TAX II - VALUE ADDED TAX

APRIL 27, 2018

NATURE AND BASIC PRINCIPLES

¡ VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the
Philippines.
¡ Person liable:
¡ Any person who, in the course of trade or business,
¡ Sells, barters, or exchanges goods or properties (seller or transferor)
¡ Leases goods or properties (lessor)
¡ Renders services (service provider)

¡ The seller is the one statutorily liable for the payment of the tax but the amount of
the tax may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.
¡ In case of importations, the importer is liable for the VAT.
NATURE AND BASIC PRINCIPLES
¡ In the course of trade or business (Rule of Regularity):
¡ The regular conduct or pursuit of a commercial or economic activity,
including transactions incidental thereto
¡ Regardless of whether or not the person engaged therein is a non-stock,
non-profit 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).

¡ Incidental to the principal business

¡ The term ”incidental” means something necessary, appertaining to, or
depending upon another which is termed the principal, something incident
to the main purpose.
COMPUTATION OF VAT PAYABLE
12% VAT 0% VAT VAT Exempt
Gross Sales/Receipts XX XX XX
Less: Sales Returns XX
Sales Allowances XX
Allowable Sales Discounts XX XX XX XX
Net XX XX XX
12% 0% -
Output Tax XX [A] 0 [A] -
Input tax carried over from XX XX
previous period (Domestic
purchases, importations, capital
goods subj. to depreciation)
12% of XX XX XX -
Input Tax XX [B] XX [B] -
VAT Payable/Overpayment XX [A-B] XX [A-B] -
VAT RATES

¡ Taxable
¡ General Rate: 12%
¡ Special Rate: 0%

¡ Exempt
OUTPUT TAX

¡ Sale and Importation Subject to 12% VAT

¡ Sale of Goods or Properties
¡ Sale of Services
¡ Importation of Goods
VAT ON SALE OF GOODS OR PROPERTIES

¡ VAT is imposed and collected on every sale, barter or exchange, or

transactions deemed sale of taxable goods or properties.
¡ Goods or Properties: all tangible and intangible objects which are capable
of pecuniary estimation.

¡ General Rule: There must be a sale, barter or exchange.

¡ Exceptions:
¡ Importation
¡ Erroneous Issuance of VAT Invoice or Receipt for VAT Exempt Transactions
¡ Deemed Sales of Goods or Properties
TAX BASE – SALE OF GOODS
¡ VAT BASE = the gross selling price or gross value in money of the goods
or properties sold, bartered or exchanged.

¡ Gross selling price means the total amount of money or its equivalent
which the purchaser is obligated to pay to the seller in consideration of
the sale, barter or exchange of the goods or properties, excluding VAT.

¡ Gross selling price includes:

¡ Charges for packaging, delivery and insurance
¡ Excise taxes if goods are subject to excise tax
TAX BASE – SALE OF GOODS

¡ Allowable deductions from gross selling price:

¡ Sales Returns and Allowances – deduct from gross sales or receipts in the
month or quarter in which a refund or credit is made for sales previously
recorded as taxable sales.

¡ Sales Discount may only be deducted from gross sales or receipts within the
same month/quarter it was given provided:
¡ It is determined and granted at the time of sale
¡ The discount is expressly indicated in the invoice
¡ Amount thereof should form part of gross sales duly recorded in the books
¡ The granting of the discount does not depend on the happening of a future event
TRANSACTIONS DEEMED SALE

¡ Transfer, use or consumption not in the course of business of goods or

properties originally intended for sale or for use in the course of business;
¡ Distribution or transfer of shareholders or investors as share in the profits of
the VAT-registered person and to creditors in payment of debt or obligation.
¡ Consignment of goods if actual sale is not made within 60 days following the
date such goods were consigned;
¡ Retirement from or cessation of business, with respect of all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the business is continued by the
new owner or successor.
CHANGE OR CESSATION OF STATUS AS VAT-REGISTERED PERSONS

¡ VAT shall apply to goods or properties originally intended for sale or use in business,
and capital goods which are existing as of the occurrence of the following:
¡ Change of business activity from VAT taxable status to VAT-exempt status

¡ Approval of a request for cancellation of registration due to reversion to exempt status

¡ Approval of a request for cancellation of registration due to a desire to revert to exempt

status after the lapse of 3 consecutive years from the time of registration by a person
who voluntarily registered despite being exempt under Section 109 of the Tax Code
¡ Approval of a request for cancellation of registration of one who commenced business
with the expectation of gross sales or receipts exceeding the required threshold, but who
failed to exceed this amount during the first 12 months of operation.
CHANGE OR CESSATION OF STATUS AS VAT-REGISTERED PERSONS

¡ VAT shall not apply to goods or properties existing as of the occurrence

of the following: (a) Change of control of a corporation by acquisition of
the controlling interest of such corporation by another stockholder or
group of stockholders; (b) Change in the trade or corporate name of the
business; and (c) Merger or consolidation of corporations.
VAT ON IMPORTATIONS
¡ VAT is imposed on goods brought into the Philippines, whether for use in
business or not.
¡ The tax base is the 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, commission, and similar charges, prior to the release of the
goods from customs custody.
¡ In case the valuation used by the BOC in computing customs duties is based
on volume or quantity of the imported goods, the landed cost shall be the tax
base.
¡ Landed cost consists of the invoice amount, customs duties, freight, insurance,
excise taxes, if any, and other charges.
VAT ON IMPORTATIONS

¡ The same rule applies to technical importation of goods sold by a person

located in a Special Economic Zone to a customer in a customs
territory.

¡ No VAT shall be collected on importation of goods which are specifically

exempted under Sec. 109(1) of the Tax Code.

¡ The VAT on importation shall be paid by the importer prior to the

release of such goods from customs custody.
VAT ON SUBSEQUENT SALE OF TAX-FREE IMPORTATIONS

¡ Transfer of Goods by Tax-Exempt Persons

¡ In the case of goods imported into the Philippines by VAT-exempt

persons, entities, or agencies which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entities, the
latter shall be considered the importers thereof, and shall be liable for
the VAT due on such importation.

¡ The tax due on such importation shall constitute a lien on the goods,
superior to all charges/liens, irrespective of the possessor of said goods.
SALE OR EXCHANGE OF SERVICES
¡ Services: the performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration whether in kind or in cash
¡ VAT base = Gross Receipts
¡ ”Gross receipts” refers to:
¡ 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,
¡ Deposits applied as payments for services rendered and
¡ Advance payments
¡ Actually or constructively received during the taxable period
¡ For the services performed or to be performed for another person,
¡ Excluding VAT.
ZERO-RATED SALES
¡ The sale and actual shipment of goods from the Philippines to a foreign
country, irrespective on any shipping arrangement that may be agreed upon,
and paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations of
BSP

¡ Sale of raw materials or packaging materials to export oriented

enterprise whose export sales exceed 70% of total annual
production. – Enhanced VAT refund system

¡ Those considered export sales under the Omnibus Investment Code

of 1987 and other special laws – Enhanced VAT refund system
ZERO-RATED SALES

¡ Sale and delivery of goods to registered enterprises within a separate

customs territory as provided under special laws and registered
enterprises within tourism enterprise zones (TIEZA)

¡ The sale of goods, supplies, equipment and fuel to person engaged in

international shipping or international air transport operations (used for
international shipping or air transport operations)
ZERO-RATED SALES
¡ The 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 the Philippines of the said
buyer’s goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of BSP. – Enhanced VAT refund system
¡ Sale of gold to the BSP. (not included in TRAIN; exempt transaction)
¡ Foreign currency denominated sales – sale to a nonresident for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP (not included in TRAIN)
¡ 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 zro rate.
ZERO-RATED SALES

¡ Processing, manufacturing or repacking goods for other persons doing business

outside the Philippines which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP – Enhanced Refund System
¡ Services other than those mentioned above rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP
¡ Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to 0% rate
ZERO-RATED SALES

¡ Services rendered to persons engaged in international shipping or international air

transport operations, including leases of property for use thereof

¡ Services performed by subcontractors and/or contractors in processing,

converting or manufacturing goods for an enterprise whose export sales
exceed 70% of total annual production – Enhanced Refund System

¡ Transport of passengers and cargo by domestic air or sea vessels from the Philippines
to a foreign country

¡ Sale of power or fuel generated through renewable sources of energy and other
emerging energy sources using technologies such as fuel cells and hydrogen cells
ZERO-RATED SALES

¡ Services rendered to registered enterprises within a separate customs

territory as provided under special law and registered enterprises within
tourism enterprise zones as declared by the TIEZA
PERSONS EXEMPT FROM VAT

¡ Those engaged in transactions exempt from VAT under Section 109 of

the Tax Code (Under TRAIN, transmission of electricity by NGCP is no
longer exempt;

¡ Those who entered into transactions incidental to VAT-exempt activities

¡ Those who entered into isolated transactions

ZERO-RATED VS. EXEMPT SALES

ZERO-RATED SALES EXEMPT

Sales which are subject to VAT at 0% rate, Sales which are not subject to VAT.

Input taxes allocable/attributable to the Input taxes allocable/attributable to the

zero-rated sale may be claimed as input VAT exempt sale cannot be claimed as
tax credit. input tax credit but shall form part of
costs.
INPUT TAX

¡ The VAT due on or paid by a VAT-registered person on importation of goods or local

purchases of goods, properties, or services, including lease or use of properties, in the course
of his trade or business. It shall also include the transitional and presumptive input tax.

¡ It includes input taxes which can be directly attributable to transactions subject to the VAT

¡ Plus a ratable portion of any input tax which cannot be attributed to either the taxable or
exempt activity.

¡ Input taxes must be evidenced by VAT invoice for purchases of goods or VAT official
receipt for purchases of services.
ADJUSTMENTS TO INPUT TAX

¡ Additions to Creditable Input tax

¡ Input tax arising from qualified transactions in the current month or quarter
¡ Input tax carried-over from the preceding months or quarters

¡ Reduction in Creditable Input Tax

¡ Amount of claim for VAT refund or Tax Credit Certificate (whether filed with the
BIR, the Department of Finance, the Board of Investments or the BOC)
¡ Other adjustments, such as purchase returns and allowances, input tax attributable
to exempt sales and input tax attributable to sales subject to final VAT withholding.
SOURCES OF INPUT TAX

¡ Purchase or importation of goods

¡ For sale; or
¡ For conversion into or intended to form part of a finished product for sale, including packaging
materials; or
¡ For use as supplies in the course of business; or
¡ For use as raw materials supplied in the sale of services; or
¡ For the use in trade or business for which deduction for depreciation or amortization is allowed
under the Tax Code.

¡ Purchase of real properties in which VAT has actually been paid

¡ Purchase of services in which VAT has actually been paid
SOURCES OF INPUT TAX

¡ Transactions ”deemed sale”

¡ Transitional input tax
¡ Presumptive input tax
¡ Creditable withholding VAT on payments to non-residents
TRANSACTIONS DEEMED SALE

¡ Section 106(B) of the Tax Code

¡ Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
¡ Distribution or transfer to:
¡ Shareholders or investors as share in the profits of the VAT-registered persons; or
¡ Creditors in payment of debt;
¡ Consignment of goods if actual sale is not made within 60 days following the date such
goods were consigned; and
¡ Retirement from or cessation of business with respect to inventories of taxable goods
existing as of such retirement or cessation.
INPUT TAX BASE

¡ For purchases of Goods

¡ Input Tax = Total VAT Invoice Amount (gross EWT) x 12%

¡ For purchases of Services

¡ Input Tax = Total VAT OR Amount (gross of EWT) x 12%

¡ For importation of Goods (if any VAT is paid)

¡ Input Tax = VAT Base x 12%
¡ Value used by the BOC in determining tariffs and customs duties, excise taxes and other charges. If
BOC value is based on volume or quantity, base is Total Landed Cost = invoice amount + customs
duties, freight, insurance and other charges, and excise tax, if any.
PROPER TIMING OF CLAIMING OF INPUT TAX

¡ Proper Time for Claiming of Input Tax:

¡ The input tax credit by a VAT-registered person shall be creditable:
¡ Importation of goods – upon payment of VAT prior to the release of goods
from customs custody
¡ Purchase of domestic goods or properties – upon consummation of the sale
¡ Purchase of services, lease or license – upon payment of the compensation,
rental, royalty or fee.
PROPER TIMING OF CLAIMING OF INPUT TAX

¡ Proper Time for Claiming of Input Tax:

¡ For the purchaser of real property under:
¡ Cash/Deferred Payment Basis – Upon consummation of sale
¡ Installment Basis – Upon every installment payment
PROPER TIMING OF CLAIMING OF INPUT TAX

¡ Even if the said events have already transpired (e.g. consummation of

sale) but the required supporting documents are not on hand, the input
taxes may not be claimed.
TREATMENT OF EXCESS INPUT VAT

¡ Carry-over
¡ Claim for Refund
¡ Tax Credit
CLAIM FOR REFUND/TAX CREDITS

¡ Any VAT taxpayer may apply for the issuance of a tax credit certificate or refund of any input tax
attributable to:
¡ Zero-rated sales; and
¡ File application within 2 years after close of taxable quarter when such sales were made
¡ Cancellation of VAT registration
¡ Cancellation is due to retirement from, cessation of business, or due to changes in or cessation of status as
VAT taxpayer
¡ File application within 2 years from date of cancellation
¡ TCC may be used in payment of other internal revenue liabilities
¡ Entitled to a refund if no internal revenue tax liabilities against which the tax credit may be utilized

¡ TO THE EXTENT THAT SUCH INPUT TAX HAS NOT BEEN APPLIED AGAINST THE OUTPUT TAX.
INPUT TAX ON CAPITAL GOODS

¡ Input tax on purchases or importation of capital goods which are depreciable

assets for income tax purposes, the aggregate acquisition cost of which
(Exclusive of VAT) in a calendar month exceeds Php1M, regardless of
acquisition cost of each capital good, shall be claimed as credit against output
tax, as follows:

¡ 5 years or more estimated useful life – Monthly input tax = total input
tax/60 months
¡ Less than 5 years estimated useful life – Monthly input tax = total input
tax/estimated useful life in months
¡ Until December 31, 2021 only - TRAIN
INPUT TAX ON CAPITAL GOODS

¡ If the aggregate acquisition cost (exclusive of VAT) of the existing or

finished depreciable capital goods purchased or imported during any
calendar month does not exceed Php1M:
¡ The total input taxes will be allowable as credit against output tax in the
monht of acquisition
INPUT TAX ON CAPITAL GOODS
¡ Aggregate acquisition cost of a depreciable asset in any calendar month
refers to:
¡ The total price AGREED upon for one or more assets acquired; and
¡ NOT on the payments actually made during the calendar month.
¡ Thus, an asset acquired on installment basis for an acquisition cost of
more than Php1M will be subject to the amortization of input tax
despite the fact that monthly payments/installments may not exceed
Php1M.
INPUT TAX ON CAPITAL GOODS

¡ Claim for input tax shall commence in the calendar month of acquisition.
¡ If the depreciable capital good is sold/transferred within a period of 5
years or prior to the exhaustion of the amortizable input tax, the entire
unamortized input tax on the capital goods sold/transferred can be
claimed as input tax credit during the month/quarter when the sale or
transfer was made.
INPUT TAX ON CAPITAL GOODS

¡ Case:
¡ Company X purchased software with an estimated useful life of 3 years
at a price of Php3Million and VAT of Php360,000 on February 1, 2015.
How will the input tax be treated?
INPUT TAX ON CAPITAL GOODS
¡ Suggested answer:
¡ Php360,000 input tax should be amortized over a period of 3 years.
¡ Basis:
¡ Capital goods defined in RR No. 16-2005 – “depreciable assets for income tax
purposes”
¡ Capital goods defined in RR No. 4-2007 – Capital goods or properties refer to
goods or properties with estimated useful life greater than one year and which are
treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or
indirectly in the production or sale of taxable goods or services.
INPUT TAX ON CAPITAL GOODS
¡ Basis:
¡ Sec. 107 of RR No. 2
¡ Intangibles, the use of which in the trade or business is definitely limited in duration,
may be the subject of a depreciation allowance. Examples are patents, copyrights and
franchises
¡ If, however, an intangible asset acquired through capital outlay is know from experience
to be of value in the business for only a limited period, the length of which can be
estimated from experience with reasonable certainty, such intangible asset may be the
subject of a depreciation allowance, provided the facts are fully shown in the return or
prior thereto to the satisfaction of the CIR.
INPUT TAX ON CAPITAL GOODS

¡ Take note of RR No. 12-2012 and RMC No. 2-2013

¡ For VAT purposes, all input taxes corresponding to the disallowed expenses
related to the non-depreciation vehicles are not allowed.
WITHHOLDING VAT

¡ On payments to nonresidents (creditable withholding VAT)

¡ On payments by government (final withholding VAT)
WITHHOLDING VAT
¡ On payments to nonresidents (creditable withholding VAT)
¡ Payments to non-residents, with respect to lease or use of property or property
rights in the Philippines owned by such non-residents, are subject to withholding
based on the contract price
¡ Other services rendered in the Philippines by non-residents
¡ The VAT is passed on the the resident withholding agent/payor, whether or not he
is VAT-registered
¡ The payor shall claim this as input tax
WITHHOLDING VAT
¡ On payments by Government (final withholding VAT)
¡ The Government or any of its political subdivisions, instrumentalities or agencies,
including government owned or controlled corporations shall, before making payment on
account of its purchase of goods and/or services which are subject to VAT, deduct and
withhold a final VAT of 5% of the gross payment
¡ The 5% final VAT withholding rate shall represent the net VAT payable of the seller
¡ The remaining 7% effectively accounts for the standard input VAT, in lieu of the actual
input VAT directly attributable or ratably apportioned to such sales.
¡ Should actual input VAT exceed 7% of gross payments, excess may form part of the
sellers’ expense or cost
¡ If the actual input VAT is less than 7% of gross payment, difference must be closed to
expense or cost.
WITHHOLDING VAT
¡ BIR ITAD Ruling No. 168-13 dated June 19, 2013
¡ Issue: Whether the fees paid by Department D, a government agency, to
Corporation R, a non-resident foreign corporation based in Korea, for survey
services rendered in the Philippines are subject to 12% withholding VAT
¡ Held: YES. The fees for survey services rendered in the Philippines shall be
subject to 12% withholding VAT under Section 108(A) in relation to Section
105 of the Tax Code.
¡ If Department D is VAT-registered, it may use the duly filed BIR Form No. 1600
and the proof of payment as documentary substantiation for its claim of input
tax. Otherwise, it may treat the VAT as part of asset or expense, whichever is
applicable.
WITHHOLDING VAT
¡ Example:
¡ Corporation A has a consultancy agreement with Corporation B, a
Canada-based corporation. Total fee is USD100,000. The contract states
that Corporation B will provide all the services in Canada. However,
Corporation B sent its employees to the Philippines for a period of 3
months. Corporation A accrued the fees of USD100,000 as expense on
June 30, 2011 when it became payable or due for payment but actually
paid the fees on August 1, 2011. Assume that the fees will not qualify as
royalties.
WITHHOLDING VAT

¡ Example:
¡ Questions:
¡ Does Corporation A need to withhold VAT and FWT?
¡ When should Corporation A withhold VAT?
¡ How much VAT should be withheld?
WITHHOLDING VAT
¡ Example:
¡ Suggested Answers:
¡ Does Corporation A need to withhold VAT and FWT?
¡ VAT – YES, because a portion of the services was rendered inside the Philippines,
notwithstanding the provision in the contract that says all services will be
provided outside the Philippines.
¡ FWT – NO, assuming that Tax Treaty Relief is obtained
¡ (See Deutsche Bank AG Manila v. CIR, GR No. 188550, August 19, 2013)
WITHHOLDING VAT

¡ Example:
¡ Suggested Answers:
¡ When should Corporation A withhold VAT?
¡ August 1, 2011 – This is the time of actual payment of fees to Corporation B.
¡ How much VAT should be withheld?
¡ The portion of the fee that can be identified to services actually provided in the
Philippines is subject to withholding VAT.
WITHHOLDING VAT

¡ Example:
¡ Suggested Answers:
¡ How much VAT should be withheld?
¡ What if there is no specified fee for services provided in the Philippines?
¡ Sec. 155 of Revenue Regulations No. 2 (Income Tax Regulations)
¡ Gross income from sources within the Philippines includes compensation for labor or personal services
performed within the Philippines regardless of the residence of the payor, of the place in which the contract
for service was made, or of the place of payment.
¡ If no accurate allocation or segregation of compensation for personal labor or personal services performed
within the Philippines can be made, or when such labor or service is performed partly within and partly
without the Philippines, the amount to be included in the gross income shall be determined by an
apportionment of the time basis, i.e., pro rata of the number of days of services performed in the
Philippines bears to the total number of days of labor or services performed in for which the payment is
made.
WITHHOLDING VAT

¡ Example:
¡ Suggested Answers:
¡ How much VAT should be withheld?
¡ VAT base = (3 months/12 months) x USD 100,000 = USD 25,000
¡ Withholding VAT = USD25, 000 x 12% = USD 3,000
WITHHOLDING VAT

¡ TRAIN – January 1, 2021 - shift from FINAL VAT to CREDITABLE VAT –

for purchases of government
MIXED TRANSACTIONS

¡ In case there are VAT and non-VAT activities, tax credit shall be allowed
as follows:
¡ Total input tax which can be directly attributed to transactions subjected to
VAT; and
¡ A ratable portion of any input tax which cannot be directly attributed to
either activity.
MIXED TRANSACTIONS

¡ Input Tax Attributed to Exempted Activity

¡ Common Input Tax x (Exempt Sales/Total Sales)
¡ Input Tax Attributed to VATable Activity*
¡ Common Input Tax x (Taxable Sales/Total Sales)
¡ *This rule applies if there are no sales to the Government (RA No. 9337
and RR No. 16-2005)
MIXED TRANSACTIONS

¡ Input taxes directly attributable to VAT taxable sales of goods and

services to the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall NOT be
credited against output taxes arising from sales to non-Government
entities.
¡ Claims for VAT refund/Tax Credit Certificate (TCC) with the BIR, BOI
and One-Stop-Shop and Duty Drawback Center of the Department of
Finance should be deducted from the allowable input tax attributable to
zero-rated sales.
MIXED TRANSACTIONS

¡ Input taxes prorated to sales to Government

¡ Common Input Tax x (Taxable Sales to Government/Total Sales)
¡ This cannot be credited against sales to non-government entities.
SUBSTANTIATION REQUIREMENTS
¡ The required support for claiming input tax are as follows:
Transactions Required Support

Input taxes on domestic purchases of goods VAT Invoice

or properties made in the course of trade or
business

Input tax on purchases of real property Public instrument (i.e., deed of absolute sale,
Cash/Deferred Basis deed of conditional sale, contract/agreement
to sell, etc.) with VAT invoice for the entire
selling price and Non-VAT Acknowledgment
Receipts for the initial and succeeding
payments

Installment Basis Public instrument and VAT Sales Invoice for

every payment
SUBSTANTIATION REQUIREMENTS
Transactions Required Support
Input tax on domestic purchases of services VAT OR
Input tax on importation of goods Import entry or other equivalent document
showing actual payment of VAT on the imported
goods/ BOC OR
Transitional input tax Detailed list of inventory of goods

Input tax on ”deemed sale” transactions Required invoices

Input tax from payments made to non-residents Monthly Remittance Return of Value Added Tax
(such as for services, rentals or royalties) Withheld (BIR Form 1600)

Advanced VAT on sugar Payment order showing payment of the advance

VAT
SUBSTANTIATION REQUIREMENTS

¡ Sections 113(B)(2) and 237 of the Tax Code require that the following
information be contained in the VAT Invoice or VAT OR, among others:
¡ Amount of VAT shown as a separate item;
¡ The date of transaction, quantity, unit cost and description of goods or
properties or nature of service; and
¡ The name, business style, if any, registered address and TIN of the purchaser,
customer or client, if VAT-registered.
SUBSTANTIATION REQUIREMENTS

¡ CTA Case No. 8192, April 17, 2013

¡ ISSUE: Whether Corporation P is entitled to tax refund or issuance of TCC representing the
unutilized excess input VAT attributable to its zero-rated sales for the first and second quarters
of 2009
¡ HELD: NO. The CTA did not grant the claim for tax refund or issuance of TCC since
Corporation P’s output VAT liability is higher than the properly substantiated input VAT for the
first and second quarters of 2009. Such being the case, there is no excess input VAT that may be
subject to a claim for refund or tax credit under Section 112(A) of the Tax Code.
SUBSTANTIATION REQUIREMENTS
¡ CTA Case No. 8192, April 17, 2013
¡ HELD: The CTA cited the following reasons for the disallowance of Corporation P’s claim for tax refund or
issuance of TCC:
¡ Domestic purchase of goods supported by original copies of VAT invoices not in the name of the Corporation
P;
¡ Domestic purchase of goods supported by non-VAT invoices;
¡ Domestic purchase of goods supported by original copies of Payment Request Form;
¡ Domestic purchase of goods supported by original copy of Payment Request Form not in the name of
Corporation P;
¡ Domestic purchase of goods supported by VAT invoices where the TIN of Corporation P was not indicated;
¡ Domestic purchase of goods supported by original copies of SOA;
¡ Domestic purchase of goods supported by original copy of Tax Invoice.
SUBSTANTIATION REQUIREMENTS

¡ CTA Case No. 8192, April 17, 2013

¡ HELD:
¡ Domestic purchase of services supported by original copy of VAT OR with ”Not Valid for Input Tax” stamp’
¡ Domestic purchase of services supported by original copies of VAT ORs with erroneous VAT bases;
¡ Domestic purchase of services supported by original copies of VAT ORs not in the name of Corporation P;
¡ Domestic purchase of services supported by original copies of VAT ORs where the address of Corporation P
was not indicated;
¡ Domestic purchase of services supported by provisional OR in the name of Corporation P;
¡ Domestic purchase of services supported by provisional OR not in the name of Corporation P;
¡ Overstatement in input VAT claimed on domestic purchases of capital goods with aggregate acquisition cost of
more than Php1M in a calendar month;
SUBSTANTIATION REQUIREMENTS
¡ CTA Case No. 8192, April 17, 2013
¡ HELD:
¡ Domestic purchase of goods supported by original copies of VAT invoices not dated within the period of
claim;
¡ Domestic purchase of services supported by original copies of VAT ORs dated within 7 days after the period
of claim;
¡ Domestic purchase of services supported by original copies of VAT ORs dated beyond 7 days after the period
of claim;
¡ Domestic purchase of goods without supporting documents;
¡ Domestic purchase of goods not dated within the period of claim and without supporting documents;
¡ Domestic purchase of services without VAT ORs;
¡ Domestic purchase of services supported by VAT invoices instead of VAT ORs;
¡ Domestic purchase of goods/services supported by VAT invoices/ORs where VAT was not separately indicated;
and
¡ Purchases of services supported by printed BIR Form No. 1600 without the corresponding proof of payment.
 ACCOUNTING REQUIREMENTS

Record Information to be Indicated

Subsidiary Sales Journal Separate columns for each sales type (export, zero-rated,
exempt, taxable, deemed sales) and output taxes

Subsidiary Purchases Journal Separate columns for each purchase type (goods for sale,
supplies, raw materials, services, capital goods, from non-
VAT persons), input taxes, and input tax deemed paid
Subsidiary Ledger: Depreciable Purchase amount, date of purchase description of goods,
Assets/Capital Goods total input tax, monthly input tax claimed in VAT
declaration or return
 ADMINISTRATIVE REQUIREMENTS (FOR UPDATING)

Schedule Information to be Indicated Deadline for Filing

BIR Form 2550M Total amount of sales, purchases, E-filing – 21 to 25 days following
(Monthly VAT output tax and input tax for the end of month (depending on the
Declaration) month industry)

E-payment – 25 days following

end of month

Manual filing and payment – 20

days following the end of month
 ADMINISTRATIVE REQUIREMENTS

Schedule Information to be Indicated Deadline for Filing

BIR Form 2550Q Cumulative totals of sales, E-filing and e-payment – 25 days
(Quarterly VAT purchases, output tax, input tax, following the close of the taxable
Declaration) VAT payable for the quarter quarter
(reduced by tax paid for previous
2 months) Manual filing and payment – 25
days following the close of the
taxable quarter
 ADMINISTRATIVE REQUIREMENTS
Schedule Information to be Indicated Deadline for Filing

BIR Form 1600 Total amount of income payments to E-filing and e-payment – 10 days
(Monthly Remittance nonresidents subject to VAT and following end of month
Return of VAT & corresponding VAT withheld
OPT Withheld) Manual filing and payment – 10 days
following end of month
SAWT (Summary Total amount of income per payor and E-filing together with BIR Form 2550Q
Alphalist of claimed tax credits from all Certificates (Quarterly VAT Return) and BIR Form
Withholding Agents of CWT at Source 2550M (Monthly VAT Declaration)
of Income Payments
Subjected to
Withholding Tax
 ADMINISTRATIVE REQUIREMENTS
Schedule Information to be Indicated Deadline for Filing

MAP (Monthly Total amount of payment per payee and E-fling together with BIR Form 1600
Alphalist of Payees) corresponding taxes withheld and (Monthly Remittance Return of VAT and
remitted OPT Withheld)
Quarterly Summary Name of buyer, TIN of buyer (if subject E-submission 30 days following the close
List of Sales to VAT), amount of each type of sales of the taxable quarter
(subject to VAT, exempt, zero-rated and
subject to final VAT withheld), output tax,
total amount of sales (system-generated)
 ADMINISTRATIVE REQUIREMENTS
Schedule Information to be Indicated Deadline for Filing

Quarterly Summary Exempt purchases, zero-rated purchases, E-submission 30 days following the close
List of Purchases purchases subject to VAT on: services; of the taxable quarter
capital goods; other goods and purchases
subject to final VAT withheld, creditable
and non-creditable input tax, total
amount of purchases (system-generated)
Quarterly Summary Import Entry Declaration Number, E-submission 30 days following the close
List of Importations release date, date of importation, name of the taxable quarter
of seller, country of origin, dutiable value,
landed cost: exempt or taxable,VAT paid,
OR# evidencing payment of tax, date of
VAT payment
RULES OF PRESENTATION FOR SUMMARY LIST OF
SALES/PURCHASES

¡ The names of sellers/suppliers/service providers and the buyers/customers shall be

alphabetically arranged and presented in the schedules.
¡ All the summary lists or schedules shall mention as heading or caption of the
report/list/schedule the BIR-registered name, trade name, address and TIN of the
taxpayer-filer and the covered period of the report/list/schedule.
¡ Failure to mention the TIN of the buyer in the ”Schedule of Sales” may be a
ground for the audit of the records of the buyer and the seller.
¡ The quarterly summary lists shall reflect the consolidated monthly transactions per
seller/supplier/buyer for each of the 3 months of VAT taxable quarter of the
taxpayer EXCEPT the summary list of importation which shall show the individual
transactions for the month for each month of the VAT quarter.
NON-SUBMISSION OF SUMMARY LIST OF SALES/PURCHASES

¡ Every failure to submit Summary List of Sales and/or Summary List of Purchases in
the prescribed format for a particular period, or submission of
erroneous/incomplete/falsified information in a particular Summary List:
¡ Grounds for the issuance of Subpoena Duces Tecum by the BIR
¡ Upon submission of Summary List in compliance with Subpoena, a compromise
penalty of Php10,000 for each non-submission of the required Summary List
of Sales and Purchases is imposed
¡ In case of corporations that fail to submit Summary Lists, the corporate officers
and employees shall be held criminally liable and be punished by a fine of not less
than Php50,000 but not more than Php100,000
NON-SUBMISSION OF SUMMARY LIST OF SALES/PURCHASES
¡ Every failure to submit Summary List of Sales and/or Summary List of Purchases in
the prescribed format for a particular period, or submission of
erroneous/incomplete/falsified information in a particular Summary List:
¡ Grounds for the issuance of Subpoena Duces Tecum by the BIR
¡ Administrative penalty of Php1,000 for each failure, unless it is shown that such
failure is due to reasonable cause and not to willful neglect. Administrative penalty
during a taxable year shall not exceed Php25,000.
¡ Upon submission of Summary List in compliance with Subpoena, a compromise
penalty of Php10,000 for each non-submission of the required Summary List
of Sales and Purchases is imposed
¡ In case of corporations that fail to submit Summary Lists, the corporate officers
and employees shall be held criminally liable and be punished by a fine of not less
than Php50,000 but not more than Php100,000
ADMINISTRATIVE AND PENAL PROVISIONS
(BIR’S OPLAN KANDADO – RMO 3-2009)

¡ Suspension or closure of a business establishment for a period of not less than 5

days for any of the following violations:
¡ Failure to issue receipts and invoices
¡ Failure to file VAT return
¡ Understatement of taxable sales or receipts by 30% or more of his correct
taxable sales or receipt for the taxable quarter
¡ Failure of any person to register
¡ Interest, civil and criminal penalties under Title XI of the Tax Code
ADMINISTRATIVE AND PENAL PROVISIONS
(BIR’S OPLAN KANDADO – RMO 3-2009)

¡ Remedies against Oplan Kandado

¡ Upon receipt of the 48-hour notice from the BIR, which requires the taxpayer to explain why he should
not be sanctioned administratively (suspension or closure) and criminally, taxpayer should file an
explanation under oath within 48 hours from receipt of the 48-hour notice
¡ Upon receipt of the explanation, the BIR shall decide whether to terminate the case or to pursue the
administrative or criminal action. If the BIR decides to do the latter, the 5-day VAT Compliance Notice
(VCN) shall be issued to the taxpayer.
¡ The remedy against a VCN is to file a response or protest within two days from receipt of the VCN.
¡ If the protest is denied, the taxpayer’s remedy is to elevate the same to the CTA within 30 days from
receipt of the denial letter. (CIR v. Elric Auxiliary Services/Sacred Heart Gas Station, CTA EB 1174, March 3,
2016)
¡ The VCN and 48-hour notice must state the factual and legal bases of the BIR’s findings. Otherwise,
they can be declared void for violation of due process requirements.
ADMINISTRATIVE AND PENAL PROVISIONS
(BIR’S OPLAN KANDADO – RMO 3-2009)

¡ If the taxpayer fails to file a protest to the VCN, he must comply and pay
the taxes assessed with the 5-day period
¡ If the taxpayer fails to do so, the BIR will prepare and execute the
Closure Order, including physically sealing the entrance to the
establishment with padlocks and putting the BIR signage by the entrance
¡ For at least 5 days, the closure will be in force until the taxpayer rectifies
the alleged violations
¡ In some cases, immediate or partial compliance may be considered
sufficient basis to lift the closure order
REGISTRATION REQUIREMENTS

¡ Any person who, in the course of trade or business, sells,

barters, exchanges goods or properties, or engaged in the
sale of services subject to VAT is required to register as a
VAT taxpayer
¡ Annual registration fee – Php500 for every separate or
distinct establishment or place of business (save a
warehouse without sale transactions)
¡ Timing: Before the start of business and every year
thereafter on or before January 31
REGISTRATION REQUIREMENTS

¡ Mandatory VAT Registration

¡ Gross sales or receipts for the past 12 months, other than the exempt
transactions, have exceeded the required threshold – Php3M
¡ There are reasonable grounds to believe that gross sales or receipts for
the next 12 months, other than the exempt transactions, will exceed the
required threshold
¡ Franchise grantees of radio and TV broadcasting whose gross annual
receipt for the preceding calendar year exceeded Php10M
¡ Failure to Register – liable to pay output tax, but without the benefit of
input tax credits
REGISTRATION REQUIREMENTS
¡ Optional VAT Registration
¡ Voluntary registration pursuant to Section 109(2) of the Tax Code (revocable after
3 years)
¡ Any person who is VAT-registered but enters into transactions which are exempt
from VAT may opt that the VAT apply to VAT-exempt transactions (revocable after
3 years)
¡ Franchise grantees of radio and TV broadcasting whose gross annual receipt for
the preceding calendar year do not exceed Php10M (irrevocable)
¡ Annual registration fee – Php500 for every separate or distinct establishment or
place of business (save a warehouse without sale transactions)
¡ Timing: 10 days before the beginning of the calendar quarter
REGISTRATION REQUIREMENTS

¡ Registration as Non-VAT or Exempt Taxpayer

¡ VAT-exempt persons under Sec. 109 of the Tax Code who did not opt to register
as VAT taxpayers
¡ Individuals engaged in business where the gross sales or receipts do not exceed
Php100,000 during any 12-month period
¡ Those subject to percentage taxes
¡ Non-stock, non-profit organizations and associations engaged in trade or business
whose gross sales or receipts do not exceed the required threshold for any 12-
month period
¡ Cooperatives other than electric cooperatives
REFUNDS

¡ VAT- registered person – zero-rated or effectively zero-rated/Cancellation of VAT

registration
¡ 2 years after the close of the taxable quarter when the sales were made/2 years
from the date of cancellation
¡ Refund – 90 days from date of submission of OR or invoices
¡ Full or partial denial – within 30 days – may appeal the decision with the CTA;
¡ TAX CODE (Prior to TRAIN) – within 120 days; 30 days from receipt of decision
or after expiration of the 120-day period – appeal to the CTA
¡ RR 13-2018 – Those filed prior to January 1, 2018 – 120-day rule will follow