BIR Ruling

June 21, 1976 Far East Shipping Agencies, Inc. 415 Bank of P. I. Building Plaza Cervantes, Manila Attention: Mr . Tolomeo L . Santiago President Gentlemen : This refers to your letter dated October 30, 1975 requesting information on a query stated as follows: "Under Presidential Decree No. 760, foreign owned vessels may now operate on inter-island or coastwise trade, subject to the approval of the Maritime Industry Authority. "Since the said decree is silent on the policy pertaining to the tax that has to be imposed on the earning of the vessel which has to be chartered on bareboat basis for a period of five (5) years, may we be clarified on the kind of tax that the foreign owners have to pay or, as Charterers, what we have to withhold as income of the vessel which will be under our exclusive operation. "We would like to raise the question as to whether a) The monthly charter hire that has to be remitted abroad shall be levied a 2.5% income tax only, similar to the levy on outward freight imposed on foreign vessel carrying Phil. cargoes for foreign destinations, or b) The 35% income tax on non-resident foreign corporation shall be withheld, deducting the same from the monthly charter hire, or the 35% to be paid only after the yearly result of operation of said vessel, which shall cover a period of five (5) years." In reply, I have the honor to inform you that the local charterer of the foreign-owned vessel should withhold the 35% withholding tax from the monthly charter hire payable to the non-resident foreign shipowner in accordance with Section 53 (b)(2) of the Tax Code, viz.: "(2) Nonresident foreign corporations . In the case of foreign corporations subject to tax under this Title, not engaged in trade or business within the Philippines, there shall be deducted and withheld at source in the same manner and upon the same items as provided under subsection (b)(1) of this section, as well as on remunerations for technical services or otherwise, a tax equal to 35 per cent thereof. This tax shall be returned and paid in the same manner and subject to the same conditions as provided in Section 54. . . . (As amended by P. D. No. 69; emphasis supplied) Section 54 of the Tax Code provides, among the other requirements thereof, that the taxes deducted and withheld shall be covered by a return which shall be filed and the payment made within twenty-five days from the close of each calendar quarter to the Commissioner of Internal Revenue or to his collection agent in the province, city, or municipality where the withholding agent has his legal residence or principal place of business, or where the withholding agent is a corporation, where the principal office is located. cdta 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."