EXERCISE 18-5.

DISCUSSION QUESTIONS/ PROBLEMS

1. Situs of Service. Robert, a real estate dealer entered into a marketing agreement with
Nora, a Filipino real estate broker, authorizing her to sell the condominium units of
Robert situated in Pasig City to prospective buyers in the United States. The marketing
activities were undertaken in the United States where she was paid commissions in U.S.
dollars for the 15 units she was able to sell. Is Nora subject to VAT on the above
transactions?

2. Gross Receipts. William, Gothong & Aboitiz, Inc. (WG & A) is a domestic company
engaged in the transport of cargoes. Its present treatment of the 12% output VAT in its
transport of cargoes is to immediately record, recognize and pay the same at the time
when the service are recognized and recorded in the book as income for income tax
purposes.

As of December 31, 218, it had outstanding accounts receivable, arising from

transport of cargoes in the total amount of P700,000,000, the VAT on this receivable in
the amount of P84,000,000 has already been remitted to the BIR. The company would
like to book the said amount as deferred output VAT and apply the same upon payment
of the output VAT on services actually collected from the customers.

a. Is the plan of WG & A correct?

b. What other actions should be made by the company?

3. Travel agents and travel agent exporters. Rising Sun Travel and Tour Agency renders
services to foreign tour agencies by furnishing tour package arrangements for foreign
tourists and being paid for in acceptable foreign currency which are duly accounted for in
accordance with the regulations of the Bangko Sentral Pilipinas.

It also provides packaged tour services to domestic tourists such as hotel

accommodation, tourist guides, meals and including places where the tourists can shop
and relax.

Is Rising Sun Travel and Tour Agency subject to value-added tax?

4. Fish Brokers. Fish brokers sell fish and other marine and fresh water products brought
or shipped by traders, producers or shippers from different provinces to public markets in
Malabon, Divisoria and Navotas on a wholesale basis to highest bidders. In return they
charge 5% commission based on the amount of sales. The fish and other products are
basically owned or produced by the traders. Are they subject to value-added tax?

5. Hotel and restaurant Industry. Langit Hotel and Restaurant had the following
collections from its customers during the month:
a. Room Charges P 392,000
b. Laundry Services 7,392
c. Food and beverage consumption 806,400
d. Corkage 9,020
e. Handling charges for providing telephone, telex, cable or fax services. 2,464
f. Actual cost of long distance and overseas telephone calls collected by the 11,385
establishment for the PLDT.
g. Cake shop sales 9,184
h. Service charges billed separately and actually distributed to waiters and 61,820
employees.
i. Local taxes charged. 5,764

How much is the output tax of Langit Hotel & Restaurant?

6. Broadcast media. Campus Trading, an advertiser, pays Luzon Advertising, an

advertising agency the amount of P220,000 to create a commercial and run the same
through radio station DZGE, a VAT-registered business, with the advertising agency
getting 15% of such amount as service fee. Luzon advertising issues an official receipt to
the advertiser and DZGE issues a VAT official receipt to the agency.

a. How much is the VAT payable of the advertising agency?

b. Assuming the radio station has an input tax of P8,000. How much is the VAT payable by
radio station DZGE?

7. Professional services. Crisanto Castro Consultancy Services is a professional

partnership engaged in professional and management services. As such, Castro is the
manager of several companies; that he performs functions as General Manager through
his officers who hold decision-making positions in said companies; that said officers are
subject to the overall control and supervision of the Board of Directors of the managed
companies; and that they participate in the various aspects of managing the affairs of the
managed companies like financial, technical, operational, legal, marketing and others.
Crisanto Castro does not receive other compensation from the managed companies
except management fees. Is he subject to value-added tax? Will your answer be the
same if instead of running a consultancy services, Crisanto Castro is engaged in the
practice of his profession as a Certified Public Accountant?

8. Non-life Insurance. Indicate if the following collections are included in the gross
receipts subject to VAT of a non-life insurance company:

a. Premiums refunded within six (6) months after payment on account of rejection of risk or
returned for other reasons to the person insured (returned premiums);
b. Premium on reinsurance of a company that has already paid the tax;
c. Premiums on account of any reinsurance if the risk insured against, covers property
located outside the Philippines;
d. Documentary stamp and local taxes passed on by the insurance company to the
insured; and
 e. VAT passed on to the insured.

9. Cinematographic film owner or lessor. Eks Video Shop is engaged in the business of
buying tapes or films for use in Betamax, VHS units, VCD or DVD and other projectors
to be rented out for P30.00 per film. After three (3) days, the customer returns the film. If
the film is not returned within three (3) days, by the customer, he shall pay a fine of
P5.00 for every day of delay. Is Eks Video Shop subject to VAT?

EXERCISE 18-6. CASE PROBLEM

Refund of VAT Paid by Zero –Rated VAT Persons

Mirant Pagbilao, Inc. formerly known as Southern Energy Quezon City,

Inc. and also formerly known as Hopewell (Phil.) Corporation, is a domestic firm engaged in the
generation of power which it sells to the National Power Corporation (NPC). For the
construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant,
which appears to have been undertaken from 1993 to 1996, Mirant secured the services of
Mitsubishi Corporation of Japan.

The following is the chronology of events on Mirant:

April 1993 to September 1996 – Mitsubishi constructed the mechanical and electrical equipment
portion of Mirant (VAT component was not paid by Mirant because it believed that it is zero-
rated.

December 1, 1997 – Applied with Bureau of Internal Revenue an application for Effective Zero
Rating.

April 14, 1998 – Mirant paid Mitsubishi the VAT component of the progress billings.

August 25, 1998 – Filed quarterly VAT return for 2nd quarter of 1998 where it reflected an input
VAT on the amount paid to Mitsubishi in the form of VAT component.

May 13, 1999 – Commissioner of Internal Revenue issued ruling that the supply of Mirant to
NAPOCOR is subject to 0% VAT.

December 20, 1999 – Filed claim for refund on the VAT component to Mitsubishi.

Is the claim for refund filed on time such that the respondent is entitled to a refund of its
input VAT payments from 1993 to 1996?

SOURCE: Commissioner of Internal Revenue vs. Mirant Pagbilao Corp.

G.R. 172129, September 12, 2008

www.sepremecourt.gov.ph

EXERCISE 18-7 CASE STUDY

 SILICON Philippines, Inc. a corporation duly organized and existing under and by virtue
of the laws of the Republic of the Philippines, is engaged in the business of designing,
developing, manufacturing and exporting advance and large-scale integrated circuit
components or “IC’s”. It is registered with the Bureau of Internal Revenue (BIR) as a zero rated
(0%) Value Added Tax(VAT) taxpayer.

It filed with the BIR an application for credit/refund of unutilized input VAT attributable to
Silicon’s zero rated sales which was denied by the BIR because it did not print on its export
sales invoices the Authority to Print (ATP) and the word “zero-rated.”

Silicon argued that it is not required to secure an Authority to Print since it has a “Permit
to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipts”
from the BIR. It further argued that because all its finished products are exported to its mother
company, Intel Corporation, a non-resident corporation and a non-VAT registered entity, the
printing of the word “zero-rated” on its export sales invoice is not necessary.

ISSUE: Is the printing of the Authority to Print required? Must the ATP be secured from the BIR?
Should the word “zero-rated” be printed on the sales invoices?

Source: Silicon Philippines, Inc. (Intel Philippines Manufacturing) vs. CIR

G.R. No. 172378, January 17, 2011)

www.lawphil.net

EXERCISE 18-8. CASE STUDY

(Tours Specialists, Inc.) had derived income from its activities as a travel agency by
servicing the needs of foreign tourists and travelers and Filipino "Balikbayans" during their stay
in this country. Some of the services extended to the tourists consist of booking said tourists
and travelers in local hotels for their lodging and board needs; transporting these foreign tourists
from the airport to their respective hotels, and from the latter to the airport upon their departure
from the Philippines, transporting them from their hotels to various embarkation points for local
tours, visits and excursions; securing permits for them to visit places of interest; and arranging
their cultural entertainment, shopping and recreational activities.

In order to ably supply these services to the foreign tourists, Tours Specialist and its
correspondent counterpart tourist agencies abroad have agreed to offer a package fee for the
tourists. Although the fee to be paid by said tourists is quoted by Tours Specialists, the
payments of the hotel room accommodations, food and other personal expenses of said
tourists, as a rule, are paid directly either by tourists themselves, or by their foreign travel
agencies to the local hotels and restaurants or shops, as the case may be.

It is also the case that some tour agencies abroad request the local tour agencies, such
as the Tours Specialists in the case, that the hotel room charges, in some specific cases, be
paid through them. By this arrangement, the foreign tour agency entrusts to the Tours
Specialists, Inc., the fund for hotel room accommodation, which in turn is paid by Tours
Specialists to the local hotel when billed. The procedure observed is that the billing hotel sends
the bill to the Tours Specialists. The local hotel identifies the individual tourist, or the particular
groups of tourists by code name or group designation and also the duration of their stay for
purposes of payment. Upon receipt of the bill, the Tours Specialists then pays the local hotel
with the funds entrusted to it by the foreign tour correspondent agency.

Tours Specialists received an assessment from the Commissioner of Internal Revenue

(CIR) which it formally protested on the ground that the money received and entrusted to it by
the tourists, earmarked to pay hotel room charges, were not considered and have never been
considered by it as a part of its taxable gross receipts for purposes of computing and paying its
contractor’s tax.

ISSUE: Whether amounts received by a local tourists and travel agency included in a package
fee from tourists or foreign tour agencies, intended or earmarked for hotel accommodations
form part of gross receipts.

SOURCE: CIR vs. Tours Specialists, Inc.

G.R. No. L66416, March 21, 1990

(www.lawphil.net) The Lawphil Project- Arellano Law Foundation

Chapter 19

VAT on importation of goods

TABLE OF CONTENTS

Definitions 410

Transactions subject 410

Tax rate and tax base 410

Transfer of goods by tax exempt persons 413

Exercise 19-1. True or False Questions 414

Exercise 19-2. Multiple Choice Questions 416

Exercise 19-3. Discussion Questions/ Problems 417

Definitions

Importation is the act of bringing goods and merchandise into a country from a foreign
country.

It is deemed complete when the duties upon the merchandise have been paid of or
returned to be paid at a port of entry and the legal permit for withdrawal shall have been granted
or in case said merchandise is free of duty, until it has left the jurisdiction of customs(sec.1248,
received administrative code)

Importer refers to any person who brings goods into the Philippine, whether or not made
in the course of trade or business. it includes non exempt person, entitles or agencies (RR 16-
2005)

Transactions subject

There shall be levied, assessed and collected on every importation of goods a value
added tax whether the importation is for (1) sale, (2) for use in business, (3) for personal use.

Tax rate and tax base

The tax to be imposed shall be 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 changes, such as postage, commission and similar changes prior to the release
of the goods from customs custody.

The payment of tax shall be made by the importer prior to the release of such goods
from customs custody

Where the customs duties are determined on the basis of the quantity or volume of the
goods, the value added the tax shall be based on the landed cost plus excise taxes, if any.

Landed cost consists of invoice amount, customs duties, freight insurance, and other
charges. If the goods imported are subject to excise tax, the excise tax shall form part of the tax
base.

Illustration 19-1

Joyce imported goods from Japan the following are the data relative to such importation:

For Sale Own Use

Invoice amount ($1.00= P52) $ 9,500 $ 3,000
Dutiable value 11,200 5,200
Customs duties P 10,500 P 3,100
Freight 6,000 2,800
Insurance 8,000 2,500
 Other charges 12,500 4,000
Facilitation fee 10,000 -
Freight from customs house to warehouse, net of VAT 6,000 2,300

After 20 days, the goods intended for sale were sold to Robin for P 812,000.

COMPUTE the VAT payable on the-

1. Importation if the tariff and customs duties were based on volume or quantity.
2. Sale if the input tax is based on quantity of goods imported.

1. Invoice amount
For sale($9,500 x 52) P 494,000
Own use($3,000 x 52) P 156,000
Customs duties 10,500 3,100
Freight 6,000 2,800
Insurance 8,000 2,500
Other Charges 4,000
____12,500
Landed cost 531,000 168,400
Rate tax ___12% 12%
VAT payable 63,720 20,208

2. Output tax (812,000 x 3/28) P 87,000

Less: Input taxes

On importation P 63,720

Freight (6,000 x 12%) 720 64,440

VATpayable 22,560

1. The phrase “other charges prior to release of goods from customs custody” refers to
legitimate expenses only. Thus, facilitation expenses, being illegal, are not included
in the tax base.
2. The goods imported for own use is subject to tax. However, the VAT paid on the
importation and on the freight from customs’ house to warehouse cannot be credited
from the Output Tax on the sale to Robin because the goods are not to be used in
the course of trade or business.
3. Common charges prior to release of goods from customs custody include insurance,
freight, postage, commission, interest, bank charges, wharfage dues, arrastre
charges, brokerage fee, stamps, processing fee, customs duty, excise taxes and
storage fee.
Illustration 19-2

Bata, a VAT a registered person had the following data on importation of goods from
Canada:

1. Purchase price of goods in Canada P 1,000,000

Freight and insurance 200,000

Customs duties(1,000,000+200,000) 120,000

x10%

Other charges (120,000 x 120%) 144,000

Base 1,464,000

Rate 12%

VAT payable on the importation 175,680

2. Output tax (3,200,000 x 12%) 384,000

Less: Input Tax
175,680
VAT payable 208,320
Transfer of goods by tax exempt persons

In the case of goods imported into the Philippines by VAT- exempt persons, entities or
agencies which are subsequently sold, transfer or exchange in the Philippines to non- exempt
persons or entitles, the latter shall be considered the importers thereof and shall be liable for the
VAT due on such importation.

The tax due on such on such importation shall constitute a lien on the goods superior to
all charges or liens on the goods, irrespective of the possessor thereof (sec. 107(8), NIRC).

Illustration 19-3

Papa Libre, a tax-exempt person, imported goods from Japan. Later, he sold them to
Mina Malas, a non-exempt person. who shall be liable to pay the tax?

In buying the imported goods from tax exempt persons. Mina Malas shall be considered
as the importer, and shall be required to pay the VAT due on such importation.

Exercise 19-1. TRUE OR FALSE QUESTIONS

1. Importations of goods are subject to value-added tax whether the imported goods are to
be used in business or not.
2. Importations of goods are always subject to value-added tax whether the goods
imported are to be used in business, for sale in the Philippines, or for personal use.
3. Importations of goods are always subject to value-added tax but the tax rate is 0%.
4. Importations of goods are always subject to value-added tax based on the dutiable value
of the goods imported plus all expenses, including illegitimate, prior to the release off the
goods from customs custody.
5. Importations of goods are always subject to value-added tax based on the landed cost if
the computations of customs duties are based on volume or quantity.
6. Importations of goods are always subject to value-added tax which is based on the
dutiable value plus excise tax, if any, and other legitimate expenses prior to the release
of the goods from customs custody.
7. In value-added tax, the tax base shall be based on the landed cost plus excise taxes, if
any. Facilitation expenses are included in the tax base if they are incurred prior to the
release of the goods from customs custody.
8. If the imported goods had been subject to value-added tax and later on were sold, the
VAT paid on the importation can be claimed by the seller as tax credit from output tax.
9. If the importer owns a business end the imported goods consist of goods for sale and for
personal use, the recording of the value-added tax on importation in the books of the
business shall be the combined amount of the VAT paid on the two goods.
10. If the importer owns a business end the imported goods consist of goods for sale and
for personal use the compotation on VAT payable during the month shall include the
input tax on importation of goods for personal use as tax credit from the output tax.
11. If the importer owns a business and the imported goods consist of goods for sale and
for personal use the compotation of VAT payable during the month shall include the VAT
paid on the importation of goods for sale as tax credit from the output tax.