TRANSFER TAXES AND VALUE ADDED TAX Atty. Vic C. Mamalateo May 20-23, 2011 UP LAW CENTER
ESTATE TAX •
Estate Tax is a tax levied on the transmission of properties from a decedent to his heirs. It is not a tax on property nor on the transferor or transferee.
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Donation mortis causa – In consideration of death, without the donor’s intention to lose the thing conveyed or its free disposal in case of survival – Being testamentary in nature, it is embodied in a last will and testament – Transfer conveys no title or ownership to the transferee before death of transferor, or transferor retains ownership, full or naked, of property conveyed – Transfer is revocable before the transferor’s death and revocability may be provided indirectly by means of the reserved power in the donor to dispose of the property conveyed – Transfer would be void if transferor survived the transferee – Being in the form of a will, donation mortis causa is not accepted by the donee during the donor’s lifetime.
ESTATE TAX • Death is the generating source of the power to tax (Lorenzo v. Posadas). No manual or physical transfer of the property is required for the estate tax to accrue. • The law in force at the time of death of the decedent governs. • “Residence” refers to the permanent home, the place to which whenever absent, for business or pleasure, one intends to return, and depends on facts and circumstances, in the sense that disclose intent (Corre v. Tan Corre). It is not necessarily the actual place of residence at the time of death. • All properties and interests in properties of the decedent at the time of his death shall be included in his gross estate. However, properties transferred or interests relinquished by the decedent before his death are excluded from his gross estate. • The estate shall be appraised at its fair market value at the time of death. – Real property: fair market value as determined by the CIR – Shares of stocks: fair market value as shown in the audited financial statements closest to the date of death of the decedent
ESTATE TAX • •
Gross estate: Conjugal
Exclusive
Total
– Real property – Personal property
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Less: Deductions: – – – – – – – –
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Funeral expenses Claims against the estate Unpaid taxes and mortgages Medical expenses Family home Standard deduction Properties previously taxed Share of the surviving spouse
Net Taxable Estate Estate tax due (First P200,000 is exempt; 5% from P200,001; and 20% on over P10 M)
ESTATE TAX • WHO IS THE DECEDENT AND WHAT PROPERTIES FORM PART OF HIS GROSS ESTATE? – Resident decedent: Citizen or resident alien • Include in his gross estate all properties, real or personal, tangible or intangible, regardless of location (within or without the Philippines)
– Non-resident decedent: Non-resident alien • Include in his gross estate all properties located in the Philippines • For intangible properties, use the principle of mobilia sequuntur personam – Taxation of intangibles follows the residence or domicile of the owner, except for certain intangible properties mentioned in Sec. 104, NIRC.
ESTATE TAX • THESE INTANGIBLE PROPERTIES HAVE SITUS IN THE PHILIPPINES (Sec. 104, NIRC): – Franchise which is exercised in the Phil – Shares, obligations or bonds issued by any corporation organized in the Phil – Shares, obligations or bonds issued by any foreign corporation, 85% of the business of which is located in the Phil or if such properties have acquired business situs in the Phil (Wells Fargo case) – Shares or rights in partnership, business or industry established in the Philippines
ESTATE TAX • DECEDENT’S GROSS ESTATE (Sec. 85, NIRC) – – – –
Decedent’s interest (in property owned or possessed) Transfers in contemplation of death Revocable transfers Property passing under a general power of appointment – Proceeds of life insurance – Transfers for insufficient consideration – Capital of the surviving spouse
ESTATE TAX • “Transfers in contemplation of death” refers to the thought of death, as a controlling motive, which induces the disposition of the property for the purpose of avoiding the tax. • “Revocable transfers” covers transfers, by trust or otherwise, where the enjoyment was subject at the date of his death to any change or where such power is relinquished in contemplation of death. – Deceased declared her conveyance was a donation mortis causa and forbade the registration of the deed until after her death (Puig v. Penaflorida). – It does not cover bona-fide sale of property for an adequate and full consideration in money or money’s worth.
ESTATE TAX • Transfer of property under a general power of appointment – By will, or by deed executed in contemplation of death, or by deed where he retains for his life or any period not ascertainable without reference to his death, which in fact does not end before his death – Possession or enjoyment of, or the right to the income from, the property, or the right to designate the persons who shall possess or enjoy the property or the income thereof – Except in case of bona-fide sale for an adequate and full consideration in money or money’s worth. • Power of appointment is “general” when it gives to the donee the power to appoint any person he pleases, thus having as full dominion over the property as though he owned it. It is “special” when the donee can appoint only among a restricted or designated class of persons other than himself.
ESTATE TAX • Proceeds of life insurance • Taxable: – Beneficiary is the estate of the deceased, his executor or administrator, irrespective of whether or not the insured retained the power of revocation – Beneficiary is other than the decedent’s estate, executor or administrator, when the designation of beneficiary is not expressly made irrevocable. Under the Insurance Code, insurance policies are presumed revocable.
• Not Taxable: – Accident insurance proceeds (not life insurance) – Proceeds of group insurance policies – Beneficiary (NOT decedent’s estate, executor or administrator) is designated irrevocably – GSIS, SSS, and AFP RSBS
ESTATE TAX • REQUISITES OF PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTION) – – – –
Death Identity of the property Inclusion of the property (in gross estate or gross gift) Previous taxation of the property (estate tax or gift tax) – No previous vanishing deduction on the property (to preclude application of vanishing deduction on same property more than once). – Percentage of deduction decreases over a period of 5 years or 20% reduction every year
ESTATE TAX • FORMULA OF VANISHING DEDUCTION • Value taken of property previously taxed (as declared in prior decedent’s gross estate) • Less: Mortgage debt paid (1st deduction) • Initial basis • Divided by the value of gross estate of present decedent = __% • Multiplied by expenses, indebtedness, etc and transfers for public purposes • Equals 2nd deduction • Initial basis less 2nd deduction = Final basis multiplied by applicable rate of vanishing deduction = • Amount of vanishing deduction deductible from the estate of second decedent
DONOR’S TAX • Donor’s Tax is a tax on the privilege to transfer property from a living person to another living person. – It is an excise tax, and not a property tax. – It is imposed on the donor of property. – Donee’s tax was already abolished and incorporated into donor’s tax.
• Purposes of donor’s tax – To supplement estate tax – To prevent avoidance of income tax thru the device of splitting income
• Donation of property must be accepted by the donee. • Sale or exchange of property for less than adequate and full consideration is subject to donor’s tax, except where the property is capital gains tax, such as real property located in the Phil and shares of stock of a domestic corporation. • Donated property must be valued at fair market value at the time of the donation.
DONOR’S TAX • Transfer of property may be in trust or otherwise, direct or indirect. Transfer becomes complete and taxable only when the donor has divested himself of all beneficial interest in himself or his estate. • Donor’s tax rates – Donee is member of the family • First P100,000 of net gift is exempt • 2% on P100,001 to P200,000 • 15% on amount over P10 M
– Donee is a stranger – 30% of net gift
• “Stranger” is a person who is not a (a) brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal descendant; or (b) relative by consanguinity in the collateral line within the fourth degree of relationship.
DONOR’S TAX • Donor – Individual • Citizen and resident alien -- Taxable • Non-resident alien – Taxable on property located in the Phil
– Corporation • Domestic corporation and resident foreign corporation -Taxable • Non-resident foreign corporation – Taxable on property located in the Phil
• Donation of conjugal – Made by both spouses – TWO donations – Made only by one spouse (Tang Ho v. Board of Tax Appeals [now CTA]) – ONE donation
DONOR’S TAX • Cumulative computation of donor’s tax is required for all donations by the same donor to members of the family during the calendar year, but no cumulative computation is required for donations to strangers. • Exempt donations – To Phil govt for scientific, engineering, etc purposes – To social welfare, cultural, and charitable organizations, not more than 30% shall be used for administration purposes – To IRRI and Ramon Magsaysay Awards Foundation – To National Museum and National Library – To Intramuros Administration
BUSINESS TAXES • VAT (Title IV, NIRC) • Taxable transactions – Sale or lease of goods or properties – Sale of services – Importation of goods
• Formula – Output Tax – Less: Input Tax – VAT Payable/(Excess Input Tax)
• NON-VAT/EXEMPT FROM VAT • Transaction is subject to Other Percentage Tax (Title V, NIRC)
– Tax is imposed on Gross Receipts or Gross Income
• VAT is imposed in addition to Excise Tax (Title VI, NIRC)
• No VAT or OPT is imposed (Sec 109, NIRC)
VALUE ADDED TAX • CHARACTERISTICS OF VAT – Tax on value added of taxpayer – Transparent form of sales tax – Broad-based tax on consumption of goods, properties and services in the Phil – Indirect tax – Tax is collected thru the tax credit method • Output tax on sales less input tax on purchases
– No cascading of tax in VAT system – “Tax-inclusive method” is adopted by the Phil
VALUE ADDED TAX • TAXABLE PERSONS – Seller of goods or properties • Sale, barter or exchange of goods or properties that are consumed or for consumption in the Phil • In the course of trade or business • Sale of goods or properties is not exempt from VAT
– Seller of services • • • •
Listed services are performed or to be performed in the Phil In the course of trade or business For a valuable consideration Services are not exempt from VAT
– Importer of goods • Whether done in the course of his trade or business or for personal consumption
VALUE ADDED TAX • SPECIAL TYPES OF PERSONS ENGAGED IN TAXABLE TRANSACTIONS – Husband and wife are separate taxpayers – Unincorporated joint venture undertaking construction activity is subject to VAT, although exempt from income tax – Government • Governmental function: Exempt from VAT • Proprietary function: Subject to VAT – Non-stock, non-profit association • Association dues and special assessments; guest fees and fees for use of facilities – exempt from VAT • Income from operating restaurant, boutique or shop or for leasing facilities -- taxable
VALUE ADDED TAX • Seller of real properties is subject to VAT – Seller executes a document of sale (DAS or CTS) – Real property is located in the Phil – Seller is engaged in real estate business either as dealer, developer or lessor – Real property is held primarily for sale or for lease in the ordinary course of trade or business – Sale is not exempt from VAT • However, Rev. Regs. No. 4-2007 (Feb 2007) provides that “if the real property sold is used in his trade or business, said transaction is subject to VAT, being incidental to the main business” of the taxpayer, who is a VAT-registered taxpayer engaged in other types of business. • Rules on installment sales of real property in income tax law are adopted for VAT purposes. Thus, sales with initial payments of 25% or less of GSP shall be reported only in period of sales.
VALUE ADDED TAX • Sale, barter or exchange – Sale, barter or exchange has the same tax consequence – There must be valuable consideration; hence, donation is exempt from VAT – Deemed sale is subject to VAT (output tax) in order to recoup previous VAT (input tax) allowed – Excise tax, if any, interest, and delivery charges form part of gross selling price
• In the course of trade or business – The regular conduct or pursuit of a commercial or an economic activity, including transactions deemed 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. – Isolated transactions are not subject to VAT. – Incidental income follows taxation of the principal activity.
VALUE ADDED TAX – The absence of profit in the performance of taxable services does not make such activity for a fee exempt from VAT (CIR v. COMASERCO, GR 125355, Mar 30, 2000).
• Goods or properties must be located in the Philippines and consumed or destined for consumption in the Phil. – Special economic zones under RA 7916 (PEZA Law) and freeport zones under RA 7227 (BCDA Law) are treated as foreign territories by fiction of law. Hence, importation of goods by a special economic or freeport zone enterprise shall be exempt from VAT and customs duties and will be subject to VAT and duties only upon their withdrawal from the customs custody. – Destination Principle: • Export sales of goods are zero-rated (0% VAT), provided seller is VAT-registered person • Import of goods into the Phil is taxable at 12% VAT
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Tax base for sale of goods or property is “Gross Selling Price” (GSP) - the total amount of money or its equivalent, which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the VAT. As a rule, output tax accrues on sale of goods or properties (other than a real property sold with initial payments of 25% or less) at the time of sale, when the VAT sales invoice is issued, although none or only a part of the gross selling price is paid by the buyer at the time of sale. Excise tax, if any, shall form part of GSP. Sales discounts determined and granted at the time of sale, which are expressly indicated in the sales invoice do not form part of the tax base. Grant of discount must not depend upon the happening of a future event or the fulfillment of certain condition. They must be recorded in the books of accounts of the seller. 20% sales discounts to senior citizens under RA 9257 (Amended Senior Citizens Law) shall be deducted from gross sales before applying the VAT rate.
VALUE ADDED TAX • When VAT is not separately indicated in the invoice or receipt, to determine Gross Selling Price or Gross Receipts (100%), divide Total Invoice Amount (112%) by 1.12. • If Total Invoice Amount includes EWT, determine first the Gross Selling Price, and then apply the VAT rate on GSP. • Tax base for installment sales of real property – If initial payments (consisting of down payment and all monthly amortizations in the year of sale) exceeds 25% of the gross selling price, the tax base is the entire gross selling price as shown in the document of sale, even though only a part of it has been received during the period – If initial payments during the year of sale do not exceed 25% of gross selling price, the tax base during the period is only the amount received
• Tax rates – 12% beginning Feb 1, 2006 (RA 9337) – 0% VAT on zero-rated sales (automatic or effectively zero-rated)
VALUE ADDED TAX • Sales of goods subject to 0% VAT – Actual export sales – Deemed export sales • Internal or constructive export sales under BOI law (EO 226) and special laws (RA 7916 and RA 7227) are automatically zero-rated. – Ecozones and freeport zones are deemed foreign territories by fiction of law (CIR v. Seagate Technology (2005); CIR v. Toshiba Information Equipment (2005)
– For as long as the goods remain within the zone, consumed or destroyed there, they will be duty-free and tax-free (Coconut Oil Refiners Asso v. Torres (2005)
• Effectively zero-rated sales (sales to ADB, embassies, etc) need approval from BIR before sale; otherwise, sale is exempt. – Sales of gold to BSP, but sales of silver is subject to 12% VAT. – Foreign currency denominated sales – Sales of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations
VALUE ADDED TAX • ZERO-RATED SALE • Transaction is completely free of VAT; rate charged by seller is zero • VAT-registered seller can reclaim input taxes passed on to it by sellers of goods or services from BIR in form of refund or tax credit • Zero-rated sales are taxable sales for purposes of registration as VAT taxpayer to determine threshold
• EXEMPT SALE • Exemption removes the VAT at the exempt stage • Exempt taxpayer cannot reclaim VAT passed on to it by VAT-registered sellers • Exempt sales are not taxable sales for VAT purposes
VALUE ADDED TAX • PERSONS SELLING TAXABLE SERVICES – – – – – –
Construction and service contractors Brokers Lessors of property, real or personal Warehousing services Lessors or distributors of cinematographic films Persons engaged in milling, processing, manufacturing or repacking goods for others – Proprietors or operators or keepers of hotels, motels, resthouses, pension houses, inns and resorts – Proprietors or operators of restaurants and other similar establishments
VALUE ADDED TAX • PERSONS SELLING TAXABLE SERVICES – Dealers in securities – Lending investors – Transportation contractors on their transport of goods or cargoes – Domestic common carriers by air and sea between points in the Philippines – Sales of electricity – Services of franchise grantees, except water and gas – Non-life insurance companies, except crop insurance – Similar services, regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties
VALUE ADDED TAX • “Gross receipts” means the total amount of money or its equivalent, representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the VAT, except those amounts earmarked for payment to unrelated third party or received as reimbursement for advance payment on behalf of another, which do not redound to the benefit of the payor. • For sale of services, the test is not whether services have been performed or not, but whether amount of compensation or fee is received, actually or constructively. The rule is: NO RECEIPT OF PAYMENT, NO VAT LIABILITY. • A contractor that agrees to provide the materials and labor for a construction project is a seller of services for the entire amount of consideration.
VALUE ADDED TAX • ZERO-RATED SALES OF SERVICES – Processing, manufacturing or repacking goods for other persons doing business outside the Phil, which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations – Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Phil or to a non-resident person not engaged in business who is outside the Phil when the services are performed, the consideration for which are paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations (CIR v. BWSC Mindanao, GR 153205, Jan 22, 2007) – Services rendered to persons or entities whose exemption under special laws or international agreements to which the Phil is a signatory effectively subjects the sale of services to 0% rate
VALUE ADDED TAX • ZERO-RATED SALES OF SERVICES – Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof • Services rendered by local shipping agents and by local shipping lines to international carriers are zero-rated only if they pertain to outbound trips; on inbound trips, they are subject to 12% VAT.
– Services performed by subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceeds 70% of total annual production – Transport of passengers and cargo by domestic air or sea carriers from the Phil to a foreign country – Sale of power or fuel generated thru renewable sources of energy (biomass, solar, wind, hydropower, geothermal and other emerging sources)
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Tax Code not only requires that the services other than “processing, manufacturing or repacking of goods” and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules. Another essential condition for qualification to zero-rating under Sec 102(b)(2) is that the recipient of such services is doing business outside the Phil. While this requirement is not expressly stated in the 2nd paragraph of Sec. 102(b), this is clearly provided in the 1st paragraph of Sec 102(b) where the listed services must be “for other persons doing business outside the Phil.” The above phrase not only refers to services enumerated in the first paragraph, but also pertains to the general term “services” appearing in the second paragraph. Otherwise, those subject to the regular VAT under Sec 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret Sec. 102(b)(2) shall apply to a payer-recipient of services doing business in the Phil is to make the payment of regular VAT dependent on the generosity of the taxpayer. A tax is a mandatory exaction, not a voluntary contribution.
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Significantly, the amended Section 108(b) [previously Sec 102(b)] of the present Tax Code clarifies this legislative intent. For zero-rating of services, it must be rendered to a person engaged in business conducted outside the Phil. The payer-recipient of respondent’s services is the Consortium which is a joint venture doing business in the Phil. While the Consortium’s principal members are non-resident foreign corps, the Consortium itself is doing business in the Phil. This is shown in BIR Ruling 23-95, which states that the contract between Consortium and NPC is for a 15-year term. Considering the length of time, the Consortium’s operation and maintenance of NPC’s power barges cannot be classified as a single or isolated transaction. This case is different from CIR v. American Express International, Inc. (Phil Branch), because in the latter case, the recipient of services is AEII (HK Branch) doing outside the Phil (CIR v. BWSC Mindanao, Inc., GR153205, Jan 22, 2007). CIR’s filing of its Answer before the CTA challenging claim for refund effectively serves as a revocation of VAT Ruling 03-99 and BIR Ruling 2395. However, such revocation cannot be given retroactive effect since it will prejudice respondent.
VALUE ADDED TAX • VAT-EXEMPT TRANSACTIONS – A. Sale or importation of agricultural and marine food products in their original state; livestock and poultry generally producing food for human consumption; and breeding stock – B. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds (except specialty feeds for race horses, fighting cocks and other pets) – C. Importation of personal and household effects belonging to residents of the Phil returning from abroad and non-resident citizens coming to resettle in the Phil – D. Importation of professional instruments and implements, and personal effects (except vehicle, vessel, aircraft, machinery for use in manufacture) belonging to persons coming to settle in the Phil – E. Services subject to percentage tax under Title V, such as 3% percentage tax, common carrier’s tax on land transportation and international carriers, gross receipts tax on banks and finance companies, premium tax on life insurance companies, franchise tax on gas and water grantees, etc.
VALUE ADDED TAX • VAT-EXEMPT TRANSACTIONS – G. Medical, dental, hospital and veterinary services, except those rendered by professionals • Sales of medicines by hospitals to in-patients are exempt from VAT as medical/hospital services.
– H. Educational services rendered by private educ institutions accredited by DepEd, CHED, TESDA, and those rendered by government educational institutions • Review schools and training institutes are not accredited by govt; hence, subject to VAT
– I. Services rendered by individuals pursuant to an employer-employee relationship – O. Export sales by persons who are not VAT-registered – P. Sale of real property not primarily held for sale to customers or for lease in the ordinary course of trade or business, or real property for low-cost and socialized housing, residential lot valued at P1.5 M or below, house and lot and other residential dwellings valued at P2.5 M or below
VALUE ADDED TAX • VAT-EXEMPT TRANSACTIONS – Q. Lease of a residential unit with a monthly rental not exceeding P10,000 • Lease of commercial buildings are subject to VAT, regardless of rental per month or unit, provided threshold of P1.5 M is exceeded.
– R. Sale, importation, printing or publication of books and any newspaper or magazine which appear at regular intervals with fixed prices and is not devoted principally to publication of paid advertisements – V. Sale or lease of goods or property or the performance of services other than transactions mentioned above, the gross sales or receipts do not exceed P1.5 M • If sale of goods pertains to agricultural or marine food products in their original state or sale of books, or sale of service relates to rental of residential unit not exceeding P10,000, transaction is exempt even if gross sales or receipts exceed P1.5 M.
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Sale of medicines by the hospital pharmacy to in-patients is exempt from VAT, but sale to out-patients is subject to 12% VAT (St. Luke’s Medical Center v. CTA and CIR, 1998). Tolling fees received by a hotel for PLDT is not part of its gross receipts Payment of VAT by the hotel on fees for providing limousine service to its client is correct. It is not subject to the 3% common carrier’s tax. Claim for tax credit is denied (Manila Mandarin Hotel v. CIR) Gross receipts of theatre owner or operator from sales of tickets to moviegoers are exempt from VAT. Theatres and movie houses are not included in the enumeration of taxable services in the VAT law. Our tax laws, past and present, did not adopt more specific terms for “sale or exchange of services” to include showing of films in public (SM Prime Holdings v. CIR, CTA Case 7079, 2006). PAGCOR is exempt from VAT pursuant to its charter, PD 1869. Being a special law, PD 1869 prevails over RA 7716, a subsequent general law. To be valid, repeal of special law should be express (CIR v. Acesite Hotel Corp, GR 147295, Feb 16, 2007).
VALUE ADDED TAX • CATEGORIES OF INPUT TAXES – Input tax credit on importations of goods and current local purchases of goods, properties and services • Input tax on capital goods must be amortized over certain period
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Transitional input tax credit Presumptive input tax credit Withholding input tax credit Excess input tax credit
• Only VAT-registered persons are entitled to credit input taxes against their output tax. • Non-registration as a VAT taxpayer does not exempt him from VAT output tax liability on his taxable sales of goods, properties or services.
VALUE ADDED TAX • For sale of services, the rule is: NO PAYMENT OF FEE BY BUYER AND ISSUANCE OF VAT RECEIPT BY SELLER, NO INPUT TAX FOR BUYER! • Transitional Input Tax – 2% of value of inventory or actual VAT paid on such goods, materials and supplies, whichever is higher – Transitional input tax is allowed not only on land improvements but also on land itself (CIR v. Fort Bonifacio Dev Corp, 2009)
• Presumptive Input Tax – Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil, and packed noodle-based instant meals are entitled to presumptive input tax equivalent to 4% of gross value in money of their purchases of primary agricultural products which are used as inputs to their production (Sec. 111, NIRC)
VALUE ADDED TAX • Tax reliefs of VAT taxpayers on their excess input taxes (EIT) attributable to zero-rated and effectively zero-rated sales – Carry over the excess input tax to the next quarter, until excess is utilized – File a claim for refund – File a claim for tax credit, within two years after the close of taxable quarter where the sales were made, (NOT from the filing of the quarterly VAT return)
• For non-zero-rated sales, remedy available is only to carry over EIT to the next quarter(s), or to dissolve the corporation or cease operation of business subject to VAT within 2 years from date of dissolution or cessation of business
VALUE ADDED TAX • Prescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid (CIR v. Mirant Pagbilao Corp, 2008). • NOTE: It appears that the SC strictly interprets the provision of Sec. 112 of the Tax Code, even with respect to sale of services. In other words, where the law does not qualify, it is not for the court nor the BIR to so qualify.
VALUE ADDED TAX • ADMINISTRATIVE REQUIREMENTS – – – – – –
REGISTRATION INVOICING BOOKKEEPING FILING OF TAX RETURN AND PAYMENT OF TAX WITHHOLDING OF TAX INVENTORY OF: • GOODS, MATERIALS AND SUPPLIES • UNUSED NON-VAT INVOICES OR RECEIPTS
VALUE ADDED TAX • OPTIONAL VAT REGISTRATION FOR EXEMPT PERSON: – ANY PERSON WHO IS NOT REQUIRED TO REGISTER FOR VAT UNDER SUBSEC. (G) MAY ELECT TO REGISTER FOR VAT PURPOSES. – ELECTION IS IRREVOCABLE FOR 3 YEARS FROM QUARTER ELECTION WAS MADE (Sec. 236(H), RA 9337) – ANY PERSON WHO IS VAT-EXEMPT UNDER SEC. 4.109-1(B)(1)(V), NOT REQUIRED TO REGISTER FOR VAT MAY, IN RELATION TO SEC. 4.109-2, ELECT TO BE VAT-REGISTERED. ONCE VATREGISTERED, HE CANNOT CANCELL HIS REGISTRATION FOR THE NEXT 3 YEARS (Sec. 109-2, RR 14-05)
VALUE ADDED TAX • REGISTER AS VAT PERSON – VENUE • LARGE TAXPAYER • NON-LARGE TAXPAYER
– BIR FORM
• CANCELL NON-VAT REGISTRATION – SURRENDER CERT. OF REGISTRATION
• PENALTY FOR NON-REGISTRATION – 10% OUTPUT TAX – NO INPUT TAX CREDIT
• ANNUAL REGITRATION FEE
VALUE ADDED TAX • REQUIRED INFORMATION IN INVOICE OR RECEIPT – NAME AND ADDRESS OF SELLER – STATEMENT THAT SELLER IS VAT-REGISTERED PERSON + TIN – DATE, QTY, UNIT COST, AND DESCRIPTION OF GOODS OR NATURE OF SERVICE – TOTAL AMOUNT • SEPARATE INDICATION OF VAT • VAT-EXEMPT SALE • ZERO-RATED SALE
(prev. Sec. 106(D) & 108©, NIRC)
– NAME, BUS. STYLE, ADDRESS AND TIN OF VAT-REGISTERED BUYER OR CUSTOMER, IF AMOUNT IS P1,000 OR MORE (Sec. 113(B), RA 9337)
VALUE ADDED TAX • SEPARATE INVOICE OR RECEIPT – SUBJECT TO VAT • 10% or 12%, beginning Feb 1, 2006 (REGULAR SALE, INCL. SALE TO GOVERNMENT), OR 0% (“ZERO-RATED SALE”)
– EXEMPT FROM VAT: EXEMPTION MAY REFER TO A TRANSACTION OR PERSON • AMOUNT RECEIVED IS NOT ITS INCOME OR FEE BUT FOR ANOTHER ENTITY • FOR REIMBURSEMENT OF ADVANCES • “VAT-EXEMPT SALE”
– If VAT invoice or receipt is issued by a seller for a VAT-exempt transaction, he is liable to VAT output tax as a penalty, but the buyer is entitled to claim VAT input tax.
• COMBINED VAT AND NON-VAT INVOICE OR RECEIPT – BREAKDOWN OF SALES PRICE – CALCULATION OF VAT ON TAXABLE PORTION
OTHER PERCENTAGE TAXES • • • • • • • • •
Sec. 116 – 3% percentage tax on sale or lease of goods, properties or services of non-VAT registered persons whose annual gross sales or receipts do not exceed P1.5 M Sec. 117 – 3% common carriers tax on domestic common carriers by land on transport of passengers and keepers of garages Sec. 118 – 3% common carriers tax on international air and sea carriers Sec. 119 – 3% franchise tax on grantees of radio and/or TV broadcasting whose gross receipts do not exceed P10 M and 2% franchise tax on grantee of gas and water utilities Sec. 120 – 10% overseas communication tax on dispatch originating from the Phil Sec. 121 – Gross receipts tax on banks Sec. 122 – Gross receipts on finance companies Sec. 123 – 5% premium tax on life insurance companies Sec. 125 – Amusement tax on proprietors, lessees or operators of cockpits, cabarets, night or day clubs (18%), boxing exhibitions (10 %), professional basketball games (15%) and race tracks (30%)
Agencia Exquisite of Bohol v. CIR • FACTS • Mar 11, 1991 - CIR issued RMO 15-91 classifying pawnshop business as akin to lending investor’s business activity, which is broad enough to encompass the business of lending money at interest by any person, and imposing the 5% lending investor’s tax based on gross income, pursuant to Sec. 116 of (1977) Tax Code. • The RMO was later clarified by RMC 43-91 dated May 27, 1991. It revoked BIR Ruling No. 6-90 and VAT Ruling No. 22-90 and 67-90. In order to avoid unfairness if they are required to pay the tax on past transactions, pawnshop owners shall become liable to the lending investor’s tax beginning Jan 1, 1991. Since the deadline for filing OPT return and payment of tax for Q1 1991 has already lapsed, taxpayers were given until June 30, 1991 to pay the tax without penalty. • For 1995, AEBI was issued FAN and assessed for def. lending investor’s tax of 5% on gross income.
Agencia Exquisite of Bohol v. CIR • June 28, 1998 – AEBI filed administrative protest which BIR Director denied on Feb 3, 1999. • AEBI filed petition for review with CTA. • June 7, 2000 – CTA rendered decision in favor of AEBI and cancelled assessment. • BIR appealed to CA. On Mar 23, 2001, CA rendered decision reversing and setting aside decision of CTA. • AEBI filed MR but was denied; hence, it filed this petition for review on certiorari. • In a resolution, 3 cases were consolidated.
• ISSUE – Whether or not pawnshops are liable for 5% lending investor’s tax.
Agencia Exquisite of Bohol v. CIR • SC RULING • The Court agrees with the contention of AEBI and EPJI, the issue herein not being a novel one. • In CIR v. Michel J. Lhuillier Pawnshop, this Court held that pawnshops are not included in the term lending investors for the purpose of imposing the 5% percentage tax under Sec. 116, as amended by EO 273.
Agencia Exquisite of Bohol v. CIR • In CIR v. Trustworthy Pawnshop, this Court reiterated its ruling Lhuillier for the following reasons: – Sec. 192 of Tax Code, prior to its amendment by EO 273, pawnshops and lending investors were subjected to different tax treatments. – Congress never intended pawnshops to be treated in the same way as lending investors. The definition of lending investors found in Sec 157(u) of 1986 NIRC is not found in 1977 NIRC, as amended by EO 273. – Sec. 116 of 1977 NIRC, as amended by EO 273, subjects to percentage tax dealers in securities and lending investors only. There is no mention of pawnshops. The mention of one thing implies the exclusion of another thing not mentioned. – BIR had ruled several times prior to issuance of RMO 15-91 and RMC 43-91 that pawnshops were not subject to 5% percentage tax imposed in Sec. 116, as amended by EO 273.
Agencia Exquisite of Bohol v. CIR • RA 7716 (EVAT Law) repealed Sec. 116 of 1977 NIRC, as amended, which was the basis of RMO 15-91 and RMC 43-91. Since Sec. 116, which breathed life on the questioned administrative issuances, had been repealed, RMO 15-91 and RMC 43-91, which depended upon it, are deemed automatically repealed. • Absence of publication of RMO and RMC makes them invalid. CIR may not disregard legal requirements or applicable principles in the exercise of quasi-legislative powers. • Once a case has been decided one way, any other case involving exactly the same point at issue should be decided in the same manner under the doctrine of stare decisis et not quieta movere.
• END OF PRESENTATION • Atty. Vic C. Mamalateo • Mobile: 0918-9037436 • Email:
[email protected];
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