Vat on Sale of Services and Use Or

8/6/2019 Vat on Sale of Services and Use Or

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FROM: TRANSFER

TAX of BALLADA


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The Phrase Sale or Exchange

of Services

means performance of all kind

of services in the Philippines

for others for a fee,

remuneration or

consideration, whether in

kind or in cash, includingthose performed or rendered

by:


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1. Construction andservice contractors;

2. Stock, real estate,commercial,customs andimmigration

brokers;3. Lessors of property,

whether personal orreal;

4.

Persons engaged inwarehousingservices;


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5. Lessors or distributors of cinematographic films;6. Persons engaged in milling, processing,

manufacturing or repacking goods for others;7. Proprietors, operators or keepers of hotels,

motels, rest houses, pension houses, inns,resorts, theatres, and movie houses;8. Proprietors or operators of restaurants,

refreshment parlors, cafes, and other eatingplaces, including clubs and caterers;

9.

Dealers in securities;


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The supreme Court on July

15, 2003, in the caseCommissioner of Internal

Revenue vs. Michel J.

Lhuillier Pawnshop, Inc.

Decided that pawnshopsare not subject to the 5 %

lending investors tax. It

upheld the CTA decision

that pawnshops are notlending investors.


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11. Transportation contractors on their transport of

goods or cargoes, including persons who transport

goods or cargoes for hire and other domestic

common carriers by land relative to their transport

of goods or cargoes;


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TIMES Trans. , a common carrier engaged in

transporting passengers by land. Incidental to its

business, it also charges additional amount for the

excess baggage of passengers that are sent to

provincial destination. Time is requesting for the ruling

on whether the additional amount collected for the

excess accompanied baggage is subject to 10% VAT

or the 3 % common carrier tax.

The BIR ruled that it will be subject to 10 % VATpursuant to Section 108 of the tax code of1997.


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12.DOMESTICCommon carriers by air and sea

relative to their transport of passengers, goods or

cargoes from one place in the Philippines to

another place in the Philippines;


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13. Sales of electricity by generation, transmission,and/or distribution companies;

BIR RULING DA 283-2005 June 23 2005

This ruling applies to electric cooperative registered withNEA. Upon effectivity of RA 9337, VAT shall beimposed on sales relative to generation anddistribution of electricity as well as the importation ofmachineries and equipment including spare parts thatshall be used in the generation and distribution of

electricity.

The 3% percentage tax on Electric utilitiesunder Sec 116 of the tax code of1997 has beenrepealed by RA 9337


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14.Franchise grantees of electric utilities, telephoneand telegraph, radio and/or television

broadcasting and all other franchise grantees,

except franchise grantees of radio and/or

television broadcasting whose annual gross

receipts of the preceding year do not exceed Ten

Million Pesos (P10,000,000.00), and franchise

grantees of gas and water utilities;


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ILLUSTRATION:

BIR RULING 014-98, FEB 6, 1998

Members of the KAPISANAN NG MGA

BRODKASTER NG PILIPINAS regularly receive

broadcast orders for airtime from the Philippines

Information Agency. Does the VAT requirement

apply PIA regarding government plugs for airing in

radio and TV station?


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YES. Government entities and instrumentalities,including GOCCs are subject to VAT. As an agencyof the Government, PIA shall be subject to VAT if inthe course of trade and business. It sells, barters,exchanges or leases goods or properties or rendersservices and import goods.

Buying and selling of TV airtime constitutes renditionof services to others for the consideration subject to10% VAT. As Lessors, TV broadcasting stationowners are the ones primary liable for the payment

of VAT although they can pass on to PIA the amountof tax as part of the cost


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15. Non-life insurance companies (except their cropinsurances), including surety, fidelity, indemnity

and bonding companies; and

16. Pre need companies

17. Health maintenance organizations; and18.Similar services regardless of whether or not the

performance thereof calls for the exercise of use

of the physical or mental faculties.


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The phrase "sale or exchange of services" shall

likewise include:

1. The lease of use of or the right or privilege to use

any copyright, patent, design or model, plan,

secret formula or process, goodwill, trademark,

trade brand or other like property or right;

2. The lease or the use of, or the right to use of any

industrial, commercial or scientific equipment;

3. The supply of scientific, technical, industrial or

commercial knowledge or information;


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4. The supply of any assistance that is ancillary andsubsidiary to and is furnished as a means of enablingthe application or enjoyment of any such property, orright as is mentioned in subparagraph (2) or or any

such knowledge or information as mentioned in subparagraph (3);

5. The supply of services by a nonresident person or hisemployee in connection with the use of property orrights belonging to, or the installation or operation of

any brand, machinery or other apparatus purchasedfrom such non resident person;


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6. The supply of technical advice, assistance or

services rendered in connection with technical

management or administration of any scientific,

industrial or commercial undertaking, venture,project or scheme;


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7. The lease of motion picture films, films, tapes and

discs; and

8. The lease or the use of or the right to use radio,

television, satellite transmission and cable

television time.


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The term gross receipts means the total amountof money or its equivalent representing the

contract price, compensation, service fee, rental

or loyalty, including the amount charged for

materials supplied with the services and depositsand advanced payments actually or constructively

received during the taxable quarter for the

services performed or to be performed for another

person, excluding value-added tax.


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4. Services rendered to persons engaged ininternational shipping or air transport operations,including leases of property for use thereof;Provided, however, that the services rendered toherein shall not pertain to those made by commoncarriers by air and sea relative to their transport of

passengers, goods or cargoes from one place inthe Philippines to another place in the Philippines,the same being subject to 12% VAT under Sec.108 of the Tax Code;


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5. Services performed by subcontractors and/or

contractors duly accredited by either the Board of

Investments or the Export Development Council in

processing, converting, or manufacturing goodsfor an enterprise whose export sales exceed

seventy percent (70%) of the total annual

production;


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6. Transport of passengers and cargo by domestic

air or sea carriers from the Philippines to a foreign

country.


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7. Sale of power or fuel generated through renewable

sources of energy such as, but not limited to, biomass,

solar, wind, hydropower, geothermal, ocean energy,

and other emerging energy sources using

technologies such as fuel cells and hydrogen fuels;

Provided, however, that zero-rating shall apply to the

sale of power or fuel generated through renewable

sources of energy, and shall not extend to the sale of

services related to the maintenance or operation ofplants generating said power.


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The term effectively zero-rated sales ofservicesshall refer to the local sale of services by a VAT-registered person to a person or entity who wasgranted indirect tax exemption under special laws orinternational agreement.

The concerned taxpayer must seek prior approval orprior confirmation from the appropriated offices of theBIR that a transaction is qualified for effective zero-rating. Without an approved application for effectivezero-rating, the transaction otherwise entitled to zero-

rating shall be considered exempt (RevenueRegulations 16-2005)


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(a) Lessors ofProperty. All forms of property forlease, whether real or personal, are liable to VATexcept those that are VAT-exempt.

Real estate lessor includes any person engaged

in the business of leasing or subleasing realproperty. Lease of property shall be subject to VATregardless of the place where the contract of leaseor licensing agreement was executed if the

property leased or used is located in thePhilippines (Republic Act 9238, effective Jan.1,2004).

Definitions and SpecificRules on

Selected Services


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VAT on rental and/or royalties payable to non-residentforeign corporations or owners for the sale of services

and use or lease of properties in the Philippines shall

be based on the contract price agreed upon by the

licensor and the licensee.

The licensee shall be responsible for the payment of

VAT on such rentals and/or royalties in behalf of the

non-resident foreign corporation or owner in the

manner prescribed.


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Non-resident: lessor/owner refers to any

person, natural or juridical, an alien, or a citizen

who establishes to the satisfaction of the

Commissioner of Internal Revenue the fact of hisphysical presence abroad with a definite intention

to reside therein, and who owns/ leases

properties, real or personal, whether tangible or

intangible, located in the Philippines.


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In a lease contract, the advance payment by thelessee may be;

(i) a loan to the lessor from the lessee, or

(ii) an option money for the property, or

(iii) a security deposit to insure the faithfulperformance of certain obligations of the lessee to

the lessor, or

(iv) prepaid rental.


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If the advance payment is actually a loan to thelessor, or an option money for the property, or a

security deposit for the faithful performance of

certain obligations of the lessee, such advance

payment is not subject to VAT.

However, a security deposit that is applied to rental

shall be subject to VAT at the time of its

application


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If the advance payment constitutes a prepaid rental,then such payment is taxable to the lessor in themonth when received, irrespective of the accountingmethod employed by the lessor.

(b.) Warehousing Service means rendering personalservices of a warehouseman such as: (1.) engaging inthe business of receiving and storing goods of othersfor compensation or profit; (2.) receiving goods andmerchandise to be stored in his warehouse for hire; or

(3.) keeping and storing goods for others, as abusiness and for use.


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(c.) A miller , who is a person engaged in milline for others(exceptpalayinto ice, corn into corn grits and sugarcaneinto raw sugar), is subject to VAT on the sale of services.

If the miller is paid in cash for his services, VAST shall bebased on his gross receipts for the month or quarter. If hereceives a share of the milled products instead of cash,VAT shall be based on the actual market value of his sharein the milled products. Sale by the owner or the miller of hisshare of the milled product (except rice, corn grits, and raw

sugar ) shall be subject to VAT.


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(d.) Allreceipts from service, hire or operating lease oftransportation equipment notsubject to 3% percentage tax

on domestic common carriers and keepers of garages shallbe subject to VAT.

Common Carrier refers to persons, corporations, firms, orassociations engaged in the business of carrying ortransporting passengers or goods or both, by land, water or

air, for compensation, offering their services to the publicand shall include transportation contractors.

Common carriers by landwith respect ti their gross receiptsfrom the transport of passengers including operators of

taxicabs, utility cars for rent or hire driven by lessee (rent-a-car companies), and tourist buses used for the transportofpassengers shall be subject to the 3% percentage tax, butshall not be liable for VAT.


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(e.) Domestic common carriers by air and by sea

are subject to 12% VAT on their gross receipts

from their transport of passengers, goods or

cargoes from one place in the Philippines toanother place in the Philippines.


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At this point, it will be useful to summarize the tax on domesticcommon carriers:

By Land:Transporting Goods orCargoes 12%VATTransporting Passengers 3%CommonCarriers Tax

By Air or Sea:From/To Within thePhilippinesTransporting Goods orCargoes 12% VATTransporting Passengers 12% VATFrom OnePointin thePhilippines toAbroadTransporting Goods orCargoes 0% VAT

Transporting Passengers 0% VAT


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Gross receipts ofinternational aircarriers and

international sea carriers doing business in the

Philippines are liable to a percentage tax of 3%

based on their gross receipts (RMC 31-2008 and

46-2008).


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(f.) Sale of electricity by generation, transmission

and distribution companies shall be subject to

12% VAT on their gross receipts.


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Generation companies refers to persons or entitiesauthorized by the Energy Regulatory Commission

(ERC) to operate facilities used in the generation of

electricity. Generation of electricity refers to the

production of electricity by a generation company or

co-generation facility pursuant to the provisions of the

RA 9136 (EPIRA). They shall include all Independent

Power Producers (IPPs) and NPC/Power Sector

Assets and liabilities Management Corporation

(PSALM)-owned generation facilities.


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Transmission companies refers to any person or entitythat owns and conveys electricity through the high voltagebackbone system and/ or sub-transmission assets, e.g.

NPC

or TRANSC

O.

Sub-transmission assets shall refer to the facilities relatedto the power delivery service below the transmissionvoltages and based on the functional assignment of assetincluding, but not limited to step-down transformers used

solely by load customers, associated switchyard/substation, control and protective equipment, reactivecompensation equipment to improve power factor,overhead lines, and the land where such facilities/equipments are located.

These include NPC assets linking the transmission and thedistribution system where neither classified as generationor transmission.


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Distribution companies refer to persons or entities whichoperate a distribution system in accordance with provisionsof the EPIRA. They shall include any distribution utility suchas an electric cooperative organized pursuant toPresidential Decree No. 269, as amended, and/or underRA No. 6938, or as otherwise provided in the EPIRA., aprivate corporation, or a government- owned utility or

existing local government unit which has an exclusivefranchise to operate a distribution system in accordancewith the EPIRA. A distribution system refers to the systemof wires and associated facilities belonging to a franchiseddistribution utility extending between the delivery points on

the transmission or sub-transmission system or generatorconnection and the point of connection to the prmises ofthe end-users.


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Gross receiptsunder this Subsection (f) shall refer tothe following: (a) Total amount charged by generation

companies for the sale of electricity and relatedancillary services; and/ or (b) Total amount charged bytransmission companies for transmission of electricityand related ancillary services; and/ or (c) Total amountcharged by distribution companies and electriccooperatives for distribution and supply of electricity,and related electric service.

The universal charge passed on and collected bydistribution companies and electric cooperatives shallbe excluded from the computation of gross receipts.


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G. Dealers in securities and Lending investorsG. Dealers in securities and Lending investors

shall be subject to VAT on the basis of their grossshall be subject to VAT on the basis of their gross

receipts. However, for dealer in securities, grossreceipts. However, for dealer in securities, gross

receipts means gross selling price less cost of thereceipts means gross selling price less cost of the

securities sold.securities sold.


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Dealerin securitiesDealerin securities-- means a merchant of stocksmeans a merchant of stocksand securities, whether an individual, partnershipand securities, whether an individual, partnership

or corporation, with an established place ofor corporation, with an established place of

business, regularly engaged in purchasingbusiness, regularly engaged in purchasing

securities and their resale to customers with viewsecurities and their resale to customers with view

of gains and profits that they will derived thereof gains and profits that they will derived there

from.from.


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Lending investorsLending investors includes all persons otherincludes all persons other

than banks, nonthan banks, non-- bank intermediaries, financebank intermediaries, finance

companies and other financial intermediaries notcompanies and other financial intermediaries not

performing quasiperforming quasi-- banking functions who make abanking functions who make a

practice of lending money for themselves or otherspractice of lending money for themselves or others

at interest.at interest.


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` H.H. Services of franchise grantees of telephone,Services of franchise grantees of telephone,

telegraphs, radio or television broadcasting, toll roadtelegraphs, radio or television broadcasting, toll road

operations and all other franchise grantees shall beoperations and all other franchise grantees shall besubject to VAT in lieu of franchise tax, under Sec, 20 ofsubject to VAT in lieu of franchise tax, under Sec, 20 of

RA No. 7716 as amended.RA No. 7716 as amended.

` Franchise grantees of radio and televisionFranchise grantees of radio and televisionbroadcasting with gross receipts in the preceding yearbroadcasting with gross receipts in the preceding year

not exceeding ten million pesos (P10, 000, 000. 00)not exceeding ten million pesos (P10, 000, 000. 00)

shall not be subjected to VAT, but to 3% franchise taxshall not be subjected to VAT, but to 3% franchise tax

imposed under section 119 of the tax code, subject toimposed under section 119 of the tax code, subject to

the optional registration provisions. Franchisethe optional registration provisions. Franchise

grantees of gas and water utilities shall also be subjectgrantees of gas and water utilities shall also be subject

to 2% franchise tax.to 2% franchise tax.


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Gross receipts of all other franchise grantees, other thanGross receipts of all other franchise grantees, other thanthose covered by section 119 of the tax code, shall bethose covered by section 119 of the tax code, shall besubject to VAT imposed under section 108 of the tax codesubject to VAT imposed under section 108 of the tax codewhich includes among other , the Philippine andwhich includes among other , the Philippine andamusement gaming corporation(PAGCOR), and itsamusement gaming corporation(PAGCOR), and its

licenses or franchisees.

licenses or franchisees.

Franchise grantees of telephone and telegraph shall beFranchise grantees of telephone and telegraph shall besubjected to VAT on their gross receipts derived fromsubjected to VAT on their gross receipts derived fromtelephone, telegraph,telephone, telegraph, telewritertelewriter exchange, wireless andexchange, wireless andother communication equipment services. But the amountother communication equipment services. But the amountreceived from overseas dispatched messages originatingreceived from overseas dispatched messages originating

from Philippines shall be exempted from VAT but to befrom Philippines shall be exempted from VAT but to besubjected to percentage tax under section 120 of the taxsubjected to percentage tax under section 120 of the taxcode.code.


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I.I. Non Life insurance companies including suretyNon Life insurance companies including suretyindemnity, fidelity and bonding companies shall beindemnity, fidelity and bonding companies shall be

subject to VAT. But they are not liable to thesubject to VAT. But they are not liable to the

payment of the premium tax under section 123 ofpayment of the premium tax under section 123 of

the tax code.

the tax code.


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Non life insurance companies shall include allNon life insurance companies shall include allindividuals, partnerships, associations andindividuals, partnerships, associations andcorporations, including professional reinsurers definedcorporations, including professional reinsurers definedin section 280 of PD 612, otherwise known as thein section 280 of PD 612, otherwise known as theInsurance Code of the Philippines, mutual benefitInsurance Code of the Philippines, mutual benefitassociations and government owned or controlledassociations and government owned or controlledcorporations, engaging in the business of propertycorporations, engaging in the business of propertyinsurance as distinguished from insurance on humaninsurance as distinguished from insurance on humanlives, health, accident and insurance connectedlives, health, accident and insurance connectedtherewith which shall be subject to the percentage taxtherewith which shall be subject to the percentage taxunder section 123 of the tax code.under section 123 of the tax code.


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The gross receipts from non life insurance shall meanThe gross receipts from non life insurance shall meantotal premiums collected, whether paid in money,total premiums collected, whether paid in money,

notes or credits and other substitute for money.notes or credits and other substitute for money.

Non life insurance premiums are subject to VAT but nonNon life insurance premiums are subject to VAT but nonlife reinsurance premiums are not subject to VAT sincelife reinsurance premiums are not subject to VAT since

they already subjected to VAT upon receipt of thethey already subjected to VAT upon receipt of the

insurance premiums. Insurance and reinsuranceinsurance premiums. Insurance and reinsurance

commissions, whether life or non life, are subject tocommissions, whether life or non life, are subject to

VAT.VAT.


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J.J. PrePre-- need Companies are corporations registeredneed Companies are corporations registered

with Securities and ExchangeC

ommissions,with Securities and ExchangeC

ommissions,authorized and licensed to sell or offer for sale preauthorized and licensed to sell or offer for sale pre--

need plans, whether single or multi plan. They areneed plans, whether single or multi plan. They are

engaged in business as seller of services providingengaged in business as seller of services providing

services to plan holders by managing funds providedservices to plan holders by managing funds provided

by them and making payments at the time of need orby them and making payments at the time of need ormaturity of contracts. The compensation for theirmaturity of contracts. The compensation for their

services is the premiums or payments received fromservices is the premiums or payments received from

the plan holders.the plan holders.


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K. Healthmaintenance Organizations (HMOs)K. Healthmaintenance Organizations (HMOs)are entities organized in accordance with theare entities organized in accordance with the

provisions of the Corporation Code of theprovisions of the Corporation Code of the

Philippines and licensed by appropriatePhilippines and licensed by appropriate

government agencies, which arranges forgovernment agencies, which arranges forcoverage or designated managed care servicescoverage or designated managed care services

needed by plan holders for fixed prepaidneeded by plan holders for fixed prepaid

membership fees and for a specified period ofmembership fees and for a specified period of

time.time.


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HMOs gross receipts shall be the total amount ofHMOs gross receipts shall be the total amount ofmoney representing service fee received duringmoney representing service fee received during

the taxable period for the services performed or tothe taxable period for the services performed or to

be performed for another person excluding VAT.be performed for another person excluding VAT.

The compensation for the services representingThe compensation for the services representing

service fee is the total amount received asservice fee is the total amount received as

enrolment fee from their members plus otherenrolment fee from their members plus other

charges received.charges received.

Documents

Vat on Sale of Services and Use Or