transfer and business taxation - midterm

8/9/2019 Transfer and Business Taxation - MIDTERM

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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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7/14

' Should be consummated in the P%

regardless of terms of payment

@EE


8/14

%


9/14

. 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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10/14

' 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


11/14

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


12/14

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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13/14

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++

14

transfer and business taxation - midterm

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