BIR Ruling

May 17, 1976 The President United Philippine Lines, Inc. P.O. Box 127, Manila S i r : This refers to your letter dated May 6, 1976 stating that your company is a corporation duly organized and existing under the laws of the Philippines, 100% of the capital stock of which is owned by Filipino citizens; that you are engaged in overseas shipping having acquired seven (7) vessels from the National Development Company and by virtue of the provisions of R.A. No. 1407, as amended by Presidential Decree No. 746, otherwise known as the "Overseas Shipping Act of 1955", you are exempt from the payment of income tax; that you are now in the process of negotiating for the purchase of a 70,142 deadweight tanker of foreign registry to be utilized for the carriage of crude oil and other petroleum products under the following conditions: "(1) That said tanker shall be registered under the Philippine Flag as soon as purchase arrangements have been finalized and the vessel delivered to us; "(2) That said tanker shall be placed under time charter with Pilipinas Shell Petroleum Corporation, Manila, to carry crude oil and other petroleum products inwardly from foreign countries for discharge in the Philippines; and "(3) That said tanker shall not carry cargo outwardly from the Philippines for discharge to foreign countries." With the foregoing as a premise, you now request our ruling on the following: "(1) Will our company pay compensating tax for the purchase of this vessel? "(2) Will the income of this company be subject to income tax? "(3) Will the revenue arising from said charter hire be subject to percentage tax? "(4) What other taxes shall we pay in connection with the acquisition of this vessel?" In reply, I have the honor to inform you as follows: (1) As a domestic shipping company engaged in overseas shipping, your importation of the aforesaid 70,142 deadweight tanker is exempt from the payment of compensating tax pursuant to Section 190(d) of the Tax Code. (2) For purposes of R.A. No. 1407, as amended, an ocean-going vessel of Philippine Registry is considered engaged in overseas shipping when it undertakes the carriages of goods and/or passengers from the Philippines to a foreign port, or from a foreign port to either a foreign port or a Philippine port. (B.I.R. Ruling No. 66-055) As a domestic shipping company engaged in overseas shipping you will not lose your character as such by the mere fact of chartering (time charter) the aforesaid tanker to be acquired, to Pilipinas Shell Petroleum Corporation to carry crude oil and other petroleum products of the charterer from foreign countries for discharge in the Philippines. Your income remains exempt from income tax. (3) If, as represented, the tanker shall be used to carry crude oil and other petroleum products inwardly from foreign countries for discharge in the Philippines; and that said tanker shall not carry cargo outwardly from the Philippines for discharge to foreign countries, then, the revenue arising from said charter hire is not subject to the 2% carrier's tax prescribed in Section 192 of the Tax Code. (4) You are not subject to any other internal revenue tax for the acquisition of the above-described vessel. aisa dc Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."