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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
Republic Act (R.A.) No. 12023 or the “Value-Added Tax on Digital Services Law” is a newly-signed law under President Ferdinand R. Marcos, Jr.’s administration, which imposes a 12% Value Added Tax (VAT) on Digital Service Providers (DSPs), be they resident or nonresident foreign entities.
Sec. 108-A of the National Internal Revenue Code (NIRC), as amended by R.A. No. 12023, provides that “digital service” is any service that is supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated.
Digital services include:
(1) Online search engine;
(2) Online marketplace or e-marketplace;
(3) Cloud service;
(4) Online media and advertising;
(5) Online platform; or
(6) Digital goods.
A DSP refers to a resident or nonresident supplier of digital services to a consumer who uses digital services subject to value-added tax in the Philippines. A nonresident DSP is a digital service provider that has no physical presence in the Philippines.
What is the Republic Act (R.A.) No. 12023?
R.A. No. 12023 or the “Value-Added Tax on Digital Services Law” is a newly-signed law under President Ferdinand R. Marcos, Jr.’s administration, which in essence imposes a 12% Value Added Tax (VAT) on Digital Service Providers (DSPs), be they resident or nonresident foreign entities.
In imposing this 12% VAT, R.A. No 12023 amends Sections 105, 108, 109, 110, 113, 114, 115, 128, 236, and 288 of the National Internal Revenue Code (NIRC) of 1997, and also adds new sections, Sections 108-A and 108-B of the NIRC.
Does this new law impose a new tax?
According to President Marcos, Jr., R.A. No 12023 does not impose new taxes, to wit: “[W]e are not imposing new taxes, we are simply strengthening the authority and streamlining the process of the BIR to collect value-added tax on digital services” (Presidential Communications Office, October 2, 2024).
What is a “digital service” and a “digital service provider”?
Section 108-A of the NIRC straightforwardly defines these terms:
“(A) The term ‘digital service’ shall refer to any service that is supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. Digital services shall include:
“(1) Online search engine;
“(2) Online marketplace or e-marketplace;
“(3) Cloud service;
“(4) Online media and advertising;
“(5) Online platform; or
“(6) Digital goods.
“(B) The term ‘digital service provider’ refers to a resident or nonresident supplier of digital services to a consumer who uses digital services subject to value-added tax in the Philippines.
“(C) The term ‘nonresident digital service provider’ means a digital service provider that has no physical presence in the Philippines.”
Hence, digital platforms such as Google, Spotify, Netflix, Shopee, Lazada, among others, are considered DSPs that are subject to VAT under R.A. No. 12023.
What do the new sections and amendments under R.A. No. 12023 provide about the taxation of DSPs?
The new sections and amendments under the aforesaid law provide that:
- A VAT of twelve percent (12%) shall be imposed on an entity who “renders services, including digital services” (Sec. 105, NIRC);
- Digital services delivered by nonresident DSPs shall be considered performed or rendered in the Philippines if the digital services are consumed in the Philippines (Sec. 108-A, NIRC);
- Nonresident DSPs, subject to certain conditions, are liable to withhold and remit VAT (Sec. 108-B, NIRC);
- Nonresidential DSPs shall not be allowed to claim creditable input tax (Sec. 110, NIRC);
- The invoicing and accounting requirements of nonresident DSPs are as follows:
- A digital sales or commercial invoice shall be issued for every sale, barter, or exchange of digital services made by a VAT-registered nonresident DSP;
- The digital sales or commercial invoice issued by a VAT-registered nonresident digital service provider shall indicate the following information in lieu of the requirements under Section 113, Subsection (b), paragraph 1 to 4:
- Date of the transaction;
- Transaction reference number;
- Identification of the consumer;
- Brief description of the transaction; and
- The total amount with the indication that such amount includes the value-added tax;
- If the sale of digital services includes some services which are subject to VAT, and some that are VAT zero-rated, or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price by its taxable, VAT-exempt, and VAT zero-rated components: Provided, further, That the calculation of the value-added tax on each portion of the sale shall be shown on the invoice.; and
- The accounting requirement of maintaining a subsidiary sales journal and subsidiary purchase journal shall not apply to VAT-registered nonresident DSPs (Sec. 113, NIRC);
- A VAT-registered taxpayer shall be liable to withhold and remit the VAT due on its purchase of digital services consumed in the Philippines from nonresident digital service providers to the BIR (Sec. 114 (D), NIRC);
- The Commissioner’s power to suspend the business operations of a taxpayer shall include the power to block the digital services performed or rendered in the Philippines by a DSP (Sec. 115, NIRC);
- Persons, who in the course of trade or business, sells, barters, exchanges, or leases goods or properties that are digital in nature, or those who render services, including digital services, or engaged in the sale or exchange of services, shall be liable to register, either electronically or manually, for value-added tax, subject to certain conditions (Sec. 236, NIRC);
- The Bureau of Internal Revenue (BIR) shall establish a simplified automated registration system for nonresident DSPs (Sec. 236, NIRC); and
- Five percent (5%) of the incremental revenue from the VAT on DSPs under Section 108 shall be allotted to and used exclusively for the development of creative industries, as defined under Republic Act No. 11904, otherwise known as the “Philippine Creative Industries Development Act,” for five (5) years from the effectivity of this Act.
What rules will govern the implementation of R.A. No. 12023?
The Department of Finance (DOF), upon the recommendation of the BIR, and in coordination with the Department of Information and Communications Technology (DICT) and the National Telecommunications Commission (NTC), and upon consultation with the stakeholders, shall issue rules and regulations for the effective implementation of this Act not later than ninety (90) days from the effectivity of this Act. (Sec. 15, R.A. No. 12023)
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VAT Invoice under the Ease of Paying Taxes (EOPT) Act and its implementing rules and regulations
What are the powers of the commission of the internal revenue – ALBURO ALBURO AND ASSOCIATES LAW OFFICE
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