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FINALS: VAT - Coggle Diagram

- - - - NOT RELATED/INCIDENTAL TO T/B
        
        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.
        
        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.
        
        GOODS AS STOCK USED IN T/B
        
        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.
        
        NO VAT
        
        CONTROL ACQUIRED
        change of control of a corporation resulting from the acquisition by another stockholder or group of stockholders of the controlling interest in such corporation,
        
        CHANGE OF NAME
        change in the trade or corporate name of the business, and
        
        TAX-FREE EXCHANGE
        tax free exchange and merger or consolidation of corporations pursuant to Section 40(C)(2) of the NIRC.
      - IMPORTATION :check: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.
        
        NOT FOR PROFIT :check:
        ● 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.
        
        NO PROFIT :check:
        ○ Note: There was no markup.
        What they spent is what they charged, i.e. actual cost incurred, with no markup, and no profit. COMASERCO said it did not enter into such a transaction in the course of trade or business, as a matter of fact, it was not charging anything, it was not earning; it only asked for what it spent.
        The SC said that that was irrelevant; for the transaction to be subject to VAT, the law does not require that it be entered into for profit. For as long as those services were provided in the course of that trade or business, regardless of whether it was charging any markup or not, it was still a transaction entered into in the course of trade or business. Ergo, it was still a transaction subject to VAT regardless of whether or not a profit was obtained.
        
        NRA'S
        ISOLATED TRANSACTION :check:
        ● 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.
        
        SALE OF LEASED RP :check: 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.
        
        DEEMED SALES :check:
        
        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;
        
        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;
        
        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
        
        RETIREMENT
        Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
        
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        FMV
        
        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:
        
        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.
        
        CANCELLATION
        2.approval of a request for cancellation of registration due to reversion to exempt status; ○ Same logic.
        
        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.
        
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    - - The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein 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 guests), or government entity.
        The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.
    - - 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.
        
        LANDED COST:
        
        INVOICE
        
        CUSTOMS DUTIES
        
        FREIGHT
        
        INSURANCE
        
        OTHER CHARGES
        ● The term “landed cost” refers to the invoice amount, customs duties, freight, insurance and other charges.
        
        PAY -> RELEASE
        The importer is required to pay the VAT prior to the release of the imported goods from customs custody
        
        EXEMPT IMPORTER:
        NEXT NON-EXEMPT BUYER = IMPORTER
        If an exempt person imports goods free of duties and taxes but, thereafter, sells or transfers them to a non- exempt person or entity, the latter shall be considered the importer and be liable for the VAT and any other internal revenue tax due on such importation. Sec. 107(B), NIRC.
  - - - 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:
        
        STATED VALUE IN DOAS
        
        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.
        
        UNREASONABLE DEFICIENCY ->
        CIR MAY INCREASE
        ● Where the CIR has reason to believe that the GSP is unreasonably lower than the actual market value of the goods or properties sold (i.e., by more than 30%), he may increase the tax base.
        
        LANDED COST
        
        INVOICE
        
        CUSTOMS DUTIES
        
        FREIGHT
        
        INSURANCE
        
        OTHER CHARGES
        ○ Also for cost, insurance, or freight; all of these make up the so-called landed cost. But we will look at that later on.
        
        ● The term “landed cost” refers to the invoice amount, customs duties, freight, insurance and other charges.
      - 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.
        
        DISCOUNTS
        DEDUCTIBLE IF:
        
        GRANTED
        
        INDICATED IN INVOICE
        a. AT SALE
        
        NOT CONTINGENT
        ● Sales discounts are similarly deductible provided they are granted and indicated in the invoice at the time of sale and not dependent on the happening of a future event.
      - 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.
        
        MEMBERSHIP FEES:
        CLIENTS -> MEDICARD -> DOCTORS
        MEDICARD NOT VATABLE
        See also Medicard Philippines, Inc. v. Commissioner of Internal Revenue, where the SC held that 80% of the enrollment or membership fees paid by Medicard’s clients that Medicard earmarked for medical utilization of its members, i.e., payments to medical service providers, such as doctors and hospitals, do not form part of its gross receipts subject to VAT. Rather, only the remaining 20% that represents its service fees shall be subject to VAT.
    - - 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.
        
        ZERO-RATED -> VAT-REG
        VAT-EXEMPT -> NOT VAT-REG
        
        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.
        
        DOC REQS (SEP)
        ● Minimum documentary requirements:
        
        SALES INVOICE
        (1) sales invoice as proof of sale,
        
        EXPORT DECLA & LADING
        (2) export declaration and bill of lading or airway bill as proof of actual shipment of goods from Phils. to a foreign country, and
        
        PROOF OF PAYMENT
        a. FOREIGN CURRENCY
        b. BSP-COMPLIANT
        (3) bank credit advice, certificate of bank remittance or any other document proving payment for the goods in acceptable FX (in accordance with the BSP prescribed rules).
        ○ These requirements are in fulfillment of legal requisites for zero-rated sales:
        that the goods are sold, exported abroad, and
        paid for in acceptable foreign currency,
        duly accounted for in accordance with BSP rules and regulations.
        
        ○ So when you go to court, and claim a refund or credit of the Input VAT attributable to zero-rated sales, you need to prove compliance with these basic minimum documentary requirements.
        
        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
        
        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
        
        FOREIGN CURRENCY
        
        ACCOUNTED (BSP RULES)
        paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
        
        70% EXPORT-ORIENTED
        ● Sale to Export-Oriented Enterprise – Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy (70%) percent of total annual production. Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented enterprise. ○ Again, on the theory that these are export sales
        
        VAT ZERO-RATED
        
        ACTUAL EXPORT
        
        EXPO PROD -> EXPO-PROD
        
        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:
        
        -> BONDED MANU-HOUSES OF EXPO-OR
        sales to bonded manufacturing warehouses of export- oriented manufacturers;
        
        -> EXPO-PROCESSING ZONES
        2.sales to export processing zones;
        
        ->EXPO-TRADERS
        a. BONDED TRADING WH
        b. RAW MATERIALS
        
        -> 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.
        
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        The BOI must issue a certification to that effect, though, which shall be good for one year unless subsequently re-issued by the BOI.
        The export sales of registered export traders include commission income.
        Exportation of goods on consignment shall not constitute export sales until the export products consigned are in fact sold by the consignee.
        
        provided that, in the case of the latter two, the sales to them shall only be deemed export sales when they actually export the products abroad as evidenced by landing certificates or similar commercial documents.
      - SAMPLE LANG TOH
      - SOURCE OF INPUT TAXES
        
        PERIOD TO FILE REFUND/CREDIT
        
        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 :check:
        NO PRIOR AUTH TO PRINT :red_cross:
        STAMPED :red_cross:
        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)
        
        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
        
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        ATP NEED NOT BE REFLECTED
        ATP need not be reflected or indicated in the invoices or receipts because there is no law or regulation that requires it.
        But you may notice that the ATP number is included in some invoices and receipts anyway, just to play it safe
        
        PRINTING OF "ZERO-RATED" ON INVOICES FOR ZERO-RATED TRANSACTIONS
        
        SECURING AUTHORITY TO PRINT
- - - - REFUND WHEN:
        
        ZERO-RATED SALES
        
        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.
        
        CARRY-OVER, OTHER INSTANCES
        If you have an unused or unutilized input VAT, the only thing you can do with that is to carry it over to the succeeding quarters. You cannot file a refund for credit, except in two instances: