BIR Ruling

April 19, 1972 The Diamond Shipping Corporation 1515 L & S Building Roxas Blvd., Manila Attention: Mr . Bernardo C . Manalastas , Jr . Chief Accountant Gentlemen : This refers to your letter of the 3rd instant requesting exemption from the payment of income tax on profits derived from the payment of income tax on profits derived from the operation of your vessels under Republic Act No. 1407 as amended by Republic Act No. 5963. In reply thereto, I have the honor to inform you as follows: Section 2 of Republic Act No. 1407, as amended by Republic Act No. 4146 was further amended by Republic Act No. 5963 on June 21, 1969 to read as follows: "SEC. 2. In pursuance of the abovedeclared policy any citizen of the Philippines, or any association or corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizens of the Philippines, engaged or which shall engage exclusively in the overseas shipping business or in the construction of modern boats for overseas service shall be exempt from the payment of income tax on income tax or income derived from his or its overseas shipping business for a period of twenty years from the date of approval of this Act or until September nine, nineteen hundred and seventy-five : Provided, That they shall invest the entire net income realized during the period of the exemption which would have otherwise been taxable under the provisions of Title II of the National Internal Revenue Code in the construction, purchase, or acquisition of vessels and equipment and/or in the improvement of its vessels and equipment. The amount so invested shall not be withdrawn for a period of twenty years after the expiration of the period of income tax exemption. Any amount withdrawn before the end of this period shall be subject to the corresponding income tax, including surcharges and interest. "Any taxpayer wishing to take advantage of the tax exemption in the preceding paragraph shall file annually a regular income tax return with the Bureau of Internal Revenue, together with such information and supporting documents as the Bureau may require, indicating the net income exempt under this Act." (Emphasis ours) It is represented in the Corporation's amended Articles of Incorporation which was filed with the Securities and Exchange Commission on April 13, 1972 that the Corporation is 100% Filipino-owned and that is engaged solely in the overseas shipping business. Accordingly, that Corporation is exempt from income tax under Republic Act No. 1407 as amended by Republic Act No. 5963. However, under the above-quoted provision of law, that Corporation is required to file a regular income tax return. Aside from the financial statements ordinarily attached to a corporate income tax return, the return of that Corporation shall also be accompanied by (1) a statement under oath, stating the gross income and expenses incurred during the preceding year and a showing therein that the entire net income realized during the period of exemption was invested in the construction, purchase, or acquisition of vessels and equipment and/or in the improvement of vessels and equipment of that Corporation; and (2) a certificate under oath showing that there has not been any change in the Corporation's By-Laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. In this connection, that Corporation is nevertheless subject to the 2% common carrier's tax prescribed by Section 192 of the Tax Code, on its monthly gross receipts derived from outgoing freight and passenger service. (BIR Ruling No. 68-019, Sept. 25, 1968). As regards the receipts derived from the incoming freight and passenger service, the same are not subject to the 2% common carrier's tax. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue