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Transfer and Business Taxation
CHAPTER 7 – BUSINESS TAXES
Business – trade or commercial activity regularly
engaged in as a means of livelihood or with a
viewpoint of obtaining profit.
Transaction subject to business tax
It is a coercia! acti"it# – sale of goods and
services related to trade, profession or business in
the Philippines are $enera!!# subject to business
taxes except when the law provides they are
exempt.
Ser"ice is rendered b# a NR% &erson – shall be
considered as being rendered in the course of
business w/o regard to the “rule of regularity”
Soe Non'business transactions
a( Sale of share of stock through stock
exchange sub!ect to ) of *" of #P$
based on selling price or gross value in
money.b( #verseas dispatch, communication from the
Philippines sub!ect to *+, -PT.c( %orse race winning sub!ect to *+, -PT, !ai
alai is sub!ect to /+, -PT.
Casua! Sa!e an occasional sale of goods or
services by a person who is not engaged in
business or sale of assets that are not used inbusiness.
& Sub!ect to income tax '#$ ()S*'+SS
$-.
BUSINESS TAXES
' *mpositions on onerous transfer of property,
service or rights in the ordinary course of
business.
C!assification of business taxes0
. 1a!ued – added tax 21AT( – " additional
tax on the sales price of goods and / or
services by 0$ registered seller.. -t3er &ercenta$e taxes 2-PT( – taxes
imposed to 'on 0$ registered
businesses. 1most common 2" based on
gross sale or receipts3
2. Excise taxes – imposed on products tha
are harmful to health, goods that are
nonessential and products that deplete
natural resources. *t is imposed in addition
to 0$.
BUSINESS RE4ISTRATI-N
' 'oncompliance will render the businessillegal.
Initia! re$istration – application must be with the
45# where principal place of business is located
before the start of the business.
. $*' application form. Sketch of business site2. +xemption certificate6. Photocopy of the following
• 7ayor8s permit and municipa
license• 5$* certificate or S+9 certificate
• rticles of partnership o
incorporation
• 7arriage contracts for individuals
• )nit or agency charter for govt
agencies
Annua! re$istration – it shall renew its registered
annually before the end of :anuary
nnual registration ;ee< P%P =>>.>> for every
separate or distinct establishment.
Branc3 – a fixed establishment in a locality which
conducts sales operation of the business as an
extension of the principal office.
5are3ouse – premises where the inventories of
goods for sale is kept and from which such goods
are withdrawn for delivery.
%aci!it# – may include but not limited to sales
outlets, places of production, warehouse or storage
places.Exe&t fro re$istration fee0
*. *ndividuals earning purely compensation
income6. #verseas workers/. Self employed individuals? gross sales or
receipts do not exceed P%P >>,>>> pe
year.
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. 9ooperatives
T3res3o!d Aounts0
'ational
internal
revenue code
mount in
Pesos
1>>=3
d!usted
threshold
amounts
1:an. >, >3
Section >@ 1P3 P *89++8+++.++ P *8:*:89++.++
Section >@ 1P3 689++8+++.++ /8*::86++.++Section >@
1A3
*+8+++.++ *68;++.++
Section >@ 103 *89++8+++.++ *8:*:89++.++
1AT -R N-N'1AT RE4ISTRATI-N
" surcharge
CHAPTERB ; – BUSINESS TRANSACTI-NS
' Coercia! transactions refer to
regularity of undertaking for profit purposes.
C!assifications of business transactions0
*. 1at transactions
a( llowed with input vatb( 'ot allowed with input vat
6. >ero'"at rated transactions/. 1at – exe&t rated transactions
a3 +xempt from #P$b3 Sub!ect to #P$
. Transactions =it3 t3e $o"ernent units
1at taxab!e transactions a!!o=ed =? in&ut "at
The ff. transactions are included under this
category:
. Sales of vat registered business other thanBero rated, vat exempt or those unde
#P$.. #n consumptions or transfers by vat&
registered business, deemed sales.
-ut&ut "at – " of the business gross sale or
gross receipts whichever is applicable.
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In&ut "at – " of its purchases from other vat
person.
1at taxab!e transactions N-T a!!o=ed =? in&ut
"at
' $ransactions of non vat business with
annual sales exceeding the ad!usted
threshold of P%P ,@@,=>>.>>
1at taxab!e transactions not a!!o=ed to deduct
in&ut "at0
a( 'on vat business with sales of more than
P%P ,@@,=>>.>> per year.b( 'on vat franchise grantees of radio and
$0 w/ annual gross receipts of more than
P%P >,>>>,>>>.>>c( *mportations except hose specifically
exemptedd( Eocal payment of rent of vessel or carriers
owned by '4; entity
>ER- – 1AT RATE@ TRANSACTI-NS
' Sales that are sub!ect to output vat rate of
>"' 7ainly exports sales by vat reg. person8s
w/c generate the needed reserves of foreign
currencies.' AI1 on seller8s purchases to such Bero
rated sales shall be applied for a tax creditcertificate 1$993 or refund of creditable
input tax due.' TI1 and PI1 are not allowed for $99 or vat
refund, only as creditable input tax.
>ero – rated transaction inc!ude t3e ff.
. +xport sales in acceptable foreign currencya3 Sale and actual shipment from P%
to foreign countryb3 Sale of raw or packing materials to
'4 buyer for delivery to residentlocal place in P%
c3 Sale of goods, supplies, fuel and
services 1lease of property3 to int.
shipping or air transport companies.d( Sale of raw or packing materials
and services performed by subcon
and/or con to an export oriented
enterprise =3ose ex&ort sa!e
exceed 7+, of tota! &roduction.e3 $hose considered export sales by
the law.. Sale of gold to (SP2. ;oreign currency denominated sales6. +ffectively Bero rated sales
a3 Sale of power or fuel generated
through renewable sources o
energy.b3 Sales and services to ff. persons
who were granted indirect tax
exemption under special laws
and/or int. agreement
• S(7 and 95
• P+F
• sian development bank
• *44*
=. Gross receipts of domestic corp.a3 $ransport of passenger and cargo by
air or sea vessel from P% to ;9b3 Services paid for in acceptable
foreign currency and accounted in
accordance w/ rule of (SP.
1AT ' EXE
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b3 nimals generally considered as
pets6. Printing or publishing books and any
newspaper not devoted to publication of
paid ads=. Services of
a3 gricultural contract growers and
miller for othersb3 7edical exempt services rendered
by professionalsc3 Private educ. *nstitutions and by
govt. educ. *nstitutionsd3 4egional or are headDuarters
established in P% by 7'98se3 $ransactions which are exempt
under int. agreementsH. Sale of cooperatives duly reg. with
cooperative development authority 1953a3 Sale by agricultural cooperatives
b3 Gross receipts from lendingactivities
I. Sale / lease of real properties 1ordinary
assets3a3 Sale of real properties for low cost
housingb3 Sale of real properties utiliBed for
socialiBed housingc3 Sale of residential lot at P%P
,@@,=>>.>> and below or house
and lot at P%P 2,@@,>>.>> and
belowd3 Eease of residential units with
monthly rental per unit not
exceeding P%P ,J>>.>>e( P%P ,@@,=>>.>>
1AT – EXE,>>>,>>>.>> and
" by franchise grantees of gas K water
utilities9. >" for overseas dispatch/message from
P%. =" on insurance premium by insurance
business in P%7. >" on services by fire, marine or
miscellaneous insurance agents of ;*9;. 2>", J", =", >" on G4 of operators o
!ai&alai and race tracts:. L to 6" on exchange or shares of stock
listed and traded in local stock exchange*+. (anks and nonbanks performing Duasi&
banking functions
Transactions =it3 t3e $o"ernent units – $he
P% govt. or any political subdivisions before making
a payment on account shall deduct and withhold
the ff. business taxes.
*. %ina! 1AT of 9, 2if seller is vat reg.36. Percenta$e tax of /, 1if seller is non va
sub!ect to #P$ of 2"3
Creditab!e =it33o!din$ incoe taxes 2C5IT(
*. *, on &urc3ases of $oods6. 6, on &urc3ases of ser"ices
AI1 SI1 – if *0 is more than I" of gross
payments 1S*03, the excess form part of expense or
cost.
AI1 SI1 – if *0 is less than I" of gross
payments 1S*03, the difference is treated as taxable
other income.
CHAPTER : – 1ADUE – A@@E@ TAX
1a!ue – added tax 21AT( ' ;orm of consumption
tax 1from >" & "3 imposed on each sale or lease
of goods, properties or services in the course of
trade of business in the P%.
Bu#ers P-1 – a tax on the purchase price
Se!!ers P-1 – a tax only on the “value&added” to
the product or services sold.
CCCit is designed to be borne by consumers, with
sellers acting merely as tax collectors.
Rationa!e of 1AT
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*. Si&!ified tax adinistration – promotes
efficiency and simplicity. *t also curves tax
evasion and fraud.6. %osterin$ 3onest# – gives rise to a self&
policing mechanism among the taxpayers in
the system.2. Hi$3er $o"t. re"enues – vat system has
wider tax base. %osterin$ nationa! &ro$ress
C3aracteristics of 1AT
*. It is i&osed on business transactions6. It fo!!o=s t3e destination &rinci&!e –
whereby goods and services are taxed only
in the country where they are consumed./. It is an indirect tax8 &ri"i!e$e tax and an
ad "a!ore tax – it is shifted and passed
on to the buyer? imposed on sale, exchange
or barter of GKS? basis for determining tax
is value or sales price of GKS sold.. It is cuu!ati"e9. It e&!o#s tax credit et3od and
basica!!# a tax on $ross ar$in
Rates of 1AT
*. %or -ut&ut 1ATa( 4egular vat rate of "b( Fero percent 1>"3 rate
6. %or In&ut 1ATa( 4egular vat rate of "
b( Fero percent 1>"3 ratec( $ransitional input vat of "d( Presumptive input vat of 6"e( ;M$ of ="f( S*0 of I"
@eterination of 1AT aount
*. mount of vat separate item in invoice or
receipt6. *n case of erroneous vat is billed? it is
presumed to be comprised of the gross
selling price or G4 including 0$.
%oru!a0
*. If exc!usi"e of "at8 net of "at or before
"atGivenamount x12=VAT
6. If inc!usi"e of "at8 $ross of "at or after
"at
Given amount
1.12 x12=VAT
Given amount
9.333=VAT
Taxab!e base – the amount or value on which the
0$ rate will be applied in computing output tax.
4ross se!!in$ &rice – amount which the purchase
gave up as a sacrifice includes<
. Purchase price. 9harges for packing, delivery and insurance2. +xcise taxes if sub!ect to it
A!!o=ab!e deductions fro 4SP
*. Sales returns and allowances6. Sales discounts can only be deducted if
all the ff. conditions are met<a( 5etermined and granted at the time of
saleb( 5iscount is expressly indicatedc( mount shall form part of gross salesd( Granting of discount does not depend
on the happening of future event
1at taxab!e &erson – an individual, trust, estate
partnership, corporation or association who makes
or intends to enter into transactions sub!ect to vat.
Persons becoin$ !iab!e to 1AT
*. Persons coencin$ a business – if he
expects to realiBe annual gross sales o
more than P%P ,@@,=>>.>> for the next
mos.6. 1at – exe&t business becoin$ !iab!e
to "at – if less than P%P ,@@,=>>.>>
classified as vat exempt and sub!ect to
#P$. but if it exceeds the threshold in any
month period he becomes liable to vat.
he must register as vat w/in > business days
after the end of the last month when his sales
exceeds the threshold in month period.
Persons subject to "at
. 4egistered person under vat system. 'on vat registered but reDuired to be
registered under the vat system
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2. ;ranchise grantees of radio/$0
broadcasting are sub!. to vat if<a3 #pted to reg. under vat system
even if their annual G4 in preceding
year does not exceed P%P
>,>>>,>>>.>>b3 'on vat and it exceeds P%P
>,>>>,>>>.>>
CCC $hese are sub!ect to 2" #P$ if total annual G4
do not exceed P%P >,>>>,>>>.>>
CCC 7andatory registration applies w/in 2> days
6. *mporter of goods any person who imports
goods whether or not in the course of
business, sub!ect to 0$.
1at of 3usband and =ife
& ;or the threshold of P%P ,@@,=>> the
husband and wife shall be considered
separate taxpayers. %owever the
aggregation rule for each taxpayer shall
apply.
4o"ernent and it &o!itica! subdi"isions
4o"ernent
' 'ational govt. performing essential
governmental functions.' Govt. cannot tax itself because it cannot
enter into transactions “in the course of business” comprising economic activity.
' 7ay be taxable if it sells GKS in the course
of business.
Exe&tion fro 1AT
' (eing free from 0$ burden.
1AT – exe&t &ersons
*. Persons en$a$e in non – "at
transactions
a( Sales or receipts are exemptb( nnual G4 do not exceed P%P
,@@,=>>.>> and as '#' 0$c( 'on stock / non&profit
organiBations6. Persons exe&t fro 1AT under s&ecia!
!a=sa( 95 registered cooperatives
b( Special economic Bones or free
ports in P%c( 4egional or area headDuarters by
7'98sd( In"entors – certified by the P%
inventors society and exempt from
all kinds of taxes in st ten years
from date of st
sale./. 1AT – exe&t under treat#
1AT – exe&t senior citiFen
' Senior citiBen or elderly ;ilipino citiBen
resident, and H> years old or above. G@ua
citiFens3i& – prove their ;ilipino
citiBenship and have at least H months
residency in P%.' Granted >" discount and 0$ exempt
on their purchases of goods and services as
long as they can show S9 *5.
Non'taxab!e Entit#
' 'o income but collecting monthly dues from
members is not sub!. to 0$' *t becomes taxable if it regularly conducts o
pursues a commercial or economic activity.
1a!ue added tax dec!aration
' (*4 form ==>7 must be filed and paid on
or before the >th day of the month.' ;or ==>A be filed on or before the = th o
the month ff. the close of the Duarter.
CHAPTER *+ – 1AT -N 4--@S -R
PR-PERTIES
4oods or Pro&erties – all tangible and intangible
ob!ects which are capable of pecuniary estimation
and shall include<
. 4eal properties held primarily for sale
. 4ight to use patent, copyright, design K etc.2. 4ight to use industrial, commercia
eDuipment in P%6. 4ight to use motion pictures films=. 4adio , $0 satellite transmission and cable
1at on sa!e of $oods or &ro&erties
' 7ust be related to business or trade
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' Should be consummated in the P%
regardless of terms of payment
@EE
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%
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. Service must be performed in the course of
trade in the P%. Service is rendered for valuable
consideration actually or constructively
received2. Service rendered is not exempt from 0$
Taxab!e base on Ser"ices
' ;or supply of services, taxable base is
G$ross recei&ts =3ic3 is t3e0a3 $otal amount of money representing
the contract price, service fee, rental
or royalty.b3 mounts charged for materials with
services and deposits and advance
payments actually or constructively
received, exclusive 0$.
4ross recei&ts on ser"ices – don8t include
receivables. *ncludes amounts billed to clientsintended to recover cost and expenses with profits.
Constructi"e Recei&ts
' Mhen money consideration is placed at the
control of the person who rendered service
w/o restrictions by the payor.
Reiburseent of Ex&enses
Se$re$ation ru!e – the reimbursement does not
form part of the taxable base only when the ff.
conditions are complied.
. dvance payment should be in the name of
the client. mount of reimbursement for advances is
segregated2. Services performed in the Philippines
CATE4-RIES -% SER1ICES
*. Professiona! ? tec3nica! ser"icesa( 9onstruction and service
contractorsb( Stock, real estate brokers Nc( Persons engaged in milling,
processing, packaging or re
packingd( 5ealers in securitiese( Eending investorsf( $ransportation contractors$( 'on life insurance companies
3( Supply of services by '4 person o
his employee6. Transfer of tec3no!o$#
a( Eease or use of any industrial o
commercial knowledgeb( Supply of scientific and technical o
commercial information
c( Supply of assistance that is ancillaryand subsidiary to/. Dease or use of intan$ib!e &ro&ert#. Dease or use of tan$ib!e &ro&ert#
a( Eessors of property 1personal o
real3b( Marehousing servicesc( Eessor of cinematographic filmsd( #perators or keepers of hotels
motels, resorts, innse( #perators of restaurants, cafesf( Services of franchise grantees o
telephone, radio,$( Eease or use of copyright, patent
model plan, design
1AT on Professiona! %ees
+arnings from a practice of profession will be
sub!ect to " 0$ if<
*. Professional is 0$ registered person6. 'on 0$ reg. but exceed P%P
,@@,=>>.>> per year
sub!ect to >" withholding of income tax iaggregate amount per year is P%P I>,>>> and
below and =" withholding tax if exceeding P%P
I>,>>> per year.
Ser"ice Contractors
& Sub!ect to " 0$? if with the govt. with
=" ;M$ and " on 9M*$ on sale o
services or " on sales of goods.
1AT on Securit# A$enc# %ees
*. $he contract for security services musprovide for a breakdown of amount of<
a( T3e a$enc# feeb( T3e securit# $uards sa!ar#
-n!# t3e a$enc# fee is subject to *6, 1AT
Rea! Estate BroJers
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' person selling real property others for a
fee or commission income. Suc3 incoe
subject to 1AT if vat reg. or he exceeds the
P%P ,@@,=>> threshold
@ea!ers in Securities
' merchant of stocks or securities with an
established place of business' Sub!ect to 0$ based on G4 O GSP cost
of securities sold
Dendin$ in"estors
' Mho make a practice of lending money for
themselves or for others for an interest
Trans&ortation ser"ices
*. Trans&ort of $oods and car$oes – by
land, air and water by domestic common
carriers is sub!ect to " 0$.6. Trans&ort of &assen$ers – by air and sea
w/in P% is sub!ect to 0$? by land is sub!ect
to 2" #P$.
%rei$3t %or=arders
*. -utbound o"eents – cargoes from P%
to a foreign port6. Doca! ori$in c3ar$es – fees charged to
clients for services rendered in P% involving
outbound movement.
/. Inbound o"eent – cargoes from aforeign port to the Ph.
. Doca! destination c3ar$es – fees charged
to clients for services rendered in P%
involving inbound movements.9. -ffs3ore destination ? ori$in c3ar$es –
chargers of foreign forwarders billed to
forwarders for services rendered abroad
involving outbound or inbound movement
w/c in turn billed to clients.. Currenc# adjustent factor – covering
losses incurred due to fluctuations in the
exchange rates7. Accessoria! c3ar$es – standard charges
billed by int. air or sea carriers to forwarders
and in turn billed clients at cost.
Tra"e! A$encies
' 0at on travel agencies are based on G4
which will not include cost of airline and
reimbursement of expenses.' if travel agency purchased tickets on a net
basis, 0$ shall be on the margin of SP to
passenger and net purchase price
Ho=e"er if ar$in exceeds :, of 4SP of
ticJet8 BIR treats it as resa!e =?c istaxab!e on 4SP.
Hote!s8 Restaurants8 and Caterers
Taxab!e base does not inc!ude t3e ff.
*. service charges billed separately and
distributed to waiters and employees6. actual cost of long distance and overseas
calls/. local taxes
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rentals. T3e !essor is exe&t fro 1AT
and -PT.6. 7onthly rental exceeds P%P ,J>> per unit
but aggregate annual rentals does not
exceed P%P ,@@,=>>. T3e !essor is
subject to /, -PT./. *f monthly rentals exceed P%P ,J>> per
unit and aggregate annual rentals exceedP%P ,@@,=>>. T3e !essor is subject to
*6, 1AT.
5it33o!din$ Tax on Dease of Coercia!
Pro&erties
& Sub!ect to =" withholding income tax
BooJs8 ER- – RATE@ -R E%%CECTI1ED >ER- –
RATE@ SER1ICES
-r$aniFations
*. P+F or S(7 registered enterprises6. *nternational #rganiBations/. #ther organiBations
CHAPTER *6 – INPUT 1AT CRE@ITS AN@
RE%UN@S
' 0$ due from or paid by a 0$ reg. person
in the course of trade on local purchases.' Primarily to reduce the amount of output va
in computing vat payable' $he excess *nput vat shall be carried over to
the succeeding Duarter or may be applied
for tax refund.
Ru!es for creditab!e in&ut "at
*. Proper documentation6. 5elivery receipts not allowed/. 'o double input tax credit is allowed. *gnore erroneous vat rare9. llowed by law as creditable input vat
Sources of in&ut "at
*. Purchases of goods/properties or services
to vat reg. business6. Purchases to non vat reg. but issued vat
invoice or receipt/. *mportation of goods locally. $ransitional input vat9. Presumptive input vat. Standard input vat on sale to govt.
PURCHASES -% 4--@S?PR-PERTIES -R
PA
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s&read o"er + ont3s or its usefu! !ife
=3ic3e"er is s3orter.
In&ut "at of construction in &ro$ress
' s a purchase of service the value shall be
determined based on progress billings.
In&ut "at in &urc3ase of ser"icesIn&ut "at on i&ortation
& 0alue added tax shall be based on the
landed cost excise taxes if there is any.
I&ortation – act of bringing goods into the P%
from foreign country.
1arious Nature of I&ortation
ll sub!ect to " 0$ 9reditable as input vat
*mportation by a 0$
person for business
use
es
*mportation by a 0$
person for personal
use
No
*mportation by a non &
0$ person for
business use
No
*mportation by a non &
0$ person for
personal use
No
Transitiona! in&ut "at
' llowed on the inventory on hand of a
person who for the st time becomes liable
to 0$ or elects to be 0$ registered.' " of the value of such inventory or the *0
paid on such inventory whichever is higher.
Presu&ti"e in&ut "at
' llowed as input tax on purchases of vat
reg. person despite that there is no actualvat payment made on vat exempt
transactions' P*0 is 6" on purchases of vat exempt
primary agricultural and marine food
products at their original state w/c are used
as inputs to the processing of<a( Sardines8 acJere!b( days
from date of submission of complete
documents' $he taxpayer may appeal at 9$ w/in 2>
days from receipt of denial' *f commissioner does not give decision w/in
> days, taxpayer may file an appeal to
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9$ w/o waiting for expiration of > day
period if the year period is about to lapse.
CHAPTER */ – >? otherwise sub!ect to 2"
#P$.6. 4esidential unit
4ent per
month
ggregated
G4 per year
$ax treatment
P,J>> or
below
Re$ard!ess of
aount
Exe&t fro
1AT and -PT+xceeds
P,J>>
P *8:*:89++
and be!o=
/, -PT
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+xceeds Exceeds *6, 1AT P,J>> P *8:*:89++
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