Please answer the assigned questions by hand on yellow paper or notebook.

Your
answers must be neat and legible, and submitted during our class on April 11, 2025.
1. Briefly discuss what is VAT. What are the basic characteristics of VAT?
A vat is a tax on consumption and an indirect tax, levied on the sale, barter,
exchange, or lease of goods or properties and services and the importation of goods.
VAT is imposed on the seller and not the buyer except in importation. The
characteristics of VAT is that it is imposed on sells, barters, or exchanges goods or
properties in the course of trade or business; or sells services in the course of trade
or business; or imports goods, whether or not in the course of trade or business.
2. Differentiate impact from incidence of taxation.
Impact of taxation is the point where the tax is originally imposed or the one on
whom the tax is formally assessed (the statutory taxpayer in most cases) while
incidence of taxation is the point on whom the tax burden finally rests.
3. What are the elements of VATable transactions?
The elements of VATable transactions are the following:
1. It must be done in the ordinary course of trade or business;
2. There must be a sale, barter, exchange, lease of goods or properties, or rendering
of service in the Philippines; and
3. It is not VAT-exempt or VAT zero-rated.
4. In the case of Malayan Insurance vs St. Francis, GR Nos. 198916-17, July 23, 2018, is
the allocation of the remaining units in the building to ST. Francis in accordance with the
MOA subject to VAT? Explain.
In the case of Malayan Insurance vs St. Francis, the allocation or transfer thereof
from Malayan to St. Francis is not subject to VAT, as it does not entail a sale, barter,
exchange or lease of goods, properties or services in the course of trade of business.
The Court rules that the allocation of such units clearly involves a return of the
parties' capital investments under the MOA, hence, not subject to VAT.
5. In the case of Association of Non-Profit Clubs, Inc. (ANPC) v. Commissioner of Internal
Revenue, G.R. No. 228539, 26 June 2019, are the membership fees, assessment dues, and
the like form part of the gross receipts of recreational clubs that are subject to VAT?
Explain.
The court ruled in Association of Non-Profit Clubs, Inc. (ANPC) v. Commissioner of
Internal Revenue that the membership fees, association dues, and the like collected
by recreational clubs from its members are also not subject to VAT, because the
clubs aren't selling its service to its members. There is no economic or commercial
activity because these dues are devoted to the operations and maintenance of the
facilities of the club.
6. Explain the meaning of “in the course of trade or business” or the rule on regularity.

In the course of trade or business" means the regular conduct or pursuit of a

commercial or an economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged therein is a nonstock,
nonprofit private organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or government entity.
7. In the case of Commissioner of Internal Revenue v. Magsaysay Lines, Inc., G.R. No.
146984, 28 July 2006, is the sale of the vessels subject to VAT? Why?
As decided under the case of Commissioner of Internal Revenue v. Magsaysay
Lines, Inc, the sale of the vessels was not in the ordinary course of trade or business
of NDC. Sales, barters, or exchanges of goods or services not made in the ordinary
and regular course of trade or business are beyond the purview of VAT. A
transaction’s incidental contribution to the production chain does not necessarily
imply VAT liability if it is not a regular business activity.
8. In the case of Power Sector Assets and Liabilities Management Corp. v. Commissioner o
Internal Revenue, G.R. No. 226556, 03 July 2019, is the sale of NPC assets by PSALM
pursuant to its mandate to manage the orderly sale, disposition, and privatization of the
same? Discuss.
As ruled in this case, the court reiterated that the sale of a power plant by a GOCC
due to a law that mandated the privatization of NPC assets is also not subject to
VAT because it was not in pursuit of a commercial or economic activity.
9. Explain the Destination Principle.
Under this principle, no VAT shall be imposed to form part of the cost of goods
destined outside of the territorial border of the taxing authority. Goods and services
are taxed only in the country where the these are consumed.
10. Who are liable to pay VAT? What is the consequence if a taxpayer whose annual gross
sales and/or receipts exceeded the VAT threshold of P3,000,000.00 but failed to register
as a VAT taxpayer?
Under the NCIR, any person who, in the course of trade or business, sells, barters or
exchanges goods or properties, or engages in the sale or exchange of services shall be
liable to register for VAT if:
1. His gross sales or receipts for the past 12 months, other than
those exempt under Section 109(A) to (BB), have exceeded
P3,000,000; or
2. There are reasonable grounds to believe that his gross sales
or receipts for the next 12 months, other than those exempt
under Section 109(A) to (BB), will exceed P3,000,000.

If a taxpayer whose annual gross sales and/or receipts exceeded the VAT threshold
of P3,000,000.00 but failed to register as a VAT taxpayer, he shall be liable to pay
the tax as if he were a VAT-registered person, and he will be denied the benefit of
input tax credits.

11. May a taxpayer who is not required to register for value-added tax under Section 236(G)
of the Tax Code, as amended, elect to register for value-added tax?

YES. Under Section 236 (g) of the NCIR, any person who is not required to
registered as a VAT taxpayer may register for the VAT. He or she, however, cannot
cancel his
or her registration for the next three years. Moreover, if an individual has elected to
pay the 8% income tax on gross receipts/sales, then that person may not register.
12. When is there constructive receipt of payment for VAT purposes?
Constructive receipt occurs when the money consideration or its equivalent is
placed in the control of the person who rendered the service without restriction by
the payor, (like a bank deposit; issuance by the debtor of a notice to offset any debt
or obligation and acceptance thereof by the seller as payment for the services
rendered)

13. In the case of Commissioner of Internal Revenue v. Shinko Electric Industries Co, Ltd,
G.R. No. 226287, 06 July 2021, are the subsidies subject to VAT?

NO. The subsidy given to Shinko was not derived in relation to any sale, barter or
exchange of goods or services in the course of trade or business. The subsidy was not
in payment for goods or properties sold, bartered or exchanged by Shinko. As such,
the subsidy Shinko received from its parent company cannot be subject to VAT.

14. What is the treatment of importation of goods for VAT purposes? Who shall be liable for
payment of VAT on importation of goods?

Under the NCIR, every importation of goods shall be subject to the VAT, whether
for use in business or not. The imported goods shall be subject to 12% VAT. The
payment of VAT on importation of goods is on the seller or the importer. They carry
the burden of paying the 12% VAT.

15. What transactions are treated as "deemed sale subject to VAT"?

Under Section 106 (B) of the NIRC, the following transactions shall be deemed sale:

(1) 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;

(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons;

or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned; and

(4) Retirement from or cessation of business, with respect to inventories of taxable

goods existing as of such retirement or cessation.

16. Distinguish zero-rated from effectively zero-rated transactions.

 Zero-rated transactions refer to the export sale of goods and supply of services. The
seller of such transaction’s charges no output tax, but can claim a refund or a tax
credit certificate for the VAT previously charged by suppliers. This is for the benefit
of the seller. Effectively zero-rated transactions refer to the sale of goods or supply
of services to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects
such transactions to a zero rate. Such rate does not yield any tax chargeable against
the purchaser. This is for the benefit of the purchaser. Strictly speaking, it is the
sales by the suppliers which zero-rated. But the entities are granted an indirect
exemption for policy and economic reasons are tax. In both zero-rated and
effectively zero-rated transactions, the seller who charges zero output tax can claim
a refund or a tax credit certificate for the VAT previously charged by suppliers.

17. What transactions are considered as zero-rated sales?

Under the NICR, the following are considered as zero-rated sales:
1. Export Sales
2. Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate.

18. Prior to the CREATE Act, for VAT purposes, what rule governs the sale of goods and
services by a VAT-registered seller from the customs territory to enterprises located and
registered within the economic zones (Ecozone) or a Freeport?

It is the RR No. 9-2021 which was issued to implement the provisions of Republic
Act (RA) No. 10963 or the Tax Reform and Acceleration and Inclusion Act (TRAIN)
which subject these transactions to 12% VAT.

19. With the passage of CREATE Act, is the "cross border doctrine" still applicable to
Ecozones or Freeport Zones for purposes of VAT?
The "cross border doctrine" as applied to Ecqzones or Freeport zones has been
rendered ineffectual and inoperative for VAT purposes with the passage of the
CREATE Act because the CREATE Act expressly provides that only those goods
and services that are directly and exclusively used in the registered project or
activity of registered business enterprises qualify as VAT 0% local purchases.

20. Is the sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez
subject to VAT?
NO. It was held and stipulated that all imported unprocessed fruits and vegetables
are exempt from the 12 percent value-added tax
21. Are the following transactions subject to VAT? If yes, what is the applicable rate for each
transaction. State the relevant authority/ies for your answer.
a. Construction by XYZ Construction Co. of concrete barriers for the Asian
Development Bank in Ortigas Center to prevent car bombs from ramming the
ADB gates along ADB Avenue in Mandaluyong City.
 Zero-rated, as this is a service to an entity whose exemption under
international agreements subjects it to a zero rate.

b. Center operated by a domestic enterprise in Makati that handles exclusively the

reservations of a hotel chain which are all located in North America. The services
are paid for in US$ and duly accounted for with the Bangko Sentral ng Pilipinas.
Zero-rated, as these are services performed for a foreign corporation doing
business outside the Philippines, paid in foreign currency under the rules and
regulations of the BSP.

c. Sale of orchids by a flower shop which raises its flowers in Tagaytay.

VAT-able, as orchids are not agricultural food products and thus, not exempt.

22. Is the sale of refined sugar a vat exempt transaction?

Refined sugar is an agricultural product that can no longer be considered to be in its
original state because it has undergone the refining process; its sale is thus subject to
VAT
23. Differentiate input tax and output tax.
1. Input tax is the VAT due from or paid by a VAT registered person in the course
of his trade or business on importation of goods or local purchase of goods, or
services, including zlease or use of property, from a VAT-registered person while
output tax is the VAT due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under VAT.
24. Discuss the process for VAT refund of unutilized input VAT attributable to zero-rated or
effectively zero-rated sales.
To claim refund or tax credit, claimant must comply with the following criteria:
2. The taxpayer is VAT registered
3. The taxpayer is engaged in zero-rated or effectively zero-rated sales;
4. The input
5. both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the
input taxes cannot be directly and entirely attributable to any of these sales, the input
taxes shall be proportionately allocated on the basis of sales volume
6. The claim is filed within two years after the close of the taxable quarter when such
sales were made i n contrast with the period of filing an action to recover taxes
already paid which is reckoned from the d a t e of payment); and
7. Duly supported by VAT invoices or receipts

25. What is the effect of the failure to print the words "zero-rated" on the sales invoices or
receipts to a claim for refund/credit of input tax on zero-rated sales?
Failure to print the word. "zero-rated" on the invoices or receipts is fatal to a claim
for credit or refund of input VAT on zero-rated sales.