Ikapati Corporation (IC) is a value-added tax (VAT)-registered corporation that sells various kinds of instant noodles. It is recognized as the industry leader, especially after its spicy bulalo flavor gained immense popularity in December 2021. The success of IC has been attributed to its tax lawyer, Atty. Mahal, who helps IC understand the National Internal Revenue Code to its advantage. To show its appreciation, IC sent Atty. Mahal 1,000 boxes of spicy bulalo instant noodles. Is the transfer of 1,000 boxes of instant noodles to Atty. Mahal subject to VAT? Explain.
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Yes, the transfer of 1,000 boxes of instant noodles to Atty. Mahal is subject to VAT. Under Section 106(B)(1) of the National Internal Revenue Code (NIRC), as amended, the transfer, use, or consumption not in the course of business
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Quick check
Under Section 106(B)(1) of the Tax Code, what constitutes a transaction deemed sale subject to VAT?
Section 106(B)(1) defines the transfer or consumption not in the course of business of inventory intended for sale as a transaction deemed sale.
Is the transfer of inventory goods as a gift or token of appreciation subject to Value-Added Tax?
Giving away commercial inventory held for sale constitutes a transaction deemed sale subject to VAT.
What tax is imposed on transactions deemed sale under Section 106 of the National Internal Revenue Code?
Section 106 of the Tax Code imposes Value-Added Tax on transactions deemed sale.
Why does tax law treat the non-business transfer of commercial inventory as a transaction deemed sale?
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Which statute governs Value-Added Tax and transactions deemed sale in the Philippines?
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Learn more about these topics
1. Transactions Deemed Sale
Under Section 106(B)(1) of the National Internal Revenue Code (Republic Act Number 8424, as amended), the 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 constitutes a transaction deemed sale subject to Value-Added Tax (VAT). When a VAT-registered business gives away commercial inventory originally held for sale, the transaction is treated as a taxable sale to prevent tax avoidance on inventory transfers.
2. Token of Appreciation
In commercial transactions, transferring commercial goods originally intended for sale to professional consultants or third parties as gifts or tokens of appreciation constitutes a taxable transaction deemed sale. Even if no monetary consideration or cash payment is received by the corporation, the withdrawal of inventory for non-business or promotional transfer triggers output VAT liability based on the market value of the transferred goods under Philippine tax regulations.
3. Value Added Tax
Value-Added Tax is an indirect tax imposed on the sale, barter, exchange, or lease of goods, properties, and services in the Philippines, as well as on transactions deemed sale. A VAT-registered enterprise that transfers inventory held for sale must account for output VAT on the transaction deemed sale, ensuring that goods entering final consumption bear the appropriate VAT burden under Section 106 of the Tax Code.