SUMMARY OF TAX PRINCIPLES (2 1.

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EXAM)

WHO IS LIABLE FOR VAT? Section 105 provides that any person who, in the course of business, (1) SBEL goods or properties, (2) renders services and who (3) imports goods shall be subject to VAT under section 106-108. So when you import goods, you may be liable for payment of customs duties. VAT is IN ADDITION to the duties you may be liable to pay upon importation of goods. VAT is payable whether such imported goods is for sale or use in the course of trade or business and even for personal use. NATURE OF A VAT a. It is an indirect tax; amount of tax is shifted or pass don to the buyer, transferee or lessee of the goods/properties/services. b. TOLENTINO V. SECRETARY--The argument that RA 7716 did not originate exclusively in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of Representatives. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senates power not only to concur with amendments but also to propose amendments. Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House bill. c. PAL V. CAPAL is subjet to both franchise tax and common-carriers tax. No violation of nonimpairment clause because franchise are subject to amendment, alteration, etc. d. PPI V. CA e. ABAKADA V. ERMITA WHAT TRANSACTIONS ARE COVERED? a. Those in the course of trade or business which means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto b. RULE OF REGULARITY: services rendered in the Philippine by a nonresident foreign person shall be considerd as being in the course of trade or business. MANDATORY and OPTIONAL VAT REGISTRATION a. See book SUMMARY OF TRANSACTIONS a. 12% VAT i. Sale of goods or properties ii. Sale and lease of services iii. Transactions deemed sale iv. VAT on importation of goods 0% VAT i. ii. iii. iv.

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Export sales Foreign-currency denominated sales Sales to persons whose sale to Filipinos is also zero-rated Zero-rated services

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Exempt transactions

TRANSACTIONS SUBJECT TO 12% VAT a. SALE OF GOODS OR PROPERTIESgoods or properties mean all tangible/intangible objects capable of pecuniary estimation and includes i. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business ii. Right or privilege to use:

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Patent/copyright, design/model, plan, secret, formula, good will, trademark, trade brand or other like property or right; Any industrial/commercial/scientific equipment Motion picture films, tapes and discs and Radio, TV, satellite transmission and cable TV time.

TRANSACTIONS DEEMED SALE i. Transfer/use/consumption NOT IN THE COURSE of business, of goods/properties, originally intended for sale or for use in the course of business (i.e. selling of a piece of land originally intended for sale and you used it for your own business; or when you use your own supplies that you manufacture for your office needs) ii. Distribution or transfer to: o Shareholders or investors as share in the profits of VAT (i.e. cans of sardines given as share in profits) o Creditors in payment of debt. (i.e. dacion en pago) iii. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned; iv. Retirement from/cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation IMPORTATION OF GOODS VAT is computed based on the dutiable value of the article + customs duties + excise taxes and other charges which has to be paid by the importer prior to the release of such goods from customs custody. When the IMPORTER IS TAX-EXEMPT in the case importation by a person, entity or agency that is exempt from tax and such goods are subsequently sold/transferred/exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereofwho shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a LIEN on the goods superior to al charges or liens on the goods, irrespective of the possessor thereof. SALE OF SERVICES/USE OR LEASE OF PROPERTIES The VAT is based on GROSS RECEIPTS derived from the sale or exchange of services, including the use or lease of properties sale or exchange of servicesmeans the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration. (if outside the country ang service, dili xa liable for VAT) Example of sale of services rendered: Construction and service contractors Brokersstock/real estate/commercial/customs and immigration Lessor of propertyreal or personal Warehousing services Lessor/distributors of cinematographic films Persons engaged in milling, processing, manufacturing or repacking goods for others; Proprietors/operators/keepers: hotels, motels, rest houses, pension houses, inns, resorts restaurants, refreshment parlors, cafes and other eatin gpalces, including clubs and caterers dealers in securities lending investors transportation contractors on their transport of goods or cargoes/ persons who transport goods/cargoes for hire; domestic common carriers by land, air or water relative to transport of goods/cargoes (domestic flights only! If international0%) service of franchise grantees of telephone/telegraph/radio and TV broadcasting and all other franchise grantees services of banks/non-bank financial intermediaries and finance companies and NON-LIFE insurance companies Example of lease or use of services

Right/privilege of any copyright/patent/design or model, pan, secret formula or process, goodwill, trademark, trade brand or other like property or right; Right to use of any industrial, commercial or scientific equipment; Supply of scientific, technical, industrial, commercial knowledge or information Supply of any assistance ancillary to enable the enjoyment of any such property Supply of services by a nonresident person in connection with the use of property or rights belonging to or installation or operation of any brand/machinery or other apparatus purchased from such nonresident person. Supply of technical advice/assistance/services rendered in connection with technical management or administration of any scientific/industrial or commercial undertaking Lease of motion picture films Right to use radio, TV, satellite transmission and cable television time. Effect when contract of lease was signed abroadlease of properties shall be subject to the tax IRRESPECTIVE OF THE PLACE where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines. COVERAGE OF GROSS RECEIPTSmeans the total amount of money representing the contract price/compsnation/service fee/rental or royalty + amount charged for materials supplied + services and deposits + ADVANCED PAYMENTS, actually or constructively received during the TAXABLE QUARTER ro services performed or to be performed for another person. Gross receipts EXCLUDES VAT.

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TRANSACTIONS WHICH ARE ZERO RATED a. EXPORT SALES i. Sale/actual shipment of goods from Philippines to foreign country + paid for in acceptable foreign currency or its equivalent in goods or services + accounted for in accordance with the rules and regulations of the BSP (this is irrespective of any shipping arrangement) ii. 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 manufacturing/processing/packing/repacking in the PI) + paid for in foreign currency + accounted in accordance with BSP rules and regulations; zero rated xa coz gi-baligya lang through that local enterprise but it is shipped back to the foreign country; finished product is OUTSIDE; rule on tax on destination; iii. sale of raw materials/packaging materialsto EXPORT ORIENTED ENTERPRISE with export sales >70% of total annual production; iv. sale of gold to BSP v. Export sales unde the Omnibus Investment code FOREIGN CURRENCY DENOMINATED SALE i. Sale to a non-resident of goods that are assembled/manufactured in the Philippinesfor delivery to a nonresident in the Philippines + paid for in acceptable foreign currency + accounted for in accordance with BSP rules and regulations SALES TO PERSONS/ENTITIES WHOSE EXEMPTION UNDER SPECIAL LAWS OR INTERNATIONAL AGREEMENTS TO WHICH THE PHILIPPINES IS A SIGNATORY i. i.e. sale of construction materials to embassies. SERVICES SUBJECT TO 0% RATE i. Services made for processing/manufacturing/repacking goods for other persons doing business OUTSIDE the Philippines goods subsequently EXPORTED paid for in foreign currency + BSP rules/regulations ii. Services OTHER THAN processing/manufacturing, etc. rendered to a person enaged in business OUTSIDE the Philippines or a non-resident not engaged in business but who is outside the PI when the services were performed + paid for + BSP rues iii. Services rendered to persons/entities whose exemption under special laws is in which the PI is a signatory; iv. Those rendered to persons engaged in INTERNATIONAL SHIPPIGN or AIR TRANSPORT OPERATIONS, including the lease of property for use thereof (if the service was one for domestic carriers by air, sea and land for transport of passengers/goods and cargoes, they are subject to 12% VAT) v. Those rendered by SUBCONTRACTORS/CONTRACTORS in processing/converting/manufacturing goods for enterprise whose export sales >70% of total annual production; since the products they produce will eventually be sold outside the country;

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Transport of passengers and cargo by DOMESTIC AIR OR SEA CARRIERS from the Philippines to foreign country (if international carriers, they are liable to gross receipts tax of 3%) vii. Sale of power or fuel that is generated through renewable sources of energy; this shall not extend to services related to maintenance or operation of PLANTS generating such power. NATURE IF THERE ARE SALES DISCOUNTS The value of goods/properties sold and returned or for which allowances were granted by a VAT-registered person may be DEDUCTED from the gross sales ore receipts for the QUARTER on which a refund is made PAYMENT AND REMITANCE OF VAT 1. 12% VAT it is computed based on OUTPUT VAT- INPUT VAT= VAT due; OUTPUT VAT refers to the GROSS SELLING PRICE X 1/9.333; INPUT VAT is sourced from the VAT on passed on to you from your purchases and that on importation. If there is EXCESS VAT, you may be held liable to pay for VAT; if you have excess Input VAT, CARRY IT OVER TO THE NEXT TAXABLE QUARTER; 2. 0% VAT no output VAT but there is (+) Input VAT; if there is excess input VAT, ask for (a) REFUND or (b) TAX CREDIT. 3. EXEMPTED TRANSACTIONS No output VAT; if there is excess input VAT, REFUND/TAX CREDIT IS NOT AVAILABLE; it is a loss on them forever. 8. EXEMPT TRANSACTIONS a. Sale/importation of agricultural (i.e. polished, husked rice, corn grits, raw cane sugar, molasses, ordinary salt and copra) marine food products (i.e. fish, crustaceans,) in their ORIGINAL STATE (ORIGINAL STATE means it only undergoes simple processes of preparation or preservation either by freezing, drying/salting/broling/roasting/smoking/stripping including advanced technological means of packaging such as shrink wrapping in plastics, vacuum packing, tetra pack and other similar packaging methods), Livestock (includes cows, bulls and calvs, pigs, sheep, goats & rabbits), Poultrygenerally used as or yielding or producing foods for human consumption (fowls, ducks, geese and turkey) and breeding stock and genetic materials therefore livestock/poultry does not include fighting cocks, race horses, zoo animals and other animals considered as PETS. Raw cane sugar is tax-exempt but refined sugar is subject to VAT. BAGASSE is vatable. b. Sale/importation of fertilizers/seeds, seedlings, fingerlings, fish, prawn, livestock and poultry feeds, including ingredients used in the manufacture of finished feeds EXCEPT specialty feeds (specialty fees are non-agri fees for race horses, fighting cocks, aquarium fish, zoo animals and other animals considered as pets) c. IMPORTATION of personal/household effects beloing to RESIDENTS of the Philippines RETURNIG FROM ABROAD and NON-RESIDENTS coming to RESETTLE in the Philippines (provided such goods are exempt from customs duties) d. IMPORTATION of professional instruments and implements, wearing apparel, domestic animals and personal household effects belonging to persons coming to settle in the Philippines i. Does not include ay vehicle, vessel, aircraft, machinery, other goods for use in the manufacture/merchandise in commercial quanity ii. Must be for their OWN USE and nto for sale/barter/exchange e. Services subject to PERCENTAGE TAX (those naa sa title V) f. Services by AGRI CONTRACT GOWERS AND MILLING for others of palay into rice, corn into grits, sugar cane into raw sugar g. Medical, dental, hostpial and veterinary services EXCEPT those rendered by professionals; services of professionals are VATable; laboratory services are EXEMPT; but if the hospital or clinic operates a PHARMACY/DRUG STORE, the sale of drugs and medicine is subject to VAT. h. Educational services rendered by PRIVATE EDUCATIONAL INSTITUTIONS duly accredited by DepEd, CHED, TESDA and those by government educational institutions. Educational services DO NOT INCLUDE seminars, in-service training, review classes and other similar services rendered by persons not accredited by DepEd and CHED and TESDA. In case of non-stock, non-profit institutions, their exemption is granted not by section 109 but because of the Constitutional protection. i. Those services rendered by individual pursuant to EER j. Rendered by REGIONAL/AREA HQ establishe din the PI by MULTINATIONAL corporatations

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Those transactions which are exempt under international agreements to which the PI is a signatory or under special laws (except those granted under the Petroleum Exploration Concessionaires; their expenses or importations requied for the exploration operations are VATable) l. Sales by AGRI COOPERATIVES to their members; duly registered with CDA m. Gross receipts from LENDING activities by CREDIT/MULTI-PURPOSE cooperatives duly registered with CDA; n. Sales by non-agricultural, non-electric, non-credit cooperatives registered with CDA provided share capital contribution of each member DOES NOT EXCEED 15k and regardless of the aggregate capital and net surplus ratably distributed among the members; if IMPORTATIONS VATable! o. Export sale of NON-VAT registered; if VAT-registered, 0%! LOCAL SALE and export sale of NON-VAT registered tax exempt!; local sale of vat-registered is 12%; export sale is 0% p. Sales of real properties that are tax-exempt i. Such real property is not primarily held for sale or for lease ii. Property utilized for low cost hosing iii. Sale of residential lot with GSP not exceeding 1,919,500; (if mag-exceed 3% percentage tax) q. Lease of residential units with monthly rental NOT EXCEEDING 12, 800 per month PER UNIT regardless of the aggregate annual gross receipts (if mag-exceed ng 12,800 but less than 1,919,500 percentage of 3%; if magexceed ng 1,919,500-VAT) i. Residential unitsmean apartments and houses & lots used for residential purposes and buildings used solely as dwelling place EXCEPT motels, motel rooms, hotels, hotel rooms, lodging house, inns and pension houses r. SALE/IMPORTATION, printing or publication of books and any newspaper/magazine, review or bulletin s. SALE/IMPORTATION/LEASE of passenger or cargo vessels and aircraft for DOMESTIC or INTERNATIONAL transport operations this refers to leases made by domestic carriers of their aircrafts and vessels, etc. t. IMPORTATION of fuel/goods/supplies by persons engaged in international shipping or air transport oprations provided such is used exclusively ro shall pertain to transport of goods/passenger from a port in the PI directly to a foreign port without stopping any other port in the PI; u. SERVICES of banks/non-bank financial intermediaries performing QB functions and other non-bank financial intermediaries subject to percentage tax; MONEY CHANGERS and PAWNSHOPS are not subject to VAT but they are liable for GROSS RECEIPTS TAX or percentage tax; v. SALE/LEASE of goods/properties or the performance of services other than the transactions mentioned above whose gross annual sales DO NOT EXCEED 1,919,5000; Situations: 20111.6million 2012 how will you register when the mark had already been increased to 1.9M. In 2012, you have the OPTION to register either as VAT or stay as NON-VAT but if during the 12 month period, you have reached the threshold of 1.9M, you are required by law to shift from non-vat to VAT. NOTE: 1. For purposes of the threshold, husband and wife shall be considered as SEPARATE TAXPAYERS. 2. However, the AGGREGATION RULE for each taxpayer shall apply. For instance, if a professional, aside from the practice of profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VATexempt sales shall not be included in determining the threshold. 3. A VAT-registered person may elect that the exemptions shall not apply to his sales of goods and services. Once the election is made, it shall be irrevocable for a period of 3 years counted from the quarter when the election was made (Section 109 (2) ). So if you are a non-vat taxpayer and you did not reach the threshold for the year but you elected to register as VAT from being a NON-vat, such election is irrevocable for 3 years. But such option is not available if you are already a VAT person. Even if your annual sales go down below the threshold, the option is still irrevocable for 3 years. If you are a nonvat person and at anytime during the year, you have to shift. Otherwise, you will be penalized.

VAT REMITTANCE Monthly VAT is paid within 20 days following the end of each month Quarterly VAT return is filed and paid within 25 days from the close of the taxable quarter; CREDITABE INPUT TAX Input VAT refers to VAT due/paid by a vat person on importation of goods or local purchases of goods, properties/services; it includes presumptive or transitional input tax It includes input taxes that can be DIRECTLY ATTRIBUTED to transactions subject to VAT plus a RATABLE PORTION of any input tax which cannot be directly attributed to either the taxable or exempt activity. Input tax can be sourced from the ff. transactions: o Purchase or importation of goods o For sale o For conversion into or intended to for part of a finished product for sale including packaging materials o For use as supplies in the course of business or o For use as materials supplied in the sale of service; or o For use in trade or business for which deduction for depreciation or amortization is allowed under this Code. o Purchase of services on which VAT has been paid o Transactions deemed sale o Transitional input tax o Presumptive input tax WHO CAN AVAIL OF INPUT TAX CREDIT o Importer upon payment of VAT prior to the release of goods from customs custody o Purchaser of domestic goods or properties upon consummation of the sale or o Purchase of services/lessee or licensee upon payment of the compensation/rental/royalty or fee CLAIM FOR INPUT TAX ON DEPRECIABLE GOODS: When a VAT-registered person purchases or imports capita goods which are depreciable assets for income tax purposes, the AGGREGARE acquisition cost of which in a calendar EXCEEDS 1MILLION, regardless of the acquisition cost of each capital good, shall be claimed as credit against output tax in this manner: o If the estimated useful life of a capital good is 5 years or more input tax is spread EVENLY over a period of 60 months; claim for input tax credit will commence on the CALENDAR MONTH the capital good is acquired. Input tax is divided by 60 and quotient will be the amount that is to be claimed monthly; o If estimated useful life is less than 5 yearsinput tax spread evenly on a monthly basis; divide the input tax by the actual number of months comprising the estimated useful life of the capital good; (SEE REGULATION!) (VIP!!) APPORTIONMENT OF INPUT TAX ON MIXED TRANSACTIONS. The Rules shall be as follows: o all the input taxes that can be directly attributed to VAT transactions may be recognized for input tax credit; o if any input tax CANNOT be directly attributed to either a VAT taxable or VAT-exempt transaction, the input tax shall be PRO-RATED to the VAT taxable and VAT-exempt transactions and ONLY THE RATABLE PORTION pertaining to transactions subject to VAT may be recognized for input tax credit. NOTE: a. input taxes that can be directly attributable to VAT taxable sales of goods/services to the Government or any of its political subdivisions, shall NOT BE CREDITED against output taxes arising from sales to non-Government entities; b. input tax attributable to VAT-EXEMPT SALES, shall NOT be allowed as credit but should be treated as part of COST OR EXPENSE; c. If the person is engaged in both zero-rated sales and non-zero rated sales, the aggregate input taxes shall be ALLOCATED RATABLY between the zero and nonzero rated sales. DETERMINATION OF OUTPUT TAX Output tax is based on the gross selling price or gross receipts (sourced out from your SALES) If the amount is erroneously billed, output tax shall be computed by multiplying the total invoice amount by a fraction using 12%/ 100%.

EFFECT OF EXCESS OUTPUT VAT The excess shall be paid by the VAT person EFFECT OF EXCESS INPUT TAX VAT SALES may be CARRIED OVER to the succeeding quarter/quarters; but such input tax carried over shall not exceed 70% of the output tax ZERO-RATED SALES the vat-registered person may, at his option, be REFUNDED or APPLIED FOR TAX CREDIT CERTIFICAT which may be used in the payment of internal revenue taxes. The excess input may be credited against other internal revenue taxes SUBSTANTIATION OF INPUT TAX CREDITS Source: zero-rated sales, non-zero rated and those subject to 5% withholding tax Substantiation requirements: o Importation of goodsimport entry or other equivalent document showing actual payment of VAT; o Domestic purchase of goods/propertiesinvoice o Purchase of real propertypublic instrument i.e. deed of sale, conditional sale, contract to sell + VAT invoice o Purchase of seriesofficial receipt o Transitional input taxinventory of goods o Transactions deemed saleinvoice o Payments made to non-residentscopy of the monthly remittance return of VAT withheld filed by resident payor o Advance VAT on sugarpayment order TRANSITIONAL INPUT TAX CREDIT ON BEGINNING INVENTORIES Who are entitled: those taxpayers who (1) registered as VAT upon exceeding the threshold in any 12 month period or those (2) voluntarily register even if their turn over does not exceed 1.9M. Amount: 2% of the value of the beginning inventory on hand or Actual VAT paid on such goods, materials and supplies, whichever is higher Sources of the transitional input tax: o Goods purchased for resale in their present condition; o Materials purchased for further processing, but which have not yet undergone processing; o Goods which have been manufactured by the taxpayer; o Goods in process for resale; o Goods and supplies for use in the course of TP trade or business as a VAT-registered person; PRESUMPTIVE INPUT TAX CREDITS (this exists because when you purchase raw materials, there is no VAT there but when it is sold as finished product, the sale is subject to VAT; so there is a presumptive input tax that can be deductible against the output tax) Who are entitled: persons/firms engaged in the processing (processing means pasteurization, caning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition) of sardines, mackerel and milk and manufacturing refined sugar, cooking oil (others covered: packed noodles, instant meals) Amount: 4% of the gross value in money of their purchases of primary agri products which are used as inputs to their production. TAX REFUND or TAX CREDIT ZERO RATED SALES OF GOODS PROPERTIES OR SERVICEStax refund or credit must be filed WITHIN 2 YEARS AFTER THE CLOSE OF THE TAXABLE QUARTER when the sales were made If the taxpayer is engaged in zero rated sales AND exempt sales and the amount of creditable input tax due cannot be directly and entirely attributed to any one of the transactions, it shall be ALLOCATED PROPORTIONATELY on the basis of the volume of sales. POINTS: o If the registration of a person had been canceled---he has 2 years from the date of cancellation to apply for the issuance of the tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes; o Where to file refund or tax credit o When to file: o File within 2 years from the close of the taxable quarter when such sales where made

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BIR has 120 days from date of submission of complete documents to grant or deny the tax refund or tax credit; If there is full or partial denial appeal to the CTA within 30 days from the receipt of said denial; otherwise, decision shall become final. If there is no action after the lapse of the 120 days period, appeal to the CTA Within 30 days after such lapse.

COMPLIANCE REQUIREMENTS FOR VAT 1. INVOICE REQUIREMENTS a. When issued: (1) for every sale/barter/exchange o goods and (2) for very lease of goods or properties/sale/barter/exchange of services b. Information that must be contained in the invoice: i. Statement that seller is VAT-registered + TIN ii. Total amount which the purchaser pays with the indication that such amount includes the VAT provided that: 1. Amount of tax is shown as a separate item in the invoice or receipt; 2. Sale is exemptindicate vat-exempt sale 3. 0%--zero rated sale is printed 4. If both zero-rated and exempt, the invoice shall indicate the breakdown. Seller has the option to issue separate invoices or receipts for the tax exempt and zerorated components of the sale 5. Date and description of goods 6. If the amount of sale is 1,000 or more, the name, business style, address and TIN of purchase of customer shall also be indicated. CONSEQUENCES OF ISSUING ERRONEOUS VAT INVOICE OR OFFICIAL RECEITP a. If you issue a VAT invoice/receipt by a NON-VAT person: the non vat person is liable to i. Percentage taxes applicable to his transactions ii. VAT due on the transactions with 12% VAT without the benefit of any input tax credit + iii. 50% surcharges b. If you issue a VAT invoice to an exempt transaction: i. Transaction shall become taxable and the ii. Issuer liable to pay VAT thereon In both instances, the purchaser shall be entitled to claim an input tax credit on his purchase. FILING OF RETURN AND PAYMENT OF VAT a. FILING and PAYMENTfile quarterly return of quarterly gross sales or receipts within 25 days ff. close of each table quarter; file monthly return for the first 2 months of each quarter not later than th the 20 day ff. the end of each month; if the transaction is subject to the 5% final withholding tax, th return is filed on or before the 10 day of the ff. month. b. Tax is paid on such day of filing. WITHOLDING OF VAT ON GOVERNMENT MONEY PAYMENTS AND PAYMENTS TO NON-RESIDENTS a. Payment to government or any of its political subdivisions i. Before making payment on account of each purchase of goods, government shall deduct and withhold a final VAT at the rate of 5% of the gross payment thereof; ii. If the actual input VAT exceed 5% of gross payments, excess may form part of the sellers expense or cost; iii. If less than 5%, difference must be closed to expense or cost. b. 10% shall be withheld on the ff. payments: i. Lease/use or properties/property rights owned by non-residents; ii. Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents; iii. Other services rendered in the Philippines by non-residents. c. Payments to non-residents: i. VAT withheld and paid for the NR recipient which VAT is passed on to a the resident withholding agent by the non-resident recipient of the income, may be claimed as input tax by said VAT-registered withholding agent upon filing his own VAT return, subject to the rule on allocation of input tax among taxable sales, zero-rated sales, and exempt sales.

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ii. But if the resident withholding agent is a non-VAT taxpayer, said passed-on VAT by the non-resident recipient of the income may be treated either as an asset or expense of the resident withholding agent. 5. ADMINISTRATIVE/PENAL PROVISIONS a. Suspension/Closure of a business establishment: i. For a period of NOT LESS than 5 days; ii. Grounds: 1. Failure to issue receipts and invoices 2. Failure to file VAT return 3. Understatement of taxable sales/receipts by 30% or more of his correct taxable sales or receipt for the taxable quarter 4. Failure of any person to register iii. Such temporary closure shall be lifted only upon compliance with whatever requirements prescribed by the CIR in the closure order. b. Surcharge, interest and other penalties i. Interest shall also be imposed on unpaid amount of tax, civil penalties and criminal penalties and other violations of the tax code.

TITLE V OTHER PERCENTAGE TAXES WHO ARE LIABLE TO PAY PERCENTAGE TAXES? Note: payment of percentage taxes are PAY ONE TIME ON YOUR RECEIPTS; NO BENEFIT OF DEDUCTION OR CREDITS. 1. SECTION 116: 3% based on gross quarterly sales or receipts a. Those persons whose sales or receipts are below the 1.9M threshold and (i.e. professionals below the 1.9M threshold, etc.) b. Non-vat registered persons Section 117: COMMON CARRIERS TAX: 3% based on quarterly gross receipts a. Who are liable: i. Domestic carriers by LAND (i.e. cars for rent; transportation contractors who transport passengers for hire, etc.) ii. Keepers of garages b. Minimum quarterly gross receipts i. Jeepney for hire (either 2, 400 or 1,200) ii. Public utility bus (3,600, 6k, 7,200) iii. Taxis (2,400 and 3,600) iv. Cars for hire (1,800 and 3000) c. Domestic carriers BY AIR OR SEA subject to VAT and NTO PERCENTAGE TAX!!! Section 118: Percentage tax on INTERNATIONAL air or shipping carriers doing business in the Philippines: 3% based on quarterly gross receipts (differentiate!) a. Domestic carriers by land: 3% tax b. Domestic by air or sea: within Philippines12% VAT c. Domestic by air or sea to foreign countries0% d. International carriers by sea or air3% Section 119: FRANCHISE TAX: 3% based on gross receipts a. Who are liable: radio/TV/ broadcasting companies whose annual gross receipts DO NOT EXCEED 10MILLION! If mag-exceed ng 10M, liable to pay the 12% VAT. b. Gas water utilities: 2% based on gross receipts derived from the business c. NOTE: i. Radio and television broadcasting companies shall have an option to be registered as VAT taxpayer and pay the tax due thereon; once the option is exercised, said option is IRREVOCABLE. ii. In case of TELEPHONE and TELEGRAPH, they are ALWAYS subject to VAT, regardless of their annual gross receipts. What is covered in section 119 is only with respect to radio and television broadcasting companies.

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Section 120: OVERSEAS COMMUNICATIONS TAX: 10% based on the amount paid for such services a. Persons liable: fore very overseas dispatch/message or conversation transmitted from the PI by telephone/telegraph/telewriter exchange/wireless and other communication equipment service b. It is collected by the person rendering the service and must be paid within 20 days after the end of each quarter. c. Exemptions: i. Government ii. Diplomatic services iii. International organizations iv. News services Section 121: GROSS RECEIPTS TAX: 5-1-0-7-7% a. Who: tax on banks/non-bank financial intermediaries performing quasi-banking functions b. Sources: i. Interest/commissions/discounts from lending activities + income from financial leasing (based on remaining maturities; if maturity period is 5 years or less5% tax; more than 5 years1%) ii. Dividends, equity shares and net income of subsidiaries; 0% iii. Royalties, rentals of property, real or personal profits (from exchange and all other items treated as gross income)7% iv. Net trading gains within the taxable year on foreign currency, debt securities, derivatives and other similar financial instruments7% c. Case in point: CIR V. CITYTRUST BANK or the case of CHINA BANKING CORPORATION V. CA: the imposition of the 20% FWT on the banks passive income and the 5% GRT on its taxable gross receipts, which include the banks passive income, does not constitute double taxation. gross receipts has been defined as the entire receipts without any deduction. Under Section 27(D)(4) of the Tax Code, dividends received by a domestic corporation from another corporation are not subject to the corporate income tax. Such intracorporate dividends are some of the passive incomes that are subject to the 20% final tax, just like interest on bank deposits. Intracorporate dividends, being already subject to the final tax on income, no longer form part of the banks gross income under Section 32 of the Tax Code for purposes of the corporate income tax. However, Section 121 expressly states that dividends shall form part of the banks gross receipts for purposes of the gross receipts tax on banks. This is the same treatment given to the banks interest income that is subject to the final withholding tax. Such interest income, being already subject to the final tax, no longer forms part of the banks gross income for purposes of the corporate income tax. Section 121, however, expressly includes such interest income as part of the banks gross receipts for purposes of the gross receipts tax.Whether an item of income is excluded from gross income or is subject to the final withholding tax has no bearing on its inclusion in gross receipts if Section 121 expressly includes such income as part of gross receipts. As held in Commonwealth of Pennsylvania, [t]he exemption of dividends and interest from taxation, through their exclusion from net income to be allocated, does not also exclude those items from the gross receipts from business activity of the corporation. Corollarily, the Commissioner contends that the imposition of the 20% FWT and 5% GRT does not constitute double taxation. We agree. Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of [26] tax. This is not the situation in the case at bar. The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other. In Solidbank [27] Corporation, this Court defined that a percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes. The second interpretation, of a prohibition on a tax on a tax, is as illusory as the prohibition on double taxation. The gross receipts tax falls not on the final withholding tax, but on the amount of the interest income withheld as the final tax. What is being taxed is still the interest income. The

law imposes the gross receipts tax on that portion of the interest income that the depository bank withholds and remits to the government. Consequently, the entire amount of the interest income is taxable and not only the net interest income. Moreover, whenever the legislature excludes a certain tax from gross receipts, the legislature [66] states so clearly and unequivocally. Thus, for purposes of the value-added tax, Section 106 of the Tax Code expressly excludes the value-added tax from the gross selling price to avoid a tax on the tax. To clarify that only the value-added tax does not form part of the gross selling price, Section 106 expressly states that the gross selling price shall include any excise tax, effectively resulting in a tax on a tax. Of course, the tax on a tax is in reality a tax on the portion of the income or receipt that is equivalent to the tax, usually withheld and remitted to the government There is no constitutional prohibition on subjecting the same income or receipt to an income tax and to some other tax like the gross receipts tax. Similarly, the same income or receipt may be subject to the value-added tax and the excise tax like the specific tax. If the tax law follows the constitutional rule on uniformity, making all income, business or property of the same class taxable at the same rate, there can be no valid objection to taxing the same income, business or property twice In summary, CBC has failed to point to any specific provision of law allowing the deduction, exemption or exclusion, from its taxable gross receipts, of the amount withheld as final tax. Such amount should therefore form part of CBCs gross receipts in computing the gross receipts tax. There being no legal basis for CBCs claim for a tax refund or credit, the second issue raised in this petition is now moot. 7. Section 122: Tax on FINANCE COMPANIES and NON-BANK INTERMEDIARIES NOT PERFORMING QUASI-BANKING functions: 5% on the gross receipts a. Sources: i. Interest/discounts and all other items treated as gross income ii. Interests/commissions and discounts from lending activities + income from financial leasing iii. Net trading gains (same same) Section 123: Tax on LIFE INSURANCE COMPANIES: 2% of the total premium collected Section 124: tax on AGENTS OF FOREIGN INSURANCE COMPANIES: 4%; this refers to fire, marine or miscellaneous insurance agent Section 125: AMUSEMENT TAX: a. Who is liable: proprietor, lessee or operator b. On what: i. Cockpits18% ii. cabarets, night or day clubs18% iii. boxing exhibitions10%; provided however, that boxing exhibitions will be exempt from tax wherein: 1. world or oriental championships in any division is at at stake; 2. at least ONE of the contenders is a CITIZEN of the Philippines 3. said exhibitions are promoted by a Filipino citizen or a 60% Filipino-owned corporation iv. professional basketball games15% v. jai-alai and racetracks30% vi. cockpits section 126: tax on WINNINGS: a. Race horses10% b. Double, forecast/quinella and trifecta bets4% Section 127: sale/barter/exchange of shares of stock LISTED and TRADED through the local stock exchange or through initial public offering a. If listed through stock exchange1/2 of 1% of the gross selling price or GVM b. If through initial public offering: 4-2-1% RETURNS AND PAYMENT OF PERCENTAGE TAAXES a. Section 120within 20 days after the close of quarter b. Amusement tax--20 days c. Winnings20 days d. Stock exchangewithin 5 bankign days from date of collection e. Initial public offereignwithin 30 day from date of listing of the shares of stock

8. 9. 10.

11.

12.

13.

f.

SECTION 128: DEFAULT DATE OF FILIGN RETURN AND PAYMENT OF PERCENTAGE TAX i. Month return: within 20 days ff. the end of each month ii. Quarterly return: within 25 days after the end of each quarter.

TITLE VI EXCISE TAXES PRELIMINARY POINTS: 1. Taxes under the NIRC are all excise taxes. 2. Excise taxes may be either specific or ad valorem tax. 3. Specific tax is based on weight or volume capacity or any other physical unit of measurement 4. Ad valorem tax is based on selling price or other specified value of the good. 5. WHEN PAYABLE: excise taxes are imposed on goods that are manufactured or produced in the Philippines, for their sale/consumption or other disposition REGARDLESS of the destination where such goods will be eventually sold/consumed or disposed of. Excise tax is also imposed on IMPORTED goods. 6. OTHER DISPOSITIONi.e. free taste, providing samples. Regardless of how they are disposed of, for as long as they were manufactured and produced IN THE PHILIPPINES + excise tax! 7. Principle: when you pay excise tax, it does nto mean you are already exempted from paying the VAT because there are transactions where after paying the excise tax, you may again be liable for VAT or another kind of tax: a. Fact of production of alcoholic products--+ excise tax; if sold==+ VAT on sale b. Importing alcoholic productsVAT on importation + excise tax on the fact of importation of excisable article 8. Legal basis: under rule 129: EXCISE TAXES APPLY TO (1) GOODS MANUFACTURED OR PRODUCED IN THE PHILIPPINES (2) FOR DOMESTIC SALES OR CONSUMPTION OR FOR ANY OTHER DISPOSTIION (3) AND TO THINGS IMPORTED. (4) THE EXCISE TAX IMPOSED SHALL BE IN ADDITION TO THE VAT IMPOSED UNDER TITLE IV. Filing and Payment of excise tax: a. File a separate return for EACH PLACE of production (i.e. if you have Cannery, distillery, etc. each and every place of production is treated as a separate filer and has to file a return) b. If domestic products be removed from place of production without payment of tax, the owner having possession thereof shall be liable for the tax due thereon. c. Excise taxes ACCRUE when the PRODUCT COMES INTO EXISTENCE. d. When filed: tax is paid by the manufacturer or producer BEFORE REMOVAL OF DOMESTIC RODUCTS FROM PLACE OF PRODUCTION. (If you have separate buildings and you place finish product to another building, before such removal, excise tax must already be paid) e. Amount of excise tax based on AD VALOREM REMOVE THE VAT from the price. Because if you base your excise tax on the price inclusive of the VAT, it results to a TAX PYRAMIDING. You are taxing another tax. f. The gross selling price is the price at which goods are sold at wholesale in the place of production or through their sales agents to the public EXCLUDING the VAT. g. CREDIT FOR EXCISE TAX ON GOODS ACTUALLY EXPORTED If you export an excisable good, the fact of production is subject to excise tax but the export sale is zero-rated VAT. However, any excise tax paid thereon can be CREDITED or REFUNDED upon submission of the proof of actual exportation and upon receipt of corresponding foreign exchange payment.

9.

10. PAYMENT OF EXCISE TAXES ON ARTICLES THAT ARE IMPORTED a. Who pays: owner or imported of the goods or by the person found in possession of the articles b. When paid: before the release of such articles from the customs house. c. In the case of TAX FREE or DUTY FREE ARTICLES imported into the Philippines by persons exempt from tax and are subsequently sold in the Philippines to non-exempt persons, the PURCHASERS/RECIPIENTS shall be considered as the importers thereof and are liable for the DUTY and the INTERNAL REVENUE tax due on such importation. (i.e. when embassies import cars; then they will refleet and sold it. The local purchaser shall be considered as the importer and sya ang magbayad sa excise tax) d. If you bring in liquors, cigarettes through EXPORT PROCESSIGN ZONES or FREE PORTS shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. The law provides that the importation of ciagars and cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty-free shops, shall be subject to all applicable

taxes, duties, charges including excise taxes due theron. This shall apply to cigars/cigarettes, DS, fermented liquors and wines brought directly into the duly chartered or legislated freeports of the SSEFZxx. 11. ARTICLES SUBJECT TO EXCISE TAX a. Alcohol productsdistilled spirits, wines, fermented liquors b. Tobacco productstobacco, cigars and cigarettes, tobacco inspection fee c. Petroleumpetroleum products, manufactured oil,etc. d. Miscellaneous articlesautomobiles and non-essential goods e. Mineralsmetallic, nonmetallic and quarry resources 12. GENERAL RULE; excise tax must be paid before removal from place of production 13. EXCEPTIONS: a. 133--Removal of wines and distilled spirits for treatment of tobacco leaf b. 134--Domestic denatured alcohol of not less than 180 degrees proof or 90% absolute alcohol rendered unfit for oral intake; but if denatured na xa, subject to 12% VAT; if it is used for motive power, it is taxed as manufactured oil; if it is now rendered as fit for oral intake, it is taxed as distilled spirits c. 135--Petroleum products sold to international carriers and exempt entities or agencies d. 136denaturation, withdraw and use of denatured alcohol when such is hed in violation of laws or regulations e. 137removal of spirits under BOND for rectification; in cases where alcohol has been rectified, no loss for rectification or handling shall be allowed and the excise tax shall be paid as the amount previously due. Pay the original amount. f. 138removal of fermented liquors to bonded warehouse g. 139removal of DAMAGED liquors h. 140removal of tobacco products entirely unfit for chewing of smoking

CHAPTER III EXCISE TAX ON ALCOHOL PRODCUTS

1. 141: DISTILLED SPIRITS a. Rate: ad valorem tax equivalent 15% of the net retail price; specific tax of P20/proof liter b. Medicinal preparations, flavoring extracts and all other preparations of which distilled spirits form the chief ingredient. THIS EXCLUDES TOILET PREPARATIONS. c. CIR V. CTA i. Medicinal preparations are descriptive of and refer to substances used in medicine and prepared for the use of the apothecary or the physician to be administered as a remedy for diseases. These medicinal preparations mean such articles as are of use or believed by the prescriber or use, fairly and honestly to be of use, in curing or alleviating or palliating or preventing some disease or affliction of the human body. It has the ff. characteristics 1. Must have been prepared/equipped or compounded for a particular prupsoe 2. Is of use or believed to be of use by prescriber or user in curing, alleviating, palliating or preventing some disease or affliction of the human body. ii. Toilet preparations is any preparation which is intended to affect, elect and conceivably improve the bodily appearance, such as a lotion, intended to contribute to the health and appearance of the skin. It is public reported as good for cleansing, moisturizing, lubricating or boiling the skin. iii. In the present case, the marketing presentation of the tussy products as a toilet artice rather than a med preparation cannot be dismissed as mere matter of form rather than substance. It is the perception of the public carefully and assiduously built over the year that lends substance to the claim of the manufacturer that its product is a toilet prepration good for beautifying or enhancing the health of the skin. Ti cannot be said that the public fairly and honestly believed that such products can be used in curing/alleviating some disease. NOTE: a. for med preparation purposes, the law does not make any distinction as to whether such medicinal preparation is for internal or external use.

b. c.

OTHER PREPARATIONSthose which 50% of the preparation is distilled spirits. i.e. rubbing alcohol, those that contain benzethonium chloride. Proof spiritsliquor which contains of its volume of alcohol of a specific gravity of .7939 at 15 deg. Centigrade.

2.

3.

WINES a. Include all alcohol beverages produced by fermentation without distillation from the juice of any kind of fruit; fermentation is a process by which enzymatic changes are brought about, covering a period of time enough to produce the desired results. b. It includes sparkling wines, sacramental wines, red or white wines c. RULE ON VARIANTS: variants of existing brands and variants of new brands shall be taxed under the proper classification thereof based on the suggested NRP; provided however, that such classification shall not be lower than the highest classification of any variant of that brand. Variant of a brand refers to brand on which a modifier is prefixed and/or suffixed to the root name of the brand FERMENTED LIQUORS a. These are alcoholic beverages produced by fermentation without distillation from grains or seeds. (except tuba, basi, tapuy,etc)

CHAPTER IV EXCISE TAX ON TOBACCO PRODUCTS IMPORTANT POINTS: 1. Current tax is P1.75/kilo 2. Advalorem tax on cigars is 20% fo the NORCp specific tax of P5/cigar 3. Cigarettes packed by hand is P12/pack 4. Cigarettes packed by hand shall only be packed in 20S and packaging combinations of not more than 20. 5. Downward reclassification of present categories which will reduce the tax imposed or payment thereof shall be prohibited. 6. Inspection feeaccrues to 50% Tobacco inspection fund; 50% CCP CHAPTER V ET on PETROLEUM PRODUCTS 1. Manufactured oils and other fuels a. Process gas b. Waxes/petrolatum c. Denatured alcohol used for motie power d. Naphta, reguarl gasoline e. Aviation turbo jet fuel f. Kerosene g. Diesel fuel oil h. Asphalt i. Bankder fuel oil

CHAPTER VI ET on MISCELANEOUS ARTICLES 1. 2. Automobies4 or more wheeled motor vehicle, regardless of seating capacity which si propelled by gasoline, diesel, electricity or any other motive power. Not considered as automobilestrucks, cargo vans, jeepney, single cab, chassis and special purpose vehicle.