BIR Ruling

May 21, 1973 Capt. Benjamin Cruz Master SS JESTEROLE c/o Northern Lines, Inc. Aduana, Intramuros Manila S i r : This refers to your letter dated May 16, 1973 requesting information as to the taxability of the remunerations being paid to the Filipino seamen who are employed as officers and crew members of a motor vessel named "S/S AJAX" and other vessels owned or operated by Coast Navigation, Inc., a foreign shipping company. cdtech The records show that under an Agreement entered into by and between the Coast Navigation, Inc. (hereinafter referred to as Coast Navigation), a Liberian Corporation, as principal, and the Northern Lines, Inc. (hereinafter referred to as Nx Northern Lines), a domestic corporation, as agent, on March 11, 1972, Northern Lines agreed to procure for Coast Navigation the services of Filipino officers, engineers and crew to supplement and man the said motor vessel "S/S AJAX" and other vessels owned or operated by Coast Navigation outside the Philippines; that Coast Navigation shall execute the necessary special Power of Attorney for Northern Lines to act as its agent in the Philippines with authority to receive for an in behalf of Coast Navigation processes, sign contract, e.g., contract of employment with such Filipino seamen, and work for the documentation of the travel papers of the Filipino officers and crew whose term of employment with Coast Navigation vessels shall be for one year which is renewable for another year "subject to readjustment of remuneration mutually agreed, (not less than 8% and not more than 15%)"; that Coast Navigation shall pay Northern Lines during the first month of the Agreement US $15.00 per man for negotiation with the Union, screening, processing of applicants, attendance to requirements, etc. and US $10.00 per man per month during the second and subsequent months for preparation of payroll on allotments, checks, attendance to designated recipients, etc. These rates shall also apply in cases of replacements or recruitments of additional personnel; that a cash advance in the form of a revolving fund in the amount of US $10,000 shall be placed and remitted by Coast Navigation in favor of Northern Lines to take care of the month compensation of the men hired, the compensation of Northern Lines as agent and other incidental expenses; that whatever dues, fees, and other monetary obligations paid or payable by Northern Lines in connection with its position as agent for Coast Navigation shall be immediately remitted or reimbursed by the latter; that Coast Navigation shall pay the Filipino officers and crew members in its employ, as follows: a monthly base pay "to be effected by paying 70% of such base pay to Northern Lines at Manila for payment by Northern Lines to the crew member's family as directed by the crew members", and 30% thereof to be paid to the crew member thru the master at the ports where the vessel is calling; that Coast Navigation has agreed further to grant the said Filipino officers and crew members extra compensation as overtime payment; to provide them during the duration of their employment, daily subsistence, adequate and necessary heating and cooling facilities in their quarters on board the vessel, and a first set of working winter clothings or uniforms as may be required by the nature of their job, hospitalization benefits, medical and dental care for illnesses or injuries arising out of and in the course of employment but which are not due to their refusal to obey lawful orders or previous warnings of their superiors or to immoral acts, vicious habits, or notorious negligence; to furnish them transportation from the Port of enrollment to the Port of engagement and return and during employment, to repatriate or furnish transportation to a Filipino officer or crew member who may be left behind by the vessel for reasons or illness or injury or through no fault of his own or may be discharged from service in a foreign country aside from the port of Manila; that a Filipino officer or crew member in the employ of Coast Navigation is entitled to a 15-working day vacation leave with pay and a 15-working day sick leave with pay after he has served the company for a period of one (1) continuous year of service reckoned from the effective date of the signing of his contract of employment; and that in case of death, Coast Navigation shall provide free transportation of the seaman's remains and properties to the point of hire or origin. In reply thereto, I have the honor to inform you that pursuant to Section 21 of the Tax Code as amended by Presidential Decree No. 69, the Filipino seamen employed as officers and crew members of "S/S AJAX" and the other vessels owned or operated by Coast Navigation are non-resident citizens who derive income from sources abroad on account of personal services performed by them outside the Philippines. (See also Sec. 37(c)(3), N.I.R.C.) Such being the case, they should file B.I.R. Form No. 17.01-C and pay an income tax on the basis of the gross amount of their compensation consisting of their total monthly basic salary, 70% of which is paid to their families in the Philippines while 30% thereof is paid to the crew member, and all other compensation and allowances paid to them abroad by Coast Navigation during the taxable year at rates graduated as follows: On the first $6000 1% On the amount exceeding $6000 but not exceeding $20,000 2% On the amount exceeding $20,000 3% Total equals amount of the tax due and payable. (Sec. 21, Tax Code as amended by Presidential Decree No. 69; see also B.I.R. Ruling No. 73-001 dated March 30, 1973) The tax on the Filipino seamen's income being based on the gross amount thereof, no deduction and exclusions whatever shall be allowed. Neither can the taxpayers claim personal and additional exemptions in connection with said income, for to allow such exemptions would in effect change the "gross income" basis of the tax. And considering that this kind of income is given a special tax treatment, the taxpayers are not allowed to claim tax credit for income tax paid thereon to any foreign government. (See Rev. Memo Cir. No. 17-73 dated January 12, 1973 implementing Sec. 21, Tax Code as amended by Presidential Decree No. 69) B.I.R. Form No. 17.01-C may be filed in the Philippines for the non-resident citizen employee by his duly authorized representative or by the employee himself with the Philippine Embassy or Office of the Philippine Consulate General nearest to his place of residence, or mail such return directly to the Commissioner of Internal Revenue, together with an international money order, bank draft or manager's check for the amount of the tax due from him, which should be payable to the Commissioner of Internal Revenue. Said income tax return and money order, bank draft of manager's check should be mailed on such a date as to reach the Philippine Embassy, Philippine Consulate General or the Commissioner of Internal Revenue on or before April 15 following the year for which the return is being filed. Moreover, such employees should file B.I.R. Form No. 17.01 or B.I.R. Form No. 17.01-A, if they also have an income derived from sources within the Philippines amounting to at least P1,800 during the taxable year; otherwise, they need not report said income. Finally, considering that the employer in this case, Coast Navigation is a foreign corporation and our withholding tax law is not applicable and effective abroad, the compensation paid by Coast Navigation to the Filipino officers and crew members in its employ is therefore, not subject to the withholding tax. cdtech Very truly yours, (SGD.) CONRADO P. DIAZ Acting Commissioner of Internal Revenue