Tax Reviewer
Tax Reviewer
Tax Reviewer
PLUS NRA-ETB
Interest from currency deposits, trust funds and deposit substitutes 20%
Interest Income from long-term deposit or investment EXEMPT
- Upon pre-termination with Holding period 4-5 years 5%
- 3-4 years 12%
- <3 years 20%
WON the PEACe Bonds are “deposit substitutes” and thus subject to 20% final
withholding tax under the 1997 NIRC.
20-lender rule
Where the financial assets involved are government securities like bonds, the
reckoning of “20 or more lenders/investors” is made at any transaction in connection
with the purchase or sale of the Government Bonds. Consequently, the seller is
required to withhold the 20% final withholding tax on the imputed interest
income from the bonds.
For debt instruments that are NOT deposit substitutes, regular income tax
applies
The BIR’s interpretation of “at any one time” to mean at the point of
origination alone is unduly restrictive.
Thus, should the PEACe Bonds be found to be within the coverage of deposit
substitutes, the proper procedure was for the Bureau of Treasury to pay the face value
of the PEACe Bonds to the bondholders and for the BIR to collect the unpaid final
withholding tax directly from RCBC Capital/CODE-NGO, or any lender or
investor if such be the case, as the withholding agents.
RULES
engaged in real estate or formerly used in trade or business which were later
proof that they have not been used in business for more than 2 years prior to the
business:
2. As dividend - CAPITAL;
3. Exchange - ORDINARY;
2. The historical cost or adjusted basis of RP sold will be carried over to the
new PR;
3. CIR has been duly notified, through a prescribed return, within 30 days,
Escrow Agreement.
1. Dealer in securities;
control;
5. Disposition is gratuitous;
Whether the capital gains tax on the transfer of the expropriated property can
56(A)(3) of the NIRC, and profit from the transaction constitutes capital gain. Since
capital gains tax is a tax on passive income, it is the seller, or respondents in this case,
proceedings remains a liability of the seller, as it is a tax on the seller's gain from
Section 34; or
For specific guidelines in determining WON real property is a capital or ordinary asset,
Main takeaway — a taxpayer habitually engaged in the real estate business is
someone:
developer; or
preceding year of at least six (6) taxable real estate sale transactions, regardless
of amount; or
BIR.
1. SENIOR CITIZENS
Senior Citizens who are considered to be minimum wage earners shall be entitled to
exemption from the payment of individual income taxes (Sec4[b] RA 9527, as amended).
Statutory Minimum Wage shall refer to the rate fixed by the Regional Tripartite Wage
and Productivity Board (RTWPB) as defined by the Bureau of Labor and Employment Statistics
of DOLE.
Minimum Wage Earner shall refer to a worker in the private sector paid the minimum
wage or to an employee in the public sector with compensation income of not more than the
statutory minimum wage in the non-agricultural sector where he or she is assigned.
Republic Act No. 9504 imposes taxes only on the taxable income received in excess of
the minimum wage, but the MWEs will not lose their exemption as such. Workers who receive
the statutory minimum wage and their basic pay remain MWEs. The receipt of other income
during the year does not disqualify them as MWEs for they remain so, entitled to exemption,
but the taxable income they receive other than as MWEs may be subjected to appropriate taxes
(Soriano v. Secretary of Finance, 2017).
1) Officers and staff of the Asian Development Bank who are NOT PH nationals shall be
exempt from PH income tax
2) Alien individual employees of foreign embassies or international organizations in PH are
exempt from our income tax based on the international agreements entered into by PH
with said internaitonal organizations
Corporate income tax reduction and other pandemic-related tax relief under CREATE
*Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to take effect on
April 11, 2021
Domestic Corporations – taxed for income derived from sources within and outside the
Philippines
PRE-
TYPE OF BUSINESS CREATE
CREATE
In general, on net income from all sources.
(Domestic corporations which earn a taxable income 30% 25%
above P5M)
CIT rate
Income
(%)
Interest income from foreign currency loans granted to residents other than
10% final
offshore business units (OBUs) or other foreign currency deposit units (FCDUs) of
tax
depository banks
ALLOWABLE DEDUCTIONS
As for the allowable deductions, the corporation has the option to choose as between Itemized
deductions or Optional Standard Deduction (OSD).
A. Itemized deductions
Pertains to the items in Sec. 34 of the NIRC as discussed under Deductions from Gross
Income. These expenses are deducted to gross income to arrive at the taxable income.
1. Expenses
a. Ordinary and Necessary Trade, Business or Professional Expenses
i. Salaries, wages and other forms of compensation expenses
ii. Travel expense
iii. Rentals expenses
iv. Entertainment, amusement and recreation expenses
Note: No deduction from gross income shall be allowed unless the taxpayer shall
substantiate with sufficient evidence, such as official receipts or other adequate records:
(i) the amount of the expense being deducted, and (ii) the direct connection or relation of
the expense being deducted to the development, management, operation and/or conduct
of the trade, business or profession of the taxpayer.
b. Interest
c. Taxes
d. Losses
e. Bad Debts
f. Depreciation
g. Depletion of Oil and Gas Wells and Mines
h. Charitable and other Contrbutions
i. Research and Development
When itemized deductions is mandatory
The following are corporations, partnerships and other non-individuals that are mandated
to use the itemized deductions:
a. Those exempt under the NIRC (i.e., exempt corporations under Sec. 30 and GOCCs
under Sec. 27(C)] and other special laws, with no other taxable income;
b. Those with income subject to special/preferential tax rates; and
c. Those with income partially subject to income tax rate under Secs. 27(A) and 28(A)
(1) of the NIRC and partially subject to special/preferential tax rates. Illustration:
Gross Sales 50 million
Less: Sales Returns/ Sales 15 million
Discounts/ Allowances/ Cost of
Goods Sold
Gross Income 35 million
Less: Allowable Deductions
Salaries Expenses 5 million
Depreciation Expense 2 million
Rent Expenses 3 million
Repair and Maintenance 2 million 12 million
Taxable Income 23 million
Tax Rate 25%
RCIT 5.75 million
Imposition of MCIT
Computed as 2% of gross income subject to regular income tax (GI)72
The MCIT is not a tax on capital. It is imposed on gross income which is arrived at by deducting
the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being taxed. Thus, MCIT is constitutional.
(Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, G.R. No. 160756, 2010)
When applicable: Beginning on the 4th taxable year from the year in which such corporation
commenced its business operation, i.e., the year when corporation registers with the BIR,
regardless of whether the corporation is using calendar or fiscal year. Thus, a corporation which
started operations on any day in 2012 will be covered by the MCIT in 2016.
Computation of MCIT
2015 2016
2,000,00
Gross Income 0 2,500,000
MCIT Rate 2% 2%
MCIT 40,000 50,000
Interest, dividends, rents, royalties, remuneration for technical services, salaries, wages,
premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains,
profits, income, and capital gains received by a foreign corporation during each taxable year
from all sources within the Philippines shall not be treated as branch profit unless the same are
effectively connected with the conduct of the taxpayer’s trade or business in the Philippines.
(Sec. 28(A)(5))
The term “effectively connected with the conduct of taxpayer’s trade, or business: does not
necessarily mean that the income must be derived from the actual operation of the taxpayer-
corporation’s trade or business, it is sufficient that the income arises from the business activity in
which the corporation is engaged. (RMC No. 55-80)
Scope
BPRT covers the remittance of all resident foreign corporations including ROHQs of
multinational companies, FCDUs or OBUs of foreign banks, and international carriers, except
PEZA-registered entities.
Remittance form prior year earnings is still taxable The NIRC used the phrase “any profit
remitted” without limiting the same to current year profit remittance. The BPRT therefore is
understood to apply to remittance of prior year earnings. (Banggawan)
Illustration
A resident foreign corporation earning purely active income reported the following since it
started operation in 2019:
2019 2020
Profit after
tax 200,000 150,000
Remittance 80,000 270,000
Facts:
Interpublic Group of Companies, Inc. (IGC) is a non-resident foreign corporation that owns
roughly about 3 million shares or 30% of the total outstanding and voting capital stock of
McCann Worldgroup Philippines, Inc. (McCann), a domestic corporation duly organized and
existing under the Philippines laws engaged in general advertising business.
The IGC filed and administrative claim for refund or issuance of tax credit certificates
representing the alleged overpaid final withholding tax (FWT) on dividends paid by McCann
to IGC. In the said claim, the IGC averred that as a non-resident foreign corporation, it may
avail the preferential FWT rate of 15% on dividends received from a domestic corporation
under the Tax Code.
The CIR denied the claim for refund or for the issuance of tax credit certificate (TCC). Hence
the petition.
Issue:
WON an NRFC which collects dividends from the Philippines sue here to claim tax refund?
Ruling:
YES. The threshold question is whether the IGC was doing business in the Philippines when
it collected dividend earnings from sources within the Philippines.
The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. When the foreign corporation transacts business in the
Philippines independently of its branch, the principal-agent relationship is set aside. The
transaction becomes one of the foreign corporation, not of the branch. Consequently, the
taxpayer is the foreign corporation, not the branch or the resident foreign corporation.
Corollarily, if the business transaction is conducted through the branch ofice, the latter
becomes the taxpayer, and not the foreign corporation.
The RP-US Tax Treaty created a treaty obligation on the part of the US that it "shall allow"
to a US parent corporation receiving dividends from its Philippine subsidiary "a tax credit for
the appropriate amount of taxes paid or accrued to the Philippines by the said Philippine
subsidiary. The US allowed a "deemed paid" tax credit to US corporations on dividends
received from foreign corporation.
This goes to show that the IGC, being a non-resident US corporation is qualiied to avail of
the aforesaid 15% preferential tax rate on the dividends it earned from the Philippines. It was
proven that the country which it was domiciled shall grant similar tax relief/credit against the
tax due upon the dividends earned from sources within the Philippines. Clearly, the IGC has
made an overpayment of its tax due of FWT by using the 35% tax rate.
Since the RP-US Tax Treaty does not provide for any other prerequisite for the availment of
the beneits under the said treaty, to impose additional requirements would negate the
availment of the reliefs provided for under international agreements.
The following are special corporations and are taxed differently:
2.1 Proprietary educational institution 10% of taxable net income
2.2 Non-profit hospital 10% of taxable net income
2.3 Resident international carrier 2.5% of gross Philippine billings
2.4 Non-resident owner or lessor of vessel 4.5% of gross rentals, lease and charter
fees from the Philippines
2.5 Non-resident cinematographic film
owner, lessor or distributor. 25% of gross income from the Phil.
2.6 Non-resident owner or lessor of
aircraft, machinery and other 7.5 % of gross rental from the Phil.
equipment.
2.7 Regional operating headquarters of
multinational corporation 10% of net taxable income.
TAKE NOTE:
1. There is no MCIT on special corporations and non-resident corporations
2. Special NRFC
a. Non-resident cinematographic film owners, lessors or distributors - 25% of gross
income from the Phil.
b. Non-resident owners or lessors of vessels chartered by Philippine nationals - 4.5% of
gross rentals, lease and charter fees from the Philippines
c. Non-resident lessors of aircraft, machinery and other equipment - 7.5 % of gross rental
from the Phil.
Note: There is no MCIT on special corporations and non-resident corporations.
I. Background
Section 30 of the National Internal Revenue Code (NIRC) of 1997, as amended,
enumerated eleven (11) kinds of organization and expressly provides that such
organizations shall not be taxed under Title II (Tax on Income) in respect to income
received by them as such.
Sections 25, 26, 27, 29, 30, 31, 32, 34, 35 of the Revenue Regulations (RR) No.
02-40 dated February 10, 1940 (the Income Tax Regulations) describing these
corporations and their respective operations referencing whether or not a corporation
falls within these eleven (11) categories.
This Order is issue to clarify the nature, character and tax treatment of
corporations under Section 30 of the NIRC. This Order does not include processing of
Certificate of Tax Exemptions (CTE’s) of non-stock, non-profit educational institutions
under Section 30(H) of the NIRC, which is covered by Revenue Memorandum Order
(RMO) No. 44-2016.
II. Characteristics and Nature of Organizations and Corporations under Sections
30 of the NIRC, as amended
Actual Operation:
To be entitled from income tax, the corporation must carry out activities primarily
to improve the working conditions of its members, and/or develop a higher
efficiency in their respective occupations or the improvement of production
techniques.
B. Mutual savings bank nit having a capital stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual
purposes and without profit
Republic Act No. 8367, otherwise known as “Revised Non-Stock Savings and
Loan Association Act of 1997”. And, Republic Act No. 9520, otherwise known as
“Philippine Cooperative Code of 2008”., are the ones that govern which grants
tax incentives to cooperative banks, recognition of tax exemptions of non-stock
savings and loan associations and cooperative banks.
1.) Characteristics
a.) It is organized as –
D. Cemetery company owned and operated exclusively for the benefit of its
members
1.) Characteristics
It is operated solely for burial purposes and not permitted by its charter to engage
in any business not necessarily incident to that purpose. Earnings of the
company may be used for the operation, maintenance and improvement of the
cemetery.
I. Religious;
II. Charitable;
III. Scientific;
IV. Athletic, or
V. Cultural purposes, or
VI. For the rehabilitation of veterans.
3) Actual operation:
(b) no part of its net income or assets inures to the benefit of private
stockholders or individuals.
F. Business league, chamber of commerce, or board of trade, not organized for
profit and no part of the net income of which inures to the benefit of any private
stock-holder, or individual;
1) Characteristics:
2) Corporate purposes:
3) Actual operations:
G. Civic league or organization not organized for profit but operated exclusively
for the promotion of social welfare.
1) Characteristics:
2) Corporate purposes:
The organization must be primarily engaged in promoting the common good and
general welfare of the people of the community, i.e. for the purpose of bringing
about civic betterment and social improvement.
3) Actual operations:
1) Characteristics:
2) Corporate purposes:
3) Actual operations:
1) Characteristics:
2) Corporate purposes:
3) Actual operations:
c) A mutual life insurance organization cannot have policyholders other than its
members.
1) Characteristics:
2) Corporate purposes:
To act as a sales agent for the purpose of marketing the products of its members
and turning back to them the proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce finished by them.
3) Actual operations:
Organizational Test:
Operational Test:
Section 30 corporations who availing of the tax exemption are required to secure
a Certificate of Tax Exemption (CTE) or a tax exemption ruling. A CTE shall be valid for
three years from the date of its effectivity, unless sooner revoked or canceled. However,
it may be renewed or revalidated for another three years.
e.) Period within which to file Income Tax Return of Individuals and Corporations
1. For INDIVIDUALS
Description
This return shall be filed by every resident citizen deriving compensation income
from all sources, or resident alien and non-resident citizen with respect to compensation
income from within the Philippines, except the following:
3. An individual whose sole income has been subjected to final withholding tax
pursuant to Section 57(A) of the Tax Code; and
Filing Date
This return is filed on or before April 15 of each year covering income for the
preceding taxable year.
2. For CORPORATIONS
Description
Filing Date
This return is filed on or before the 15th day of the 4th month following the close
of the taxpayer's taxable year.
F) Substituted Filing
Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit
Tax and Refund Excess Taxes Withheld on Compensation. — Any person:
1. required xxx to pay any tax make a return, keep any record, or supply correct the accurate
information,
2. who willfully fails to
a. pay such tax, make such return, keep such record, or
b. supply correct and accurate information, or
c. withhold or remit taxes withheld, or
d. refund excess taxes withheld on compensation,
3. at the time or times required by law or rules and regulations shall xxx be punished by a fine
and suffer imprisonment.
Any person who attempts to make it appear for any reason that he or another
1. has in fact filed a return or statement, or
2. actually files a return or statement and subsequently withdraws the same or statement
after securing the official receiving seal or stamp of receipt of internal revenue office
wherein the same was actually filed
shall be punished by a fine and suffer imprisonment.
Kinds of Compensation
• Regular Compensation
- includes basic salary, fixed allowances for representation, transportation and others paid to an
employee.
• Holiday pay
• Overtime pay
• Night shift differential
• Hazard pay of Minimum Wage Earners (MWE) in the private/public sectors as defined by these
Regulations
Provided further, that additional compensation such as:
• commissions
• honoraria
• fringe benefits
• benefits in excess of the allowable statutory amount of P90,000.00
• taxable allowances and other taxable income other than the SMW given to a MWE by the same
employer other than those which are expressly exempt from income tax shall be subject to
withholding tax using the withholding tax table.
All other benefits given by employers which are not included in the above enumeration shall not
be considered as “de minimis” benefits, and hence, shall be subject to income tax as well as
withholding tax on compensation income.
Expanded Withholding Tax (EWT)
The Withholding of Creditable Tax at Source or simply called ExpandedWithholding
Tax is a tax imposed and prescribed on the items of income payable to natural or juridical
persons, residing in the Philippines, by a payor corporation/person which shall be credited
against the income tax liability of the taxpayer for the taxable year.
Income Payments Covered & Its Applicable Expanded Withholding Tax Rates
Income Subject to EWT Rate
B. Professional fees, talent fees, etc. for 15% if the gross income for the
services of taxable juridical persons current year exceeds P720,000.00
C. Rentals 5%
• Real properties
• Personal properties used in business in excess of
P10,000 annually except RA 8556 (Financial Company
Act of 1998)
• Poles, satellites and transmission facilities
Income Subject to EWT Rate
• Billboards
• Supplier of goods 1%
• Supplier of services 2%
VAT is a tax on the value added of a taxpayer arising from taxable sales of goods, properties,
Value added is the difference between total sales of the taxpayer for the taxable quarter
subject to VAT and his total purchases for the same period subject also to VAT.
Output tax means the VAT due on the sale or lease of taxable goods, properties or services
Input tax means the VAT due from or paid by a VAT-registered person in the course of his
Sales tax
VAT is a tax on the taxable sale, barter or exchange of goods, properties or services. A sale
GR: There must be an actual sale in PH in order that VAT may be imposed.
EXC:
1.
1.
1.
1. Importation of goods;
2. Erroneous issuance of VAT invoice or receipt for VAT-exempt
sales;
WON COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.
YES. Sec 105 of the NIRC clarifies that even a non-stock, non-profit, organization or
Section 108 of the NIRC defines the phrase "sale of services" as the "performance of all kinds of
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on services rendered. As long as
the entity provides service for a fee, remuneration or consideration, then the service
Tax on consumption
VAT is broad-based because every sale at the levels of manufacturers or producers and
distributors is subject to VAT. The tax burden rests with the final consumer who consumes
by deducting his costs and expenses subject to VAT from his taxable sales and multiplying
Tax credit method or invoice method — the input taxes shifted by the sellers to the buyer
are credited against the buyer’s output taxes when he in turn sells the taxable goods,
properties, or services.
There is generally forward shifting of tax when there is a seller’s market — more buyers
There is backward shifting when there is a buyer’s market like in real estate and the coconut
oil industries.
An indirect tax is a tax demanded in the first instance from one person in the expectation and
The impact of taxation is on the seller upon whom the tax has been imposed, while
the incidence of tax is on the final consumer, the place at which the tax comes to rest.
goods are zero-rated, while imports of goods are subject to 12% VAT. Thus, the situs of
taxation is where the goods are consumed. As for services, consumption takes place where
the goods destined for consumption outside the territorial border of the taxing authority.
As a general rule, the VAT system uses the destination principle. However, our VAT law itself
provides for a clear exception, under which the supply of service shall be zero-rated when the
2) the service falls under any of the categories provided in Section 102(b) of the Tax Code;
and
3) it is paid for in acceptable foreign currency that is accounted for in accordance with
Since respondent’s services meet these requirements, they are zero-rated. Petitioner’s Revenue
Regulations that alter or revoke the above requirements are ultra vires and invalid.
The place where the service is rendered determines the jurisdiction to impose the VAT.
Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State
necessarily has to have “a substantial connection” to it, in order to enforce a zero rate. The
place of payment is immaterial; much less is the place where the output of the service will be
Principle of the Philippine VAT system. Under the Destination Principle, goods and services
are taxed only in the country where these are consumed. In this regard, the Cross Border
Doctrine mandates that no VAT shall be imposed to form part of the cost of goods destined for
consumption outside the territorial border of the taxing authority. Hence, actual export of goods
and services from the Philippines to a foreign country must be free of VAT; while, those
destined for use or consumption within the Philippines shall be imposed with VAT. Plainly, sales
of export products to another producer or to an export trader are subject to zero percent
rate provided the export products are actually exported and consumed in a foreign country.
In the case of tax-free importation of goods into the Philippines by persons, entities or agencies
exempt from tax and when such goods are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be
considered the importers thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the goods superior to all
charges or liens on the goods, irrespective of the possessor thereof.
In short, if A, exempt from tax, imports goods and transferred it to B, non-exempt a.k.a pays
taxes, B will be liable for the VAT on such goods as if he bought it himself.
(1) Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
ZERO-RELATED AND EFFECTIVELY ZERO-RATED SALES OF GOODS OR
PROPERTIES
The following services performed in the Philippines by VAT- registered persons shall be subject
to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, rendered to a person
engaged in business conducted outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are performed, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof: Provided, That these services shall be
exclusive for international shipping or air transport operations;
(6) Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a
foreign country; and
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited
to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and hydrogen fuels.
(8) Services rendered to offshore gaming licensees subject to gaming tax under Section 125-A of
this Code by service providers, including accredited service providers as defined in Section 27
(G) of this Code.
VAT-Exempt Transactions
1. Sale or importation of
1.
1. agricultural and marine food products in their original state,
2. livestock and poultry of a kind generally used as, or yielding or producing foods
2. Sale or importation of
1.
1. fertilizers;
3. fish, prawn, livestock and poultry feeds, including ingredients, whether locally
except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and
Philippines returning from abroad and nonresident citizens coming to resettle in the
Philippines: Provided, That such goods are exempt from customs duties;
employment, wearing apparel, domestic animals, and personal and household effects
belonging to persons coming to settle in the Philippines or Filipinos or their families and
shall NOT fall within this classification and shall therefore be subject to duties, taxes and
other charges;
1.
1. Sale or lease of goods or properties or the performance of services of non-VAT-
registered persons, other than the transactions mentioned in paragraphs (A) to (AA) of Sec.
109(1) of the Tax Code, the gross annual sales and/or receipts of which does not exceed
whose annual gross receipts of the preceding year do not exceed Php10M, and by
cooperative companies or associations) doing life insurance business of any sort in the
clubs, boxing exhibitions, professional basketball games, Jai-Alai and race tracks (Sec.
125); and
9. Receipts on sale, barter or exchange of shares of stock listed and traded through
the local stock exchange or through initial public offering (Sec. 127).
6. Services by agricultural contract growers and milling for others of palay into rice, corn
7. Medical, dental, hospital and veterinary services except those rendered by professionals;
10. Services rendered by RAHQ that do not earn or derive income from the Philippines;
11. Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under PD No. 529;
12.
1.
1. Sales by agricultural cooperatives duly registered with the CDA to their
members
2. as well as sale of their produce, whether in its original state or processed form, to
non-members;
spare parts thereof, to be used directly and exclusively in the production and/or processing
of their produce;
CIR v. United Cadiz Sugar Farmers Association 2016
Although the sale of refined sugar is generally subject to VAT, such transaction may
Under Section 109(L) of the NIRC, sales by agricultural cooperatives are exempt from
First, the seller must be an agricultural cooperative duly registered with the CDA. An
2) to both members and non-members, its produce, whether in its original state or
processed form.
cooperative transacts only with members, all its sales are VAT-exempt, regardless of
what it sells. On the other hand, if it transacts with both members and non-members, the
product sold must be the cooperative's own produce in order to be VAT-exempt. Stated
differently, if the cooperative only sells its produce or goods that it manufactures on its
A cooperative is the producer of the sugar if it owns or leases the land tilled, incurs the
cost of agricultural production of the sugar, and produces the sugar cane to be refined. It
should not have merely purchased the sugar cane from its planters-members.
1) a cooperative in good standing duly accredited and registered with the CDA; and
13. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
The share capital contribution of each member does not exceed Php15K and regardless of
the aggregate capital and net surplus ratably distributed among the members;
equipment, including spare parts thereof, to be used by them are subject to VAT.
If VAT-registered, zero-rated.
16. The following sales of real properties are exempt from VAT, namely:
1.
1. Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business. However, even if the real property is
not primarily held for sale to customers or held for lease in the ordinary course of trade or
business but the same is used in the trade or business of the seller, the sale thereof shall be
per unit is P450K or as may from time to time be determined by the HUDCC and the
4. Sale of residential lots valued at Php1,919,500 and below, or house & lot and
If two or more adjacent residential lots are sold or disposed of in favor of one buyer, for
the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT
Adjacent residential lots, although covered by separate titles and/or separate tax
declarations, when sold or disposed to one and the same buyer, whether covered by one
Provided, That beginning January 1, 2021, the VAT exemption shall only apply to
1.
1.
1. sale of real properties not primarily held for sale to customers or held for
3. sale of house and lot, and other residential dwellings with selling price of
17. Lease of a residential unit with a monthly rental not exceeding P15K;
The foregoing notwithstanding, lease of residential units where the monthly rental per unit
exceeds P15K, but the aggregate of such rentals of the lessor during the year do not exceed
P3M shall likewise be exempt from VAT; however, the same shall be subject to three
percent (3%) percentage tax under Section 116 of the Tax Code.
In cases where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P15K while others are leased out for more than
17.
1. The gross receipts from rentals not exceeding P15K per month per unit shall be
exempt from VAT regardless of the aggregate annual gross receipts. It is also exempt from
2. The gross receipts from rentals exceeding P15K per month per unit shall be
subject to VAT if the aggregate annual gross receipts from said units only exceeds P3M.
Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of
The term 'residential units' shall refer to apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places (e.g.,
dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms,
The term 'unit' shall mean an apartment unit in the case of apartments, house in the case of
residential houses; per person in the case of dormitories, boarding houses and bed spaces; and
18. Sale, importation, printing or publication of books, and any newspaper, magazine,
journal, review bulletin, or any such educational reading material covered by the UNESCO
Agreement on the Importation of Educational, Scientific and Cultural Materials, including the
digital or electronic format thereof: Provided, That the materials enumerated herein are not
If cargo, 3% OPT.
20. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport operations;
21. Importation of fuel, goods and supplies by persons engaged in international shipping or
Provided, That the fuel, goods, and supplies shall be used for international shipping or air
transport operations;
Thus, said fuel, goods and supplies shall be used exclusively or shall pertain to the transport
of goods and/or passenger from a port in the Philippines directly to a foreign port, or vice
versa, without docking or stopping at any other port in the Philippines unless the docking or
stopping at any other Philippine port is for the purpose of unloading passengers and/or
cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad.
Such as money changers and pawnshops, subject to percentage tax under Secs. 121 and
23. Sale or lease of goods and services to senior citizens and persons with disability, as
25. Association dues, membership fees, and other assessments and charges collected by
2021; and
28. Sale or importation of the following beginning January 1, 2021 to December 31, 2023:
1. Capital equipment, its spare parts and raw materials, necessary for the production
surgical mask, N-96 mask, scrub suits, goggles and face shield, double or surgical gloves,
2. All drugs, vaccines and medical devices specifically prescribed and directly used
3. Drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw materials directly necessary
29. Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
The petitioner’s claim to VAT exemption in the instant case for its purchases of supplies and
raw materials is founded mainly on Section 12 (b) and (c) of RA 7227, which basically exempts
them from all national and local internal revenue taxes, including VAT. Petitioner is registered as
a NON-VAT taxpayer per Certificate of Registration issued by the BIR. As such, it is exempt
Petitioner’s claim, however, for exemption from VAT for its purchases of supplies and raw
WON the petitioner may claim a refund on the Input VAT erroneously passed on to it by its
suppliers.
NO. While it is true that the petitioner should not have been liable for the VAT inadvertently
passed on to it by its supplier since such is a zero-rated sale on the part of the supplier,
the petitioner is not the proper party to claim such VAT refund. Since the transaction is
deemed a zero-rated sale, petitioner’s supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the
petitioner.
Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and
accordingly refund the petitioner of the VAT erroneously passed on to the latter.
PSALM v. CIR 2019
NO. The sale of the power plants in this case is not subject to VAT since the sale was made
pursuant to PSALM's mandate to privatize NPC's assets, and was not undertaken in the course of
trade or business. In selling the power plants, PSALM was merely exercising a governmental
1. Input tax credit on importation of goods and current local purchases of goods,
1. For sale; or
2. For conversion into or intended to form part of a finished product for sale
When creditable
2. On importation — upon payment of the VAT prior to the release of the goods from
customs custody.
3. On purchase of services — when paid by the buyer and evidenced by the seller’s
official receipt.
1. Input taxes for the importation of goods or the domestic purchase of goods, properties or
services is made in the course of trade or business, whether such input taxes shall be credited
VAT, must be substantiated and supported by the following documents, and must be reported
2. For the domestic purchase of goods and properties – invoice showing the
information required under Secs. 113 and 237 of the Tax Code.
3. For the purchase of real property – public instrument i.e., deed of absolute sale,
deed of conditional sale, contract/agreement to sell, etc., together with VAT invoice
4. For the purchase of services – official receipt showing the information required
A cash register machine tape issued to a registered buyer shall constitute valid proof of
substantiation of tax credit only if it shows the information required under Secs. 113 and
3. Input tax on “deemed sale” transactions shall be substantiated with the invoice required
4. Input tax from payments made to non-residents (such as for services, rentals and
royalties) shall be supported by a copy of the Monthly Remittance Return of Value Added
Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident
5. Advance VAT on sugar shall be supported by the Payment Order showing payment of the
advance VAT.
A person who becomes liable to VAT or any person who elects to be a VAT-registered person
1. on his beginning inventory of goods, materials and supplies equivalent to two percent
1. He becomes liable to VAT for the first-time either through a new law or when his taxable
3. He is already VAT-registered and also deals in goods or properties, the sale of which is
shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four
percent (4%) of the gross value in money of their purchases of primary agricultural products
The term 'processing' shall mean pasteurization, canning and activities which through physical
or chemical process alter the exterior texture or form or inner substance of a product in such
manner as to prepare it for special use to which it could not have been put in its original form or
condition.
3. within two (2) years after the close of the taxable quarter when the sales were
made,
4. apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, EXCEPT TRANSITIONAL INPUT TAX,
to the extent that such input tax has not been applied against output tax.
of this Code may, within two (2) years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax which may be used in
SHALL BE MADE.
In proper cases, the Commissioner shall grant a refund for creditable input
Provided, That should the CIR find that the grant of refund is not proper, the CIR
must state in writing the legal and factual basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim, appeal
the BIR to act on the application within the ninety (90)-day period shall be punishable
When based on statute, a claim for tax refund partakes of the nature of an
exemption.
1. He is a VAT-registered person;
2. Filed with the BIR or DOF Center within 2 years after the close
With the CTA within 30 days from date of receipt of denial from CIR;
1.
3. The claimed input tax payments were not applied against any
output tax during the period covered by the claim and in the succeeding
4. Deduct from its quarterly return the input tax being claimed as
refund or credit;
1.
8. The VAT return for the succeeding quarters covered by the claim
corporation.
1. Within two (2) years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax which may be
issuance of tax clearance by the BIR, after full settlement of all tax
3. The filing of the claim shall be made only after completion of the
immediately preceding year and the short period return and the issuance of
the applicable tax clearance/s by the appropriate BIR Office which has
RELATED JURISPRUDENCE
Since a tax credit is used to directly reduce the tax that is due, there ought to be a tax
liability before the tax credit can be applied . While the grant is mandatory, the
availment or use is not. By its nature, the tax credit may still be deducted from a future,
not a present, tax liability, without which it does not have any use.
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. Regarding this matter, a
private establishment reporting a net loss in its financial statements is no different from
another that presents a net income. Both are entitled to the tax credit provided for under
must be within the 2-year prescriptive period reckoned from the close of the taxable
b. Within 30 days after the lapse of the 90-day period given to the CIR to decide
that is reckoned from the date when documents are deemed submitted.
a. If the claimant files his judicial claim without respecting the 90-day period, such
applies to erroneously or excessively paid taxes, and is reckoned from the date of
Nowhere in the Circular is it stated that invoices are required to be presented in claiming
refunds.
In application of the 120+30 Day Periods (please note that the 120 days is now 90
GR: Taxpayer must wait for the lapse of 120 days before it could seek relief with
the CTA.
EXC: Those who filed their judicial claim between 10 Dec 2003 — 6 Oct 2010.
The input VAT is NOT “excessively” collected as understood under Section 229 because
at the time the input VAT is collected the amount paid is correct and proper.
In accordance with San Roque, respondent’s judicial claim for refund must be denied for
having been filed late. Although respondent filed its administrative claim with the BIR on
August 9, 2004 before the expiration of the two-year period in Section 112(A), it undoubtedly
failed to comply with the 120+30-day period in Section 112(D) (now subparagraph C) which
requires that upon the inaction of the CIR for 120 days after the submission of the documents in
support of the claim, the taxpayer has to file its judicial claim within 30 days after the lapse of
1) file the judicial claim within 30 days after the Commissioner denies the claim within the
2) file the judicial claim within 30 days from the expiration of the 90-day period if the CIR
In this case, records disclose that petitioner filed its administrative and judicial claims for
refund/credit of its input VAT on December 29, 2005 and January 20, 2006, respectively,
or during the period when BIR Ruling No. DA-489-03 was in place.
As such, it need not wait for the expiration of the 120-day period before filing its judicial
claim before the CTA, and hence, is deemed timely filed. In view of the foregoing, the CTA En
Anent Cargill’s first refund claim, it filed its administrative claim with the BIR on June
27, 2003, and its judicial claim before the CTA on June 30, 2003, or before the period when BIR
Ruling No. DA-489-03 was in effect. As such, it was incumbent upon Cargill to wait for the
lapse of the 120-day period before seeking relief with the CTA. It was thus prematurely filed.
In contrast, Cargill’s second refund claims were both filed on May 31, 2005, falling
within the exemption window period contemplated in San Roque. Verily, the CTA En Banc
erred when it outrightly dismissed CTA Case No. 7262 on the ground of prematurity.
Under the current rule, the reckoning of the 120-day period has been withdrawn from
the taxpayer by RMC 54-2014, since it requires him at the time he files his claim to complete his
supporting documents and attest that he will no longer submit any other document to prove his
claim. Further, the taxpayer is barred from submitting additional documents after he has filed
would warrant a change in the reckoning date for the 120-day period for the BIR to act on the
The general interpretative rule allowed the premature filing of judicial claims by
providing that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA by way of Petition for Review." The rule certainly did
not allow the filing of a judicial claim long after the expiration of the 120+30 day period.
from the last day of the quarter when the zero-rated sale was made;
2. The claim for refund must be accompanied by a statement under oath that all
documents to support the claim has been submitted at the time of filing of claim for
refund;
3. The CIR must decide on the claim within 90 days from the date of filing. The
adverse decision which is appealable to the CTA within 30 days from the lapse of the
90-day period.
RELATED JURISPRUDENCE
zero-rated;
3. the claim must be filed within two years after the close of the taxable quarter
4. the creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against the
output tax.
business who is outside the Philippines when the services are performed."
3. the services are "paid for in acceptable foreign currency and accounted for
The claimant must establish the two components of a client's NRFC status, viz.:
1. that their client was established under the laws of a country not the Philippines or,
clients.
10. FILING OF RETURNS AND PAYMENT
Every person liable to pay VAT shall file a quarterly return of the amount of his gross
sales or receipts within twenty-five (25) days following the close of each taxable quarter
prescribed for each taxpayer.
Any person, whose registration has been cancelled in accordance with Section 236, shall
file a return and pay the tax due thereon within twenty-five (25) days from the date of
cancellation of registration.
Only one consolidated return shall be filed by the taxpayer for his principal place of
business or head office and all branches.
The return shall be filed with and the tax paid to an authorized agent bank, Revenue
Collection Officer or duly authorized city or municipal Treasurer in the Philippines
located within the revenue district where the taxpayer is registered or required to register.