BIR Ruling [DA-008-99]

January 7, 1999 BIR RULING [DA-008-99] Madrigal-Wan Hai Lines Corp. Knights of Rizal Building Bonifacio Drive, Port Area Manila Attention: Ms . Rose Marie C . Chan AVP Finance Gentlemen : This refers to your letter dated June 16 and October 19, 1998 requesting for a renewal of your exemption from the payment of income tax on income derived from overseas shipping pursuant to the provision of R.A. No. 7471, otherwise known as the "Philippine Overseas Development Act." LLjur Documents submitted show that the Madrigal-Wan Hai Lines Corporation (MWL ) is a Philippine-registered corporation duly accredited by the Maritime Industry Authority (MARINA) on June 06, 1995; that MWL is engaged mainly in overseas shipping and it does not engage in the Philippine domestic cargo trade; that it owns and operates three (3) ocean going vessels (MV National Pride, MV National Dignity and MV National Honor); that it offers liner service between the Far East Ports of Manila, Hongkong, Taiwan, Korea and the United States West Coast ports of Long Beach and San Francisco; and that in DA-394-97 dated December 1, 1997, you were granted an exemption from the payment of income tax otherwise due from you effective May 5, 1992 and up to May 5, 2002. In reply thereto, please be informed that under Section 4.05 of the Rules and Regulations implementing the provisions of R.A. 7471, a Philippine Shipping Enterprise shall be exempt from payment of income tax on income derived directly from Philippine Overseas Shipping for a period of ten (10) years from the date of approval of the Act or from May 5, 1992 up to May 5, 2002, provided that: a) The entire net income, after deducting not more ten per cent (10%) thereof for distribution of profits or declaration of dividends, which would otherwise be taxable under the provisions of Title II of the National Internal Revenue Code, is actually reinvested in accordance with these Regulations not later than May 5, 2005 for: (1) the construction, purchase or acquisition of vessel and related equipment; and/or (2) the improvement or modernization of its vessels and related equipment. b) The cumulative amount so reinvested shall not be distributed as profits or dividend until after May 5, 2012 or until the vessel or related equipment so acquired have been fully paid, whichever date comes earlier; LLphil c) Any amount not so reinvested, or withdrawn prior to the expiration of the period stipulated in paragraphs (a) and (b) hereof, respectively, shall be subject to the payment of the corresponding income tax due thereon, including penalties, surcharge and interests, as provided for in the National Internal Revenue Code; d) The income derived from Philippine Overseas Shipping entitled to exemption from the payment of income tax hereunder, is limited to income from the transport of goods and/or passengers overseas. It does not include income not directly related to transport of goods and passengers overseas; e) A Philippine Shipping Enterprise availing itself of the incentive shall submit to the Bureau of Internal Revenue reports and other documents that shall be prescribed in revenue regulations that shall be issued for the purpose. Since it is clear that the exemption from income tax on income derived directly from Philippine overseas shipping business is ten (10) years from the date of approval of the Act on May 5, 1992, your exemption from the payment of income tax on income derived from Overseas Shipping pursuant to the provisions of R.A. No. 7471, which was granted under DA-394-97 dated December 1, 1997, is hereby renewed for taxable year 1998. It is of course that your books of account and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for purposes of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives or your tax liability, if any, pursuant to Section 235 of the Tax Code, as amended by P.D. No. 1959. casia Finally, you are required to file on or before April 15 of each year a profit and loss statement, balance sheet and statement of sources and application of funds with the annual information return information under oath, stating your gross income and expenses incurred during the year. A copy of this letter of exemption must be attached to the annual information return which you will file on said date. This exemption shall be valid only for taxable year 1998, renewable every year thereafter up to May 5, 2002. (BIR Ruling No. DA-394-97 dated December 1, 1997) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)