BIR Ruling

April 5, 1968 Mr. Generoso F. Tanseco President United Philippine Lines, Inc. Manila S i r : This refers to your letter dated April 2, 1968 requesting information as to your alleged tax exempt status under R.A. 1407, as amended. You represented that your company is a corporation organized and existing under the laws of the Philippines; that 100% of its capital stock is owned by Filipino citizens; that your company is exclusively in the overseas shipping business; that during the early days of your operation, you were renting office spaces; that due to the expansion of your Office staff, an office building had been constructed designed to take care of the company's future needs; that part of the money used in purchasing the lot and constructing the building was obtained through bank loans; that your company had not availed of the loan assistance provided for in R.A. 1407, as amended; that said building has excess office space which is presently occupied by your Agent, A.V. Rocha, Inc., with the latter sharing with you in the maintenance and expenses of the building; and that your Agent, A.V. Rocha, Inc. is handling the cargo solicitation aspect of your firm. In reply, I have the honor to inform you that your tax exempt status under R.A. 1407, as amended, remains the same and unchanged. The fact that you have acquired a lot and constructed a building thereon for office purposes of your Company, and received amounts from your General Agent occupying office space in said building as its share in the maintenance of the building, does not alter your tax exemption under said law. The construction of the office building is necessary and incidental to the existence and expansion of your overseas shipping business contemplated under the said law, because rental expenses are thereby saved for the company which may be invested for the improvement of its vessels and equipments. The occupancy of the office space in said building by your General Agent and the amounts received by your company for the maintenance and expenses of the building are only incidental to the operation of your firm as engaged exclusively in the overseas shipping business. As a matter of fact, your General Agent is doing a necessary and vital function in the conduct and existence of your business as the income of your Company is derived largely from freight earnings. lexlib Moreover, under R.A. 1407, as amended, your company is required to invest all net profits realized, in the construction, purchase or acquisition of additional vessels and equipments or for the improvement of the same only if you have availed of the loan assistance as provided for in the aforecited law. No such loan assistance was obtained by your Company under R.A. 1407, as amended. This Office will, however, revise, modify or revoke this ruling if it should turn out upon investigation and verification that the actual facts and operation of your company are different from those as represented. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue