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    Bustax Chapter 7

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    Pineda, Paula Marie
    1. The document outlines the sources of regular output VAT which include the sale of vatable goods, services, properties, and deemed sales. 2. It provides details on the tax treatment of output VAT for the sale of goods, services, and properties. For goods, the VAT is based on the gross selling price unless it is unreasonably lower than fair value. For services and properties, the VAT is based on the gross receipts and gross selling price, respectively. 3. Several transactions are deemed sales for VAT purposes including the transfer or use of goods/properties not in the ordinary course of business, distribution to shareholders/creditors, consignment of goods not sold within 60 days, and

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Bustax Chapter 7

    Uploaded by

    Pineda, Paula Marie
    30 views10 pages
    1. The document outlines the sources of regular output VAT which include the sale of vatable goods, services, properties, and deemed sales. 2. It provides details on the tax treatment of output VAT for the sale of goods, services, and properties. For goods, the VAT is based on the gross selling price unless it is unreasonably lower than fair value. For services and properties, the VAT is based on the gross receipts and gross selling price, respectively. 3. Several transactions are deemed sales for VAT purposes including the transfer or use of goods/properties not in the ordinary course of business, distribution to shareholders/creditors, consignment of goods not sold within 60 days, and

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    BUSTAX

    Original Title

    BUSTAX CHAPTER 7

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    1. The document outlines the sources of regular output VAT which include the sale of vatable goods, services, properties, and deemed sales. 2. It provides details on the tax treatment of output VAT for the sale of goods, services, and properties. For goods, the VAT is based on the gross selling price unless it is unreasonably lower than fair value. For services and properties, the VAT is based on the gross receipts and gross selling price, respectively. 3. Several transactions are deemed sales for VAT purposes including the transfer or use of goods/properties not in the ordinary course of business, distribution to shareholders/creditors, consignment of goods not sold within 60 days, and

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views10 pages

    Bustax Chapter 7

    Uploaded by

    Pineda, Paula Marie
    1. The document outlines the sources of regular output VAT which include the sale of vatable goods, services, properties, and deemed sales. 2. It provides details on the tax treatment of output VAT for the sale of goods, services, and properties. For goods, the VAT is based on the gross selling price unless it is unreasonably lower than fair value. For services and properties, the VAT is based on the gross receipts and gross selling price, respectively. 3. Several transactions are deemed sales for VAT purposes including the transfer or use of goods/properties not in the ordinary course of business, distribution to shareholders/creditors, consignment of goods not sold within 60 days, and

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    © All Rights Reserved
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    THE REGULAR OUTPUT VAT

    SOURCES OF REGULAR OUTPUT VAT


    1. Sale of vatable goods
    2. Sale of vatable services
    3. Sale of vatable properties
    4. Transactions deemed sales

    The following table is an overview of the tax basis of the VAT:


    Taxable Transaction Tax Basis

    1. Sale of goods Gross selling price, unless reasonably


    lower
    2. Sale of services Gross receipts

    3. Sale of properties Gross selling price as defined by the BIR

    4. Transactions deemed sales Fair value of the property deemed sold

    SALE OF VATABLE GOODS


    The sale of goods is subject to 12% VAT based on gross selling price, unless unreasonably
    lower selling price, the tax base shall be fair value of the goods sold.

    Unreasonably lower selling price


    If the selling price is unreasonably lower, the VAT shall be based on the fair value of the goods
    sold.

    The gross selling price deemed reasonably lower when it is lower by more than 30% of the
    actual market value of the goods sold. (Selling Price / Fair Value = 30% above)
    The fair value of the goods shall be determined by the Commissioner of Internal Revenue.

    Nonetheless, if one of the parties is the government, the output VAT shall be based on the
    actual selling price.* (fair value rule does not apply to government)

    Timing of Output VAT reporting


    The Output VAT on the sale of vatable goods is reported in the month of sale.
    SALE OF VATABLE SERVICES
    The sale of services is subject to 12% VAT based on the gross receipts. Gross receipt is
    collection of income.

    Timing of Output VAT reporting


    The Output VAT on the sale of vatable services is reported in the month of collection.*

    SALE OF VATABLE PROPERTIES


    The sale, barter or exchange of vatable real properties is subject to VAT on the gross selling
    price.

    Under the regulations, gross selling price means the higher of the:
    a. Consideration or selling price
    b. Fair value of the property

    Under the NIRC, the fair value of real property is the higher between the:
    a) Zonal value and;
    b) Fair value per assessor’s office.

    In the absence of a zonal value, gross selling price shall mean the fair value per assessment or
    consideration stated in the sales document, whichever is higher.

    If the gross selling price is based on the zonal value or assessor’s fair value of the property, the
    zonal value or assessed value shall be presumed exclusive of VAT.
    It must be noted that the term selling price or consideration on the sale of property is legally
    presumed VAT inclusive, but this is not the case on sale of goods.*

    Summary of Rules:

    COMPARISON OF THE VAT ON GOODS AND VAT ON PROPERTIES


    The output VAT on the sale of
    If the fair value is And the Selling price is Goods is computed as Real property is computed as
    100,000 120,000 120,000 x 12% 120,000 x 12%
    100,000 80,000 80,000 x 12% 100,000 x 12%
    100,000 60,000 100,000 x 12% 100,000 x 12%

    The concept of unreasonably lower does not apply on the sale of property.
    The higher the fair value and selling price is always the basis of the VAT.

    INSTALLMENT REPORTING OF OUTPUT VAT ON REAL PROPERTIES


    The output VAT on the sale of real properties may be reported in installment if the initial
    payment from such sale if it does not exceed 25% of the selling price.*
    SALE OF PROPERTY BY A REALTY DEALER ON A DEFERRED PAYMENT BASIS
    The sale of property by a realty dealer on a deferred payment basis, not on the installment
    plan, shall be treated as a cash sale.
    The fair value of gross selling price whichever is higher is subject to VAT in the month of sale.
    Subsequent collections from the sale shall no longer be subjected to VAT.*

    INTEREST AND PENALTIES


    Interest and penalties actually or constructively received by the seller are likewise subject to
    VAT.*

    SALE OF PROPERTIES CONSIDERED “ORDINARY ASSETS”


    Even if the property is not primarily held for sale to customers or held for lease in the ordinary
    course of business but the same is used in the trade or business of the seller, the sale thereof
    is subject to VAT being a transaction incidental to the taxpayer’s main business.

    Therefore, the sale of properties held for use (ordinary asset) such as land, building,
    equipment, machineries, property improvements, and supplies aside from inventories and
    supplies are vatable.

    SALE OF PROPERTY NOT IN THE ORDINARY COURSE OF BUSINESS “CAPITAL ASSETS”


    The sales of properties not in the ordinary course of business are exempt from VAT. Hence,
    the sale of capital assets is exempt from VAT.*
    Therefore:
    Ordinary Asset – Vatable Capital Asset – Exempt

    TRANSACTIONS DEEMED SALES


    There are acquisition transactions involving goods or properties which are consumption in
    nature but are not coursed through a purchase transaction.

    List of Transactions Deemed Sales:


    1. Transfer, use, or consumption not in the course of business of goods or properties
    originally intended for sale or for use in the course of business.

    2. Distribution or transfer to
    a) Shareholders or investors share in the profits of VAT-registered persons
    b) Creditors in payment of debt or obligation

    3. Consignment of goods if actual sale is not made within 60 days following the date such
    goods were consigned consignor - nagpapa display
    consignee - nag display
    4. Retirement from or cessation of business with respect to all goods on hand whether
    capital goods, stock in trade, supplies or materials as of the date of cessation, whether
    or not the business is continued by the new owner or successor

    5. Cessation of status as a VAT-registered person

    Transfer, use or consumption not in the ordinary course of business


    This occurs when vatable ordinary assets are used for purposes other than their intended
    purpose, such as when:
    1) Goods or properties held for sale are no longer sold but are transferred or disposed of by
    the other means other than sale.
    2) Properties originally intended for use are no longer used but are transferred, disposed of
    or exchanged with other properties.

    Examples of consumption in the ordinary course of business:


    1. Withdrawal by the business owner for personal use of goods held for sale or properties
    held for use
    2. Using goods held for sale or properties held for use to pay off debts with creditors
    (Dacion en pago)
    3. Using goods held for sale or properties held for use as property dividends to
    shareholders
    4. Exchange of goods held for use for other properties
    5. Sale or disposal of properties held for use in exchange for cash or other properties.

    Consignment of goods not withdrawn in 60 days


    Consigned goods to consignees, if not withdrawn within 60 days, are also presumed or
    deemed sold subject to VAT.*

    Retirement or cessation of business


    When the owner of the business withdraws a certain merchandise for his personal
    consumption, much would it be when he ceased or retire from business where all of the
    assets will become his personal disposal. The retirement or cessation of business will result in
    the transfer of all goods or properties of the business to the personal use or account of the
    business owner or owners.
    Hence, it is deemed sale.

    If the business is continued by the new owner, the goods or properties of the business are
    effectively sold to the new owner.
    Hence, the goods or properties are likewise deemed sold.
    This applies only to ordinary assets but not to capital assets.

    Business Dissolution
    General Rule: Business dissolution is deemed sale.

    As a rule of thumb, one must note that when there is business dissolution, there is deemed
    sale, such as in the following cases:
    1) Change of ownership in the business
    a. Incorporation of a sole proprietorship
    b. Sale by a proprietor of his entire business
    2) Dissolution of a partnership
    a. Creation of a new partnership which takes over the business
    b. By incorporation into a partnership

    When there is no business dissolution, there is no deemed sale such as in the following cases:
    1. Change in controlling shareholder
    2. Change in trade or corporate name
    3. Change in business address*

    Exception to the business dissolution rule:


    1. Merger or consolidation There is business dissolution but not a deemed sale under the law

    2. Cessation of status as There is no business dissolution but treated as deemed sale.


    VAT-registered person

    *always look if acquire coporate control.


    when it is, it's exempt

    Merger or Consolidation
    Both merger and consolidation result in the dissolution of a corporation and the transfer of
    assets of the dissolved corporation to the absorbing corporation.
    In principle, the assets of the dissolved corporation should be considered deemed sold.
    Legally, however, the dissolution of a corporation is not a deemed sale. The unused input tax
    of dissolved corporation as of the date of merger or consolidation shall be absorbed by the
    surviving corporation.*

    Cessation of status as VAT-registered person


    Goods or properties originally intended for sale or use in the business, and capital goods
    existing as of the occurrence of any of the following shall be deemed sold:
    a. Change of business activity from VAT-taxable status to VAT-exempt status
    b. Approval of a request for cancellation or registration due to reversion to exempt status
    c. Approval of request for cancellation of registration due to a desire to revert exempt status
    after the lapse of 3 consecutive years from the registration by a person who voluntarily
    registered despite being exempt.
    d. Approval of a request for cancellation of registration of one who commenced business with
    the expectation of gross sales or receipt exceeding P3,000,000 but who failed to exceed this
    amount during the first twelve months of operations.

    Output tax on transactions deemed sales


    The output tax on deemed sales transactions shall be based on the market value of the goods
    sold as of the occurrence of the deemed sale transaction.

    However, in the case of retirement or cessation of business, it shall be based on the


    acquisition costs or the current market price of the goods or properties, whichever is lower.*

    Cessation of status as VAT-registered person

    Determination of fair value


    The Commissioner of Internal Revenue shall determine the appropriate tax bases in cases
    where the:
    a. Transaction is a deemed sale
    b. Gross selling price is unreasonably lower

    Invoicing requirement for Subsequent Sale of Goods or Properties Deemed Sold


    The subsequent sale of goods or properties deemed sold shall not be subject to VAT.
    The seller of goods or properties previously deemed sold shall indicate the sales invoice
    number wherein the output tax on the deemed sale was imposed and the corresponding tax
    paid on the items sold.
    For continuing business taxpayers, this is essential to avoid further imposition of any business
    tax on the subsequent sale. This is also essential for the buyer to establish its claim of input
    vat on his purchase of goods previously deemed sold to the seller.

    Deemed sales rules apply only to VAT taxpayers only


    Deemed sale rules applies only to VAT taxpayers.
    These do not apply to non-VAT taxpayers by virtue of the absence of equivalent provision in
    our tax law.*

    Billing requirements for Output VAT


    The output VAT must be specifically indicated in the VAT invoice or receipt.
    It must be billed separately in the case of sales or properties where the fair value exceeds the
    selling price.

    Determination of the Output VAT


    The amount of output VAT is dependent upon the price quoted by the VAT taxpayer.
    Such amount is understood to be inclusive of the VAT in the absence of a special agreement to
    the contrary.*

    Determination of the Output VAT

    Rule on VAT not separately billed


    If the VAT is not separately billed in the document of sale, the selling price or the consideration
    stated therein shall be deemed to be inclusive of the VAT.
    The VAT shall be computed from the agreed price as a factor of 12/112.
    Incorrect Billing of VAT
    If the VAT is incorrectly billed, the total amount billed by the taxpayer shall be deemed
    inclusive of the VAT. The VAT shall be recomputed as a factor of 12/112.*

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