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• “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.
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• 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
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• 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 23-95. However, such revocation cannot be given retroactive effect since it will prejudice respondent.
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• 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.
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• 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
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• 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).
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• 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
– Transitional input tax credit – Presumptive input tax credit – Withholding input tax credit – Excess input tax credit