BIR Ruling

July 29, 1976 C. F. Sharp & Company, Inc. 6th Floor, Philbanking Bldg. Anda Circle, Port Area Manila Attention: Mr . C . B . Austria Vice President & Treasurer Gentlemen : This refers to your letter dated March 18, 1976 stating that you are the shipping and manning agent of and/or for foreign shipping companies which employ Filipino seamen as officers and crew members of their vessels. aisa dc Based on the foregoing representation, you posed the following questions: "(1) Are Filipino seamen who are employed as officers and crew members (usually 10 months with additional two months vacation pay) on board foreign vessels, especially, tankers who are not calling in the Philippines, but their other vessels under same operations touch Philippine ports for cargo loading, discharging or logistic requirements subject to withholding taxes? "(2) Are Filipino crew employed by subject company, wherein portion of their basic wages (70%) are paid to their respective allottees in the Philippines thru bank remittances while the 30% and other compensation and allowances being paid on board the vessel subject to withholding taxes? "xxx xxx xxx "With respect to the filing of their Philippine Income Tax return, are they considered non-resident citizen or resident individuals and required to file the BIR forms 1701 and 1701-C?" In reply thereto, I have the honor to inform you as follows: 1. Our withholding tax law (Supplement A to Title II of the Tax Code) is not applicable and effective abroad. It applies only to wage income derived from sources within the Philippines. Compensation for services rendered or performed within the Philippines is income derived from sources within the Philippines. (Sec. 37(c)(3), NIRC, see also par. 45.33 Vol. 8 Merten's Law of Federal Income Taxation). Accordingly, compensation paid by foreign shipping companies to Filipino seamen who are employed as crewmembers and officers to their vessels which do not touch Philippine ports for services performed by them outside the Philippines, is not subject to the withholding tax. In the case, however, of the Filipino seamen working on board vessels that touch Philippine ports to load and unload cargoes, their services are considered rendered partly within and partly without the Philippines, in which case, only that portion of their salaries which correspond to services rendered within the Philippines is subject to the withholding tax. (BIR Ruling No. 76-003 dated May 27, 1976) 2. The foregoing ruling applies even if 70% of the compensation is paid to their respective allottees in the Philippines while the remaining 30% and other compensation are paid on board the vessel. For purposes of income tax payable by non-resident citizens, "a non-resident citizen is one who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad for an uninterrupted period which includes an entire taxable year." (Sec. 21, Tax Code, as amended by P. D. No. 69) Accordingly, a Filipino crew member who is employed for ten (10) months with additional two (2) months vacation pay starting from the month of January on board the foreign vessel is considered a non-resident citizen. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3