BIR Ruling

October 24, 1977 First Manila Management Corporation E. de los Santos Ave., cor. Pasong Tamo Makati, Metro Manila Gentlemen : This refers to your letter dated March 7, 1977 bearing on the case of your client, Filmarine Shipping Corporation Verification conducted by this Office disclosed that your client, a wholly-owned Filipino corporation, is the owner of an ocean-going vessel which was time chartered to Kawasaki Steel Corporation, a Japanese corporation for a period of ten (10) years and that said time charterer has engaged Yamashita Shinnihon Steamship Co., Ltd., another Japanese firm, as voyage managers; that the vessel will be used mainly to haul iron ore from various sources abroad to feed the sintering plant of the time charterer's wholly-owned Philippine subsidiary and to transport its own cargo (sinter ore) from the Philippine to Japan which is purchased on FOB basis from its local subsidiary; and that the vessel will not carry cargo of others for a fee. It was also verified that during certain periods, the vessel will not touch Philippine ports as it will be used in foreign cross trading voyage from one foreign port to another port and during other times, the vessel will be used for foreign trade loading and unloading cargoes between the Philippines and foreign ports. In reply, I have the honor to inform you as follows: 1. Your client, under the abovementioned facts, is still considered exclusively engaged in overseas shipping business (BIR Ruling No. 66-055 dated Nov. 7, 1966); hence, it is exempt from the payment of income tax under Republic Act No. 1407, as amended by P.D. 764, provided that the entire net income derived from said business is utilized in the purchase of vessels and equipment. 2. Your client, under the time charter agreement, is still engaged in a contract of special service as common carrier; hence, it is subject to the 2% common carrier's tax under Section 192 of the Tax Code on the basis of the charter hire corresponding to the voyage originating from the Philippines. For this purpose, the charter hire considered as the gross receipts subject to tax, shall be the ratio which the aggregate actual time or number of days for the month multiplied by the monthly charter hire. 3. The charter hire derived by your client from foreign cross trading and inward voyages is not subject to the 2% common carrier's tax, the same being considered receipts derived from sources outside the Philippines. 4. For transporting its own cargo purchased on FOB basis, the time charter is not subject to income and 2% common carrier's taxes under Section 24(b)(2) and 192 of the Tax Code. Very truly yours, CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN-D2567-D1025-A-2