VAT APPLIES TO:
T/B

1. SALE OF GOODS/PROPERTIES
2. SALE OF SERVICES

INCIDENTAL ✅ TO T/B
● “In the course of trade or business” includes transactions incidental thereto (e.g., sale of scrap and used automobiles).
○ The sale of fully-depreciated vehicles to your employees, for a sum, is to be subject to VAT, because the sale of these automobiles formerly used in trade or business is incidental to the trade or business, and therefore, the same is subject to VAT.

INDIRECT TAX
● VAT is an indirect tax, hence, may be passed on to the buyer of goods or services

NOT RELATED/INCIDENTAL TO T/B

1. SELLING RESIDENTIAL HOUSE
   ○ Selling your house is not in the course of trade or business; ergo, such a transaction is not subject to VAT. Unless of course, you own 100 houses for sale, in which case, such a transaction is of course in the course of trade or business.
2. PRO-BONO
   ○ If you provide pro-bono or volunteer services to a foundation, the same is not in the course of trade or business, therefore, it is not subject to VAT.

IMPORTATION ✅ALWAYS VAT
T/B OR NOT
○ The importation of goods is always subject to VAT, unless of course it is exempt by express provision of the statute, even if the importation is for personal use. So, if you import a car, for example, the same is subject to VAT. Or, you import a 100-inch TV for your personal theater room; that is subject to VAT, though it is for personal use.

"GOODS" INCLUDES IP,
NOT SHARES
● “Goods” also includes intellectual property (e.g., patent, copyright, trademarks), industrial, commercial or scientific equipment, and radio, TV, transmission and cable TV time. ● It does not include, however, shares of stock.

EXCESS INPUT VAT:
REFUND
2 YRS-CLOSE-QUARTER OF SALES
● On the other hand, any excess or unutilized input VAT may be carried over to the succeeding quarter or quarters. However, any excess or unutilized input VAT attributable to zero-rated sales may, at the option of the taxpayer, be the subject of a claim for refund or credit to be filed within 2 years from the close of the quarter in which the zero-rated sales were made.

REFUND WHEN:

1. ZERO-RATED SALES
2. CLOSES SHOP + CANCEL REGISTRATION
   (1) When that input VAT is attributable to zero-rated sales. Then you may either carry it over to the succeeding quarter or quarters, or, you may file a claim for refund for credit of that input VAT attributable to zero-rated sales. And, you must file that claim within two years from the close of the quarter within which that zero-rated sales were made. (2) When the taxpayer closes his shop, and cancels his registration. Maybe he’s losing money. If he’s about to close, how will he use his unutilized input VAT? Then, that’s the second instance when the taxpayer may file a claim for refund or credit, when he cancels his VAT registration, because he ceases to do business.

NON-STOCK & NON-PROFIT ORGS
VAT ✅
INCOME ❌
Even non-stock, non-profit organizations and GOCCs are subject to VAT.

Just because they are income tax-exempt, it does not mean that they are VAT-exempt. Sir has clients who constitute a non-stock, non-profit corporation, and the profits are plowed back to the charitable activities of the foundation.

Still, they are subject to VAT. Even those who produce strawberry jam for sale, as well as religious institutions, those who are non-stock non-profit (i.e. Good Shepherd)—by express provision of the VAT laws, they are subject to VAT. Even foundations for non-stock non-profit are subject to VAT under the NIRC. Even restaurants operated by handicapped people are also subject to VAT.

● However, the operation by country clubs of restaurants or bars and conduct of income-generating activities (e.g. renting out of sports equipment, golf carts, function rooms etc.) are subject to VAT. Ibid.

NOT FOR PROFIT ✅
● See also CIR v. CA where the SC held that in order for a transaction to be subject to VAT, it is not required that it be entered into for profit. COMASERCO (Commonwealth Management Services Corporation) was thus held subject to VAT notwithstanding that it provided collection, consultative and other technical services to its affiliates on a purely “cost-reimbursement” basis, i.e., without any profit.

NRA'S
ISOLATED TRANSACTION ✅
● Non-resident foreign persons who render services in the Phils. are subject to VAT notwithstanding that the rendition of the services may fall under the general concept of “isolated transaction”, which, under corporate law, generally does not constitute doing business in the Philippines.

PECUNIARY ESTIMATION ✅
● VAT applies to sale, barter or exchange of goods or properties, whether tangible or intangible, which are capable of pecuniary estimation.

SALE OF LEASED RP ✅ FOR BUSINESS
● “Goods” includes real properties held primarily for sale or held for lease in the ordinary course of trade or business.
○ real properties held primarily for sale → refers to big developers like SMDC
○ held for lease in the ordinary course of trade or business → Yung mga engaged sa negosyo ng paupahan.
○ The sale of those properties held for lease in the ordinary course of business will be subject to VAT.

GROSS SALES:
GROSS SELLING PRICE
● 12% VAT is based on the “gross selling price” (GSP) or “gross value in money” of the goods or properties.

GSP = PAID BY BUYER, NO VAT
● GSP is defined as the total amount of money or its equivalent that the purchaser pays to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the VAT but including the excise tax, if any, due on such goods or properties.

RP:

1. STATED VALUE IN DOAS
2. ZONAL VALUE
   ● In sale of real property, VAT is based on the consideration indicated in the deed of sale or the FMV/zonal value, whichever is higher.

DEDUCTIBLE FROM GROSS SALES
DISCOUNTS, ALLOWANCES, RETURNS
● Sales returns and allowances are deductible from gross sales for the month or quarter in which refund or credit is made. If you’re a seller, and defective products are returned to you, of course, the amount of the sales corresponding to that return or merchandise would be deductible from the gross sales.

DEEMED SALES ✅

1. ORIGINALLY INTENDED FOR SALE IN T/B
   a. BUT NO TRANSFER IN T/B
   Transfer not in the course of trade or business of goods originally intended for sale or for use in the course of trade or business;
2. VAT REGISTERED'S PROFITS TO:
   a. SHAREHOLDERS
   b. CREDITORS, TO PAY DEBT
   Distribution or transfer to (a) shareholders or investors as share in the profits of the VAT-registered person, or (b) creditors in payment of debt;
3. CONSIGNMENT:
   60D-CONSIGN: NO SALE
   Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and
   

4. RETIREMENT
   Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.

DEEMED SALES
● VAT is also due and payable in respect of “goods or properties originally intended for sale or use in business, and capital goods which are existing as of the occurrence of the following:

1. VAT-TAXABLE BIZ-> VAT-EXEMPT BIZ
   1.change of business activity from VAT taxable status to VAT-exempt status, such as when a wholesaler or retailer decides to discontinue such business and shifts to another business that is not subject to VAT; ○ You’re VAT registered, and you suddenly decide to become VAT exempt.
   
   

This conversion requires you to pay VAT, with respect to your goods or properties originally intended for sale or for use in business, and capital goods (meaning on your inventory). This is similar to a cessation of business, and therefore you shall be subject to VAT on your goods or properties existing as of the occurrence of that change of status.

2. CANCELLATION
   2.approval of a request for cancellation of registration due to reversion to exempt status; ○ Same logic.
3. VAT-YABANG -> VAT-EXEMPT
   3.approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of three (3) consecutive years from the time of registration by a person who voluntarily registered, pursuant to Section 109(2) of the NIRC, despite being exempt; and
   ○ If you’re mayabang, and you registered as a VAT-registered person, notwithstanding that you could be exempt, but then you chose to register for VAT purposes in order to claim input VAT, but eventually realize after 3 years that a VAT-exempt status would be more beneficial, and you revert to this. That will be considered as a VATable event, and therefore you shall pay VAT on your goods and properties existing as of the occurrence of that change of status.

3M VAT NOT EXCEEDED
4.approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts exceeding the threshold (P3,000,000), but who failed to exceed this amount during the first 12 months of operation.

GOODS AS STOCK USED IN T/B

3. COMPOSE THE STOCK OF CORP
   However, VAT shall not apply to goods or properties used in business or those comprising the stock-in-trade of the corporation that are existing as of the occurrence of any of the following: ○ These transactions do not trigger VAT. No VAT will be due or payable on goods or properties comprising the stock in trade, or use in the business.

SERVICES ✅
○ Practically all services offered by individuals or corporations are subject to VAT, unless expressly made exempt by statute. You have the whole list of services performed or rendered by individuals or corporations provided above.

GROSS RECEIPTS:
CONTRACT PRICE
12% VAT is based on the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable month or quarter for the services performed or to be performed for another person, excluding the VAT

ENTRUSTED MONEY
& EARMARKED FOR 3RD PARTIES
“Gross receipts” does not, however, include monies or receipts entrusted to the taxpayer that do not belong to it and do not redound to its benefit but, rather, earmarked for payment to third parties – e.g. payments for hotel accommodation held in trust by a travel agency for foreign tourists and travelers, payments for advertising space in print or broadcast media held in trust by advertising agencies, or payments for duties and taxes, arrastre, etc. held in trust by customs brokers,3 183 SCRA 402 (1990) Commissioner of Internal Revenue v. Tours Specialists, Inc.

NON-T/B

3. IMPORTATION OF GOODS
   ● Applies to (1) sale of goods or properties, (2) sale of services, and (3) importation of goods. Items (1) and (2) must occur in the course of trade or business, while item (3) need not be.

TAX BASE:
LAHAT
“Total value used by the BOC in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such as postage and commission.” ○ Meaning lahat na.

IF QUANTITY/VOLUME -> LANDED COST
Where the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any.

PAY -> RELEASE
The importer is required to pay the VAT prior to the release of the imported goods from customs custody

VAT-ZERO RATED
SUBJECT TO VAT
0%
These are transactions SUBJECT to VAT, but the rate is not 12%, but 0%. Note, there is a difference between the two. They are not synonymous.

TRANSACTION
ZERO RATED: VATABLE
A zero-rated transaction is a VATable transaction.
EXEMPT: NON-VATABLE
Whereas, an exempt transaction is a non-VATAble transaction.

ZERO-RATED TP -> INPUT VAT
A zero-rated taxpayer, being a VAT-rated taxpayer, therefore, has the benefit of claiming input VAT on its purchases of goods and services for importation of goods.
VAT-EXEMPT TP -> NO INPUT VAT
But, a VAT-exempt person, who is a non-VAT registered person, does not have this benefit of an input VAT credit on its purchases of goods or services for importation of goods. So, the VAT, therefore, stops with the exempt person who cannot claim any input VAT.
But, a zero-rated person, who is a VAT registered person, though he pays no VAT (just like an exempt person) however, enjoys the benefit of an input VAT credit. That is a very fundamental distinction between a zero-rated taxpayer and an exempt taxpayer.

1. EXPORT SALES
   ● Actual export sales - irrespective of shipping arrangement that may determine transfer of ownership of the goods, provided payment is in FX that is accounted for in accordance with BSP rules. ○ This is pursuant to the cross-border doctrine: the goods cross the border, or leave Philippine territory, in order to be consumed abroad. This includes export sales.

2. CONSTRUCTIVE EXPORT
   a. PEZA
   ● Sale and delivery of goods to registered enterprises within a separate customs territory as provided under special laws (e.g., PEZA, Subic, Clark, John Hay, etc.) ○ As explained earlier, these economic zones are treated like foreign jurisdictions. Ergo, sale and delivery of goods to them would be like an export sale.
   b. TIEZA
   ● Sale and delivery of goods to registered enterprises within tourism enterprise zones as declared by the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) pursuant to Rep. Act No. 9593 (The Tourism Act of 2009)

RAW MATERIALS/PACK

1. SALE: NON-RESIDENT -> EXPO-ORIENTED
   ● Sale to Non-Resident -
   Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and
2. FOREIGN CURRENCY
3. ACCOUNTED (BSP RULES)
   paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.

VAT ZERO-RATED

1. ACTUAL EXPORT
2. EXPO PROD -> EXPO-PROD
3. EXPO-PROD-> EXPO TRADER EXPORTS
   ● Other Export Sales under EO 226
   Such sales include direct and actual export sales by a registered export producer, sales by a registered export producer of export products to another export producer, and sales by a registered export producer of export products to an export trader that subsequently exports the same:

VAT-REG -> BOI-REG 100%-EXPORT
● Sales by a VAT-registered supplier of goods, properties or services to a BOI-registered manufacturer or producer who exports 100% of its total production qualify as export sales.

CONSTRUCTIVE EXPORTS
● The following transactions also constitute “constructive exports”, hence, zero-rated, notwithstanding that the products are not actually exported abroad:

1. -> BONDED MANU-HOUSES OF EXPO-OR
   sales to bonded manufacturing warehouses of export- oriented manufacturers;
2. -> EXPO-PROCESSING ZONES
   2.sales to export processing zones;
3. ->EXPO-TRADERS
   a. BONDED TRADING WH
   b. RAW MATERIALS
4. -> DIPLOMATIC MISSIONS
   a. A/I w/ TAX IMMUNITIES
   3.sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products;
   4.sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. ○ Sales to embassies, consulates, or to ADB or WHO.

->INTERNATIONAL SHIPPING
-> INTERNATIONAL AIR TRANSPO
● Sale to International Carriers – Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations are also zero-rated. ○ For use or consumption in international operations.

GOODS MUST BE:

1. CONSUMED/USED IN
   a. TRANSPORT
   b. PORT->FOREIGN PORT
   -NO DOCK/STOP
   ● The goods, supplies, equipment and fuel so purchased must be consumed or used in the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any port in the Philippines.

SPECIAL LAWS
● Sales to Persons Covered by Treaties or Special Laws - Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate are zero-rated. Sec. 106(A)(2)(c), NIRC.

○ Sales to enterprises registered and accredited by the Subic Bay Metropolitan Authority (SBMA) pursuant to Republic Act No. 7227, enterprises registered and accredited by the Philippine Economic Zone Authority (PEZA), or persons enjoying exemption under international agreements to which the Philippines is a signatory, such as the Asian Development Bank (ADB) and the International Rice Research Institute (IRRI), fall under this category. Sec. 4.106-5(c), Rev. Regs. No 16-2005, as amended

text
Sale of Services
● Processing, Manufacturing or Repacking Goods for Non-Residents - Services rendered in processing, manufacturing or repacking goods for other persons doing business outside the Philippines where the goods are subsequently exported are zero-rated, provided that the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Sec. 108(B)(1), NIRC

● Other Services Rendered to Non-Residents - Zero-rating also applies to services, other than processing, manufacturing or repacking goods for persons doing business outside the Philippines, provided such services are 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.

PRINT OF TIN-VAT ON RECEIPTS/INVOICES

PRINT TIN NUMBER
FOLLOWED BY THE WORD VAT
The VAT Regulations require that VAT-registered persons print their TIN followed by the word “VAT” on their invoices or receipts in order for the latter to be considered VAT invoices or VAT receipts thereby entitling the purchaser of goods or services to claim an input VAT on its purchases covered by such VAT invoices or VAT receipts.

INPUT VAT CREDIT
PRINTED ✅
NO PRIOR AUTH TO PRINT ❌
STAMPED ❌
Where the TIN-VAT is merely stamped, but not printed, on the invoices or receipts, such invoices or receipts shall not give rise to any input VAT. Similarly, failure to secure an ATP from the BIR prior to printing invoices or receipts renders the latter without any probative value and, therefore, may not be used as basis for filing a refund/credit of input VAT on zero- rated sales. Silicon Philippines, Inc. v. Commissioner of Internal Revenue, 639 SCRA 521, 538 (2011)

PRINTING OF "ZERO-RATED" ON INVOICES FOR ZERO-RATED TRANSACTIONS

IDENTIFY VAT TRANSACTIONS
CLAIM VAT CREDIT
● Even if the words “zero-rated” are merely stamped and not pre-printed on the VAT invoices or official receipts, “the same is sufficient compliance with the law, since the imprinting of the word “zero-rated” was required merely to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax Code.” Commissioner of Internal Revenue v. Toledo Power, Inc., G.R. No. 183880, Jan. 20, 2014, 714 SCRA 276 ○ But it is important that the invoices and receipts be stamped with the words “zero-rated.” If they are not, then the BIR will disallow zero-rating for such sales, and you will be assessed a deficiency value-added tax. You will see a lot of authorities in the following bullet point