RMC No. 39-2018 — Reiterates the imposition of Value-Added Tax on goods disposed of or existing as of the date of change in or cessation of status of a person as VAT-Registered taxpayer Digest | Full Text

uR@ t! m MAY 2 4,291fr fi JlIt )ui RECORDS MGT. DiVISiOhJ 08 May 2018 REvENUE MEMoRANDUM cIRCULAR No. 3?-zotg SUBJECT: Reiterates the Imposition of Value-Added Tax on Goods Disposed of or Existing as of the Date of Change in or Cessation of Status of a Person as vAT-Registered Taxpayer Pursuant to Sec. 4.106-8 of Revenue Regulations (RR) No. 16-2005, Implementing sec. 106(C) of the Tax Code of 1997, as further amended by R.A. 10963, Otherwise Known as the "Tax Reform for Acceleration and Inclusion" or the TRAIN Law TO All Internal Revenue Officers and Others Concerned This Circular is issued to reiterate and ciarify the taxability of goods or properties originaiiy intended for sale or use in business, including capital goods. disposed of or existing as of the date of change in or cessation of status of a person as VAT-registered taxpayer pursuantto Sec.4.106-8 of RRNo. i6-2005, implementing Sec. 106(C) of the Tax Code of 1997, as further amended by R.A. 10963, otherwise known as the "Tax Reform for Acceleration and Inclusion" or the TRAIN Law. It has been observed that taxpayers who change-d their status from VAT to Non-VAT due to the increase in the VAT threshold of P3,000,000.00 as provided for under Section 109(BB) of the TRAIN Law, amending the Tax Code of 1997, are submitting oniy the "Application for Registration Information Update" (BIR Form 1905) without filing the quarlerl,v VAT retums and paying the tax due on the inventories existing as of the date of change ofstatus. The perlinent provision of Sec. 106(C) of the Tar Code of 19c)7. as irnplen.iented by Sec. 4.i06-8 of RR l..lo. i6-2005, states as iolio-w's: - "(C) Changes in or C'.essation of Status of a ltAT-regi,slered Person The tax imposecl in Subsection (A) of this Section shall also apply to goods disposed of or existing as of a certain date if under circumstances to be prescribed in rules and regulations to be promulgaled by the Secretary of I,'inance, upon the recommendation of the Commissioner, the slatus of a person cts ct t'AT-regt.stereti person changes or is terminateci." Sec. 4. 106-8 of Revenue Regulations No. 1 6-2005: - "SEC. 4.106-8. Change or Cesscttion ctf Status as I'AT-regislered Pers'ot (a.i Subject to out7ltf tax The YAT provided.for in Sec. 106 oJ the Tax ()ocle :;hall upply to goods or properties originally intencieci jbr .s'ale or Lrse in business, arid capital gctods' which are existing as cf the occut'rence of the fctllou'ittg:

(1) Chunge of business activity from VAT tutable stotus to LAT-exempt status. An example is a VAT-registered person engaged in a tascable activiQ' like wholesaler or retailer who decides to discontinne such activity and engages insteacl on tife insurance business or ant- other business nol subject to VAT. (2) Approt,al o.f a request.for cancellation of registration due to reversion to exempl stcttlts. (3) Approval of a reqttest .for cancellation of registration due to a desire to reyert to exempt status afler the lapse o.f three (3) consecutive years .fi'om the time of registration by cr person ytho voluntarily registered despite being exempt under Sec. 109Q) of the Tax Code. (4) Approvul of a requesl for cancellution of regrstrction o! one who commenced business with the expectation of gross ssles or receipts exceeding Pl,500,000.00 (now P3,000,000.00) but who failed to exceed this amount during the jlrst twelve months of operation. " (emphasis suppiied) pursuant to the afore-quoted provisions, it is hereby emphasized that goods or propedies originall,v intended for sale or use in business. including capital goods. disposed of o, as of the date of change of status of a taxpayer from \rAT to Non-VAT are subject to V"*AisTtirirmgposed under Section 106(A) of the Tax Code of 1991 , as amended. Hence, taxpayers are required to file the quarterly VAT return covering the period when the change of status transpired and pay the corresponding VAT due thereon. Al1 revenue officiais concerned are enioined to give this Circular as wide a publicity as possibie. /E4o\^A#1/ CAESAR R. DULAY BLIREAU OF INTERNAL REV Commissioner of tnten6atf5"?"6. O RECORDS MGT, DIV|S