Business Taxes and DST SY2024-2025 PDF

BUSINESS TAXES (2) those amounts earmarked for payment to third (3rd) party/ies, or (3) amounts received as reimbursements for payment on behalf of another which Business t...

BUSINESS TAXES (2) those amounts earmarked for payment to third (3rd) party/ies, or (3) amounts received as reimbursements for payment on behalf of another which Business taxes are those imposed upon onerous transfers such as sale, barter, do not redound to the benefit of the seller as provided under relevant laws, exchange and importation. It is called as such because without a business rules, or regulations. Provided, that for long-term contracts for a period of one pursued in the Philippines (except importation) by the taxpayer, business taxes year or more, the invoice shall be issued on the month in which the service, or cannot be applied. Business taxes are in addition to income and other taxes use or lease of properties is rendered or supplied. (Sec. 108, NIRC, as amended paid, unless specifically exempted (Tabag). by the EOPTA). Prior to the EOPTA, the term used was “gross receipts.” The phrase “in the course of trade or business” means that regular conduct or Thus, irrespective of the results of business operations (be it profitable or pursuit of a commercial or economic activity, including transactions incidental suffering losses or break even), taxpayers engaged in the same are still liable to thereto, by any person regardless of whether or not the person engaged therein pay for business taxes. is a non-stock, nonprofit private organization irrespective of the disposition of its net income and whether or not it sells exclusively to members or their Illustration (Tabag): guests), or government entity (Sec. 105, NIRC). Determine which of the following transactions are considered as sale in the For sale of goods, the tax base is the “gross sales” which is the total amount of ordinary course of trade and business, consequently subject to business tax: money or its equivalent which the purchaser pays or is obliged to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, 1. Mr. P sold his 5-year-old vehicle to Y for P500,000.00 excluding the value-added tax. The excise tax, if any, on such goods or 2. A Corp., distributor of appliances, sold stereo units from its inventory properties shall form part of the gross selling price. (Sec. 106, NIRC, as to various malls in Iloilo City. amended by the EOPTA). Prior to the EOPTA, the term used was “gross selling 3. An auditing firm rendered audit and tax services to its clients. price.” 4. Ms. A sold her gold necklace worth P50,000.00 to her best friend Ms. L. 5. Mr. X is employed as an accountant in ABC Corporation. For sale of services, the tax base is the “gross sales” which is the total amount of money or its equivalent representing the contract price, compensation, Only transactions number 2 and 3 are considered as sale in the ordinary course service fee, rental or royalty, including the amount charged for materials of trade and business while transactions number 1 and 4 are casual or isolated supplied with the services during the taxable quarter for the services transactions not made in the ordinary course of trade and business. Number 5 performed for another person, which the purchaser pays or is obligated to pay is not subject to any business tax because there is an employer employee to the seller in consideration of the sale, barter, or exchange of services that has relationship. already been rendered by the seller and the use or lease of properties that have already been supplied by the seller. It does not include: (1) the value-added tax, 1 Gratuitous and Onerous Transfers: For the said transaction, X Corporation shall be liable for VAT which shall be equal to P24,000.00 (P200,000.00 x 12%). A gratuitous transfer is one made without any consideration and is not subject to any business tax. A gratuitous transfer subject to transfer taxes. Examples Types of Business Taxes are succession which shall be subject to estate tax and donation which requires There are three (3) major business taxes in the Philippines namely: payment of donor’s tax. 1. Value-Added Tax (VAT) An onerous transfer is one made with consideration such as sale, exchange, or 2. Other percentage taxes (OPT) or simply Percentage Tax barter. If the transfer is done in the ordinary course of trade or business 3. Excise taxes (including incidental transactions) then, the same shall be subject to business and income tax unless exempted by law. Value Added Tax is a tax on the value added by every seller to the purchase Illustration (Tabag): price or cost in the sale or lease of goods, property or services in the ordinary course of trade or business as well as on importation of goods into the X Corporation entered into a Built Operate-Transfer (BOT) contract with the Philippines, whether for personal or business use (Tabag). Company Y for finance, engineering, supply, installation, testing, commissioning, operation and maintenance of a Geothermal Power Plant. Percentage Tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold or bartered; or of the gross During the year, X Corporation sold for P200,000.00 a fully depreciated vehicle receipts or earnings derived by any person engaged in the sale of services which was used in its business. Should X Corp. pay business taxes and how (Banggawan citing CIR v. Solidbank Corporation, G.R. No. 148191, November much? 25, 2003). In the case of Mindanao Geothermal II v. CIR, GR No. 193301 dated March 11, Excise Tax refers to that which is applied to goods manufactured or produced 2013, it was held that “If the asset sold is an ordinary asset, it is generally subject to VAT unless exempt under the law. Mindanao II’s business is to convert the in the Philippines for domestic sales or consumption or for any other steam supplied to it by the PNOC into electricity and to deliver the electricity disposition, and goods imported. The goods manufactured or imported under to NPC. In the course of its business, Mindanao II bought and eventually sold this category are classified as either “sin products” (such as wines and a Nissan Patrol. Prior the sale, the Nissan Patrol was part of Mindanao II’s cigarettes) or “non-essential goods” (such as automobile and minerals) under property, plant and equipment. Therefore, the sale of Nissan Patrol is an the Tax Code (Tabag). incidental transaction made in the course of Mindanao II’s business which should be liable for VAT. 2 As a rule, all sale of goods or services made in the normal course of trade or Illustration (Tabag): business are subject to VAT unless exempt under the law. Nonetheless, if the JJ Transport Corporation is engaged in Jeepney operations in Iloilo City and sale is exempt from VAT, it may be subject to Other Percentage Tax. the sale of jeepney spare parts and accessories. What is the applicable business Consequently, transactions subjected to VAT should no longer be subjected to tax of the corporation? Percentage Tax. However, such is not the case with respect to excise taxes since The jeepney operation is subject to percentage tax while the sale of jeepney a transaction which has been subjected to either VAT or Percentage Tax may spare parts and accessories is subject to VAT. The company is engaged in still be subjected to Excise Tax. mixed transactions, hence, may be subjected to vat and percentage tax. Illustration (Tabag): Illustration (Tabag): Transaction VAT OPT ET Cig Corporation is manufacturing and selling premium cigarettes. What is the Sale of goods, properties, or services may be applicable business tax/es of the company? subject to VAT, in general yes no no Manufacture of cigarettes is subject to excise tax while the sale of the same is Exempt from VAT but subject to OPT E yes no subject to VAT. Exempt from business taxes E E - Manufacturing/ Importation and Sale of sin- I. VALUE-ADDED TAX products, non-essential goods/ services may be Value Added Tax is a tax on consumption levied on the sale, barter, exchange, subject: or lease of goods or properties and services in the Philippines and on VAT (+ Excise tax, if applicable) or yes no Yes importation of goods into the Philippines (Soriano, Manuel, and Laco citing Percentage Tax (+Excise tax, if applicable) no yes yes Sec. 4.105-2, RR No. 16-05, the Consolidated VAT Regulations). Nonetheless, a business entity or taxpayer may be engaged in transactions that It is an indirect tax and the amount of tax may be shifted or passed on to the are subject to VAT, Exempt from Vat and subject to Percentage tax (mixed buyer, transferee or lessee of the goods, properties or services (Power Sector transactions) at the same time. Therefore, a taxpayer may be subjected to value Assets and Liabilities Management Corp v. CIR, G.R. No. 226556, July 3, 2019). added tax and at the same time, percentage tax including excise tax, if The burden of the tax is borne by the final consumers although the producers applicable. and supplies of these goods and services are the ones who have to file their VAT returns to the BIR. Hence, what is transferred or shifted to the consumers is no the liability to pay the tax but rather the tax burden (Tabag). 3 Elements of VATable Transactions (Cruz): As an indirect tax, VAT-registered sellers may pass on or shift the burden of the VAT to the buyers. However, the amount of VAT is still to be remitted to For a transaction to be considered as vatable, the following requisites must the BIR by the seller as he is the one statutorily liable for its payment (Soriano, concur: Manuel, and Laco). 1. There must be: VAT on sale of Goods or Properties (Sec. 106, NIRC, as amended by TRAIN a. Sale, barter, exchange, or lease of goods or properties; and EOPT) b. Rendition of services; or c. Importation of goods; There shall be levied, assessed and collected on every sale, barter or exchange 2. It is done in the course of trade or business (except for importation of of goods or properties, value-added tax equivalent to twelve percent (12%) of goods); and the gross sales of the goods or properties sold, bartered or exchanged, such tax 3. The transaction is not VAT-exempt or VAT zero-rated. to be paid by the seller or transferor (Sec. 106 (A), NIRC as amended by TRAIN). Kinds of VAT: The term “goods or properties” refers to all tangible and intangible objects which are capable of pecuniary estimation and shall include, among other: VAT may be imposed on the following transactions: 1. Real properties hold primarily for sale to customers of held for lease in 1. VAT on sale of goods or properties; the ordinary course of trade or business; 2. VAT on importation of goods; 2. The right or the privilege to use patent, copyright, design or model, plan, 3. VAT on sale of services and use or lease of properties. secret formula or process, goodwill, trademark, trade brand or other like Persons Liable to Pay the VAT (Sec. 105, NIRC): property or right; 3. The right or the privilege to use any industrial commercial or scientific 1. Any person who, in the course of trade or business: equipment; a. Sells, barters, or exchanges goods or properties (seller of transferor) 4. The right or the privilege to use motion picture films, films, tapes and b. Leases goods or properties (lessor) disc; and c. Renders services (service provider) 5. Radio, television, satellite transmission and cable television time. 2. Imports goods (importer) Sales Returns, Allowances, and Sales Discounts (Sec. 106 (D), NIRC) An importer is a person who bring goods into the Philippines, whether or not made in the course of trade or business. Allowable deductions from Gross Sales include: 1. Sales returns and allowances; 4  2. Sales discounts, provided: Since the transaction is a sale of goods, the VAT shall be recognized in March a. The sales discount granted is indicated in the invoice at the time of when the sale was consummated, regardless of he fact that payment was made sale; and in the subsequent month. b. The grant of which does not depend upon the happening of a future event. Sale of Real Properties c. The discount is expressly indicated in the invoice/OR (Sec. 4.106-9, RR No. 16-05). Sale of Real Property on Installment means sale of real property by a real estate dealer, the initial payments of which in the year of sale do not exceed 25% of Accordingly, a cash discount which is based on the prompt payment of the the gross selling price/contract price. buyer is not allowed as a deduction from gross sales because it is dependent on the timing of the payment. Trade discount, however, which are grated at In this case, the VAT shall be due on each installment payment only reported the time of sale and are based, usually, on the bulk of the orders, is allowable on each of their respective months/quarters and not the whole VAT due on the since it is not dependent on a future event. sale. VAT Accrues on the Consummation of the Sale Sale on a Deferred-Payment Basis In a contract of sale, the contract is perfected upon the meeting of the minds. If the initial payments exceed 25% of the contract price, the transaction shall be However, ownership is not transferred until delivery is made which is the considered as a sale on a deferred payment basis and will be treated as a cash consummation of the contact. sale which makes the entire selling price taxable in the month/quarter of sale. The input VAT is creditable upon consummation of the sale, which is upon Initial payments shall mean the sum of the: delivery of the goods and issuance of the sales invoice. Consequently, the VAT thereon accrues at the same time regardless of whether payment has already 1. Down payment been made, subject to the exception under sale of real property on installments. 2. All installment payments made or is expected to be received during the year of sale; and Illustration (Soriano, Manuel, and Laco) 3. When the amount of mortgage is more than the cost to the seller, the excess shall form part of the initial payments (e.g. the mortgage on A sold goods to B on March 28, 2024. Delivery was also made on the same day. the real property is P1,000,000.00, where the cost to the seller is B paid A on April 2, 2024. P800,000.00- the excess of P200,000.00 is considered part of the initial payments). 5 Illustration (Soriano, Manuel, and Laco) 4. Supposing the parcel of land had a fair market value of the land is P4,000,000.00, how much would be the VAT payable for the quarter if A parcel of land was sold P3,000,000.00, exclusive of VAT payable in 20 the sale was made on November 1, 2024? monthly installments of P150,000.00 each. The VAT base on each installment will be computed as follows: 1. Supposing the parcel of land was sold on March 1, 2024, how much would be the total monthly installment payments or the “initial Installment payment x Fair Market Value = VAT base payment”? How much would be the VAT payable for the Total Contract Price month/quarter of sale? 300,000.00 x 4,000,000.00 = P400,000.00 The initial payment would be equal to P1,500,000.00 (P150,000.00 x 10). 3,000,000.00 With regard to the VAT payable, since the initial payments is 50% of the The VAT due for November would be P24,000.00 (P200,000.00 x 12%) selling price, this would be considered as a sale on “deferred-payment and another P24,000.00 for December. The total VAT payable for the basis” and accordingly, the whole P360,000.00 (P3,000,000.00 x 12%) quarter would be equal to P48,000.00. VAT on the sale of lot would be due in the month/quarter of sale. VAT on Importation 2. Supposing the parcel of land was sold on November 1, 2024, how much would be the total monthly installment payments or the initial Importation is the act of bringing goods and merchandise into the Philippines payment? How much would be the VAT due for the quarter? from a foreign country. The initial payment would be P300,000.00. The VAT payable for the There shall be levied, assessed and collected on every importation of goods a quarter would be equal to P36,000.00 (P300,000.00 x 12%). value-added tax equivalent to twelve percent (12%) based on the total value used b the Bureau of Customs in determining tariff and customs duties plus 3. Supposing the parcel of land had a fair market value of P2,000,000.00, customs duties, excise taxes, if any, and other charges, such tax to be paid by and was sold on November 1, 2024, how much would be the initial the importer prior to the release of such goods from customs custody: payment and the VAT payable due for the quarter? Provided, that where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the The computation would be the same since the SP > than the FMV. landed cost plus excise taxes, if any (Sec. 107 (A), NIRC as amended by TRAIN). 6 Transfer by a Tax-Exempt Entity to a Non-Tax Exempt Entity services, including the use or lease of properties (Sec. 108 (A), Par. 1, NIRC, as amended by TRAIN and EOPT). In the case of tax-free importation of goods into the Philippines by persons, entities, or agencies exempt from tax where such goods are subsequently sold, Sale or Exchange of Services (Sec. 108 (A), Par. 2, NIRC, as amended by transferred or exchanged in the Philippines to non-exempt persons or entities, TRAIN) the purchaser, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation Sale or exchange of services means the performance of all kinds of services in (Sec. 107[B], NIRC). the Philippines for others for a fee, remuneration or consideration. Destination Principle and Cross Border Doctrine It shall also include: The Philippine VAT system adheres to the Destination Principle and the Cross Border Doctrine. 1. Those performed or rendered by construction and service contractors; 2. Stock, real estate, commercial, customs and immigration brokers; Under the Destination Principle, goods and services are taxed only in the 3. Lessors of property, whether personal or real; country where these are consumed (Cruz, citing Atlas Consolidated Mining & 4. Warehousing services; Development Corporation v. CIR, G.R. No. 141104, June 8, 2007). 5. Lessors or distributors of cinematographic films; 6. Persons engaged in milling, processing, manufacturing or repacking Whereas, the Cross Border Doctrine mandates that no VAT shall be imposed goods for others; to form part of the cost of goods destined for consumption outside the 7. Proprietors, operators or keepers of hotels, motels, resthouses, pension territorial border of the taxing authority (Cruz, citing CIR v. Seagate houses, inns, resorts; Technology (Phils.), G.R. No. 153866, February 11, 2005). 8. Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; Hence, actual export of goods and services from the Philippines to a foreign 9. Dealers in securities; country must be free of VAT while those destined for use or consumption 10. Lending investors; within the Philippines shall be imposed with VAT (Cruz, citing CIR v. 11. Transportation contractors on their transport of goods or cargoes, Filminera Resources Corporation, G.R. No. 236325, September 16, 2020). including persons who transport goods or cargoes for hire and other VAT on Sale of Services and Use of Lease of Properties domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of There shall be levied, assessed, and collected, a value-added tax equivalent to passengers, goods or cargoes from one place in the Philippines to twelve percent (12%) of gross sales derived from the sale or exchange of another place in the Philippines; 7  12. Sales of electricity by generation companies, transmission by any entity, (6) The supply of technical advice, assistance or services rendered in and distribution companies, including electric cooperatives; connection with technical management or administration of any 13. Services of franchise grantees of electric utilities, telephone and scientific, industrial, or commercial undertaking, venture, project, or telegraph, radio and television broadcasting and all other franchise scheme; grantees except those under Section 119 of this Code and non-life insurance companies (except their crop insurances), including surety, (7) The lease of motion picture films, films, tapes, and discs; and fidelity, indemnity and bonding companies; and (8) The lease or the use of or the right to use radio, television, satellite 14. Similar services regardless of whether or not the performance thereof transmission and cable television time. calls for the exercise or use of the physical or mental faculties. The phrase “sale or exchange of services” shall likewise include: Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the (1) The lease or the use of or the right or privilege to use any copyright, property is leased or used in the Philippines. patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; Characteristics of VAT (2) The lease or the use of, or the right to use of any industrial, 1. It is an indirect tax where tax shifting is always presumed; commercial, or scientific equipment; 2. It is consumption-based; 3. It is imposed on the value-added in each stage of production and (3) The supply of scientific, technical, industrial, or commercial distribution process; knowledge or information; 4. It is a credit-invoice method value-added tax. (4) The supply of any assistance that is ancillary and subsidiary to and Persons Required to Register for VAT is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such Under the Tax Code, as amended, VAT registration is classified into two (2), knowledge or information as is mentioned in subparagraph (3); mandatory and optional VAT registration. (5) The supply of services by a nonresident person or his employee in A. Mandatory Registration connection with the use of property or rights belonging to, or the 1. Any person or entity who, in the course of his trade or business, sells, installation or operation of any brand, machinery or other apparatus barters, exchanges, leases goods or properties and renders services purchased from such nonresident person; subject to VAT, if the aggregate amount of actual gross sales or receipts exceed P3,000,000.00 beginning January 1, 2018 under RA 10963-TRAIN 8  Law for the past 12 months (other than those that are exempt) or there However, under RR No. 13-18, if taxpayer who initially availed of the 8% flat are reasons to believe that the gross sales or receipts for the next 12 rate, but whose sales during the year exceeded P3,000,000.00, he/she shall be months will exceed P3,000,000.00. liable for the 12% VAT prospectively, starting the next month when his sales exceeded P3,000,000.00 and shall be required to update his VAT registration on 2. Radio and/or television broadcasting companies whose annual gross or before the last day of the said month. receipts of the preceding year exceeds P10,000,000.00. Mandatory registration applies within 30 days from the end of the taxable year. Illustration (Soriano, Manuel, and Laco): 3. A person required to register as VAT taxpayer but failed to register X signified his intention to be taxed at 8% in his 1st Quarter Income Tax. For the (Tabag). first three quarter, his sales amounted to P2,250,000.00. However, his sales for the month of October, November, and December were all P1,000,000.00 each. B. Optional Regisration In this case, X exceeded the P3,000,000.00 threshold during the month of 1. Any person who is VAT-exempt or not required to register for VAT may October. Accordingly, he is subject to the 12% VAT beginning November (the elect to be VAT-registered by registering with the RDO that has next month) and shall be required to update his registration from Non-VAT to jurisdiction over the head office of that person, and pay the annual VA registered on or before November 30. registration fee for every separate and distinct establishment. Any person who elects to register under optional registration shall not be Basis of determining mandatory registrability for VAT allowed to cancel his registration for the next three (3) years. The bass shall be comprised only of those sales which are not exempt under 2. Franchise grantees of radio and/or television broadcasting whose Sections 109 (A) to (BB). Thus, any such sales falling within the exemptions are annual gross receipts of the preceding year do not exceed P10,000,000.00 excluded from the gross sales for purposes of determining if the taxpayer is derived from the business covered by the law granting the franchise required to be registered for VAT. may opt for VAT registration. This option, once exercised, shall be Illustration (Soriano, Manuel, and Laco): irrevocable (Tabag). A Company had P2,000,000.00 sales of fresh fruits and P2,500,000.00 sales of Persons availing of the 8% Flat Rate of Income Tax fruit jams. The sale of fresh fruits is considered exempt under Sec. 109 (A). Individual taxpayers availing of the 8% flat rate of income tax are likewise therefore, the basis of determining mandatory registrability would only be exempt from the payment of the 12% VAT, and under Sec. 236 (H) of the Tax P2,500,000.00, the amount of sales not exempt under Sections 109 A to BB. Code as amended, are not allowed to avail of the optional VAT registration. Considering, however, that the amount does not exceed P3,000,000.00, A Company is not mandatorily required to register for VAT. 9 Registration not a requisite for VAT liability Cancellation of Registration Registration is not a requisite for one to be liability to pay VAT but the same is Instances when a VAT-registered person may cancel his VAT registration required before he/she can claim input VAT. 1. If he makes a written application and can demonstrate to the The amount of sales is the one determinative of the liability for VAT and not commissioner’s satisfaction that his gross sales or receipts for the the registration. following twelve (12) months, other than those that are exempt under Section 109 (A) to (U), will not exceed P3,000,000.00; or If the amount of sales for the past 12 months exceeded or at any time exceeds P3,000,000.00, then the taxpayer shall be subject to the VAT even if he did not 2. If he has ceased to carry on his trade or business, and does not expect to register for such type of tax. recommence any trade or business within the next twelve (12) months. The registration requirement is a pre-requisite to claim input VAT. The cancellation for registration will be effective from the first day of the Accordingly, even if the taxpayer becomes liable for VAT for exceeding the following months the cancellation was approved (Tabag). threshold amount of P3,000,000.00 but fails to register, he shall be liable for the Power of the Commissioner to Suspend Business Operations output VAT on such sales, but he shall not be entitled to any input VAT for his failure to register (Soriano, Manuel, and Laco). The Commissioner of the Internal Revenue or his authorized representative may order suspension or closure of business establishment for a period of not In other words, the taxpayer shall be liable to pay the tax as if he were a VAT- less than 5 days for any of the following violations. registered person but he cannot avail the benefits of input tax credit for the period he was not properly registered. 1. Failure to issue receipts or invoices 2. Failure to file VAT return VAT threshold for Husband and Wife 3. “Understatement of taxable sales or receipts by 30% of more of the For purposes of the threshold of P3,000,000.00, as amended, the husband and correct taxable sales or receipts for the taxable quarter. the wife shall be considered separate taxpayers. However, the aggregation 4. Failure of any persons to register as required under the law. rule for each taxpayer shall apply. Illustration (Tabag): For instance, if a professional, aside from the practice of his profession, also M Inc., a non-VAT registered corporation rendered professional services to K derives revenue from other lines of business which are otherwise subject to Company (VAT registered) for P100,000.00. Annual gross receipts of MS Inc. VAT, the same shall be combined for purposes of determining whether the exceeded the P3,000,000.00. VAT threshold during 2022. How much is the total threshold has been exceeded. Thus, the VAT-exempt sales shall not be amount due by K Company? included in determining the threshold (Tabag). 10 P100,000.00. For failure to register under the VAT System, MS cannot pass the Sale of real properties Highest among the Selling Price, Fair output vat to its customers. Value provided by the city/provincial assessor, and the zonal value provided by Using the same assumption in the preceding question, how much is the VAT the CIR due/payable of M Inc. to the BIR? Sale by dealer in securities Gross selling price less cost of securities P12,000.00; A non-VAT registered entity required to register as vatable entity sold but failed to do so is liable to pay the equivalent output vat of 12% and is not Importation Total landed cost entitled to claim input tax. Transactions Deemed Sales (Sec. 106 B, NIRC) VAT PAYABLE Under section 106(B) of the Tax Code, certain transactions which are NOT actually sales because of the absence of actual exchange between the buyer and The corresponding liability on Value Added Tax is generally computed as seller, are considered or included in the term ‘sale” for valued added tax follows: purposes. Output VAT (Gross Sales x 12%) P xxx In a transaction deemed sale, the input VAT was already used by the seller as Less: Input VAT (Gross Purchases x 12%) (xxx) a credit against the output VAT. However, since there was no actual sale, no VAT Payable/Excess Input VAT xxx output Vat is actually charged to customers. Consequently, the State will be deprived of its right to collect the output VAT. To avoid a situation where a OUTPUT VAT VAT-registered taxpayer avail of input VAT credit without being liable for the Output VAT may come from: corresponding output VAT, certain transactions should be considered sales even in the absence of actual sales. 1. Actual Sales 2. Transaction Deemed Sales Transactions deemed sales entails that there is no actual sale but by their nature 3. Zero (0%) Rated Sales. are considered as “sales” subject to VAT. Actual Sales The CIR shall determine the appropriate tax base in cases where a transaction is deemed a sale, barter, or exchange of goods or properties, or where the gross Nature of Transaction Tax Base sales is unreasonably lower than the actual market value. Sale of goods or properties Gross Sales The following transactions shall be deemed sales: Sale of services Gross Sales 11  a. Transfer, use or consumption NOT in the ordinary course of business of b. Approval of a request for cancellation of registration due to reversion to goods or properties ordinarily intended for sale or use in the course of exempt status. business. The basis in computing the applicable VAT shall be the fair c. Approval of a request for cancellation of registration due to a desire to market value of the goods consumed. revert to exempt status after the lapse of three (3) consecutive years from b. Distribution or transfer to: the time of registration by a persons who voluntarily registered despite being exempt under Sec. 109 (2) of the Tax Code. Shareholders or investors as share in the profits of a VAT-registered persons; and d. Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts Distribution or transfer to creditors in payment of debt or obligation exceeding P3,000,000, as amended, but who failed to exceed this amount c. Consignments of goods if actual sale is not made within sixty (60) days during the first twelve months of operation. following the date such goods were consigned. Goods returned within VAT (Transactions Deemed Sale) shall not be imposed on goods or the 60-day period are NOT deemed sold. properties existing as of the occurrence of the following: d. Retirement from or cessation of status as VAT-registered person with a. Change of control of a corporation by the acquisition of the controlling respect to all “goods on hand” (as of the date of retirement or cessation), interest of such corporation by another stockholder or group of whether or not the business is continued by the new owner or successor. stockholders. The goods or properties used in business or those Goods on hand refer to capital goods, stock in trade and supplies and comprising the stock-in-trade of the corporation, having a change in materials (Basis should be the acquisition cost or market value whichever corporate control, will not be considered sold, bartered or exchanged is lower). despite the change in the ownership interest in the said corporation RR 16-2005 as amended by RR 4-2007 provides that the VAT provided in (d) b. Change in the trade or corporate name of the taxpayer shall apply to goods or properties originally intended for sale or use in business, and capital goods which are existing as of the occurrence of the c. Merger or consolidation of corporations. The unused input tax of the following: dissolved corporation, as of the date of merger or consolidation, shall be absorbed by the new or surviving corporation. a. Change of business activity from VAT taxable status to VAT-exempt status. An example is a VAT-registered persons engaged in a taxable Zero-Rated Sales (0% VAT) activity (wholesaler/retailer) who decides to discontinue such activity Zero-rated sales could either be zero-rated sale of goods or zero-rated sale of and engages instead in any other business not subject to VAT. service. 12 Zero-Rated Sale of Goods mentioned in this paragraph, such portion of fuel, goods, supplies, and equipment shall be subject to 12% VAT. Section 106 (A)(2) of the NIRC as amended by the TRAIN and CREATE Laws provide that zero rated sale of goods shall now include only: The following were removed from the above-list of “export sales” 1. Export Sales i. Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in a. The sale and actual shipment of goods from the Philippines to a foreign manufacturing, processing, packing or repacking in the Philippines of country, irrespective of any shipping arrangement that may be agreed the said buyer’s goods and paid for in acceptable foreign currency and upon which may influence or determine the transfer of ownership of the accounted for in accordance with the rules and regulations of the goods so exported and paid for in acceptable foreign currency or its Bangko Sentral ng Pilipinas. equivalent in goods or services, and accounted for in accordance with rules and regulations of the Bangko Sentral ng Pilipinas (BSP). ii. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of the total b. Sale of goods, supplies, equipment and fuel to persons engaged in annual production; and international shipping or international air transport operations. However, under the TRAIN, I is required that they shall be used iii. Those considered export sales under Executive Order No. 226 otherwise exclusively for international shipping or air transport operations. known as the Omnibus Investment Code of 1987, and other special laws. Accordingly, the above-enumerated transactions are now subject to the 12% The sale of goods, supplies, equipment and fuel to persons engaged in VAT. While, sale of gold to the BSP is now a VAT-exempt transaction under international shipping or international air transport operations is Section 109 (Z) of the Tax Code. limited to goods, supplies, equipment and fuel that shall be used in the transport of goods and passengers from a port in the Philippines directly Foreign Currency Denominated Sale to a foreign port, or vice versa, without docking or stopping at any other This transaction is now subject to the 12% VAT under the TRAIN Law. The port in the Philippines unless the docking or stopping at any other phrase “foreign currency denominated sale” means sale to a non-resident of Philippine port is for the purpose of unloading passengers and/or goods, except those mentioned in Sections 149 and 150, assembled or cargoes that originated from abroad, or to load passengers and/or manufactured in the Philippines for delivery to a resident in the Philippines, cargoes bound for abroad: Provided, further, that if any portion of such paid for in acceptable foreign currency and accounted for in accordance with fuel, goods, supplies or equipment is used for purposes other than that the rules and regulations of the BSP. 13  2. Sales to persons or entities whose exemption under special laws or use thereof: Provided, that these services shall be exclusive for international agreements to which the Philippines is a signatory international shipping or air transport operations; effectively subjects such sales to zero rate. 4. Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country; and 3. Sale of raw materials, inventories, supplies, equipment, packaging, materials, and goods, to a registered export project or activity for a 5. Sale of power or fuel generated through renewable sources of energy maximum of 17 years from the date of registration, unless otherwise such as, but not limited to, biomass, solar, wind, hydropower, extended under the Strategic Investments Priorities Plan (SIPP). The geothermal, ocean energy, and other emerging energy sources using same zero-rating shall apply to registered export enterprises located technologies such as fuel cells and hydrogen fuels. inside ecozones and freeport zones. INPUT VAT Zero-Rated Sale of Service Input Vat or Input Tax means the value-added tax due on or paid by a VAT- Under Section 108 B of the Tax Code, as amended, and RR 9-2021 emphasized registered person in the course of his trade or business on importation of goods that effective July 21, 2021, the revised list of zero rated (0%) sale of services or local purchase of goods or services, including lease or use of property, from now includes only: a VAT- registered person. 1. Services other than those mentioned in the preceding paragraph, It shall also include: rendered to a person engaged in business conducted outside the Philippines or to a non resident persons not engaged in business who is 1. The transitional input tax; outside the Philippines when the services are performed, the 2. The presumptive input tax determined in accordance with SEC. 111 consideration for which is paid for in acceptable foreign currency and 3. Input taxes which can be directly attributed to transactions subject to accounted for in accordance with the rules and regulations of the VAT plus a ratable portion of any input tax which cannot be directly Bangko Sentral ng Pilipinas; attributed to either the taxable or exempt activity. (Sec. 4. 110-1, RR No. 16-05) 2. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippine is a signatory Purchase of Goods and Services: to properly claim input tax credits, the effectively subjects the supply of such services to zero percent (0%) rate; purchases must be properly supported as required under Sec. 110(A) and Sec.113 of the NIRC. 3. Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for 14 Who can avail of the Input Tax Credit of duties and TAX [SSDT] and Single Administrative Document [SAD] Sec. 4.110-2 of RR No.16-05, as amended, provides: Purchase of Real Property Public Instrument together with VAT 1. Importer upon payment of VAT prior to the release of goods from invoice customs custody; Purchase of Service VAT invoice [Prior to EOPTA, this is VAT Official Receipt] 2. Purchaser of the domestic goods or properties upon consummation of Transitional Input tax Inventory list submitted to the BIR the sale; or Deemed Sale Invoice required under Sec. 4.113-2 of RR No. 16-05 3. Purchaser of services or the lessee or licensee upon accrual of the Purchase of Service from Non- BIR form No. 1600 (withheld VAT) compensation, rental royalty or fee. residents Advance VAT on sugar Payment Order Note that the above likewise provides for the proper period of claiming input 5% Creditable VAT on sale to Withholding certificate VAT: government 1. Importation – upon release of the goods; 2. Purchase of goods – upon consummation of the sale; A cash register machine tape issued to a registered buyer shall constitute valid 3. Purchase of service or lease – upon accrual, i.e, rendering of service proof of substantiation of tax credit only if it shows information required under Secs. 113 and 237 of the NIRC. Note: Prior to EOPTA, the rule on recognizing input VAT on purchase of service or lease is upon payment. Required Information in the VAT support Required VAT support The following shall be the information required to be presented in a VAT Sec. 4. 110-8 of RR no. 16-05, as amended, implements Sec. 113(A) of the NIRC, Invoice in order to properly claim input tax credits: and provides for the proper substantiation of input tax credits, as follows: a. A statement that the seller is VAT-registered person, followed by his Tax Transaction Required Support Identification Number (TIN); Domestic purchase of goods VAT Invoice b. The total amount which the purchaser pays or is obligated to pay to the Importation of Goods Import entry declaration and BOC seller with the indication that such amount includes the VAT; receipt or other similar documents c. VAT must be separately shown; proving the payment of such d. A statement indicating that the sale is “VAT-exempt” or “zero-rated,” if VAT(such as statement of Settlement applicable; 15  e. In the case of sales in the amount of one thousand pesos (P1,000.00) or Purchase of Capital Goods more where the sale or transfer is made to a VAT- registered person, the The amortization of the input TAX shall only be allowed until December 31, (1) name, if any, (2) address and (3) TIN of the purchaser, customer, 2021 after which taxpayers with unutilized input VAT on capital goods client shall be indicated in addition to the information required in (1) purchased or imported shall be allowed to apply the same as scheduled until and (2). fully utilized (TRAIN Law). Note: Prior to EOPTA, the business style of the purchaser is likewise required to be indicated. If the purchase was made on January 1, 2022, the input VAT on the capital f. The date of transaction, quantity, unit cost and description of the goods goods can be claimed as tax credits in full in the month of purchase and there or properties or nature of the service. shall be no need to amortize. g. The name of the buyer/purchaser must likewise be indicated in the Purchase on or Before December 31, 2023 invoice in order to identify the proper claimant of the input VAT. Where a VAT-registered person: Strict Compliance 1. Purchases or imports capital goods (which are depreciable assets for Taxpayers claiming for a refund or tax credit certificate must comply with the income tax purposes); strict and mandatory invoicing and accounting, and it’s implementing rules 2. The aggregate acquisition cost of which (exclusive of VAT) exceeds One and regulations. Rules and regulations with regard to procedures are million pesos (P1,000,000), regardless of the acquisition cost of each implemented not to be ignored or to be taken for granted but are strictly capital good adhered to for they are developed from the law itself. 3. In a calendar month Note, however, that under Section 113(D)(3), as amended by the EOPTA, the The input tax thereon shall be claimed as credit against output tax in the input tax shall be allowable as credit as long as the missing information does following manner; if the estimated useful life of a capital good is: not pertain to; 1. Five (5) years or more – the input tax shall be spread evenly over a 1. Amounts of Sales; period of 60 months. 2. Amount of VAT; 2. Less than 5 years – the input tax shall be spread evenly on a monthly 3. Name and TIN of both the purchaser and issuer/seller; basis by dividing the input tax by the actual number of months 4. Description of goods or nature of services; and comprising the estimated useful life of the capital good. 5. Date of the transaction. In both cases, the claim for input tax credit shall commence in the calendar month that the capital goods were acquired. 16 Where the aggregate acquisition cost (exclusive of VAT) purchased or Once the input tax has already been claimed while the construction is still in imported during any calendar month does not exceed P1,000,000, the total progress. No additional input can be claimed upon completion of the asset input taxes will be allowable as credit against output tax in the month of when it has been reclassified as a depreciable capital asset and depreciated. acquisition. Note, however, that under the EOPTA, the VAT is now recognized upon Aggregate Acquisition Cost of a depreciable asset in any calendar moth refers rendition of service and the same applies to the CIPs. to the total price, excluding the VAT, agreed upon for one or more assets Disposal of Capital Goods prior to the exhaustion of the amortizable input tax acquired and not on the payments actually made during the calendar month. thereon – the entire amount of the unamortized input tax on the capital goods Thus, an asset acquired in installments for an acquisition cost of more than sold/transferred can be claimed as input tax credit during the month/quarter P1,000,000, excluding the VAT, will be subject to the amortization of input tax when the sale or transfer was made. despite the fact that the monthly payments/installments may not exceed P1,000,000. Accounting Requirements Capital Goods or properties refers to goods or properties with an estimated Under Sec. 4.113-3 of RR No. 16-05 provides that a subsidiary record in ledger useful life greater than 1 year and which are related as depreciable assets under form shall be maintained for the acquisition, purchase or importation of Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale depreciable assets or capital goods which shall contain, among others, of taxable goods or services. information on the total input tax thereon as well as the monthly input tax claimed in VAT declaration or return. Construction in Progress (CIP) is the cost of construction work which is not yet completed. CIP is not depreciated until the asset is placed in service. Normally, Output Vat Credit on Uncollected Receivables upon completion, a CIP item is reclassified to the appropriate asset account and Under the EOPTA, a seller of goods or services may deduct the output VAT the reclassified asset is depreciated. pertaining to uncollected receivables from its output VAT on the next quarter, CIP is considered, for purposes of claiming input tax, as a purchase of service, after the lapse of the agreed upon period to pay: the value of which shall be determined based on the progress billings. Until - Provided, that the seller has fully paid the VAT on the transaction: such time the construction has been completed, it will not qualify as capital - Provided, further, that the VAT component of the uncollected goods as herein defined, in which case, input tax credit on such transaction can receivables has not been claimed as allowable deduction against gross be recognized in the month the payment was made: Provided, that an official income as bad debts. receipt of payment has been issued based on the progress billings. 17 In case of recovery of uncollected receivables, the output VAT pertaining 2. Refund or issuance of TCC thereto shall be added to the input VAT of the taxpayer during the period of VAT-exempt sales Charged to costs/expense recovery. (Sec. 110(D), NIRC, as introduced by EOPTA) Illustration (Soriano, Manuel, and Laco) It is evident from the foregoing that a VAT-registered taxpayer can only claim input VAT that can be directly attributed to its VAT taxable transactions W Corporation rendered services for A Company for a total fee of (transactions subject to 12% and 0% VAT) and where one is also engaged in an P1,000,000.00, resulting in output VAT of P120,000.00 for the first quarter of activity not subject to VAT, the taxpayer can only claim a ratable portion of the 2024 due by May 31, 2024. common input VAT as tax credit. The sale and the output VAT was reported by W Corporation in its 1 st quarter Thus, purchase of raw materials and services which can be directly attributable VAT return. However, the amount remained unpaid until the ed of the 2nd to VATable and VAT zero-rated sale may be creditable against any output VAT quarter but it was not claimed as a deduction by A Company in its income tax liability. However, purchases which cannot be directly attributable to any sale, return as bad debts. like payment for rent, or purchase of capital goods, which are related to In this case, the output VAT reported in the 1st quarter return may be deducted bringing about VATable and VAT-exempt sales, must be apportioned ratably. from the 2nd quarter return since the period to pay has already lapsed. The above allocated amounts shall be treated as follows: If, however, A Company eventually pays on October 31, 2024, the output VAT 1. The amount of input tax allocated to sales subject to 12% and 0% VAT on the collection of the receivable will then be reported in the 4 th quarter VAT may be creditable against output VAT; however, the amount return when the collection was made. attributable to zero-rated sales may be claimed as input tax credit or Input Vat on Mixed Transactions refund. For practicality, however, a taxpayer would usually use the input tax attributable to zero-rated sales as input tax credits where there (VATable/VAT-exempt/VAT zero-rated) is output tax it can be credited against. The utilization of the input VAT depends on which such purchaser relates as 2. The amount allocated to VAT-exempt sales cannot be claimed as credits follows: against any output VAT but should be treated as part of cost or expense. Related to : Utilization 12% VATable sales Input tax credit 3. The amount allocated to sales to government shall be included with the 0% VATable sales 1. Input tax credit;or amount directly attributable thereto then compared with the 7% standard input VAT (SIV) (based on sales). However, beginning January 18  1, 2021, input VAT and 7% SIV since the 5% withheld VAT from sales to just be considered as a PREPAID VAT that would then be presented as a tax government is now creditable and no longer final. credit in the VAT return. Input Vat on Sales to Government On the other hand, the government entity or any of its political subdivisions, instrumentalities or agencies, including GOCCSs who are required to withhold Train Amendment creditable VAT shall now issue a BIR Form No. 2307 (Certificate of Creditable Beginning January 1, 2021, the VAT withholding system for sales to Tax Withheld at Source) rather than a BIR Form No. 2306 (Certificate of Final government shall shift from final to a creditable system. Under RMC No. 36- Tax Withheld at Source). 2021, the following adjustments will be made in filling-up the VAT Returns: Withholding VAT on Payments to Non-Residents BIR Form 2550M BIR Form 2550Q Description Remarks Sec. 114-2 of RR No.16-05, as amended, provides that private corporations, Line Item individuals, estates and trusts, shall withhold 12% VAT with respect to the 20B 23B Input Tax on sale Not to be filled following payments: to Government out/to be Closed to Expense deactivated in the 1. Lease or use of properties or property rights owned by non-residents; eFPS 2. Services rendered to local insurance companies, with respect to 23C 26D VAT withheld on Where the reinsurance premiums payable to non-residents; and Sales to CREDITABLE 3. Other services rendered in the Philippines by non-residents. Government VAT withheld will be reflected. The above shall be remitted to the BIR using Remittance Return of VAT and other Percentage Taxes Withheld (BIR Form No. 1600) which shall be filed By not filling-up the Input Tax on Sale to Government Closed to Expense Line within 10 days following the end of the month the withholding was made. Item, it would seem that there is no longer a need to compare the standard The VAT withheld and remitted to the BIR. input VAT (7% of sales to government) with the amount of input VAT actually attributable to the sales to government, since any difference will no longer be 1. VAT-registered withholding agent – may claim as input tax credit indicated in the VAT return and would thus not affect the VAT payable amount remitted to the BIR. The BIR Form No. 1600 shall serve as the computation. proof or documentary substantiation for the claimed input tax or input VAT. Accordingly, the sales to the government shall now be treated like any other VATable transactions. It’s just that the 5% Creditable Withholding VAT would 19  2. Non-VAT taxpayer – passed-on VAT evidenced by the duly filed BIR period cannot be expensed outright (RMC No. 57-2013) dated Aug. 23, 2013, Form No. 1600 shall form part of the cost or purchased services, which circularizing BIR Ruling No. 123-2013. may be treated either as an “asset” or “expense,” which is applicable. Consequence of Erroneous Issuance of VAT Invoice or VAT Official Receipt Sec. 113 (D) of the NIRC provides: Tax Credit 1. If a person who is not a VAT-registered person issues an invoice or The creditable input tax shall be the sum of all the allowable input tax as receipt showing his TIN, followed by the word “VAT”, shall be liable determined in accordance with the law less any amount claimed as refund plus for: any excess input tax carried over from the preceding month or quarter. a. The VAT on said transaction without the benefit of any input tax credit; and Excess Input/Output Tax b. 50% surcharge. 1. Output Tax exceeds input tax – the difference shall be the VAT payable The VAT on said transaction may be creditable to the VAT –registered the amount of which shall be remitted to the BIR. buyer provided it is properly substantiated. 2. Output tax is less than the input tax – the difference may be carried over to the succeeding quarter/quarters. The input tax attributable to the 2. If a VAT-registered person issues a VAT invoice or VAT OR for a VAT- purchase of capital goods or to zero-rated sales may be refunded or exempt transaction, but fails to display prominently on the invoice or credited against other than internal revenue taxes, subject to the receipt term “VAT-exempt sale,” the issuer shall be liable to account for provisions of Sec. 112. the VAT. Unutilized Input Tax Credits Attributable to Zero-Rated Sales Cannot Be 3. If the VAT-registered person issued a VAT invoice to another VAT- Claimed as Deduction for Income Tax Purposes registered person with lacking information required under Section Unutilized creditable input taxes attributable to zero-related sales can only be 113(b) (above-discussed), the issuer shall be liable for non-compliance recovered through the application for refund or tax credit. Nowhere in the Tax with the involving requirement. (Section 113[D], as amended by Section 21 Code can we find a specific provision expressly providing for another more of of the EOPTA) recovering unapplied input taxes, particularly the proposition of the taxpayer Transitional Input VAT who requested for the ruling that unapplied input taxes may be treated outright as deductible expenses for income tax purposes. Thus, input taxes on Sec. 111 of the NIRC is implement by Sec. 4.111-1 of RR No. 16-05 provides that purchase of goods and services after the expiration of the 2-year prescriptive a person upon exceeding the threshold amounts provided under Sec. 109(CC) 20 of the NIRC or voluntarily elects to be a VAT-registered person (except portion of the income it derived from its sales as output VAT. The transitional franchise grantees whose threshold amount is P10,000,000) shall be entitled to input tax credit mitigates this initial diminution of the taxpayer’s income by the transitional input tax on the inventory on hand as of the effectivity of VAT affording the opportunity to offset the losses incurred through the remittance registration, on the following: of the output VAT at a stage when the person is yet unable to credit input VAT payments. 1. Goods purchased for resale in their present condition; 2. Materials purchased for further processing, but which have not yet To require prior payment of taxes xxx is not only tantamount to judicial undergone processing; legislation but would also render nugatory the provision in Section 105 of the 3. Goods which have been manufactured by the taxpayer; old NIRC that the transitional input tax credit shall be “8% of the value of [the 4. Goods in process for sale; or beginning] inventory or the actual [VAT] paid on such goods, materials and 5. Goods and supplies for use in the course of the taxpayer’s trade or supplies, whichever is higher” because the actual VAT (now 12%) paid on the business as a VAT-registered person. goods, materials and supplies would always be higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice Carpio would Amount of Transitional Input Tax shall be whichever is higher between: have to exclude all goods, materials, and supplies where no taxes were paid. 1. 2% of the value of the beginning inventory on hand or Clearly, limiting the value of the beginning inventory only to goods, materials, 2. Actual VAT paid on such goods, materials and supplies. and supplies, where prior taxes were paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory Valuation excludes goods, materials, and supplies where no taxes were paid.” The value of the goods allowed for income tax purposes shall be the basis for Presumptive Input VAT the computation of the 2% transitional input tax, including goods where no previous VAT has been paid. It is 4% of the purchases of primary agricultural products (which are supposedly VAT-exempt, being agricultural food products in their original In, FBDC vs CIR (GR No. 175707, Nov. 19, 2014, reiterating the decision in the state) and is available only for taxpayers engaged in the following activities: 2009 and 2013 cases of a similar title), the Supreme Court held that “[I]t is apparent that the transitional input tax credit operates to benefit newly VAT- 1. Processing of: registered persons, whether or not they previously paid taxes in the acquisition a. Sardines; of their beginning inventory of goods, materials and supplies. During that b. Mackerel; and period of transition from non-VAT to VAT status, the transitional input tax c. Milk. credit serves to alleviate the impact of the VAT on the taxpayer. At the very 2. Manufacturing of: beginning, the VAT –registered taxpayer is obligated to remit a significant a. Refined sugar; 21  b. Cooking oil; 229. (Commissioner of Internal Revenue v. San Roque Power Corporation, c. Packed noodle-based instant meals Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue; G.R. No. Limited to Agricultural Products 187485, and 197156; February 12,2013) The last part of Sec. 111(B)(1) provides for purchases of primary agricultural Requisites products. Thus, the purchase of sardines and mackerel, being marine products, may not be entitled to presumptive input VAT. 1. There must be zero-rated or effectively zero-rated sales; 2. That input taxes were incurred or paid; Refund or Tax Credits of Input Tax 3. That such input VAT payments are directly attributable to zero-related Claim for refund of excess Input Taxes may be attributable to: sales or effectively zero-rated sales; 4. That the input VAT payments were not applied against any output VAT 1. Excess input tax attributable to zero-related sales which not been liability; and applied to any output tax; 5. That the claim for refund was filed within the two-year prescriptive 2. Unused input tax and the taxpayer desires to cancel its/his VAT period. registration. Statutory Period for Claiming VAT Refund For Claims of VAT Refund Attributable to Zero-Rated Sales, Sec. 112 applies and not Sec. 229 of the Tax Code: In a claim for refund or credit of “excess” a. An administrative claim must be filed with the CIR within two years input VAT under Section 110 (B) (Tax Credits) and Section 112 (A) (Refunds or after the close of the taxable quarter when the zero-rated or effectively Tax Credits of Input Tax), the input VAT is not “excessively” collected as zero-rated sales were made. understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT system, there b. The CIR has 90 (previously 120 days prior to the TRAIN) days from the is no claim or issue that the input VAT is “excessively” collected, that is, that date of submission of complete documents in support of the the input VAT paid is more than what is legally due. The person legally liable administrative claim within which to decide whether to grant a refund for the input VAT cannot claim that he overpaid the input VAT by the mere or issue a tax credit certificate. The 90-day period may extend beyond the two-year period from the filing of the administrative claim if the existence of an “excess” input VAT. The term “excess” input VAT simply claim is filed in the later part of the two-year period. If the 90-day period means that the input VAT available as a credit exceeds the output VAT, not expires without any decision from the CIR, then the administrative that the input VAT is excessively collected because it is more than what is claim may be considered to be denied by inaction. legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as “excessively” collected under Section 22  c. A judicial claim must be filed within the CTA within 30 days from the those filing using the electronic filing and payment system (eFPS) may be receipt of the CIR’s decision denying the administrative claim or now accorded 1 to 5 days extension in the filing of their monthly returns. upon expiration of the 90-day period under the EOPTA. Before the EOPTA, and under the TRAIN Law, there is no more TRAIN amendment: beginning January 1, 2023, the filing and payment “deemed denial” by the inaction of the BIR. However this was reinstated required under the Tax Code shall be done within twenty-five days (25) already in the EOPTA. Accordingly, the inaction of the BIR can also be following the close of each taxable quarter. the subject of a petition for review, not just an actual denial. The filing of the monthly VAT declaration is now optional. However, in either the EOPTA or the TRAIN, the failure on the part of EOPTA amendment: The return above-mentioned shall be filed, either any official, agent, or employee of the BIR to act on the application electronically or manually and the tax due thereon shall be paid, either within the ninety (90) – day period shall be punishable under Section electronically or manually, at the time of filing. Except in cases where the 229 of the Tax Code, as amended. Commissioner otherwise permits, the return shall be filed and the tax paid, either electronically or manually, to: d. All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the 1. Any authorized agent bank, time of its issuance on 10 December 2003 up to its reversal by this Court 2. Revenue District Office through Revenue Collection Officer, or in Aichi on 6 October 2010, as an exception to the mandatory and 3. Authorized Tax Software provider. jurisdictional 90+30 (then 120+30 day) periods. (Mindanao II Geothermal Partnership vs Commissioner of Internal Revenue; G.R. No. Summary Lists of Sales and Purchases; RR No. 1-2012 required the mandatory 193301; March 11. 2013) submission of Summary Lists of sales and Purchases of ALL VAT-registered taxpayers together with the quarterly VAT return. Compliance Requirements VAT EXEMPT SALES (Section 109, NIRC, as amended by TRAIN, Deadlines for the filing of the VAT Return shall be: CREATE, and EOPTA; RR 13-2018; RR 4-2021; RR 8-2021; and RR 9-2021) 1. Monthly VAT Return (BIR Form No. 2550M) – 20th day following the The VAT exempt transactions are as follows: close of the month; 2. Quarterly VAT Return (BIR Form No. 2550Q) – 25th day following the A. “Sale or importation of agricultural and marine food products in their close of the quarter; original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption and breeding Note, however, that the above deadline for the monthly return is applicable stock and genetic materials therefor. only to manual filing (including those filing using the eBIR forms). As such, 23  RR 16-2005 provides that products classified under this exemption (such Vat Exempt Sugar as meat, fruits and vegetables) shall be considered in their “original state” even if they have undergone the simple processes of preparation Raw sugar cane refers to sugar produced by simple process of conversion of or preservation for the market, such as freezing, drying, salting, broiling, sugar cane without need of any mechanical or similar device. Under the roasting, s