TRANSFER TAXES AND
VALUE ADDED TAX
Atty. Vic C. Mamalateo
July, 2011
Ateneo Law School
• Title III:
• TRANSFER TAXES
ESTATE TAX
•
Estate Tax is a tax levied on the transmission of properties from a decedent
to his heirs. It is not a tax on property nor on the transferor or transferee. It
is an excise tax and its object is to tax the shifting of economic benefits.
•
Donation mortis causa
– In consideration of death, without the donor’s intention to lose the thing
conveyed or its free disposal in case of survival
– Being testamentary in nature, it is embodied in a last will and testament;
it is not a contract but a legacy
– Transfer conveys no title or ownership to the transferee before death of
transferor, or transferor retains ownership, full or naked, of the property
conveyed
– Transfer is revocable before the transferor’s death and revocability may
be provided indirectly by means of the reserved power in the donor to
dispose of the property conveyed
– Transfer would be void, if transferor survived the transferee, or if legacy
is not embodied in a valid will
– Being in the form of a will, donation mortis causa is not accepted by the
donee during the donor’s lifetime.
ESTATE TAX
• Death is the generating source of the power to tax (Lorenzo v. Posadas).
No manual or physical transfer of the property is required for the
estate tax to accrue.
• The law in force at the time of death of the decedent governs.
• “Residence” refers to the permanent home, the place to which
whenever absent, for business or pleasure, one intends to return,
and depends on facts and circumstances, in the sense that disclose
intent (Corre v. Tan Corre). It is not necessarily the actual place of
residence at the time of death.
• All properties and interests in properties of the decedent at the time
of his death shall be included in his gross estate. However,
properties transferred or interests relinquished by the decedent
before his death are generally excluded from his gross estate.
• The estate shall be appraised at its fair market value at the time of
death.
– Real property: fair market value as determined by the CIR
– Shares of stocks: fair market value as shown in the audited
financial statements closest to the date of death of the decedent
ESTATE TAX
•
Gross estate:
Conjugal
Exclusive
Total
– Real property
– Personal property
•
Less: Deductions:
– Funeral expenses (5% x gross estate, not to exceed P200,000 or actual exp)
– Judicial expenses of testate or intestate proceedings
– Claims against the estate – debt instrument was notarized; statement showing
disposition of proceeds of loan, if contracted within 3years from date of death
– Unpaid taxes and mortgages
– Medical expenses (incurred within 1 year prior to his death, substantiated with
receipts, and not exceeding P500,000)
– Family home (not to exceed P1 M) + barangay clearance
– Standard deduction (P1 M)
– Properties previously taxed (vanishing deduction)
– Transfers for public use
– Amount received by heirs under RA 4917, provided such amount is included in
gross estate of decedent
– Share of the surviving spouse (50% of net conjugal estate)
•
Net Taxable Estate
•
Estate tax (First P200,000 is exempt; 5% from P200,001; and 20% on over P10 M)
ESTATE TAX
•
WHO IS THE DECEDENT AND WHAT PROPERTIES FORM PART OF
HIS GROSS ESTATE?
– Resident decedent: Citizen or resident alien
• Include in his gross estate all properties, real or personal, tangible
or intangible, regardless of location (within or without the
Philippines)
• Reciprocal exemption as to intangible personal property
– When foreign country does not impose transfer tax on intangible
– When foreign country imposes transfer tax but grants similar exemption
from tax in respect of intangible property
– Non-resident decedent: Non-resident alien
• Include in his gross estate all properties located in the Philippines
• For intangible properties, use the principle mobilia sequuntur
personam – Taxation of intangibles follows the residence or
domicile of the owner, except for certain intangible properties
mentioned in Sec. 104, NIRC.
ESTATE TAX
• INTANGIBLE PROPERTIES THAT HAVE SITUS IN THE
PHILIPPINES
(Sec. 104, NIRC)
:
– Franchise which is exercised in the Phil
– Shares, obligations or bonds issued by any
corporation organized in the Phil
– Shares, obligations or bonds issued by any foreign
corporation, 85% of the business of which is located
in the Phil or if such properties have acquired
business situs in the Phil (Wells Fargo case)
– Shares or rights in partnership, business or industry
established in the Philippines
ESTATE TAX
• DECEDENT’S GROSS ESTATE
(Sec. 85, NIRC)
– Decedent’s interest (in property owned or possessed; the law
contemplates any interest or right in the nature of property, but
less than title having value or capable of being valued,
transferred by the decedent at his death; e.g., dividend before death
but paid after death; partnership profits)
– Transfers in contemplation of death
– Revocable transfers
– Property passing under a general power of appointment
– Proceeds of life insurance
– Transfers for insufficient consideration
– Capital of the surviving spouse
ESTATE TAX
• TRANSFER IN CONTEMPLATION OF DEATH
•
Transfer by decedent of property or interest therein, by trust or otherwise, in
contemplation or to take effect in possession or enjoyment at or after death,
or under which he retained for his life or for any period which does not in
fact end before his death (1) the possession or enjoyment of, or the right to
the income from the property, or (2) the right to designate the person who
shall possess or enjoy or the income therefrom. It does not cover bona-fide
sale for an adequate and full consideration in money or money’s worth.
• “Transfers in contemplation of death” refers to the thought of death,
as a controlling motive, which induces the disposition of the property
for the purpose of avoiding the tax.
• Circumstances taken into account
– Age and health of decedent at time of gift
– Length of time between date of gift and date of death
ESTATE TAX
• REVOCABLE TRANSERS (transfer with retention or
reservation of certain rights)
• “Revocable transfers” covers transfers, by trust or
otherwise, where the enjoyment was subject at the date
of his death to any change thru the exercise of a power
to alter, amend, revoke or terminate, or where such
power is relinquished in contemplation of death.
– Deceased declared her conveyance was a donation mortis
causa and forbade the registration of the deed until after her
death (Puig v. Penaflorida).
– It does not cover bona-fide sale of property for an adequate and
full consideration in money or money’s worth.
ESTATE TAX
• Transfer of property under a general power of appointment
– By will, or by deed executed in contemplation of death, or by
deed where he retains for his life or any period not ascertainable
without reference to his death, which in fact does not end before
his death
– Possession or enjoyment of, or the right to the income from, the
property, or the right to designate the persons who shall possess
or enjoy the property or the income thereof
– Except in case of bona-fide sale for an adequate and full
consideration in money or money’s worth.
• Power of appointment is “general” when it gives to the donee the
power to appoint any person he pleases, thus having as full
dominion over the property as though he owned it. It is “special”
when the donee can appoint only among a restricted or designated
class of persons other than himself.
ESTATE TAX
• Proceeds of life insurance
• Taxable:
– Beneficiary is the estate of the deceased, his executor or
administrator, irrespective of whether or not the insured retained
the power of revocation
– Beneficiary is other than the decedent’s estate, executor or
administrator, when the designation of beneficiary is not
expressly made irrevocable. [NOTE: Under the Insurance
Code, insurance policies are presumed revocable.]
• Not Taxable:
– Accident insurance proceeds (not life insurance)
– Proceeds of group insurance policies (not taken out on the life of
the decedent)
– Beneficiary (NOT decedent’s estate, executor or administrator) is
designated irrevocably
– GSIS, SSS, and AFP RSBS
ESTATE TAX
• REQUISITES OF PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
– Death
– Identity of the property
– Inclusion of the property (in gross estate or gross gift)
– Previous taxation of the property (estate tax or gift tax on
previous inheritance or gift was paid)
– No previous vanishing deduction on the same
property (to preclude application of vanishing deduction on
same property more than once).
– Percentage of deduction decreases over a period of 5
years (or 20% reduction every year)
ESTATE TAX
• FORMULA OF VANISHING DEDUCTION
• Value taken of property previously taxed (as declared in prior
decedent’s gross estate)
• Less: Mortgage debt paid (1st deduction)
• Initial basis
• Initial basis divided by the value of gross estate of present
decedent = __%
• Multiplied by expenses, indebtedness, etc and transfers for public
purposes
• Equals 2nd deduction
• Initial basis less 2nd deduction = Final basis multiplied by
applicable rate of vanishing deduction =
• Amount of vanishing deduction deductible from the estate of second
decedent
ESTATE TAX
• Notice of death (2 months from death) required:
– Transfers subject to estate tax, or
– Exempt transfers, but gross estate exceeds P20,000
• If gross estate exceeds P2 million, attach to estate tax return a
certified statement of assets and itemized deductions.
• File estate tax return and pay tax within six months from date of
death. If payment would impose undue hardship, payment date may
be extended for not more than 5 years (if judicially settled), or 2
years (if settled extra-judicially).
• Tax clearance is required before any transfer of shares may be
made in the name of new owners. Banks shall not allow any
withdrawal from bank account of decedent, unless estate tax has
been paid, but it may allow withdrawal not to exceed P20,000
without such certification from the CIR.
DONOR’S TAX
• Donor’s Tax is a tax on the privilege to transfer property from a living
person to another living person.
– It is an excise tax, and not a property tax.
– It is imposed on the donor of property.
– Donee’s tax was already abolished and incorporated into donor’s tax.
• Purposes of donor’s tax
•
– To supplement estate tax
– To prevent avoidance of income tax thru the device of splitting income
Donation of property must be accepted by the donee. Where
donation took effect immediately upon acceptance and it was subject to a
resolutory condition that donation would be revoked if donee did not fulfill
certain conditions, donation is inter vivos (Bonsato v. CA).
• Sale or exchange of property for less than adequate and full
consideration is subject to donor’s tax, except where the property is
capital gains tax, such as real property located in the Phil and
shares of stock of a domestic corporation.
• Donated property must be valued at fair market value at the time of
the donation.
DONOR’S TAX
• Transfer of property may be in trust or otherwise, direct
or indirect. Transfer becomes complete and taxable only
when the donor has divested himself of all beneficial
interest in himself or his estate.
• Donor’s tax rates
– Donee is member of the family
• First P100,000 of net gift is exempt
• 2% on P100,001 to P200,000
• 15% on amount over P10 M
– Donee is a stranger – 30% of net gift
• “Stranger” is a person who is not a (a) brother, sister
(whether by whole or half-blood), spouse, ancestor, and
lineal descendant; or (b) relative by consanguinity in the
collateral line within the fourth degree of relationship.
DONOR’S TAX
• Donor
– Individual
• Citizen and resident alien -- Taxable
• Non-resident alien – Taxable on property located in the Phil
– Corporation
• Domestic corporation and resident foreign corporation -Taxable
• Non-resident foreign corporation – Taxable on property
located in the Phil
• Donation of conjugal
– Made by both spouses – TWO donations
– Made only by one spouse (Tang Ho v. Board of Tax Appeals [now
CTA]) – ONE donation
DONOR’S TAX
• Cumulative computation of donor’s tax is required for all
donations by the same donor to members of the family
during the same calendar year.
• Exempt donations
– Dowries or donations propter nuptias before its celebration or
within one year thereafter by parents to each of their legitimate,
recognized natural or adopted children – P10,000
– To Phil government for scientific, engineering, etc purposes
– To social welfare, cultural, and charitable organizations, not
more than 30% shall be used for administration purposes
– To IRRI and Ramon Magsaysay Awards Foundation
– To National Museum and National Library
– To Intramuros Administration
• TITLE IV: VALUE ADDED TAX
• TITLE V: OTHER PERCENTAGE TAXES
• TITLE VI: EXCISE TAXES
BUSINESS TAXES
• VAT (Title IV, NIRC)
• Taxable transactions
– Sale or lease of goods or
properties
– Sale of services
– Importation of goods
• Formula
– Output Tax
– Less: Input Tax
– VAT Payable/(Excess Input
Tax)
• NON-VAT/EXEMPT
FROM VAT
• Transaction is subject to
Other Percentage Tax
(Title V, NIRC)
– Tax is imposed on Gross
Receipts or Gross Income
• VAT is imposed in
addition to Excise Tax
(Title VI, NIRC)
• No VAT or OPT is
imposed (Sec 109, NIRC)
VALUE ADDED TAX
• CHARACTERISTICS OF VAT
– Tax on value added of taxpayer
– Transparent form of sales tax
– Broad-based tax on consumption of goods, properties
and services in the Phil
– Indirect tax
– Tax is collected thru the tax credit method
• Output tax on sales less input tax on purchases
– No cascading of tax in VAT system
– “Tax-inclusive method” is adopted by the Phil
VALUE ADDED TAX
• TAXABLE PERSONS
– Seller of goods or properties
• Sale, barter or exchange of goods or properties that are
consumed or for consumption in the Phil
• In the course of trade or business
• Sale of goods or properties is not exempt from VAT
– Seller of services
•
•
•
•
Listed services are performed or to be performed in the Phil
In the course of trade or business
For a valuable consideration
Services are not exempt from VAT
– Importer of goods
• Whether done in the course of his trade or business or for
personal consumption
VALUE ADDED TAX
• SPECIAL TYPES OF PERSONS ENGAGED IN TAXABLE
TRANSACTIONS
– Husband and wife are separate taxpayers
– Unincorporated joint venture undertaking construction activity is
subject to VAT, although exempt from income tax
– Government
• Governmental function: Exempt from VAT
• Proprietary function: Subject to VAT
– Non-stock, non-profit association
• Association dues and special assessments; guest fees and
fees for use of facilities – exempt from VAT
• Income from operating restaurant, boutique or shop or for
leasing facilities -- taxable
VALUE ADDED TAX
• Seller of real properties is subject to VAT
– Seller executes a document of sale (DAS or CTS)
– Real property is located in the Phil
– Seller is engaged in real estate business either as dealer,
developer or lessor
– Real property is held primarily for sale or for lease in the ordinary
course of trade or business
– Sale is not exempt from VAT
• However, Rev. Regs. No. 4-2007 (Feb 2007) provides that “if the
real property sold is used in his trade or business, said transaction is
subject to VAT, being incidental to the main business” of the
taxpayer, who is a VAT-registered taxpayer engaged in other types
of business.
• Rules on installment sales of real property in income tax law are
adopted for VAT purposes. Thus, sales with initial payments of 25%
or less of GSP shall be reported only in period of sales.
VALUE ADDED TAX
• Sale, barter or exchange
– Sale, barter or exchange has the same tax consequence
– There must be valuable consideration; hence, donation is exempt from
VAT
– Deemed sale is subject to VAT (output tax) in order to recoup previous
VAT (input tax) allowed
– Excise tax, if any, interest, and delivery charges form part of gross
selling price
• In the course of trade or business
– The regular conduct or pursuit of a commercial or an economic activity,
including transactions deemed incidental thereto, regardless of whether
or not the person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or
government entity.
– Isolated transactions are not subject to VAT.
– Incidental income follows taxation of the principal activity.
VALUE ADDED TAX
– The absence of profit in the performance of taxable services
does not make such activity for a fee exempt from VAT (CIR v.
COMASERCO, GR 125355, Mar 30, 2000).
• Goods or properties must be located in the Philippines
and consumed or destined for consumption in the Phil.
– Special economic zones under RA 7916 (PEZA Law) and
freeport zones under RA 7227 (BCDA Law) are treated as
foreign territories by fiction of law. Hence, importation of goods
by a special economic or freeport zone enterprise shall be
exempt from VAT and customs duties and will be subject to VAT
and duties only upon their withdrawal from the customs custody.
– Destination Principle:
• Export sales of goods are zero-rated (0% VAT), provided seller is
VAT-registered person
• Import of goods into the Phil is taxable at 12% VAT
VALUE ADDED TAX
•
•
•
•
•
Tax base for sale of goods or property is “Gross Selling Price” (GSP) - the
total amount of money or its equivalent, which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange
of the goods or properties, excluding the VAT.
As a rule, output tax accrues on sale of goods or properties (other than a
real property sold with initial payments of 25% or less) at the time of sale,
when the VAT sales invoice is issued, although none or only a part of the
gross selling price is paid by the buyer at the time of sale.
Excise tax, if any, shall form part of GSP.
Sales discounts determined and granted at the time of sale, which are
expressly indicated in the sales invoice do not form part of the tax base.
Grant of discount must not depend upon the happening of a future event or
the fulfillment of certain condition. They must be recorded in the books of
accounts of the seller.
20% sales discounts to senior citizens under RA 9257 (Amended Senior
Citizens Law) shall be deducted from gross sales before applying the VAT
rate.
VALUE ADDED TAX
• When VAT is not separately indicated in the invoice or receipt, to
determine Gross Selling Price or Gross Receipts (100%), divide
Total Invoice Amount (112%) by 1.12.
• If Total Invoice Amount includes EWT, determine first the Gross
Selling Price, and then apply the VAT rate on GSP.
• Tax base for installment sales of real property
– If initial payments (consisting of down payment and all monthly
amortizations in the year of sale) exceeds 25% of the gross selling
price, the tax base is the entire gross selling price as shown in the
document of sale, even though only a part of it has been received
during the period
– If initial payments during the year of sale do not exceed 25% of gross
selling price, the tax base during the period is only the amount received
• Tax rates
– 12% beginning Feb 1, 2006 (RA 9337)
– 0% VAT on zero-rated sales (automatic or effectively zero-rated)
VALUE ADDED TAX
• Sales of goods subject to 0% VAT
– Actual export sales
– Deemed export sales
• Internal or constructive export sales under BOI law (EO 226) and
special laws (RA 7916 and RA 7227) are automatically zero-rated.
– Ecozones and freeport zones are deemed foreign territories by
fiction of law (CIR v. Seagate Technology (2005); CIR v. Toshiba Information
Equipment (2005)
– For as long as the goods remain within the zone, consumed or
destroyed there, they will be duty-free and tax-free (Coconut Oil
Refiners Asso v. Torres (2005)
• Effectively zero-rated sales (sales to ADB, embassies, etc) need
approval from BIR before sale; otherwise, sale is exempt.
– Sales of gold to BSP, but sales of silver is subject to 12% VAT.
– Foreign currency denominated sales
– Sales of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations
VALUE ADDED TAX
• ZERO-RATED SALE
• Transaction is completely free
of VAT; rate charged by seller
is zero
• VAT-registered seller can
reclaim input taxes passed on
to it by sellers of goods or
services from BIR in form of
refund or tax credit
• Zero-rated sales are taxable
sales for purposes of
registration as VAT taxpayer to
determine threshold
• EXEMPT SALE
• Exemption removes the
VAT at the exempt stage
• Exempt taxpayer cannot
reclaim VAT passed on to
it by VAT-registered
sellers
• Exempt sales are not
taxable sales for VAT
purposes
VALUE ADDED TAX
• PERSONS SELLING TAXABLE SERVICES
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–
–
–
–
–
Construction and service contractors
Brokers
Lessors of property, real or personal
Warehousing services
Lessors or distributors of cinematographic films
Persons engaged in milling, processing,
manufacturing or repacking goods for others
– Proprietors or operators or keepers of hotels, motels,
resthouses, pension houses, inns and resorts
– Proprietors or operators of restaurants and other
similar establishments
VALUE ADDED TAX
• PERSONS SELLING TAXABLE SERVICES
– Dealers in securities
– Lending investors
– Transportation contractors on their transport of goods
or cargoes
– Domestic common carriers by air and sea between
points in the Philippines
– Sales of electricity
– Services of franchise grantees, except water and gas
– Non-life insurance companies, except crop insurance
– Similar services, regardless of whether or not the
performance thereof calls for the exercise or use of
the physical or mental faculties
VALUE ADDED TAX
• “Gross receipts” means the total amount of money or its equivalent,
representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the
services and deposits and advance payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding the
VAT, except those amounts earmarked for payment to unrelated
third party or received as reimbursement for advance payment on
behalf of another, which do not redound to the benefit of the payor.
• For sale of services, the test is not whether services have been
performed or not, but whether amount of compensation or fee is
received, actually or constructively. The rule is: NO RECEIPT OF
PAYMENT, NO VAT LIABILITY.
• A contractor that agrees to provide the materials and labor for a
construction project is a seller of services for the entire amount of
consideration.
VALUE ADDED TAX
• ZERO-RATED SALES OF SERVICES
– Processing, manufacturing or repacking goods for other persons
doing business outside the Phil, which goods are subsequently
exported, where the services are paid for in acceptable foreign
currency and accounted for in accordance with BSP rules and
regulations
– Services other than processing, manufacturing or repacking
rendered to a person engaged in business conducted outside
the Phil or to a non-resident person not engaged in business
who is outside the Phil when the services are performed, the
consideration for which are paid for in acceptable foreign
currency and accounted for in accordance with BSP rules and
regulations (CIR v. BWSC Mindanao, GR 153205, Jan 22, 2007)
– Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Phil is a
signatory effectively subjects the sale of services to 0% rate
VALUE ADDED TAX
• ZERO-RATED SALES OF SERVICES
– Services rendered to persons engaged in international shipping
or international air transport operations, including leases of
property for use thereof
• Services rendered by local shipping agents and by local shipping
lines to international carriers are zero-rated only if they pertain to
outbound trips; on inbound trips, they are subject to 12% VAT.
– Services performed by subcontractors and/or contractors in
processing, converting or manufacturing goods for an enterprise
whose export sales exceeds 70% of total annual production
– Transport of passengers and cargo by domestic air or sea
carriers from the Phil to a foreign country
– Sale of power or fuel generated thru renewable sources of
energy (biomass, solar, wind, hydropower, geothermal and other
emerging sources)
VALUE ADDED TAX
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•
•
•
•
Tax Code not only requires that the services other than “processing,
manufacturing or repacking of goods” and that payment for such services
be in acceptable foreign currency accounted for in accordance with BSP
rules. Another essential condition for qualification to zero-rating under Sec
102(b)(2) is that the recipient of such services is doing business outside the
Phil.
While this requirement is not expressly stated in the 2nd paragraph of Sec.
102(b), this is clearly provided in the 1st paragraph of Sec 102(b) where the
listed services must be “for other persons doing business outside the Phil.”
The above phrase not only refers to services enumerated in the first
paragraph, but also pertains to the general term “services” appearing in the
second paragraph.
Otherwise, those subject to the regular VAT under Sec 102(a) can avoid
paying the VAT by simply stipulating payment in foreign currency inwardly
remitted by the recipient of services. To interpret Sec. 102(b)(2) shall apply
to a payer-recipient of services doing business in the Phil is to make the
payment of regular VAT dependent on the generosity of the taxpayer.
A tax is a mandatory exaction, not a voluntary contribution.
VALUE ADDED TAX
•
•
•
•
Significantly, the amended Section 108(b) [previously Sec 102(b)] of the
present Tax Code clarifies this legislative intent. For zero-rating of services,
it must be rendered to a person engaged in business conducted outside the
Phil.
The payer-recipient of respondent’s services is the Consortium which is a
joint venture doing business in the Phil. While the Consortium’s principal
members are non-resident foreign corps, the Consortium itself is doing
business in the Phil. This is shown in BIR Ruling 23-95, which states that
the contract between Consortium and NPC is for a 15-year term.
Considering the length of time, the Consortium’s operation and
maintenance of NPC’s power barges cannot be classified as a single or
isolated transaction.
This case is different from CIR v. American Express International, Inc. (Phil
Branch), because in the latter case, the recipient of services is AEII (HK
Branch) doing outside the Phil (CIR v. BWSC Mindanao, Inc., GR153205, Jan 22, 2007).
CIR’s filing of its Answer before the CTA challenging claim for refund
effectively serves as a revocation of VAT Ruling 03-99 and BIR Ruling 2395. However, such revocation cannot be given retroactive effect since it will
prejudice respondent.
VALUE ADDED TAX
• VAT-EXEMPT TRANSACTIONS
– A. Sale or importation of agricultural and marine food products in their
original state; livestock and poultry generally producing food for human
consumption; and breeding stock
– B. Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds (except specialty feeds for race
horses, fighting cocks and other pets)
– C. Importation of personal and household effects belonging to residents
of the Phil returning from abroad and non-resident citizens coming to
resettle in the Phil
– D. Importation of professional instruments and implements, and
personal effects (except vehicle, vessel, aircraft, machinery for use in
manufacture) belonging to persons coming to settle in the Phil
– E. Services subject to percentage tax under Title V, such as 3%
percentage tax, common carrier’s tax on land transportation and
international carriers, gross receipts tax on banks and finance
companies, premium tax on life insurance companies, franchise tax on
gas and water grantees, etc.
VALUE ADDED TAX
• VAT-EXEMPT TRANSACTIONS
– G. Medical, dental, hospital and veterinary services, except those
rendered by professionals
• Sales of medicines by hospitals to in-patients are exempt from VAT as
medical/hospital services.
– H. Educational services rendered by private educ institutions accredited
by DepEd, CHED, TESDA, and those rendered by government
educational institutions
• Review schools and training institutes are not accredited by govt; hence,
subject to VAT
– I. Services rendered by individuals pursuant to an employer-employee
relationship
– O. Export sales by persons who are not VAT-registered
– P. Sale of real property not primarily held for sale to customers or for
lease in the ordinary course of trade or business, or real property for
low-cost and socialized housing, residential lot valued at P1.5 M or
below, house and lot and other residential dwellings valued at P2.5 M or
below
VALUE ADDED TAX
• VAT-EXEMPT TRANSACTIONS
– Q. Lease of a residential unit with a monthly rental not
exceeding P10,000
• Lease of commercial buildings are subject to VAT, regardless of
rental per month or unit, provided threshold of P1.5 M is exceeded.
– R. Sale, importation, printing or publication of books and any
newspaper or magazine which appear at regular intervals with
fixed prices and is not devoted principally to publication of paid
advertisements
– V. Sale or lease of goods or property or the performance of
services other than transactions mentioned above, the gross
sales or receipts do not exceed P1.5 M
• If sale of goods pertains to agricultural or marine food products in
their original state or sale of books, or sale of service relates to
rental of residential unit not exceeding P10,000, transaction is
exempt even if gross sales or receipts exceed P1.5 M.
VALUE ADDED TAX
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•
Sale of medicines by the hospital pharmacy to in-patients is exempt from
VAT, but sale to out-patients is subject to 12% VAT (St. Luke’s Medical Center
v. CTA and CIR, 1998).
Tolling fees received by a hotel for PLDT is not part of its gross receipts
Payment of VAT by the hotel on fees for providing limousine service to its
client is correct. It is not subject to the 3% common carrier’s tax. Claim for
tax credit is denied (Manila Mandarin Hotel v. CIR)
Gross receipts of theatre owner or operator from sales of tickets to
moviegoers are exempt from VAT. Theatres and movie houses are not
included in the enumeration of taxable services in the VAT law. Our tax
laws, past and present, did not adopt more specific terms for “sale or
exchange of services” to include showing of films in public (SM Prime Holdings v.
CIR, CTA Case 7079, 2006).
PAGCOR is exempt from VAT pursuant to its charter, PD 1869. Being a
special law, PD 1869 prevails over RA 7716, a subsequent general law. To
be valid, repeal of special law should be express (CIR v. Acesite Hotel Corp, GR
147295, Feb 16, 2007).
VALUE ADDED TAX
• CATEGORIES OF INPUT TAXES
– Input tax credit on importations of goods and current local
purchases of goods, properties and services
• Input tax on capital goods must be amortized over certain period
–
–
–
–
Transitional input tax credit
Presumptive input tax credit
Withholding input tax credit
Excess input tax credit
• Only VAT-registered persons are entitled to credit input
taxes against their output tax.
• Non-registration as a VAT taxpayer does not exempt him
from VAT output tax liability on his taxable sales of
goods, properties or services.
VALUE ADDED TAX
• For sale of services, the rule is: NO PAYMENT OF FEE
BY BUYER AND ISSUANCE OF VAT RECEIPT BY
SELLER, NO INPUT TAX FOR BUYER!
• Transitional Input Tax
– 2% of value of inventory or actual VAT paid on such goods,
materials and supplies, whichever is higher
– Transitional input tax is allowed not only on land improvements
but also on land itself (CIR v. Fort Bonifacio Dev Corp, 2009)
• Presumptive Input Tax
– Persons or firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing refined sugar and
cooking oil, and packed noodle-based instant meals are entitled
to presumptive input tax equivalent to 4% of gross value in
money of their purchases of primary agricultural products which
are used as inputs to their production (Sec. 111, NIRC)
VALUE ADDED TAX
• Tax reliefs of VAT taxpayers on their excess input taxes
(EIT) attributable to zero-rated and effectively zero-rated
sales
– Carry over the excess input tax to the next quarter, until excess
is utilized
– File a claim for refund
– File a claim for tax credit, within two years after the close of
taxable quarter where the sales were made, (NOT from the filing
of the quarterly VAT return)
• For non-zero-rated sales, remedy available is only to
carry over EIT to the next quarter(s), or to dissolve the
corporation or cease operation of business subject to
VAT within 2 years from date of dissolution or cessation
of business
VALUE ADDED TAX
• Prescriptive period commences from the close of the taxable quarter
when the sales were made and not from the time the input VAT was
paid nor from the time the official receipt was issued. Thus, when a
zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file a claim for
refund or tax credit of the unutilized creditable input VAT. The
reckoning frame would always be the end of the quarter when the
pertinent sales or transaction was made, regardless when the input
VAT was paid (CIR v. Mirant Pagbilao Corp, 2008).
• NOTE: It appears that the SC strictly interprets the provision of Sec.
112 of the Tax Code, even with respect to sale of services. In other
words, where the law does not qualify, it is not for the court nor the
BIR to so qualify.
VALUE ADDED TAX
• ADMINISTRATIVE REQUIREMENTS
–
–
–
–
–
–
REGISTRATION
INVOICING
BOOKKEEPING
FILING OF TAX RETURN AND PAYMENT OF TAX
WITHHOLDING OF TAX
INVENTORY OF:
• GOODS, MATERIALS AND SUPPLIES
• UNUSED NON-VAT INVOICES OR RECEIPTS
VALUE ADDED TAX
• OPTIONAL VAT REGISTRATION FOR
EXEMPT PERSON:
– ANY PERSON WHO IS NOT REQUIRED TO
REGISTER FOR VAT UNDER SUBSEC. (G) MAY
ELECT TO REGISTER FOR VAT PURPOSES.
– ELECTION IS IRREVOCABLE FOR 3 YEARS FROM
QUARTER ELECTION WAS MADE (Sec. 236(H), RA 9337)
– ANY PERSON WHO IS VAT-EXEMPT UNDER SEC.
4.109-1(B)(1)(V), NOT REQUIRED TO REGISTER
FOR VAT MAY, IN RELATION TO SEC. 4.109-2,
ELECT TO BE VAT-REGISTERED. ONCE VATREGISTERED, HE CANNOT CANCELL HIS
REGISTRATION FOR THE NEXT 3 YEARS (Sec. 109-2, RR
14-05)
VALUE ADDED TAX
• REGISTER AS VAT PERSON
– VENUE
• LARGE TAXPAYER
• NON-LARGE TAXPAYER
– BIR FORM
• CANCELL NON-VAT REGISTRATION
– SURRENDER CERT. OF REGISTRATION
• PENALTY FOR NON-REGISTRATION
– 10% OUTPUT TAX
– NO INPUT TAX CREDIT
• ANNUAL REGITRATION FEE
VALUE ADDED TAX
• REQUIRED INFORMATION IN INVOICE OR RECEIPT
– NAME AND ADDRESS OF SELLER
– STATEMENT THAT SELLER IS VAT-REGISTERED PERSON +
TIN
– DATE, QTY, UNIT COST, AND DESCRIPTION OF GOODS OR
NATURE OF SERVICE
– TOTAL AMOUNT
• SEPARATE INDICATION OF VAT
• VAT-EXEMPT SALE
• ZERO-RATED SALE
(prev. Sec. 106(D) & 108©, NIRC)
– NAME, BUS. STYLE, ADDRESS AND TIN OF VAT-REGISTERED BUYER OR CUSTOMER, IF AMOUNT IS P1,000 OR
MORE (Sec. 113(B), RA 9337)
VALUE ADDED TAX
• SEPARATE INVOICE OR RECEIPT
– SUBJECT TO VAT
• 10% or 12%, beginning Feb 1, 2006 (REGULAR SALE, INCL. SALE
TO GOVERNMENT), OR 0% (“ZERO-RATED SALE”)
– EXEMPT FROM VAT: EXEMPTION MAY REFER TO A
TRANSACTION OR PERSON
• AMOUNT RECEIVED IS NOT ITS INCOME OR FEE BUT FOR
ANOTHER ENTITY
• FOR REIMBURSEMENT OF ADVANCES
• “VAT-EXEMPT SALE”
– If VAT invoice or receipt is issued by a seller for a VAT-exempt
transaction, he is liable to VAT output tax as a penalty, but the
buyer is entitled to claim VAT input tax.
• COMBINED VAT AND NON-VAT INVOICE OR
RECEIPT
– BREAKDOWN OF SALES PRICE
– CALCULATION OF VAT ON TAXABLE PORTION
OTHER PERCENTAGE TAXES
•
•
•
•
•
•
•
•
•
Sec. 116 – 3% percentage tax on sale or lease of goods, properties or
services of non-VAT registered persons whose annual gross sales or
receipts do not exceed P1.5 M
Sec. 117 – 3% common carriers tax on domestic common carriers by land
on transport of passengers and keepers of garages
Sec. 118 – 3% common carriers tax on international air and sea carriers
Sec. 119 – 3% franchise tax on grantees of radio and/or TV broadcasting
whose gross receipts do not exceed P10 M and 2% franchise tax on
grantee of gas and water utilities
Sec. 120 – 10% overseas communication tax on dispatch originating from
the Phil
Sec. 121 – Gross receipts tax on banks
Sec. 122 – Gross receipts on finance companies
Sec. 123 – 5% premium tax on life insurance companies
Sec. 125 – Amusement tax on proprietors, lessees or operators of cockpits,
cabarets, night or day clubs (18%), boxing exhibitions (10
%), professional basketball games (15%) and race tracks (30%)
Agencia Exquisite of Bohol v. CIR
• FACTS
• Mar 11, 1991 - CIR issued RMO 15-91 classifying pawnshop
business as akin to lending investor’s business activity, which is
broad enough to encompass the business of lending money at
interest by any person, and imposing the 5% lending investor’s tax
based on gross income, pursuant to Sec. 116 of (1977) Tax Code.
• The RMO was later clarified by RMC 43-91 dated May 27, 1991. It
revoked BIR Ruling No. 6-90 and VAT Ruling No. 22-90 and 67-90.
In order to avoid unfairness if they are required to pay the tax on
past transactions, pawnshop owners shall become liable to the
lending investor’s tax beginning Jan 1, 1991. Since the deadline for
filing OPT return and payment of tax for Q1 1991 has already
lapsed, taxpayers were given until June 30, 1991 to pay the tax
without penalty.
• For 1995, AEBI was issued FAN and assessed for def. lending
investor’s tax of 5% on gross income.
Agencia Exquisite of Bohol v. CIR
• June 28, 1998 – AEBI filed administrative protest which
BIR Director denied on Feb 3, 1999.
• AEBI filed petition for review with CTA.
• June 7, 2000 – CTA rendered decision in favor of AEBI and
cancelled assessment.
• BIR appealed to CA. On Mar 23, 2001, CA rendered decision
reversing and setting aside decision of CTA.
• AEBI filed MR but was denied; hence, it filed this petition for review
on certiorari.
• In a resolution, 3 cases were consolidated.
• ISSUE
– Whether or not pawnshops are liable for 5% lending
investor’s tax.
Agencia Exquisite of Bohol v. CIR
• SC RULING
• The Court agrees with the contention of AEBI
and EPJI, the issue herein not being a novel
one.
• In CIR v. Michel J. Lhuillier Pawnshop, this Court
held that pawnshops are not included in the term
lending investors for the purpose of imposing the
5% percentage tax under Sec. 116, as amended
by EO 273.
Agencia Exquisite of Bohol v. CIR
• In CIR v. Trustworthy Pawnshop, this Court reiterated its
ruling Lhuillier for the following reasons:
– Sec. 192 of Tax Code, prior to its amendment by EO 273,
pawnshops and lending investors were subjected to different tax
treatments.
– Congress never intended pawnshops to be treated in the same
way as lending investors. The definition of lending investors
found in Sec 157(u) of 1986 NIRC is not found in 1977 NIRC, as
amended by EO 273.
– Sec. 116 of 1977 NIRC, as amended by EO 273, subjects to
percentage tax dealers in securities and lending investors only.
There is no mention of pawnshops. The mention of one thing
implies the exclusion of another thing not mentioned.
– BIR had ruled several times prior to issuance of RMO 15-91 and
RMC 43-91 that pawnshops were not subject to 5% percentage
tax imposed in Sec. 116, as amended by EO 273.
Agencia Exquisite of Bohol v. CIR
• RA 7716 (EVAT Law) repealed Sec. 116 of 1977 NIRC,
as amended, which was the basis of RMO 15-91 and
RMC 43-91. Since Sec. 116, which breathed life on the
questioned administrative issuances, had been repealed,
RMO 15-91 and RMC 43-91, which depended upon it,
are deemed automatically repealed.
• Absence of publication of RMO and RMC makes them
invalid. CIR may not disregard legal requirements or
applicable principles in the exercise of quasi-legislative
powers.
• Once a case has been decided one way, any other case
involving exactly the same point at issue should be
decided in the same manner under the doctrine of stare
decisis et not quieta movere.
• END OF PRESENTATION
• Atty. Vic C. Mamalateo
• Mobile: 0918-9037436
• Email: vic.mamalateo@vcmlaw.com.ph;
vicmamalateo@yahoo.com