involves goods or services A person or entity granted
of rejection of risk or returned for which, by their nature, are VAT exemption and by
other reason to the person insured; specifically listed in and virtue of which its taxable
ii. Premiums on reinsurance of a expressly exempted from transactions become
company that has already paid the VAT; exempt from VAT;
tax; The transaction is not The party is also not
iii. Premiums on account of any subject to VAT, but the subject to VAT, but may
reinsurance, if the risk insured seller is not allowed any be allowed a tax refund or
against covers property located tax refund of or credit for credit for input taxes paid,
outside of the Philippines; any input taxes paid. depending on its
iv. DST and local taxes passed on by registration.
the insurance company to the ***Notes: The person making the exempt sale of goods, properties, or
insured; and services shall not bill any output tax to his customers because the said
v. VAT passed on to the insured. transaction is not subject to VAT.
c. Non-Life Reinsurance Premiums not A VAT-registered TP may elect that the VAT exemption not to
apply to its sale of goods, properties, or services provided that the
Subject to VAT – already subjected to VAT election made shall be irrevocable for a period of 3 years from the quarter
upon receipt of the insurance premiums; the election was made.
***Notes: Insurance companies cannot be subjected to both tax on Franchise grantees of radio and TV broadcasting whose annual
insurance companies and lending investor’s tax at the same time. gross receipts for the preceding year do not exceed ₱10M, wherein in
Insurance and reinsurance commissions, whether life or non- case of exercise of the option, the said option exercise becomes
life, are subject to VAT. perpetually irrevocable.
8. Health Maintenance Organizations; 2. Agricultural and Marine Food Products in their
a. Gross Receipts = total amount of money or Original State;
its equivalent representing the service fees a. The sale or importation must be:
actually or constructively received during i. Agricultural or marine food
the taxable period for the services products in their original state;
performed or to be performed; ii. Livestock and poultry of a kind
***Notes: No deduction for medical utilization (medical and dental fees, generally used as, or yielding or
hospital bills, laboratory fees, etc.) shall be made against the gross
receipts. producing foods for human
consumption; and
9. Professional Services iii. Breeding stock and genetic
a. A GPP shall be treated as a separate and materials.
distinct taxable person from the individual ***Notes: Livestock or poultry does not include fighting cocks, race
partners composing the partnership; horse, zoo animals, and other animals generally considered as pets.
b. All receipts from sales of services rendered Meat, fruit, fish, vegetables, and other agricultural and marine
food products shall be considered in their original state even if they have
by the partners for and in the name of the
undergone the simple processes of preparation or preservation for the
partnership shall entirely be taxable against market, such as freezing, drying, salting, broiling, roasting, smoking, or
the partnership; and stripping, including those using advanced technological means of
c. Sales of services made by any of the packaging, such as shrink wrapping in plastics, vacuum packing, tetra-
partners in his personal and individual pack, and other similar packaging methods.
Polished and/or husked rice, corn grits, raw cane sugar and
capacity shall not be attributed to the molasses, ordinary salt, and copra shall be considered in their original
partnership but rather be taxable against state.
such partner in his individual capacity. Sugar whose content of sucrose by weight, in the dry state, has
***Notes: If a professional, aside from the practice of profession, also a Polari meter reading of 99.5 degrees and above are presumed to be
derives revenue from other lines of business which are otherwise subject refined sugar and shall be subject to VAT.
to VAT, the same shall be combined for purposes of determining whether
the threshold for VAT has been exceeded. 3. Fertilizers, seeds, and feeds:
 TAXATION7
a. Sale or importation must be of fertilizers, b. Services rendered by domestic common
seeds, seedlings, fingerlings, fish, prawn, carriers by land for transport of passengers,
livestock and poultry feeds, including and keepers of garages;
ingredients, whether locally produced or c. Services rendered by international
imported, used in the manufacture of air/shipping carriers;
finished feeds. d. Services rendered by franchise grantees of
b. Exception: Specialty feeds for racehorses, radio and/or TV broadcasting whose annual
fighting cocks, aquarium fish, zoo animals, gross receipts of the preceding year do not
and other animals generally considered as exceed ₱10M, and by franchise grantees of
pets. gas and water utilities;
e. Services rendered for overseas dispatch,
4. Importations of Returning Residents and Resettlers:
message, or conversation originating from
a. Importation must be personal and
the Philippines;
household effects;
f. Services rendered by banks and non-bank
b. Belonging to the returning residents of the
financial intermediaries performing quasi-
Philippines and nonresident citizens coming
banking functions;
to resettle in the Philippines;
g. Services rendered by other non-bank
c. Provided that such goods are exempt from
financial intermediaries;
customs duties.
h. Services rendered by any person, company,
5. Importation of settlers in the Philippines: or corporation, except purely cooperative
a. Importation of professional instruments and companies or associations, doing life
implements, tools of trade, occupation or insurance business of any sort in the
employment, wearing apparel, domestic Philippines;
animals, and personal and household effects i. Services rendered by fire, marine, or
belonging to persons coming to settle in the miscellaneous insurance agents of foreign
Philippines or Filipinos or their families insurance companies;
and descendants who are now residents or j. Services of proprietors, lessees or operators
citizens of other countries, such parties of cockpits, cabarets, night or day clubs,
hereinafter referred to as overseas Filipinos, boxing exhibitions, professional basketball
in quantities and of the class suitable to the games, Jai-alai and race tracks;
profession, rank or position of the persons k. Services of owner’s winnings race horses in
importing said items, for their own use and horse racing;
not for barter or sale, accompanying such l. Sale, barter, or exchange of shares of stock
persons, or arriving within a reasonable listed and traded through the local stock
time; exchange or through initial public offering.
b. The Bureau of Customs may, upon the
7. Services of Agricultural Contract Growers and
production of satisfactory evidence that
Millers:
such persons are actually coming to settle
a. Services must be rendered for others;
in the Philippines and that the goods are
b. By agricultural contract growers and
brought from their former place of abode,
millers;
exempt such goods from payment of duties
c. Of palay into rice;
and taxes;
d. Corn into grits; and
c. Vehicles, vessels, aircrafts, machineries and
e. Sugar cane into raw sugar.
other similar goods for use in manufacture,
f. Its services involve:
shall not fall within this classification and
i. Growing of poultry;
shall therefore be subject to duties, taxes
ii. Livestock; or
and other charges.
iii. Other agricultural or marine food
6. Services Subject to Percentage Tax (116-128): products;
a. Sale or lease of goods or properties or the iv. Into marketable products;
performance of services of non-VAT- v. Toll processing, dressing, or
registered persons, the gross annual sales manufacturing as a packaged
and/or receipts of which do not exceed the service to the contract growing.
amount of ₱3,000,000.00; ***Notes: The toll processing services which are exempt from VAT
pertain only to services to clients from which growing of animals were
contracted.
 TAXATION8
Toll processing, dressing, or manufacturing involves shall be included in their gross sales receipts for tax purposes and shall be
procedures such as weighing, killing, dressing, scalding, cut-ups, and subject to proper documentation.
packaging are also exempt from VAT. For the establishment to be allowed to claim the discount as a
deduction, the amount of sales that must be reported for tax purposes is
8. Medical, Dental, Hospital, and Veterinary Services; the undiscounted selling price and no the amount of sales net of discount.
a. Exceptions: The income statement of the seller must reflect the discount,
i. Sale of drugs and medicine is not as a reduction of sales to arrive at the net sales, but as a deduction
subject to VAT; from its gross income.
Discounts availed of by senior citizens shall be treated as an
ii. Services rendered by professionals ordinary and necessary expenses deductible from the gross income of the
are subject to VAT. seller falling under the category of itemized deductions.
***Notes: Sale of drugs or pharmaceutical items of the hospital Only the actual amount of the discount granted or sales
pharmacy to in-patients of hospitals is considered part of hospital service discount not less than the statutory rate, whichever is higher, based on the
which is exempt from VAT.12 gross selling price can be deducted from the gross income, net of VAT,
and from gross sales or gross receipts.
9. Educational Services rendered by government
institutions and private institutions duly accredited 13. Exempt Transactions of Cooperatives
by the DepEd, CHED, or TESDA; a. Sales by agricultural cooperatives duly
a. It does not include: registered and in good standing with the
i. Seminars; CDA:
ii. In-service training; i. To their members;
iii. Review classes; and ii. To non-members, whether in its
iv. Other similar services rendered by original state or processed form;
persons who are not accredited by iii. Importation of direct farm inputs,
the DepEd, CHED, and/or TESDA. machineries, and equipment;
iv. Including spare parts thereof, to be
10. Services rendered by individual employees to their
used directly and exclusively in the
employers pursuant to an EER;
production and/or processing of
11. Services rendered by regional or area headquarters
their produce.
of multinational corporations which act as ***Notes: Sale by agricultural cooperatives to non-members can only be
supervisory, communications, and coordinating exempted from VAT if the producer of the agricultural products sold is
centers for their affiliates, subsidiaries, or branches the cooperative itself.
in the Asia-Pacific Region that do not earn or derive If the cooperative is no the producer, then only those sales to its
members shall be exempted from VAT.
income from the Philippines;
b. Gross receipts from lending activities by
12. Transactions which are exempt under international
credit or multi-purpose cooperatives duly
agreements to which the Philippines is a signatory
registered and in good standing with the
or under special laws, except those under
CDA;
Presidential Decree No. 529;
***Notes: The president of the Philippines may not grant tax exemptions c. Sales by non-agricultural, non-electric, and
through Executive Agreements. (Sec. 28, Art VI; Sec 21, Art VII, non-credit cooperatives duly registered and
Constitution) in good standing with the CDA, provided,
a. PEZA and SBMA-registered enterprises – that the share capital contribution of each
VAT exempt pursuant to the Cross Border member does not exceed ₱15,000 and
Doctrine (RA 7916; 7227; 7844; EO 226); regardless of the aggregate capital and net
b. Goods and Services sold to senior citizens surplus ratably distributed among its
(RA 9994); Grant of 20% discount and VAT members.
exemption from the following goods and ***Notes: A cooperative is not exempt from the VAT passed on to it by
services: its VAT-registered supplier. The VAT passed on to it is not a tax on the
part of the cooperative but just part of the cost of goods that it buys from
i. Medical-related privileges; its suppliers.
ii. Domestic transportation privileges;
iii. Hotels, restaurants, recreational 14. Export sales by persons who are not VAT-
centers, and places of leisure, and registered;
***Notes: Export sales of non-VAT registered TPs are VAT-exempt,
funeral services. while export sales of VAT-registered TPs are zero-rated.
***Notes: The 20% discount is based on the VAT-exempt amount of the
good or service. 15. Real Property Transactions which are Exempt from
The cost of the discount shall be allowed as a deduction from VAT;
the gross income for the same taxable year that the discount is granted,
provided that, the total amount of the claimed tax deduction net of VAT a. Sale of real properties not primarily held
for sale to customers or held for lease in the
ordinary course of trade or business – if the
12
St. Luke’s Medical Center, Inc. v. CTA and CIR, CA-G.R. 45892, 13 March real property, however, is used in the trade
1998.
 TAXATION9
or business of the seller, the sale shall be b. The terms book, newspaper, magazine,
subject to VAT being a transaction review, and bulletin shall refer to printed
incidental to the TP’s main business. materials in hard copies.
b. Sale of real properties utilized for low-cost 17. Transport of Passengers by International Carriers
housing (RA 7279, 7835, 8763); (see 118);
c. Sale of real properties utilized for 18. Sale or Importation of Vessels and Aircrafts,
socialized housing where the price ceiling including Engine, Equipment, and Spare Parts for
per unit is ₱400,000 or as may be Domestic or International Transport Operations;
determined by the HUDCC and NEDA; a. Sale, importation, or lease of passenger or
d. Sale of a residential lot valued at cargo vessels and aircraft, provided that the
₱1,500,000 and below, or house and lot and exemption shall be limited to those of 150
other residential dwellings value at tons and above, including engine and spare
₱2,500,000 and below; parts of said vessels, provided that the
***Notes: The sale of parking lots in a condominium is a separate and vessels to be imported shall comply with
distinct transaction and is not covered by the rules on threshold amount
not being a residential lot, house and lot, or a residential dwelling, thus, the age limit requirement:
should be subject to VAT regardless of the amount of selling price. i. 15 years old – passenger and/or
cargo vessels;
e. Lease of residential units:
ii. 10 years old – tankers;
i. Exempt – lease of residential units
iii. 5 years old – high-speed passenger
with a monthly rental per unit not
crafts.
exceeding ₱15,000 regardless of
b. Importation of life-saving equipment,
the amount of aggregate rentals;
safety and rescue equipment and
ii. PM – lease of residential units with
communication and navigational safety
a monthly rental exceeding
equipment, steel plates, and other metal
₱15,000, but the aggregate rentals
plates including marine-grade aluminum
do not exceed ₱3,000,000;
plates, used for shipping transport
iii. VATable – the monthly rental per
operations;
unit exceeds ₱15,000 and the
c. Importation of capital equipment,
aggregate amount of the rentals
machinery, spare parts, life-saving and
exceed ₱3,000,000.
***Notes: Residential units refer to apartments and houses and lots used
navigational equipment, steel plates, and
for residential purposes, and buildings or part or units thereof used solely other metal plates, including marine-grade
as dwelling places except motels, motel rooms, hotels, hotel rooms, aluminum plates to be used in the
lodging houses, inns, and pension houses. construction, repair, renovation, or
f. Transfer of real property to a trustee if the alteration of any merchant marine vessel
property is to be held merely in trust for the operated or to be operated in the domestic
trustor; trade;
g. Advance payment by the lessee in a lease d. Importation of fuel, goods, and supplies by
contract, when the same is actually a loan persons engaged in international shipping
to the lessor form the lessee; or air transport operations.
h. Security deposits for lease arrangements to
insure the faithful performance of certain 19. Importation of fuel, goods and supplies by persons
obligations of the lessee to the lessor. engaged in international shipping or air transport
operations: Provided, That the fuel, goods, and
16. Sale, Importation, Printing, or Publication of supplies shall be used for international shipping or
Books, Newspapers, Magazines, Reviews, or air transport operations;
Bulletins; Requisites: 20. Services of bank, non-bank financial intermediaries
a. A newspaper, magazine, review, or bulletin performing quasi-banking functions, and other non-
must be: bank financial intermediaries;
i. Printed or published at regular 21. Sale or lease of goods and services to senior
intervals; citizens and persons with disability, as provided
ii. Available for subscription and sale under Expanded Senior Citizens Act of 201013 and
at fixed prices; and An Act Expanding the Benefits and Privileges of
iii. Are not principally devoted to the Persons With Disability14;
publication of paid advertisements.
13
Republic Act No. 9994.
14
Republic Act No. 10754.
 T A X A T I O N 10
22. Transfer of property pursuant to Section 40(C)(2) of g. Transitional input tax credits allowed under
the NIRC, as amended; the transitory and other provisions of RR
23. Association dues, membership fees, and other 16-2005, as amended.
assessments and charges collected by homeowners
3. Claimant of input tax credit:
associations and condominium corporations15;
a. Importer upon payment of VAT prior to the
24. Sale of gold to the Bangko Sentral ng Pilipinas
release of goods from customs custody,
(BSP);
provided that claim for input taxes on
25. Sale of drugs and medicines prescribed for diabetes,
capital goods shall be subject to certain
high cholesterol, and hypertension beginning
conditions as provided for by law;
January 1, 2019; and
b. Purchase of the domestic goods or
26. Sale or lease of goods or properties or the
properties upon consummation of the sale,
performance of services other than the transactions
also subject to the conditions as provided
mentioned in the preceding paragraphs, the gross
for above; or
annual sales and/or receipts do not exceed the
c. Purchase of services or the lessee or
amount of Three million pesos (₱3,000,000).
licensee upon payment of the
27. VAT threshold for husband and wife – they shall be
compensation, rental, royalty, or fee.
considered as separate taxpayers. ***Notes: Purchases or importations of depreciable capital goods made
VIII. Tax Credits (110) by a VAT-registered person, which purchases or importations has an
aggregate value exclusive of VAT that exceeds ₱1M, shall be claimed as
1. Input Tax – the VAT due on or paid by a VAT- credit in the following manner:
registered person on importation of goods or local 1. If the estimated useful life of the capital good is 5 years or
purchases of goods, properties, or services, more – the input tax shall be spread evenly over a period of 60
including lease or use of properties, in the course of months and the claim for input tax credit will commence in the
calendar month when the capital goods is acquired;
his trade or business. 2. If the estimated useful life of the capital good is less than 5
***Notes: It shall also include the transitional input tax and the
years – the input tax shall be spread evenly on a monthly basis
presumptive input tax determined in accordance with 111.
by dividing the input tax by the actual number of months
It includes input taxes which can be directly attributed to
comprising the estimated useful life of the capital goods.
transactions subject to the VAT plus a ratable portion of any input tax
Where the aggregate acquisition cost exclusive of VAT of the
which cannot be directly attributed to either the taxable or exempt
existing or finished depreciable capital goods purchased or imported
activity.
during any calendar month does not exceed ₱1M, the total input taxes
2. Sources of Creditable Input Taxes: will be allowable as credit against output tax in the month of acquisition.
Requisites for purchases of domestic goods and services to be
a. Purchase or importation of goods: considered as capital goods or properties:
i. For sale; 1. Useful life of goods or properties must exceed 1 year;
ii. For conversion into or intended to 2. Said goods or properties are treated as depreciable assets under
form part of a finished product for 34(F);
sale, including packaging materials; 3. Goods or properties must be used directly or indirectly in the
production or sale of taxable goods and services.
iii. For use as supplies in the course of Purchases recorded under inventory accounts instead of
business; depreciable accounts cannot be considered as capital goods.
iv. For use as raw materials supplied in Changes brought by TRAIn:
the sale of services; The amortization of the input VAT shall only be
allowed until December 31, 2021 after which taxpayers with
v. For use in trade or business for unutilized input VAT on capital goods purchased or imported
which deduction for depreciation or shall be allowed to apply the same as scheduled until fully
amortization is allowed under the utilized, and that in the case of purchase of services, lease or
Tax Code. use of properties, the input tax shall be creditable to the
b. Purchase of real properties for which a purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee.
VAT has actually been paid; This means that for acquisition after 31 December
c. Purchase of services in which a VAT has 2021, all input taxes shall be credited outright without
actually been paid; amortization. See Revenue Regulations No. 13-2018.
d. Transactions deemed sale; 4. Input tax in Construction in Progress
e. Transitional input tax; ***Notes: CIP is considered for purposes of claiming input tax, as a
f. Presumptive input tax; purchase of service, the value of which shall be determined based on the
progress billings. Until such time the construction has been completed, it
will not qualify as capital goods, in which case input tax credit on such
transaction can be recognized in the month the payment was made,
provided, that an OR of payment has been issued based on the progress
See Association of Non-Profit Clubs, Inc. (ANPC), herein represented by its billings.
15

authorized representative, Ms. Felicidad M. Del Rosario Vs. Bureau of Internal In case of contract for the sale of service where only the labor
Revenue (BIR), herein represented by Hon. Commissioner Kim S. Jacinto- will be supplied by the contractor and the materials will be purchased by
Henares, G.R. No. 228539, 26 June 2019.
 T A X A T I O N 11
the contractee from other suppliers, input tax credit on the labor a. Add all input taxes arising from the
contracted shall still be recognized on the month the payment was made transactions enumerated above during the
based on progress billings while input tax on the purchase of materials
shall be recognized at the time the materials were purchased. month or quarter plus any amount of input
Once the input tax has already been claimed while the tax carried over from the preceding month
construction is still in progress, no additional input tax can be claimed or quarter, reduced by the amount of claim
upon completion of the asset when it has been reclassified as a for VAT refund or tax credit certificate and
depreciable capital asset and depreciated.
other adjustments.
5. Apportionment of Input on Mixed Transactions; ***Notes: Input taxes for the importation of goods or the domestic
a. All the input taxes that can be directly purchase of goods, properties, or services if made in the course of trade
or business, whether such input taxes shall be credited against zero-rated
attributed to transactions subject to VAT sale, non-zero-rated sales, or subjected to the 5% Final Withholding
may be recognized for input tax credit; VAT, must be substantiated and supported by the following documents
provided that input taxes that can be and must be reported in the information returns required to be submitted
directly attributable to VAT taxable sales of by the Bureau:
goods and services to the Government or 1. Importation – import entry or other equivalent document
showing actual payment of VAT;
any of its political subdivisions, 2. Domestic purchase – invoice required in 113 and 237;
instrumentalities, or agencies, including 3. Purchase of real property – public instrument with the VAT
GOCCs shall not be credited against output invoice;
taxes arising from sales to non-government 4. Purchase of services – OR;
5. Transitional IT – inventory of goods;
entities; 6. IT on deemed sale transactions – invoice;
b. Claims for VAT refund/TCC with the BIR, 7. IT from payments made to nonresidents – 1600;
BOI, and One-Stop-Shop and Duty 8. Advance VAT on sugar – payment order showing advance
Drawback Center of the DOF should be VAT payment.
deducted from the allowable input tax that Although the CTA is not governed strictly by technical rules of
evidence, the presentation of the purchase receipts and/or invoices is not
are attributable to zero-rated sales (RR 4- a mere procedural technicality by which may be disregarded considering
2007); that it is the only means by which the CTA may ascertain and verify the
c. If any input tax cannot be directly attributed truth of the refund claim.16
to either a VATable or VAT exempt Only the preponderance of evidence threshold as applied in ordinary
civil cases is needed to substantiate a claim for tax refund proper. 17
transaction, the input tax shall be pro-rated
to the VAT taxable and VAT-exempt IX. Transitional and Presumptive Input Tax Credits (111)
transactions and only the ratable portion 1. Transitional Input Tax Credits on Beginning
pertaining to transactions subject to VAT Inventories:
may be recognized for input tax credit. a. Goods purchased for resale in their present
***Notes: The input tax attributable to VAT-exempt sales shall not be condition;
allowed as credit against the output tax but should be treated as part of b. Materials purchased for further processing,
cost or expense.
If the input tax inclusive of input tax carried over from the but which have not yet undergone
previous quarter exceeds the output tax, the excess input tax shall be processing;
carried over to the succeeding quarter or quarters: provided, however, c. Goods which have been manufactured by
that any input tax attributable to zero-rated sales by a VAT-registered the TP;
person may at his option be refunded or applied for a TCC which may be
used in the payment of internal revenue taxes, subject to the limitations as
d. Goods in process for sale; or
may be provided for by law. e. Goods and supplies for use in the course of
the TP’s trade or business as a VAT
6. Determination of the output tax and VAT payable
registered person.
and computation of VAT payable or excess tax ***Notes: The TIT shall be 2% of the value of the beginning inventory
credits; on hand or actual VAT paid on such goods, materials, and supplies,
***Notes: In all cases where the basis for computing the output tax is whichever is higher. Such amount shall be credited against the output tax
either the GSP or gross receipts, but the amount of VAT is erroneously of VAT-registered person.
billed in the invoice, the total invoice amount shall be presumed to be The value allowed for income tax purposes on inventories shall
comprised of the GSP/GR plus the correct amount of VAT. Hence, the be the basis for the computation of the 2% transitional input tax,
output tax shall be computed by multiplying the total invoice amount by excluding goods that are exempt from VAT under 109.
a fraction using the rate of VAT as the denominator.
Accordingly, the input tax that can be claimed by the buyer 2. Transitional input tax credits become available
shall be the corrected amount of VAT computed in accordance with the either to (111):
formula herein prescribed. a. A person who becomes liable to VAT; or
There shall be allowed as a deduction from the OT the amount b. Any person who elects to be VAT-
of IT deductible to arrive at VAT payable on the monthly VAT
declaration and the quarterly VAT returns. [110(A)] registered.
7. Determination of Input Tax creditable during a
16
taxable month or quarter; Atlas Consolidated Mining and Devt. Corp. v. CIR, 145526, 16 March 2007.
17
CIR v. Mirant Pagbilao Corp., 172129, 12 Sept. 2008, 565 SCRA 154.
 T A X A T I O N 12
***Notes: Transitional in transitional input tax could mean shift from Under the tax credit method that relies on invoices, an entity
sales tax regime to VAT regime, the transition that one undergoes from can credit against or subtract form the VAT charged on its sales or
non-VAT to VAT, or when one decides to start a business. outputs the VAT paid on its purchases, inputs, and imports.
The clear language of the law entitles new trades or businesses 2. Proper Party to Claim VAT Refund−
to avail of the tax credit once they become VAT-registered. The a. Supplier
transitional input tax credit may be claimed by a newly-VAT registered
person such as when a business commences operations. i. The exemption from taxes of an
The transitional input tax credit operates to benefit newly VAT- ecozone registered enterprise is
registered persons, whether or not they previously paid taxes in the only for taxes for which it is
acquisition of their beginning inventory of goods, materials, and supplies. directly liable, hence it cannot
During that period of transition from non-VAT to VAT stats, the
transitional input tax credit serves to alleviate the impact of the VAT on
claim exemption for a tax shifted to
the TP. At the very beginning, the VAT-registered TP is obliged to remit it, which is not at all considered a
a significant portion of the income it derived from its sales as output tax to the buyer but a part of the
VAT. purchase price. The buyer is not the
The transitional input tax credit mitigates this initial to offset TP in so far as the passed-on tax is
the losses incurred through the remittance of the output VAT at a stage
when the person is yet unable to credit input VAT payments. concerned and therefore, it cannot
claim for a refund of tax merely
3. Presumptive Input Tax Credits shifted to it. Only taxpayers, i.e.,
a. Persons allowed to credit presumptive input sellers in this particular case, are
tax against output tax: allowed to file a claim for refund.19
i. Persons engaged in the processing ***Notes: Ecozone registered enterprise is not the proper party to claim
of sardines, mackerel, milk; and VAT refund of the VAT inadvertently passed on to it by its supplier of
ii. Manufacturers of refined sugar, raw materials whose sale is a zero-rated sale. Rather, the proper party is
the supplier.20
cooking oil, and packed noodle- For indirect taxes like VAT, the proper party to question or
based instant meals. seek a refund of the tax is the statutory taxpayer/seller or the payor, not
***Notes: The presumptive input tax credit is equivalent to 4% of the the end consumer.21
gross value in money of the purchases of primary agricultural products 3. 2 Instances when a TP may claim for Refund or
used as inputs to their productions.
Processing shall mean pasteurization, canning, and activities Credit:
which through physical or chemical process alter the exterior texture of a. Zero-rated and effectively zero-rated sales
form or inner substance of a product in such manner as to prepare it for of goods, properties, or services;
special use to which it could not have been put in its original form or i. Application should be filed within
condition.
2 years after the close of the
X. Refunds or Tax Credit of Input Tax (112) taxable quarter when such sales
1. Tax Refunds – construed strictissimi juris against were made.
the TP and liberally in favor of the taxing authority. b. Cancellation of VAT Registration.
a. Claimants of refunds bear the burden of i. Application should be filed within
proving the factual basis of their claims and 2 years from the date of
of showing the words too plain to be cancellation.
mistaken, that the legislature intended to ***Notes: Where the TP is engaged in both zero-rated or effectively
exempt them. (Surigao Consolidated Mining Co., zero-rated sales and in taxable including sales subject to final withholding
VAT or exempt sales of goods, properties or services and the amount of
Inc. v. CIR, 119 Phil. 33, 26 December 1963)
creditable input tax due or paid cannot be directly and entirely attributed
***Notes: A TP is entitled to a refund either by authority of a statute
to any one of the transactions, only the proportionate share of the input
expressly granting such right, privilege, or incentive in his favor, or under
taxes allocated to zero-rated sales can be claimed for refund or issuance
the principle of solutio indebiti requiring the return of taxes erroneously
of a TCC.
or illegally collected.
A TCC is a certification duly issued to the TP named therein,
In both cases, the TP must prove not only his entitlement to a
by the Commissioner or his duly authorized representative, reduced in a
refund but also his compliance with the procedural due process as non-
BIR Accountable Form in accordance with the prescribed formalities,
observance of the prescriptive periods within which to file the
acknowledging that the grantee-taxpayer named therein legally entitled a
administrative and the judicial claims would result in the denial of his
tax credit, the money value of which may be used in payment or in
claim. (CIR v. Aichi Forging Co. of Asia, Inc., 184823, 6 October 2010)
satisfaction of any of his internal revenue tax liability except those
Although the TP’s refundable input VAT xxx may not be
excluded, or may be converted as a cash refund, or may otherwise be
considered as illegally or erroneously collected, its refund/credit is a
disposed of in the manner and in accordance with the limitations, if any,
privilege extended to qualified and registered TPs by the very VAT
as may be prescribed by the provisions of the Regulations. (See RR 16-
system adopted by the Legislature. Such input VAT, the same as any
2005)
illegally or erroneously collected national internal revenue tax, consists of
monetary amounts which are currently in the hands of the government
but must rightfully be returned to the TP. Therefore, whether claiming 4. Criteria for VAT refunds or TCC;
refund/credit of illegally or erroneously collected national internal
19
revenue tax, or input VAT, the TP charged on its sales or outputs the Phil. Acetylene Co., Inc. v. CIR, 20 SCRA 1056 (1987).
VAT paid on its purchases, inputs, and imports.18 20
Contex Corporation v. CIR, 151135, 2 July 2004.
21
Philippine Geothermal v. CIR, 154028, 29 July 2005; CIR v. American
18
Atlas Consolidated v. CIR, 141104 & 148763, 8 June 2007. Rubber, 18 SCRA 82; Cebu Portland Cement Co. v. Collector, 25 SCRA 789.
 T A X A T I O N 13
a. The applicant must be the seller, who must effective zero rating. Otherwise, their VAT exemption would be
be VAT-registered; determined, not by their nature, but by the TP’s negligence – a result not
at all contemplated. Administrative convenience cannot thwart legislative
b. The TP is engaged in sales which are zero- mandate.23
rated or effectively zero-rated; Failure of the TP to indicate its zero-rated sales in its VAT
c. The input taxes are due or paid; returns is not sufficient reason to deny its claim for tax credit or refund
d. The input taxes are not transitional input when there are other documents form which the CTA can determine the
veracity of the TP’s claim. The omission does not furnish ground for the
taxes; outright denial of the claim for tax credit or refund if such claim is in fact
e. The input taxes have not been applied justified.24
against output taxes during and in the A claim for refund of a zero-rated taxpayer will be disallowed
succeeding taxable quarters; if its sales invoices did not state on their faces that its sales were zero-
f. The input taxes claimed are attributable to rated.
If the input taxes exceed the output taxes, however, the excess
zero-rated or effectively zero-rated sales; payment shall be carried over to the succeeding quarter or quarters.
g. For zero-rated sales under Sections 106(A) Should the input taxes result from zero-rated or effectively zero-rated
(2)(1) and (2); 106(B); and 108(B)(1) and transactions, any excess over the output taxes shall instead be refunded to
(2), the acceptable foreign currency the TP.
Only a preponderance of evidence is needed to grant a claim
exchange proceeds have been duly for tax refund based on excess payment.25
accounted for in accordance with BSP rules
and regulations; 5. Cancellation of VAT Registration:
h. Where there are both zero-rated or a. He makes a written application and can
effectively zero-rated sales and taxable or demonstrate to the Commissioner’s
exempt sales, and the input taxes cannot be satisfaction that his gross sales or receipts
directly and entirely attributable to any of for the following 12 months, other than
these sales, the input taxes shall be those exempt under 109, will not exceed
proportionately allocated on the basis of 3,000,000.00; or
sales volume; b. He has ceased to carry on his trade or
i. The administrative claim is filed within 2 business and does not expect to
years after the close of the taxable quarter recommence any trade or business within
when such sales were made; and the next 12 months. Or
j. The following documents, among others, c. Change of ownership;
must be presented: d. Dissolution of a partnership or corporation;
i. Sales invoices or receipts with the e. Merger or consolidation with respect to the
word “zero-rated” imprinted on it; dissolved corporation;
ii. Purchase invoices or receipts from f. A person who has registered prior to
another VAT-registered TP; planned business commencement but failed
iii. Evidence of actual receipt of to start his business.
goods; g. A person’s business has become exempt
iv. BOI statement showing the amount under 109;
and description of sale of goods, h. Change in the nature of the business itself
etc.; from sale of taxable goods or services to
v. Original or attested copies of exempt sale of goods or services;
invoice or receipt on capital i. A person whose transactions are exempt
equipment locally purchased; and from VAT who voluntarily registered under
vi. Photocopy of import entry VAT system, who after the lapse of 3 years
document and confirmation receipt after his registration, applies for
on imported capital equipment. cancellation of his registration as such; and
***Notes: Registration is an indispensable requirement under out VAT j. A VAT-registered person whose gross sales
law. Other than the general registration of a TP, the VAT status of which
is aptly determined, no provision under our VAT law requires an or receipts for 3 consecutive years did not
additional application to be made for such TP’s transactions to be exceed 3,000,000 which amount shall be
considered effectively zero-rated.22 adjusted to its present value every 3 years
A VAT-registered status, as well as compliance with the using the CPI.
invoicing requirements, is sufficient for the effective zero rating of the
transactions of the TP. The nature of its business and transaction can
easily be perused from, as already clearly indicated in, its VAT 6. Administrative Claim for Refund or TCC;
registration papers and photocopied documents attached thereto. Hence,
its transactions cannot be exempted by its mere failure to apply for their 23
CIR v. Seagate Technology Phils..
24
22
Sps. Morandarte v. CA, 123586, 12 August 2004; CIR v. Seagate Technology, Southern Philippines Power Corp. v. CIR, 179632, 19 October 2011.
25
153866, 11 February 2005. CIR v. Mirant Pagbilao Corp., G.R. 172129, 12 September 2008.
 T A X A T I O N 14
a. How filed; day period is fatal to the filing of a
i. Within 2 years after the close of the judicial claim;
taxable quarter when the sales were ii. 2 scenarios:
made; and 1. CIR decides before the
ii. In case of full or partial denial or lapse of the 120-day
failure of the CIR to act on the period;
application within 120 days from 2. No decision was made
submission of complete documents within the period.
in support of the application filed, iii. In both cases, the TP has 30 days
the TP affected may within 30 days within which to file an appeal with
from the receipt of the decision the CTA.
denying the claim or after the 7. Judicial Claim for Refund or TCC;
expiration of the 120-day period, ***Notes: For a judicial claim for refund to prosper, respondent must not
appeal the decision or the unacted only rove that it is a VAT registered entity and that it filed its claims
within the prescriptive period. It must substantiate the input VAT paid by
claim with the CTA. purchase invoices or ORs.30
b. Where to file; As cases are filed before the CTA are litigated de novo, party
i. With the appropriate BIR office litigants should prove every minute aspect of their cases. No evidentiary
having jurisdiction over the value can be given the purchase invoices or receipts submitted to the BIR
as the rules on documentary evidence require that these documents must
principal place of business of the be formally offered before the CTA.31
TP. The TP has the burden of proof in proving his claim in actions
***Note: The filing of the claim with one office precludes the filing of involving claims for refund of taxes assessed and collected.
26
the same claim with another office. 8. Important Notes on Refund:
c. What to present a. Before TRAIn, the taxpayer must comply
i. The seller shall establish that its with the 120+30 mandatory period
sales qualify for VAT zero-rating established under the law32 and explained
and present sufficient evidence that by the and Aichi33 case;
said sales were actually made and b. The mandatory and jurisdictional nature of
resulted in refundable or creditable the 120-day period first expressed
VAT in the amount being claimed27 in Aichi, however, is not a new rule of
d. When filed: procedure to be followed in pursuit of a
i. Within 2 years reckoned from the refund claim of unutilized creditable input
close of the taxable quarter when VAT attributable to zero-rated sales. As
the relevant sales were made suggested above, the pronouncement
pertaining to the input VAT in Aichi regarding the mandatory and
regardless of whether said tax was jurisdictional nature of the 120-day period
paid or not; was the Court's interpretation of Section
***Notes: The prescriptive period commences from the close of the
taxable quarter when the sales were made and not from the time the input 112 (D) of the NIRC. It is that law, Section
VAT was paid nor from the time the official receipt was issued. The time 112 (D) of the NIRC, that laid the rule of
of payment of the VAT due is irrelevant. procedure for maintaining a refund claim of
The reckoning frame would always be the end of the quarter unutilized creditable input VAT attributable
when the pertinent sales or transaction was made, regardless when the
input VAT was paid.
to zero-rated sales. In said provision, the
It falls upon the seller to first establish that its sales qualify for Commissioner has 120 days to act on an
VAT zero-rating under the existing laws, and then to present sufficient administrative claim.34
evidence that said sales were actually made and resulted in refundable or c. Hence, from the effectivity of the 1997
creditable input VAT in the amount being claimed. 28 NIRC on 1 January 1998, the procedure has
e. 120-day29 Period always been definite: the 120-day period is
i. The TP has to wait for the decision mandatory and jurisdictional. Accordingly,
of the CIR or the lapse of the 120- a taxpayer can file a judicial claim
day period before he could file his
i. only within thirty days after the
judicial claim with the CTA
Commissioner partially or fully
because non-observance of the 120-
30
CIR v. Manila Mining Corp., 153204, 31 August 2005.
31
Atlas Consolidated.
26
RR 16-2005. 32
Section 112(C).
27
Atlas Consolidated v. CIR. 33
G.R. No. 184823, 6 October 2010.
28
Atlas Consolidated v. CIR, G.R. 141104 & 148763, 8 June 2007. 34
San Roque Power Corporation v. Commissioner Of Internal Revenue, G.R.
29
Changed to 90 days by TRAIn law. No. 203249, 23 July 2018.
 T A X A T I O N 15
denies the claim within the 120- 2. In case of full or partial denial of the claim for tax
day period, or refund, the taxpayer affected may, within thirty (30)
ii. only within thirty days from the days from the receipt of the decision denying the
expiration of the 120- day claim, appeal the decision with the Court of Tax
period if the Commissioner does Appeals: Provided, however, That failure on the
not act within such period. This is part of any official, agent, or employee of the BIR
the rule of procedure beginning 1 to act on the application within the ninety (90)-day
January 1998 period shall be punishable under Section 269 of this
as  interpreted in Aichi.35 Code;
d. To reiterate, the 120-day and 30-day 3. Take note that in Section 112(C), the law excluded
periods, as held in the case claims for tax credits; hence, there shall be no
of Aichi, are mandatory and jurisdictional issuance of any tax credits certificates for VAT
. Thus, noncompliance with the mandatory refund purposes;
120+30-day period renders the petition 4. Enhanced VAT Refund system – the reduction of
before the CTA void.36 the period from 120 to 90 supports the enhancement
e. However, on 10 December 2003, the BIR of the refund system. Please take note also the
issued BIR Ruling No. DA-489-0 which provisions in Section 106 and 108 creating a VAT
provided, among others, that [a] taxpayer- refund center, to wit:
claimant need not wait for the lapse of the “[T]he Department of Finance shall
120-day period before it could seek judicial establish a VAT refund center in the
relief with the CTA by way of Petition for Bureau of Internal Revenue (BIR) and in
Review. the Bureau of Customs (BOC) that will
f. During the window period from 10 handle the processing and granting of cash
December 2003, upon the issuance of BIR refunds of creditable input tax.
Ruling No. DA-489-03 up to 6 October "An amount equivalent to five percent (5%)
2010, or date of promulgation of the total VAT collection of the BIR and
of Aichi, taxpayers need not observe the the BOC from the immediately preceding
stringent 120-day period.37 year shall be automatically appropriated
g. In other words, the 120+30-day period is annually and shall be treated as a special
generally mandatory and jurisdictional from account in the General Fund or as trust
the effectivity of the 1997 NIRC on 1 receipts for the purpose of funding claims
January 1998, up to the present. By way of for VAT refund: Provided, That any unused
an exception, judicial claims filed during fund, at the end of the year shall revert to
the window period from 10 December 2003 the General Fund.”
to 6 October 2010, need not wait for the 5. Also, under the old rule, failure of the
exhaustion of the 120-day period.38 Commissioner to act on the refund within the 120
h. The taxpayer may then file his or her or its day period constitute a denial. Such provision was
refund administratively and judicially as in removed under the TRAIn provision. As such, there
Section 229 of the Tax Code. can be no presumption that the VAT refund is either
granted or denied. Revenue Regulations No. 26-
Observations on TRAIn amendment: 201840 provides that in the event that the 90-day
1. Period within which Refund of Input Taxes shall be period has lapsed without having the refund
Made39 — In proper cases, the Commissioner shall released to the taxpayer-claimant, the VAT refund
grant a refund for creditable input taxes within claim may still continue to be processed
ninety (90) days from the date of submission of the administratively;
official receipts or invoices and other documents in 6. It can therefore be inferred that by reason of the
support of the application filed in accordance with inexistence of the provision to presume denial after
Subsections (A) and (B) hereof: Provided, That the lapse of the 120-day period, the 120+30
should the Commissioner find that the grant of mandatory and jurisdictional period established
refund is not proper, the Commissioner must state under Aichi becomes moot. Taxpayers can only
in writing the legal and factual basis for the denial; elevate their case of refund to the CTA only upon
35 receipt of the full or partial denial by the CIR. (This
Supra.
36 is only an opinion as there is yet no case decided by
Supra.
37
Supra citing Taganito Mining Corp. v. CIR, 736 Phil. 591 (2014).
38
Supra.
39 40
Section 112(C). Amendments to paragraph d of Section 4.112-1.
 T A X A T I O N 16
the Court interpreting these provisions of the
TRAin law)