Are the following transactions subject to VAT? If yes, what is the applicable rate for each transaction. State the relevant authority/ies for your answer.
Construction by XYZ Construction Co. of concrete barriers for the Asian Development Bank in Ortigas Center to prevent
car bombs from ramming the ADB gates along ADB Avenue in Mandaluyong City. (3%)
Call Center operated by a domestic enterprise in Makati that handles exclusively the reservations of a hotel chain which
are all located in North America. The services are paid for in US$ and duly accounted for with the Bangko Sentral ng Pilipinas. (3%)
Sale of orchids by a flower shop which raises its flowers in Tagaytay. (3%)
Suggested answer only. Not an official answer and not legal advice.
1) ADB construction is subject to 0% VAT. 2) Call center services for a foreign hotel are subject to 0% VAT. 3) Orchid sales are subject to 12% VAT. Under Sec. 108(B)(3), NIRC, services to tax-exempt entities
Unlock the full Commercial and Tax Law answers365 days of full access. GCash, Maya and card accepted.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
What Value-Added Tax rate applies to construction services rendered to the Asian Development Bank?
Services rendered to international entities entitled to tax exemption under international agreements are subject to zero percent VAT.
Why are call center services rendered to a foreign hotel chain and paid for in foreign currency zero-rated for VAT purposes?
Services performed for non-residents doing business outside the Philippines paid in foreign currency are zero-rated under Section 108(B)(2).
What is the Value-Added Tax rate applicable to the sale of orchids raised by a local flower shop?
Orchid sales are subject to twelve percent VAT because Section 109 exempts only agricultural food products in their original state.
Which provision of the Tax Code grants Value-Added Tax exemption to agricultural food products in their original state?
Choices available with full access.
Under Section 108(B)(3) of the Tax Code, what is required for services rendered to tax-exempt entities to be zero-rated?
Choices available with full access.
Learn more about these topics
1. Zero-Rated Services
Under Section 108(B) of the National Internal Revenue Code, certain service transactions are subject to zero percent Value-Added Tax. Services rendered to entities exempted under international agreements or special laws, as well as services performed for non-residents doing business outside the Philippines paid in acceptable foreign currency, qualify for zero-rating treatment.
2. Treaty Tax Immunity
International agreements, such as the Asian Development Bank Headquarters Agreement, grant tax immunity and privileges to international organizations. Services rendered by domestic contractors to such tax-exempt international entities are subject to zero percent Value-Added Tax, ensuring that indirect tax burdens do not attach to treaty-protected institutions.
3. Non-Food Agricultural Sales
Under Section 109(1)(A) of the Tax Code, Value-Added Tax exemptions for agricultural products are strictly restricted to agricultural and marine food products in their original state. Non-food agricultural items, such as cut flowers, ornamental plants, and orchids, do not qualify for statutory tax exemption and remain subject to the regular twelve percent Value-Added Tax.