Santiago & Santiago

January 19, 2007 BIR RULING [DA-030-07] 106; 076-98 Santiago & Santiago Ground Floor, Ortigas Building Ortigas Avenue cor. Meralco Avenue Pasig City Attention: Atty. Amado R. Santiago III Gentlemen : This refers to your letter dated November 27, 2006 requesting confirmation of your opinion that the intended sale by Negros Navigation Company, Inc. (Nenaco) of four (4) passenger and cargo vessels, namely M/S "San Lorenzo Ruiz", M/S "Mary, Queen of Peace", M/S "St. Ezekiel Moreno and M/S "Princess of Negros" (collectively, the "Vessels"), registered with the Maritime Industry Authority ("MARINA") in its name, to foreign buyers not engaged in trade or business in the Philippines, shall be an export sale and thus, subject to value-added tax at zero percent (0%) rate. It is represented that Nenaco is a corporation duly organized and existing under the laws of the Republic of the Philippines, primarily engaged in the business of transporting, through shipping vessels, passengers and cargoes at various ports of call in the Philippines, with principal office address at Pier 2, North Harbor, Tondo Manila. caCTHI Nenaco intends to sell the Vessels to the following foreign buyers: 1) The M/S "San Lorenzo Ruiz", to Aria Navigation, Inc., with address at 80 Broad Street, Monrovia, Liberia; 2) The M/S "Mary, Queen of Peace", to Trade Venture Investments Limited, with address at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands; 3) The M/S "St. Ezekiel Moreno", to Sea Maritime Corporation, with Address at 80 Broad Street, Monrovia, Liberia; and 4) The M/S "Princess of Negros", to Aston Pte. Ltd, with address at 30 Cecil Street, No. 15-00, Prudential Tower, Singapore 049712. Nenaco intends to execute a Memorandum of Agreement (MOA) with each of Aria Navigation, Inc., Trade Venture Investments Limited, Sea Maritime Corporation and Aston Pte. Ltd for the sale and purchase of each of the Vessels with the following basic terms and conditions: 1. The purchase price shall be payable in foreign currency which will be inwardly remitted to the Philippines by way of swift and/or telegraphic transfer to the bank account of Nenaco; 2. The closing of the sale shall take place in the office of Nenaco in the Philippines; and 3. The delivery of the Vessels shall commence by placing each of the same at a safe anchorage in Manila, and thereafter, the corresponding buyer shall cause the sailing and towage of its Vessel to a port of destination outside of the Philippines, where it shall be docked and registered in the name of the buyer. The above foreign buyers are not engaged in trade or business in the Philippines as indicated in the certification issued by the Securities and Exchange Commission (SEC). In reply, please be informed that Section 106 (A) (2) (a) (1) of the 1997 Tax Code, as amended, provides: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);" Considering that (i) Nenaco shall sell the Vessels to various foreign companies not engaged in trade or business in the Philippines, (ii) respective foreign buyers shall bring the Vessels outside of the Philippines, and (iii) the respective foreign buyers shall pay Nenaco in United States Dollars by way of swift and/or telegraphic transfer to the bank account of Nenaco in the Philippines, which shall be accounted for in accordance with the rules and regulations of the BSP, the said sale of Vessels to the foreign buyers shall be considered export sale and shall be subject to VAT at a zero percent (0%) rate under Section 106 (A) (2) (a) (1) of the 1997 Tax Code, as amended. (BIR Ruling No. 076-98 dated May 27, 1998) SaHcAC This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service