LENG NOTES

(1) P20M loan, property mortgaged. Next year, debtor donated same property to the same
creditor- subject to donor’s tax?
o Real property acquired through a dacion en pago in payment of a debtor’s loan
obligation does not result in the acquisition of an ordinary asset- so it is only subject to
6% capital gains tax
o No intention of selling or leasing in the course of trade or business
o However, if there is no intention of exonerating the debtor from liability, then the
transaction shall be subject to donor’s tax [take note of the requisites mentioned
below]

(2) MWSS concessionaire problem

o Beginning 01/1/96, all franchise grantees, except those subject to franchise tax (such
as grantees of gas and water utility firms and radio and/or television broadcasting
companies whose gross annual receipts for the preceding year do not exceed P10M),
became subject to VAT

(3) NAPOCOR research work in Japan

o When the goods, properties or services are consumed or are destined for
consumption abroad, they are zero rated; hence, no output tax is imposed on the sale
thereof, but the input taxes passed on upon purchase of taxable goods, properties or
services may be claimed by the taxpayer as refund or tax credit from the BIR.
o Situs of service principle
o CIR vs Seagate

(4) Requirements or procedure for cancellation of VAT registration

o For the cancellation of VAT registration, written application shall be filed with the
Revenue District Office where he is registered. The taxpayer must show that:
(i) Gross sales or receipts for the ff months other than those that are exempt
under Sec 109 will not exceed 1,919,500; OR
(ii) He has ceased to cary on his trade or business and does not expect to
recommence any trade or business within 12 months

(5) Economist returned payment for his research work to his classmate- subject to VAT?
o The transaction is subject to VAT. Sale or exchange of services is subject to VAT,
and the same means the performance of all kinds of services in the Philippines for a
fee, remuneration or consideration. The profit gained is not necessary for the
transaction to be subjected to VAT. There was also a constructive or actual receipt of
the money when it was handed to him (but returned later on)
o CIR vs COMECERCO

(6) Manuel did not know he has cancer, transferred his properties to Manuel Jr.- transfer in
contemplation of death?
o It is not considered as a transfer in contemplation of death
o It is the thought of death, as a controlling motive, which includes the disposition of the
property for the purpose of avoiding the tax. The imminence of death may afford
convincing of the impelling cause of the transfer. However, it is contemplation of
death and not necessarily contemplation of imminent death to which the statute refers
 o Circumstances taken into account include:
(a) Age and state of health of the decedent at the time of gift
(b) Length of time between the gift and the date of death
(c) Concurrent making of a will or making a will within a short time after the transfer

(7) Joseph Mendoza wishes to give monetary gift to George if he marries his daughter- subject
to donor’s tax?
o The transaction is not subject to donor’s tax
o Donor’s tax, to accrue, must comply with the following requisites:
(a) Capacity of the donor
(b) Donative intent
(c) Delivery whether actual or constructive
(d) Acceptance of the gift
o The donor’s tax shall not apply unless and until there is a completed gift. The
donation, being subject to condition (ie marriage of George and his daughter), depicts
the absence of donative intent. Also, since the donation is dependent on the fulfilment
of the condition, no delivery nor acceptance of the donation has been made, thus, the
aforementioned requisites have not been complied with.

(8) May a taxpayer appeal to CTA without waiting for the decision of the Commissioner in
refunds claims
o As a general rule, before an appeal can be made, the taxpayer must wait for the
decision of the Commissioner. Upon denial of the claim, the taxpayer is given 30 days
to appeal. However, if there is inaction on the part of the Commissioner within 120
days after the filing of the claim supported with sufficient documents, the taxpayer
may file the appeal after the lapse of 120 days, without waiting for the
Commissioner’s decision.

(9) Reimbursement-on-cost- subject to VAT?

o Reimbursements of expenses do not form art of the tax base of the seller of service
provided they conform to the requirements prescribed in the law or its implementing
regulations
o Requisites:
(a) The advances are billed separately and a non-vat receipt is issued to the client for
the total amount advanced
(b) Each person or entity who directly renders service to the broker’s client for whom
he advanced the payment issues a receipt or invoice in the name of the
client/customer
o Another interpretation: when it involves the rendering of service at cost, the same is
VATable because transactions, when made in the ordinary course of business and
trade or incidental thereto, regardless of the profit that may be earned, shall be
subject to VAT

(10) Claims against the estate and requisites for its deductibility
o These are debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been reduced to simple money
judgments
o The following requisites must concur:
(a) At the time the indebtedness was incurred, the debt or claim instrument was duly
notarized
 (b) Such indebtedness was contracted by the decedent in good faith and for an
adequate and full consideration in money or money’s worth
(c) It must be existing at the time of the death of the decedent and reasonably certain
in amount
(d) It must be a valid and legally enforceable obligation of the decedent
(e) It must not have been condoned by the creditor and the action to enforce its
collection has not prescribed

LENG, KELLY & MARJ NOTES:

(1) Distribution of real property to shareholders- VATable?
o According to Section 106 (B) of the NIRC, distribution or transfer to shareholders or
investors as share in the profits of the VAT-registered persons, or to creditors in
payment of debt is considered a transaction deemed sale. Hence, subject to VAT.

(2) Consequence of income of corporation who donated to foundation

o According to Revenue Regulation 13-98, donations to accredited non-stock, non-
profit corporations/NGOs shall be entitled to the following benefits:

(1) Limited Deductibility. — Donations, contributions or gifts actually paid or made

within the taxable year to accredited non-stock, non-profit corporations shall be
allowed limited deductibility in an amount not in excess of ten percent (10%) for an
individual donor, and five percent (5%) for a corporate donor, of the donor's income
derived from trade, business or profession as computed without the benefit of this
deduction.

(2) Full Deductibility. — Donations, contributions or gifts actually paid or made within
the taxable year to accredited NGOs shall be allowed full deductibility, subject to
some conditions

(3) Exemption from Donor's Tax — Donations and gifts made in favor of accredited
non-stock, non-profit corporations/NGOs shall be exempt from donor's tax: Provided,
however, That not more than thirty percent (30%) of the said donations and gifts for
the taxable year shall be used by such accredited non-stock, non-profit
corporations/NGOs institutions qualified-donee institution for administration purposes
pursuant to the provisions of Section 101 (A)(3) and (B)(2) of the Tax Code.

o According BIR Ruling 129-2014, to revenue from contributions and donations, not
being derived from sale of services or sale of goods made in the course of business
but rather in connection with its non-stock non-profit activities is exempt from the
12% VAT

o In short, With respect to donations made to non-government organizations (NGOs),

the Tax Code requires that these must be accredited with the Philippine Council for
NGO Certification (PCNC), so that donations to them may be exempted from the
donor’s tax. The rules also require, among others, that not more than 30% of
proceeds shall be used by the NGO for administration purposes.

Aside from the donor’s tax issue, the other to consider with regards to gifts or
donations is whether the same is deductible for purposes of computing the donor’s
net taxable income. Under Section 34(H)(2) of the Tax Code, donations are
deductible in full for as long as these are made to the government to be used
 exclusively in undertaking priority activities in education, health, youth and sports
development, human settlements, science and culture and in economic
development, according to a National Priority Plan determined by the National
Economic Development Authority (NEDA). Also, donations made to accredited
NGOs are deductible in full. Should donations given to the government not qualify
under the foregoing criteria, or are not made to accredited NGOs, the donations shall
only be deductible to the extent of 10% of the donation, in case of individuals or 5%,
for corporations.

However, for donations made in kind, especially made by entities engaged in the
manufacture and sale of goods, these may be subject to 12% VAT, as they may be
considered “transactions deemed” sale, where the goods originally intended for sale
are deemed transferred, used, or consumed, even if not in the course of business.

(3) Donation of blood

o For donations made to the Philippine Red Cross, the Philippine Red Cross Act of
2009 (Republic Act No. 10072) expressly exempts such donations from donor’s tax,
and they are deductible from the donors’ gross income for income tax purposes.

(4) Import of computers

o Imports are always VATable regardless of the entity importing it, except when made
by PEZA, or economic zones as the same is not deemed to be an import

(5) Shares of stock of a non resident alien- included in the computation of his gross estate?
o Reciprocity (sec 104)
o No tax shall be collected in respect of intangible personal property:
(a) If the decedent at the time of his death or donor at the time of the donation was a
citizen and resident of a foreign country (which do not impose a transfer tax of
any character in respect of intangible personal property of citizens of the
Philippines not residing in that country; or
(b) If the laws of the country of which the decedent or donor is a citizen allows a
similar exemption from transfer or death taxes

(6) Non vat entity issued invoice, with his TIN no. and “VAT”, is there a violation? What is the
consequence?
o Sec 113 (D) states that:
(a) the issuer shall in addition to any liability to other percentage taxes be liable to:
(i) the tax imposed in section 106 or 108 without the benefit of any input tax
credit
(ii) a 50% surcharge
(b) the VAT shall if the other requisite information under subsection (B) hereof is
shown on the invoice or receipt, be recognized as an input tax credit to
purchaser under Sec 110

DEMPH NOTES:
(1) Insurance Company
o Life insurance- not VATable but premiums tax
o Non-life insurance- VATable
o Reinsurance company engaged in life and non-life
 There shall be an allocation of proportionate share of input taxes
  Only the proportionate share of input taxes allocated to zero rated or
effectively zero rated can be refunded or issued a tax credit certificate
(2) DENR asks legal services of DOJ and compensation was paid
o Government entities and instrumentalities including government owned or controlled
corporations and non-stock non-profit organizations are subject to VAT if in the
course of business they sell goods or properties or render services or import goods
o They may be requires to register as taxpayer (BIR Ruling 060-2000)
o Political subdivisions (LGUs) are exempt (p.407 Mamalateo)

(3) Drug Company selling its second hand car- incidental or isolated?
o RMC 15-2011 the sale is incidental to its regular or primary line of business- capital
asset
o May be subject to VAT

(4) Franchise subject to VAT

o Services of franchise grantees of telephone and telegraph, radio and/or tv
broadcasting [if gross receipts of the preceding year do not exceed P10M, not
subject to VAT], toll road operations and all other franchise grantees except gas and
water utilities shall be subject to VAT
o Gross receipts of all other franchises regardless of how their franchises may have
been granted shall be subject to VAT

(5) Pumasel Company is an affiliate of PHILAMLIFE; is the reimbursement of cost subject to

VAT?
o BIR Ruling 101-98:an entity that renders services to its affiliated companies and
receives payments for such assistance although on a reimbursement of cost basis, is
subject to VAT on such services rendered
o Commissioner vs CA and Commonwealth Management and Services Corporation: a
domestic corporation that provided technical, research, management and technical
assistance to its affiliated companies and received payments on a reimbursement of
cost basis without any intention of realizing profit was subject to VAT and income tax.
As long as the entity provides service for a fee, remuneration or consideration then
the service is subject to VAT

(6) Contractor advances expenses, loans for the structure of house or building. Contractor will
include the advances to his bill. Reimbursement subject to VAT?
o Philippine Mining Service Corporation vs Commissioner: to be exempt from VAT,
receipts covering reimbursement expenses must be in the name of the customer
o Requisites are provided above