REVENUE REGULATIONS NO. 12-2003 issued on March 11, 2003 amends certain provisions of RR No.18-99 which imposes Value-Added Tax (VAT) on services of banks, non-bank financial intermediaries and finance companies beginning January 1, 2003. All financial institutions shall be liable to the VAT on their gross receipts, or on gross selling price on certain types of transactions beginning January 1, 2003. In computing the output tax for different financial transactions, the following shall be multiplied by 10%: 1) gross receipts of financial institutions from financial intermediation services; 2) gross receipts of financial institutions from financial leasing; 3) monthly net foreign exchange (forex) gains realized, which is the difference between the value of the foreign currencies sold and purchased; 4) net gain realized from the trading of securities, which gain is the spread between the yield or selling price from trading of such securities, commercial papers and instruments and the cost (carrying cost net of unearned discount) of obtaining the same; and 5) gain on sales of “Real and Other Properties Owned and Acquired” or sales of other properties acquired through foreclosure or the difference between the amount realized at the time of sale and the cost thereof, whichever is lower, at the time of foreclosure of the property. On sale of goods and properties by financial institutions, the output tax shall be computed by multiplying the invoice amount by the factor 1/11 or the gross selling price by the VAT rate of 10%. With respect to all other income not mentioned above, VAT (output tax) shall be computed by applying the factor 1/11 on the total amount received therefrom or the VAT rate of 10% on the gross receipts. In general, the payor of the income/fee who is a VAT-registered person shall be entitled to claim the output tax paid by the financial institution as an input tax credit. On the other hand, if the payor is not a VAT-registered person, the VAT passed on by the payee shall form part of his cost. Provided, that a VAT receipt/invoice shall be issued by the payee for all the compensation for services received, which shall be used as the evidence for the claim of input tax. The output tax shifted by the financial institution must be separately billed in the invoice/ receipt. The financial institution shall be entitled to claim as credit against the output tax all input taxes evidenced by a VAT invoice or official receipt issued. Provided, that, for purchase of services, the VAT must have been actually paid by the financial institution as evidenced by an official receipt. In the case of financial lease, no input tax shall be allowed on the purchase of goods, which is the object of the contract of lease, since only the interest income portion is being recognized or taken into consideration in recording gross receipts. All financial institutions shall file the VAT return and pay the VAT on or before the 20th day following the close of the taxable month; for the monthly VAT Declaration, or on before the 25th day following the close of the quarter; for the quarterly tax return, subject to the rules on filing the returns and payment of taxes under the Electronic Filing and Payment System. The monthly VAT Declaration or quarterly VAT return (BIR Form 2550M or 2550Q) shall be accompanied by a schedule showing the manner by which the VAT due and payable has been computed. Financial institutions becoming liable to VAT under the Regulations shall be entitled to transitional input tax on the inventory of goods (other than capital goods), materials and supplies on hand as of December 31, 2002. The transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher, which amount may be allowed as tax credit against the output tax of the VAT-registered person. The value allowed for Income Tax purposes on inventories shall be the basis for the computation of the 8% transitional input tax. Financial institutions should register as VAT taxpayers on or before March 31, 2003 to entitle them to claim input taxes as well as transitional input tax. Pending registration as VAT taxpayers, financial institutions may still issue the non-VAT Receipts/Invoices to acknowledge receipt of payment from their clients/customers. After registration as VAT taxpayer, these non-VAT receipts/invoices shall immediately be replaced by VAT Official Receipts, and it is only at this point in time that the client/customer can claim an input tax credit. All financial institutions should submit to the concerned office of the BIR on or before March 31, 2003 an inventory of unused invoices or receipts as of December 31, 2002. Unused non-VAT invoices/receipts shall still be allowed for use in transactions subject to VAT until June 30, 2003, provided the phrase “VAT registered as of ______________” is stamped on all copies thereof. From January to February 2003, financial institutions shall still be allowed to remit the gross receipts tax instead of the VAT. These payments shall be allowed as tax credit against the VAT payable in the first quarter VAT return that will reflect the results of operation from January to March 2003. Said return will be filed on or before April 25, 2003, unless the taxpayer’s VAT filing period is on fiscal quarter basis, in which case the deadline for fiscal quarter return shall apply.