ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPA Licensure Examination

TAX-301
TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

VAT-SUBJECT TRANSACTIONS
1. VAT-Subject Transactions
Transactions Tax Base
a. Sale of goods or properties in the course of trade or business Gross selling price
b. Sale of services and lease of properties in the course of trade or business Gross receipts
c. Importation Total landed cost

2. “In the Course of Trade or Business” Defined

The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic
activity including transactions incidental thereto, by any person regardlless 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.

The rule of regularity, to the contrary notwithstanding, services as defined in the Tax Code rendered in the Philippines by non-
resident foreign persons shall be considered as being rendered in the course of trade or business.

Exercises: Determine whether or not the following are subject to VAT

Trasaction VAT-subject?
a. Sale of bread by a bakery
b. Sale of residential lot by a real estate dealer
c. Sale of residential house and lot by the owner who resides in such property
d. Sale of lechong manok and drinks by restaurant and other eating places
e. Importation of raw materials for business purpose
f. Importation of computer for personal use
g. Sale of office supplies by a non-profit institution
h. Warehousing services by a government-owned or controlled corporation
i. Sale of food and drinks in a club operated by a non-profit organization
j. Sale of office equipment and furniture by a VAT-registered service provider

3. Goods or properties
The term “goods or properties” refers to all tangible and intangible objects which are capable of pecuniary estimation and
shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
c. The right or the privilege to use any industrial, commercial or scientific equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.

4. Sale or exchange of services

Sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, whether in kind or in cash, including those performed or rendered by:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; (theatres and movie
houses (deleted in TRAIN);
h. Proprietors, operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and
caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or cargoes including persons who transport goods or cargoes for
hire and other domestic common carriers by land, relative to their transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines;
m. Sales of electricity by generation, transmission, and/or distribution companies, including electric cooperatives;
n. Services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other
franchise grantees, except those under Section 119 of the Tax Code;
o. Non-life insurance companies (except their crop insurance), including surety, fidelity, indemnity and bonding
companies;
p. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental
faculties.

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The phrase “sale of exchange of services” shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is
mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or
the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person.
(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing
agreement was executed if the property is leased or used in the Philippines.
5. Computation of VAT Payable (Excess Input Tax)
a. Output tax exceeds input tax at the end of any taxable quarter Output tax xxx
Less: Input tax xxx
VAT payable xxx
b. Input tax inclusive of input tax carried over from the previous Output tax xxx
quarter exceeds output tax Less: Input tax ( xxx )
Excess input tax (xxx )
6. Computation of the Tax Base and the Applicable Tax Rates
Transaction Tax Base Tax Rate
a. Sale of goods The term "gross selling price" means the total amount of money or its 12% or 0%
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 value-added tax. The excise tax, if any, on such goods or
properties shall form part of the gross selling price.

In computing the taxable base during the month or quarter, the

following shall be allowed as deductions from gross selling price:
(a) Discounts determined and granted at the time of sale,
which are expressly indicated in the invoice, the amount
thereof forming part of the gross sales duly recorded in the
books of accounts.
Sales discount indicated in the invoice at the time of sale,
the grant of which is not dependent upon the happening of
a future event, may be excluded from the gross sales
within the same month/quarter it was given.
(b) Sales returns and allowances for which a proper credit or
refund was made during the month or quarter to the buyer
for sales previously recorded as taxable sales.

Gross selling price

Gross sales xxx
Less: Sales returns and allowances xxx
Sales discount xxx xxx
Net sales xxx
Add: Excise tax, if any xxx
Tax base (excluding VAT) xxx
b. Sale of real properties on Installment received xxx 12% or 0%
installment plan (initial Add: Interest xxx
payments do not exceed 25% Penalties for late payment xxx xxx
of the gross selling price) Tax base xxx
If FMV is greater than selling price:
Actual collection (VAT exclusive)
--------------------------------------------- x Fair Market Value
Agreed consideration (VAT exclusive)
c. Sale of real properties on cash Selling price stated in the sales documents or fair market value, whichever is 12% or 0%
basis or deferred payment plan higher
(initial payments exceed 25%
of the gross selling price)
d. Sale of services The term "gross receipts" means the total amount of money or its 12% or 0%
equivalent representing the contract price, compensation, service fee,
rental or royalty, including the amount charged for materials supplied with
the services and deposits and advanced payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added
tax.

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VAT-SUBJECT TRANSACTIONS TAX-301
Gross receipts computed as follows:
Cash received (actually and constructively) xxx
Advance payments for future projects xxx
Materials charged with the services xxx
Gross receipts (excluding VAT) xxx
Note: Receivables, although earned, are not included.
e. Gross receipts for dealer in For Dealer in Securities, the term “gross receipts” means gross selling 12% or 0%
securities price less cost of the securities sold.
Gross receipts computed as follows:
Gross selling price xxx
Less: Acquisition cost of securities sold for the month or quarter xxx
Balance xxx
Add: Other or incidental income xxx
Gross receipts (excluding VAT) xxx
f. Gross receipts on the Gross receipts shall refer to the following: 12% or 0%
sale of electricity by a. Total amounts charged by generation companies for the sale of electricity
generation, and related ancillary services;
transmission and b. Total amount charged by transmission by any entity including National
distribution Grid Corporation of the Philippines (NGCP) for transmission of electricity
companies and related ancillary services;
c. Total amount charged by distribution companies and electric cooperatives
for distribution and supply of electricity and related electric service. The
universal charge passed on and collected by distribution companies and
electric cooperatives shall be excluded from the computation of the Gross
Receipts.
Sale of electricity by generation, transmission by any entity including
the National Grid Corporation of the Philippines (NGCP), and
distribution companies including electric cooperatives shall be subject
to twelve percent (12%) VAT on their gross receipts.
g. Gross receipts from Total premiums collected, whether paid in money, notes, credits or any 12% or 0%
non-life insurance companies substitute for money
7. VAT on Importation
a. When importation begins Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines
and deemed terminated with intention to unlad therein.
Importation is deemed terminated upon payment of the duties, taxes and other charges due
upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal
shall have been granted, or in case said articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs.
b. Tax base There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to twelve percent (12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on the basis
of the quantity or volume of the goods, the value-added tax shall be based on the landed cost
plus excise taxes, if any.
In general where customs duties are based on the value (ad valorem)
Total value (i.e. dutiable value-cost, insurance, freight) xxx
Add: Customs duties xxx
Excise tax xxx
Other charges prior to release of goods from Customs custody xxx xxx
Tax base xxx
In case where customs duties is based on volume or quantity (specific)
Total landed cost xxx
Add: Excise tax xxx
Tax base xxx
c. Tax rate 12%

8. Output VAT
a. Meaning of output tax Output tax means the value-added tax on sale or lease of taxable goods or properties or
services by any person registered or required to register.
b. Determination of output tax In a sale of goods or properties, the output tax is computed by multiplying the gross selling
price by the regular rate of VAT.
c. Exercises
1) Selling price, net of VAT, P120,000
2) Selling price, gross of VAT, P240,000
3) Sales per books, P100,000
4) Selling price including erroneous VAT, P110,000
d. Exercises
1) (Phil. CPA Modified) The Pastry Shop sells cakes and pastry items to well-known hotels around the Metro Manila area. The hotels
are allowed credit based on the track record of the hotels. The total amounts received or receivable from sales by the Pastry Shop
in April, 2021 were P224,000, including the value-added tax. Seventy-five percent (75%) of the sales are normally on account.
How much is the value-added tax on the sales for the month of April, 2021?
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2) The following data are taken from sale of a real estate dealer on January 2, 2018:
Consideration in the Deed of Sale P5,000,000
Fair market value per tax declaration 4,800,000
Fair market value per BIR 5,200,000
Selling price of an adjacent lot sold on the same date 6,000,000
Payments on the consideration:
January 2, 2018 1,000,000
January 2, 2019 2,000,000
January 2, 2020 2,000,000
How much is the output tax for January 2, 2018, January 2, 2019 and January 2, 2020 using 12% VAT rate?
3) The following data are taken from the books of a dealer in securities:
Selling price, shares held as inventory P3,000,000
Selling price, shares held as investment 2,000,000
Acquisition cost, shares held as inventory 1,000,000
Acquisiton cost, shares held as investment 1,500,000
Other income, shares held as inventory 200,000
How much is the output tax using 12% rate?
4) A VAT-registered contractor has the following selected VAT exclusive data for the month of July 2021:
Collections from contracts completed in June, 2021 P500,000
Advances from contracts to be completed in August, 2021 300,000
Collections from contracts completed in July, 2021, net of 10% retention on billings transferred
by the payor to the account of the contractor 198,000
Materials charged with the services rendered, July, 2021 100,000
Payments for services rendered by a sub-contractor, July, 2021 200,000
How much is the:
a) gross receipts for the month of July, 2021?
b) output tax for the month of July, 2021 using 12% rate?

c. 5) A VAT-registered taxpayer has the following VAT-exclusive data for the month of January 2021:
Accounts receivable, January 1, 2021 P 500,000
Sales on account for the month of January 1,000,000
Cash sales for the month of January 300,000
Accounts receivable, January 31, 2021 700,000
Cash purchases for the month of January 2021 400,000
How much is the output tax for the month of January, 2018 using 12% rate assuming the taxpayer is a:
a) trader. b) service provider

5) Mr. Cris T. Rosales, not VAT-registered, imported an article from Japan for his personal use. The invoice value of the imported
article was Y1,000,000 (Y1=P0.35). The following were incurred in connection with the importation:
Insurance P15,000
Freight 10,000
Postage 5,000
Wharfage dues 7,000
Arrastre charges 8,000
Brokerage fees 25,000
Facilitation fee 3,000

The imported article was subject to P50,000 customs duties and to P30,000 excise tax. How much was the VAT on importation
using 12% rate?

9. Sources of Output Taxes

Sale of goods or properties Sale of services and lease of properties
a. Actual regular sales a. Actual regular sales
b. Actual zero-rated sales b. Actual zero-rated sales
c. Deemed sales

10. Zero-Rated Sales of Goods ro Properties Defined

A zero-rated sale of goods or properties and services (by a VAT-registered person) is a taxable transaction for VAT purposes,
but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such
zero-rated sale, shall be available as tax credit or refund in accordance with the Regulations.
Under TRAIN
a. Export sales of goods Zero-rated
b. Foreign currency denominated sales 12% regular VAT rate
a. Effectively zero-rated sales Zero-rated

11. Zero-Rated Sales of Goods or Properties

a. Export sales of goods
1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement
that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported 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 the Bangko Sentral ng Pilipinas (BSP);

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2) Sale and delivery of goods to:
a) Registered enterprises within a separate customsterritoryas provided underspecial laws; and
b) Registered enterprises within tourism enterprise zones as declared by the Tourism Infrastructure and
Enterprise Zone Authority (TIEZA) subject to the provisions under Republic Act No. 9593 or The Tourism Act of 2009.
(Vetoed)
3) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export oriented
enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and
paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
4) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of the total
annual production;
5) Those considered export sales under the Omnibus Investment Code of 1987 (E. O. No. 226), and other special laws.
6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air
transport operations Provided, That thegoods,supplies,equipmentand fuelshall be used for international shipping or
air transport operations.

The sale of goods, supplies, equipment and fuel to person engaged in international shipping or air transport operations is
limited to goods, supplies, equipment and fuel that shall be used in the transport of goods and passenger from a port in
the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that
originated from abroad, or to load passengers and/or cargoes bound for abroad: Provided, further, that if any portion of
such fuel, goods, supplies or equipment is used for purposes other than that mentioned in this paragraph, such portion of
fuel, goods, supplies and equipment shall be subject to twelve percent (12%) VAT

b. Sales to persons or entities whose exemption from direct or indirect taxes under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.

c. Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods, to a registered export enterprise,
to be used directly and exclusively in its registered project or activity pursuant to Section 294 ( E) and 295 (D) of CREATE
Act (R.A. No. 11534) and Section 5, Rule 2 of its IRR for a maximum of 17 years form date of registration, unless
otherwise extended under SIPP.

The term “registered export enterprise” shall refer to an export enterprise as defined under Section 4 (M), Rule 1 of
CREATE Act IRR, that is also a registered business enterprise as defined in Section 4 (W) of the same IRR.

The above-described sales to existing registered export enterprises located inside ecozones and freeport zones shal also
be qualified for VAT zero-rating under this sub-item until the expiration of the transitory period.

Registered business enterprise refers to any individual, partnership, corporation, Philippine branch of a foreign
corporation, or other entity organized and existing under Philippines laws and registered with an Investment Promotion
Agency excluding services enterprises such as those engaged in customs brokerage, trucking or forwarding services,
janitorial services, security services, insurance, banking, and other financial services, consumers’ cooperatives, credit
unions, consultancy services, retail enterprises, restaurants, or such other similar services as may be determined by the
Fiscal Incentive Review Board, irrespective of location, whether inside or outside the zones, duly accredited or licensed by
any of the Investment Promotion Agencies and whose income delivered within the economic zones shall be subject to
taxes under the National Internal Revenue Code of 1997, as amended.
12. Zero-rated Sales of Goods or Properties which Shall be Subject to 12% VAT Upon Satisfaction of Certain
Conditions (under the TRAIN)
Sale of goods or properties Sale of services
a. Items subject to 1) Sale of raw materials or packaging materials 1) Processing, manufacturing or repacking of
the twelve percent to a nonresident buyer for delivery to a goods for other persons doing business
(12%) value- resident local export oriented enterprise to be outside the Philippines which goods are
added tax and no used in manufacturing, processing, packing or subsequently exported where the services
longer be repacking in the Philippines of the said are paid for in acceptable foreign currency
considered export buyer’s goods and paid for in acceptable and accounted for in accordance with the
sales subject to foreign currency and accounted for in rules and regulations of the Bangko Sentral
zero percent (0%) accordance with the rules and regulations ng Pilipinas (BSP);
VAT rate of the Bangko Sentral ng Pilipinas (BSP); 2) Services performed by subcontractors and/or
2) Sale of raw materials or packaging materials contractors in processing, converting, or
to export-oriented enterprise whose export manufacturing goods for an enterprise whose
sales exceed 70% of the total annual export sales exceed 70% of the total annual
production; production.
3) Those considered export sales under the
Omnibus Investment Code of 1987 (E. O.
No. 226), and other special laws.
b. Conditions to be 1) Successful establishment and 1) Successful establishment and
satisfied implementation of an enhanced VAT implementation of an enhanced VAT
refund system that grants refunds of refund system that grants refunds of
creditable input tax within ninety (90) creditable input tax within ninety (90)
days from the filing of the VAT refund days from the filing of the VAT refund
application with the Bureau. application with the Bureau.

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To determine the effectivity of item no. 1, all To determine the effectivity of item no. 1, all
applications filed from January 1, 2018 applications filed from January 1, 2018
shall be processed and must be decided shall be processed and must be decided
within ninety (90) days from the filing of the within ninety (90) days from the filing of the
VAT refund application; and VAT refund application; and
2) All pending VAT refund claims as of 2) All pending VAT refund claims as of
December 31, 2017 shall be fully paid in December 31, 2017 shall be fully paid in
cash by December 31, 2019. cash by December 31, 2019.

13. Considered Export Sales Under Omnibus Investment Code

“Considered export sales under Executive Order No. 226” shall mean:
a. the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing
certificates, and other commercial documents, of export products exported directly by a registered export
producer, or
b. the net selling price of export products sold by a registered export producer to another export producer, or
to an export trader that subsequently exports the same;
Sales of export products to another producer or to an export trader shall only be deemed export sales when
actually exported by the latter, as evidenced by landing certificates or similar commercial documents.
Pursuant to EO 226 and other special laws, even without actual exportation, the following shall be considered
constructively exported:
a. sales to bonded manufacturing warehouses of export-oriented manufacturers;
b. sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other
similar export processing zones;
c. sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA
7227;
d. sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR)
and the Bureau of Customs (BOC);
e. sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether paid for in foreign currency or not.

Exercises: Determine whether or not the following sales of goods are subject to regular VAT or zero-rate
Under TRAIN Under TRAIN
(2 conditions (2 conditions
not satisfied) satisfied)
a. Sale and actual shipment of goods from the Philippines to a foreign country, irrespective of
any shipping arrangement, paid for in acceptable foreign currency
b. Sale and actual shipment of goods from the Philippines to a foreign country, irrespective of
any shipping arrangement, paid for in Philippine peso
c. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export oriented enterprise to be used in manufacturing, processing, packing
or repacking in the Philippines of the said buyer’s goods paid for in acceptable foreign
currency
d. Sale of raw materials or packaging materials to export-oriented enterprise whose export
sales exceed 70% of the total annual production paid for in Philippine peso
e. Sale of equipment to export-oriented enterprise whose export sales exceed 70% of the
total annual production paid for in Philippine peso
f. Sale of gold to Bangko Sentral ng Pilipinas
g. Sale of silver to Bangko Sentral ng Pilipinas
h. Sale to diplomatic missions and other agencies and/or instrumentalities granted tax
immunities, of locally manufactured, assembled or repacked products paid for in local
currency
i. Sale of equipment to persons engaged in international shipping or international air
transport operations
j. Sale of raw materials, inventories, supplies, equipment, packaging materials, and
goods, to a registered export enterprise, to be used directly and exclusively in its
registered project or activity
14. Zero-Rated Sales of Services and Lease of Properties
1) Processing, manufacturing or repacking of 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 Bangko Sentral ng Pilipinas (BSP);
2) Services other than processing, manufacturing or repacking rendered to a person engaged in business
conducted outside the Philippines or to a non-resident 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 Bangko Sentral ng Pilipinas (BSP);
3) 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 zero percent rate;
4) Services rendered to persons engaged in international shipping or air transport operations, including lease of
property for use thereof: Provided, That these services shall be exclusive for international shipping or air transport
operation;

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5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an
enterprise whose export sales exceed 70% of the total annual production.
6) Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country.
7) Sale of power or fuel generated through renewable sources of energy. Provided, however, that zero-rating
shall not extend to the sale of services related to the maintenance or operation of plants generating said
power.
8) Services rendered to:
a) Registered enterprises within a separate customs territory as provided under special law; and
b) Registered enterprises within tourism enterprise zones as declared by the TIEZA subject to the provisions under
Republic Act No. 9593 or The Tourism Act of 2009. (Vetoed)

Exercises: Determine whether or not the following sales of services and lease of properteis are subject to regular
VAT or zero-rate
Under TRAIN Under TRAIN (2
(2 conditions conditions
not satisfied) satisfied)
a. Processing, manufacturing or repacking of goods for other persons doing
business outside the Philippines which goods are subsequently exported paid
for in acceptable foreign currency
b. Processing, manufacturing or repacking of goods for other persons doing
business in the Philippines which goods are subsequently exported
c. Transport of passengers and cargo by Cebu Pacific from the Manila to Singapore
d. Transport of passengers and cargo by Philippine Air Lines from the Manila to
Cebu
e. Sale of power or fuel generated through wind mills
f. Sale of power or fuel generated through a coal-fed generating power plant
g. Sale of services related to the maintenance or operation of electric plant
generating said power through water falls
a. Foreign Currency Denominated Sales Defined (deleted in TRAIN)
Under the TRAIN
“Foreign Currency Denominated Sale” means the sale to a non-resident of Deleted (now subject to 12% regular
goods, except those mentioned in Secs. 149 (Automobiles) and 150 (Non-Essential VAT rate)
Goods) of the Tax Code, assembled or manufactured in the Philippines 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.

Sales of locally manufactured or assembled goods for household and personal use to
Filipinos abroad and other non-residents of the Philippines as well as returning
Overseas Filipinos under the Internal Export Program of the government paid for in
convertible foreign currency and accounted for in accordance with the rules and
regulations of the BSP shall also be considered export sales.

b. Effectively Zero-Rated Sales Defined

Sales of goods or property or services to persons or entities whose exemption from direct and indirect taxes under special
laws or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International
Rice Research Institute (IRRI), etc., effectively subject such sale zero-rate.

Exercises: Detemine whether or not the VAT can be passed-on and the treatment of the passed-on VAT.
Can pass on VAT? Treatment
a. Sale by a VAT-registered seller to a VAT-registered trader
b. Sale by a VAT-registered seller to a VAT-exempt trader
c. Sale by a VAT-registered seller to IRRI
d. Sale by a VAT-registered seller to Development Bank of the Philippines
e. Sale by a VAT-exempt seller to a VAT-subject trader

c. Deemed Sales Transactions

1) Transfer, use or consumption not in the course of trade or business of goods and properties originally intended for sale or use in the
course of trade or business;
2) Distribution or transfer to shareholders or investors as share in the profits of VAT-registered person;
3) Distribution or transfer to creditors in payment of debt or obligation;
4) Consignment of goods if not sold within 60 days following the date of consignment;
5) Retirement from or cessation of business with respect to 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.

Notes: a) In cases 1) to 4), the tax base is the market value.

b) In case 5), the tax base is the lower between acquisition cost or market value.

The Commissioner of Internal Revenue shall determine the appropriate tax base where the gross selling price is unreasonably lower
than the actual market value (lower by more than 30% of the actual market value).

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Exercises:
1) Determine whether the following qualify as VAT-subject deemed sale transactions or not (Y/N)
a. VAT-registered person withdraws goods from his business for his personal use
b. Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of
retained earnings
c. Consigned goods returned by the consignee within the 60-day period
d. Goods on hand when a single proprietorship incorporates
e. Proprietor of a single proprietorship sells his entire business
f. Goods on hand upon the dissolution of a partnership and creation of a new partnership which takes over the business

2) Determine whether the following transactions involving change in or cessation of status are subject to VAT or not
(Y/N)
a. Goods on hand when a VAT-registered person engaged in a taxable activity like wholesaler or retailer who decides to
discontinue such activity and engages instead in life insurance business or in any other business not subject to VAT
b. Unused supplies or materials when a request for cancellation of registration due to reversion to exempt status was
approved
c. Capital goods at the time of approval of a request for cancellation of registration of one who commenced business with
the expectation of gross sales or receipts exceeding P3,000,000.00, but who failed to exceed this amount during the
first twelve months of operation.
d. Goods or properties existing as of the change of control of a corporation by the acquisition of the controlling interest of
such corporation by another stockholder (individual or corporate) or group of stockholders.
e. Stock-in-trade existing upon change in the trade or corporate name of the business
f. Goods on hand upon merger or consolidation of corporations
g. Exchange of goods or properties including real properties used in business or held for sale or lease by the transferor,
for shares of stocks, whether resulting in corporate control or not

d. Sale, Transfer, or Exchange of Imported Goods by Tax-Exempt Persons

a. 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
who shall be liable for VAT on such importation.
b. The tax due on such importation shall constitute a lien on the goods, superior to all charges or liens, irrespective of the possessor of
said goods.

e. Differences Between Sale of Goods or Properties and Sale of Services or Lease of Properties
Sale of Goods or Properties Sale of Services or Lease of Properties
a. Tax base Gross selling price (accrual basis) Gross receipts (cash basis)
b. Sources of output a. Actual regular sales a. Actual regular sales
tax b. Actual zero-rated sales b. Actual zero-rated sales
c. Deemed sales

f. Caselets
a. a. The following information taken from the books of a VAT-registered enterprise was provided to you:
Domestic sales of goods P3,000,000
Sales of packaging materials to an export oriented enterprise whose export sales exceed 70% of the
total annual production 2,000,000
Local sales of goods to Asian Development Bank (ADB) 500,000
Consignment of goods (not returned within 60 days following the date of consignment) 200,000
Consignment of goods (returned within 60 days following the date of consignment) 150,000
Goods transferred for the personal use of the owner (cost is P90,000), market value 100,000
Goods transferred to creditor as payment of debt of the enterprise (cost, P100,000) marlet value 90,000
Goods transferred to owners as share in the profit of the enterprise, market value 80,000
b.
How much was the total taxable sales and the output VAT using 12% rate?
b.
b. A VAT subject real estate dealer sold a residential lot. The following information was made available on the terms of the
sale:
Gross selling price P3,000,000
Down payment, January 15, 2021 900,000
Balance to be paid in equal installment starting February 15, 2021 2,100,000
Zonal value 2,800,000
Value per tax declaration 2,500,000
Selling price of an adjacent lot 3,200,000

Question 1 – Does the sale qualify under installment sale? Why or why not?
2 – How much is the tax base for VAT purposes?
3 – How much is the output VAT on January 15, 2021 using 12% tax rate?
4 – How much is the output VAT on February 15, 2021 using 12% tax rate?

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
VAT-SUBJECT TRANSACTIONS TAX-301
c. A VAT-registered corporation has the following data taken from the books of accounts for the first calendar quarter of
2021:
Gross sales P 5,000,000
Sales returns and allowances 100,000
Sales discount given at the time of sale 400,000
Sales discount given to cover prompt payment 200,000
Sales allowance to cover roll back in prices 120,000
Cost of sales 1,500,000
Office equipment purchased January 1, 2021 1,100,000
Vehicle for land transport imported January 1, 2021 2,500,000
Purchase of goods for sale, (included in the cost of sales above) 300,000
Operating expenses (40% with passed-on VAT) 500,000
Office supplies purchased (wholly used) 90,000
VAT payments for January and February 40,000

Using BIR Form No. 2550Q how much is the taxable sales (line 19A) and the output VAT (line 19B)?

d. A VAT-registered service contractor has the following data for the month of January, 2021:
Cash received for buildings completed on January 2018 with a contract price of P5,000,000 P3,800,000
Cash advances received for building to be constructed on February, 2021 300,000
Cash received from VAT-registered supplier on materials returned to the supplier 100,000
Cash received from owners of building for materials charged with the services 1,000,000
Cash received from owners of building to be used to pay building permit fees 200,000
Cash received from VAT-registered sub-contractors for overpayments 300,000
Payments to subcontractors for the electrical job 500,000
Purchase of supplies and materials used in the construction 100,000

Using BIR Form No. 2550M how much is the gross receipts for the month (line 16A) and the output tax (line 16B) using 12%
VAT?

e. Candice Corp. imported an article from Japan. The total value of the imported article representing dutiable value (cost,
insurance and freight) was $50,000 ($1=P50). The following were incurred in connection with the importation:
Bank charges in connection with the importation of goods P150,000
Expenses in opening letters of credits 100,000
Interest paid on trust receipts issued by banks for imported goods up to time of withdrawal from
Customs 15,000
Wharfage dues 70,000
Arrastre charges 80,000
Brokerage fees charged by customs broker for services rendered to effect the release of goods from
customs custody 25,000
Interest charges on loans secured to finance importation 50,000
Facilitation fee 10,000
Special import tax and foreign exchange marginal fee 12,000

The imported article was subject to P500,000 customs duties and to P300,000 excise tax. After the release from the Bureau
of Customs, Candice Corp. paid P50,000 (net of VAT) for trucking to a warehouse in Quezon City. It also paid warehousing
rent of P80,000, net of VAT.

Question 1 – How much are the total charges prior to release from Customs custody?
2 – What is the tax base of the VAT on this importation?
3 – How much is the VAT on importation?
4 – Assuming Candice Corporation is not VAT-registered, will it be required to pay the VAT on importation? Why
or why not?

END

Avoid mingling with negative people, they see the hole in the donut instead of the donut itself. - Tamthewise

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