As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services that he actually sells.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)
VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. (
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS,
G.R. No. 125355, March 30, 2000)
The VAT is not a license tax; it is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes.
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
2. Characteristics/Elements of a VAT-Taxable transaction
VAT is not a singular-minded tax on every transactional level; its assessment bears direct relevance to the taxpayer's role or link in the production chain. Hence, as affirmed by Section 99 [now Sec. 105] of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business.
(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984. July 28, 2006)
The Court rules that given the undisputed finding that the transaction in question was not made in the course of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter how the said sale may hew to those transactions deemed sale as defined under Section 100 [now Sec. 106].
(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984. July 28, 2006)
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony; it was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony.
(COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697, November 17, 2010)
Goods or properties must be used directly or indirectly in the production or sale of taxable goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356, December 14, 2009) it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. (
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 125355, March 30, 2000)
3. Impact of taxUnder Section 105 of the Tax Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
4. Incidence of tax
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the seller's liability but merely the burden of the VAT.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service.
(RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
A seller who is directly and legally liable for the payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser of consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax.
(Contex v.
CIR, G.R. No. 151135, July 2, 2004)
In the case of the VAT, the law minimizes the regressive effects of indirect taxation by providing for
zero rating
of certain transactions, while grantingexemptions
to other transactions. On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups.(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
5. Tax credit method 6. Destination principleAccording to the Destination Principle, goods and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% VAT.
(ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)
Applying the
destination principle
to the exportation of goods, automatic zero rating is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Under the
cross-border principle
of the VAT system being enforced by the Bureau of Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds for such exports from the national territory — except specifically declared areas — to anecozone. (
COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
While an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regulated in laws as foreign soul. Sales by supplies outside the borders of ecozone to this separate customs territory are deemed exports and treated as export sales.
(CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21, 2006)
For as long as the goods remain within the zone, whether we call it an economic zone or a freeport zone, for as long as we say in this law that all goods entering this particular territory will be duty-free and tax-free, for as long as they remain there, consumed there or re-exported or destroyed in that place, then they are not subject to duties and taxes in accordance with the laws of the Philippines.
(Coconut Oil Refiners Association v. Executive Secretary, G.R. No.
132527, July 29, 2005)
7. Persons liable8. VAT on sale of goods or properties
Goods, as commonly understood in the business sense, refer to the product which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute their goods. Such real properties are the operating assets of the real estate dealer.