Regular Output VAT - Business taxation summary PDF

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REGULAR OUTPUT VAT1. What are the sources of output VAT? Sources Tax basis Sale of goods Gross selling price unless unreasonably lowerSale of Services Gross receipts Sales of properties Gross selling price as defined by BIR Transactionsdeemed salesFair value of the property deemed sold2. Explain Unr...

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REGULAR OUTPUT VAT 1. What are the sources of output VAT? Sources Tax basis Sale of goods Gross selling price unless unreasonably lower Sale of Services Sales of properties Transactionsdeemed sales

Gross receipts Gross selling price defined by BIR Fair value of the property deemed sold

Note: The gross receipts includes advances and collection of amount charge for labor and materials included with the service. 5. Explain the sale of vatable properties Answer: the sale, barter or exchange of vatable real property is subject to VAT on the gross selling price inclusive of vat (invoice price)

as

2. Explain Unreasonably lower selling price Answer: if the selling price is unreasonably lower, the VAT shall be based of the fair value of the goods sold . The gross selling price in unreasonably lower when it is lower by more than 30% of the actual market value of goods. The fair value of the goods shall be determined by Commissioner of Internal Revenue. “Note: The fair value rule on sale at unreasonably lower selling price does not apply to sales made to the government” 3. Explain the timing of Output VAT reporting. Answer: The output vat on the sale of Vatable goods is reported in the month of sale. Vatable services is reported in the month of collection. Vatable services in installment is reported in the month of sale or by installment method

6. What is the meaning of Gross selling price under the sale Vatable properties. Answer: higher between the consideration or selling price - inclusive VAT or the Fair value - Exclusive VAT of the property. Fair Value of the property is higher between Zonal Value or Fair Value per assessor’s office . 7. Explain the Exempt sale of dealer of Real property with price ceiling. Answer:  Sale of real properties utilized for socialized housing units: o House and lot package - (new P400,000) o Residential lots only - (new P160,000)  Sale of real properties utilized for low-cost housing wherein the price ceiling per unit is P750,000 (new P2,000,000)  Sale of residential lot valued at P1,919,500/unit and below (new - P1,500,00)  Sale of residential dwelling valued at P3,199,200/unit and below (new - P2,500,000)

4. Explain the sale of Vatable services. Answer: The sale of services is subject to 12% VAT based on the gross receipts collection of income

8. Explain the comparison of VAT of goods and VAT on if the fair value is

Selling price is

Output VAT Goods Real property P100.000 P120,00 120,000x12% 120,000 x 0 12/112 P100.000 P80,000 80,000 x 12% 100,000 x 12% P100.000 P60,000 100,000 x 100,000 x 12% 12% properties. “Note: the concept of unreasonably lower does not apply on the sale of property thus higher between the Fair Value and the Selling price is always the basis of VAT” 9. Explain the Installment reporting of output VAT on real properties Answer: the output vat of real properties is reported in installment basis if initial payment from the sale does not exceed 25% of the selling price. Note: basis of output in installment sales in Gross selling price 10. Explain the reportable output vat under installment basis Answer: Every month: Payments/Selling price x Output VAT “Note: quarterly output vat is the cumulative of the output vat for the entire quarter covering 3 months.”

11. Explain the sale of property by a realty dealer on a deferred payment basis. Answer: the sale of property by a realty dealer on a deferred payment basis (meaning initial payment exceeds 25%) not on installment plan, shall be treated as cash sale. The fair value of gross selling price whichever is higher is subject to

VAT reported in the month of sale. Subsequent collection of the sale shall no longer be subjected to VAT. “Note: The output vat is reported In the month of sale. Hence no output vat is further imposable on the future installment.” 12. Explain the interest and penalties. Answer: Interest and penalty actually or constructively received by the seller is subject to VAT. Proforma: Installment (payment/SP x x x output vat) Interest (amount x 12%) x x Penalty (amount x 12%) x x Output VAT x x x Installment paid x Interest x x Penalty x x Total x x Plus: Output VAT x x Total billings x x 13. Explain the sale of properties considered as “Ordinary asset” Answer: Even if the real property is not primarily held for sale to customer 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 incidental transaction to the taxpayer’s main business. Therefore, the sale of properties held for use (ordinary asset) such as land, building, equipment, machinery, property improvement, and supplies aside from inventories and supplies are vatable.

 14. What if the sale of Ordinary asset is made by non-vat taxpayer? Answer: The same shall not be subject to VAT. The vat on sale of ordinary asset is applies only to VAT registered taxpayer.

15. Explain transaction deemed sales. Answer: There are acquisition transaction involving goods or properties which are consumption in nature but are not coursed through purchase transaction. These transaction are not recorded as sales by the business and could evade taxation. Nevertheless, since these transaction are forms of consumption, they are considered “deemed sales” for to be subjected to VAT. 16.

What are the list of transaction deemed sales? a) 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. b) Distribution or transfer to: i. Shareholders or investors share in the profit of VAT-registered person ii. Creditors in payment of debt or obligation. c) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. d) Retirement form business 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 e) Cessation of status as a VATregistered person. Note:

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letters A,b,c, e the basis of output VAT is Fair value of goods sold as of the occurrence of deemed sale Letter D the basis is cost of goods sold Vs. Current Market price, whichever is lower.

17. Explain Transfer, use, or consumption not in the course of business Answer: This occurs when vatable ordinary assets are used for purposes other than their intended purpose, such as when: a. Goods or properties held for sale, are no longer sold but transferred or disposed of by other means other than sale b. Properties originally intended for use are no longer used but are transferred, disposed of or exchange with other properties.

18. What are the examples of consumption not in the course of business? a. Withdrawal of business owner for personal use goods held for sale or properties held for use b. Using goods held for sale or properties held for use for payment of debt with creditors (Dacion en pago) c. Using goods held for sale or properties held for use as property dividend to share holders. d. Exchange of goods held for use for other properties e. Sale or disposal of properties held for use in exchange for cash or other properties. Note:  If the exchange results to acquisition of control, thus it exempt from VAT, since initial acquisition control is a taxfree exchange that is VAT exempt transaction.  Completed gift is a deemed sale subject to vat

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Capital asset (shares) on a deemed sales are not subject to VAT. Even actual sale of shares is not subject to VAT.

Query: a. What if the donation designated by the donor as revocable? Answer: output vat is nil. To be considered as deemed sold, there must be a transfer of ownership over the property. The transmission of property to a trustee shall be not subject to vat if the property transferred is to be merely held in trust for the trustor/beneficiary. b. What if the donee is an accredited non-profit organization? Answer: output vat is nil. Transferred to an accredited nonprofit organization is not subject to VAT. 19. Explain the Consignment food not withdrawn in 60 days Answer: consigned goods to consignees, if not withdrawn within 60 days, are also presumed or deemed sold subject to VAT. Note:  The sales of the taxpayer include direct sales and those made by its agent or consignees, gross commission expenses to the consignee  The consignment sale of the consignee is not taxable to the consignee but to the consignor.  Only the commission earned by the consignee on such sale is taxable to the consignee.  This rule apply only on domestic consignment not on foreign consignment 20. Explain the retirement or cessation of business as deemed sale. Answer: 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 asset will become his personal disposal. The retirement or

cessation from the business will result in the transfer of all goods or properties of the business to the personal use or account of the business owners, thus considered as deemed sale - vatable. If the business is continued by the new owner, the goods or properties of the business is effectively sold to new owner, hence vatable. Note: the VAT on deemed sales is applicable only to vatable goods and properties of business or considered as ordinary asset in income taxation. It is not applicable to capital asset. 21. Explain the general rule of Business Dissolution as deemed sale. Answer: When there is a business dissolution, there is deemed sale, such in the following cases: a) Change in ownership of the business i. Incorporation of sole proprietorship ii. Sale of proprietorship of his of his entire business b) Dissolution of the partnership i. Creation of new partnership which take over the business ii. Incorporation into a partnership  No business dissolution in the following cases: a) Change in controlling share holders b) Change in trade or corporate name c) Change in business address

22. Explain the exception to the business dissolution rule. Merger or consolidation There is a business dissolution but not deemed sale Cessation of status as There is no business VATregistered person dissolution but treated as deemed sale

23.

Explain the merger and consolidation

Answer: in principle, the asset of the dissolve corporation should be considered deemed sold, legally however, the dissolution of a corporation is not deemed sale. The unused input tax of the dissolve corporation is absorbed by the surviving corporation.

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This is also essential for the buyer to establish its claim of input vat of his purchases of goods previously deemed sold to the seller

27. Explain deemed sales rules apply to VAT taxpayers only. Answer: it must be noted that the concept and rules of deemed sales and the taxation of the sale of ordinary assets apply only to VAT taxpayer.

24. What are the examples of Cessation of status as VAT-registered person, sale mad by any of the following are vatable? Answer: 28. Explain billing requirement for output vat  Change of business activity from VATtaxable status to Answer: the output vat must be specifically indicated in the VAT-exempt status. VAT invoice or receipts. It must be billed separately in the  Approval of request for cancellation of registration due to case of sale of properties where the fair value exceeds the revision to exempt status selling price.  Approval of request for cancellation of registration due to desire to revert to exempt status after the lapse of 3 yrs 29. Explain the determination of output vat from the time of registration by a person who voluntarily Answer: the amount of vat is dependent upon the price registered despite being exempt. quoted by the vat taxpayer. Such amount is understood to be  Approval of a request for cancellation of registration of inclusive of vat in the absence to the contrary. one who commenced business with the expectation of  Inclusive of vat other meaning: “it is agreed to be gross sales or receipt exceeding P3,000,000 but who absorb by seller” failed to exceed this amount during first twelve month. 25. What is the basis of output tax on deemed sales on cessation as vat taxpayer? Answer: Based of market value of goods as of the occurrence of the deemed sales transaction. However, in case of retirement or cessation, it shall be based on the acquisition cost or the current market price, which ever is lower. 26. Explain the invoicing for subsequent sale of goods of properties deemed sold. Answer:  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 sale invoice number wherein the output tax on deemed sale was imposed

 Exclusive of vat other meaning: “it is agreed that the client or customer absorbs the VAT”

30. Explain the rule on VAT not separately billed. Answer: if the vat is not separately billed in the document of sale, the selling price or the consideration stated shall deemed to be inclusive of vat. 31. Explain incorrect billing of VAT Answer: if the vat is incorrectly billed, the total amount billed by the taxpayer is presumed to be inclusive of vat....