Ordinance Amending the Revenue Code Chapter 3, Article F, Section 3F.01

October 27, 2006 BIR RULING [DA-634-06] DA-456-2004; Sec 4. 108-5 (b) (2), RR 16-2005 Golden Dragon International Terminals, Inc . 2nd Floor, PNR Building, Gate 1 Muelle de San Francisco Street South Harbor, Port Area, Manila Attention: Mr. Dionisio B. Portes III Vice President for Finance and Admin Gentlemen : This refers to your letter dated March 23, 2006 which was forwarded to the Law Division on May 22, 2006 by Ms. Erlinda A. Simple, Assistant Commissioner, Assessment Service requesting for a ruling as to whether or not the sale of services, more particularly the collection of solid and liquid waste from inbound ocean going domestic and foreign vessels per contract entered into with the Philippine Ports Authority can be considered as a zero-rated VAT transaction. It is represented that Golden Dragon International Terminals, Inc. (Golden Dragon) was awarded a fifteen (15) year contract by the Philippine Ports Authority (PPA) to establish and operate Shore Reception Facility (SRF) to collect ships generated solid and liquid wastes from all domestic and foreign vessels in all base and private ports nationwide; that the establishment and operations of the SRF project is in accordance with the implementation of the International Convention on the Prevention of Pollution from Ships (MARPOL 73/78), which was ratified by the Philippine Senate under Senate Resolution No. 88 and came into effect on September 15, 2001; that Golden Dragon collects solid and liquid waste from inbound ocean going vessels both domestic and foreign; and that for its services, it charges fees prescribed by the PPA. In reply, please be informed that Section 4. 108-5 (b) (3) of Revenue Regulations (RR) No. 16-2005 states that: "(b) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: aDHCEA "(3) Services rendered to persons or entail whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate." From the foregoing, it can be seen that for the services of Golden Dragon to qualify for VAT zero-rating, the same must meet two requisites under RR 16-2005, namely: (1) the services must be rendered to persons or entities whose exemption is granted under special laws or international agreements to which the Philippines is a signatory; and (2) The exemption granted under the special law or international agreement effectively subjects the supply of such services to zero percent (0%) rate. Thus, the collection of solid and liquid waste from inbound ocean going vessels both domestic and foreign by Golden Dragon may qualify as VAT zero-rated transactions if said services are rendered to persons and entities whose exemption is granted under special laws or international agreements to which the Philippines is a signatory and such exemption effectively subjects the supply of such services to zero percent (0%) rate. Failing that, the sale of said services will be regarded as subject to 12% VAT pursuant to Section 108(A) of the Tax Code of 1997, as amended by RA 9337. It is worthy to note that MARPOL 73/78 did not provide for any special tax treatment for services provided to any ocean going vessel as shown by the fact that in the Contract for the Establishment and Operation of Shore Reception and Treatment Facilities for Ships' Wastes, it is provided: "SEC. 6. xxx xxx xxx "It is agreed that the consideration mentioned above is exclusive of the ten percent (10%) value-added tax. The VAT due thereon as well as the other taxes, fees, impost or charges of whatever form, kind or nature that may be imposed in connection with this contract or in the implementation thereof shall be borne and paid for by the OPERATOR." Thus the VAT, as well as the other taxes, fees, impost or charges of whatever form, kind or nature that may be imposed in connection with the implementation of the contract between Golden Dragon and PPA, relative to the collection of solid and liquid waste from inbound ocean going vessels both domestic and foreign, shall be borne and paid for by Golden Dragon. Likewise, said Contract reveals that Golden Dragon is only a subcontractor of PPA. Moreover, both are VAT registered taxpayers. However, Section 4.108-5(b)(5) of the same Revenue Regulations implementing Sec. 108(b)(3) of the Tax Code as amended by RA 9337, provides viz: "Sec. 4.108-5. Zero-Rated Sale of Services "b) Transactions Subject to Zero Percent (0%) VAT Rate . The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: aCSEcA xxx xxx xxx "(4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof, Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to 10% VAT under Section 108 of the Tax Code." On the basis of the foregoing, this Office hereby rules that the sale of services by Golden Dragon to a vessel engaged in international shipping, more particularly, the collection of solid and liquid waste from inbound ocean going foreign vessels per contract entered into with the Philippine Ports Authority, is subject to 0% VAT imposed under Section 108 of the Tax Code of 1997, as amended by Republic Act No. 9337. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner