Philippine Transmarine Carriers, Inc.

March 2, 2007 BIR RULING [DA-133-07] R.R. 16-2005 Philippine Transmarine Carriers, Inc. First Maritime Place, 7458 Bagtikan Street San Antonio Village, Makati City Attention: L.C. Delos Santos VP/Corporate Affairs & Administration Gentlemen : This refers to your letter dated October 5, 2006 requesting for ruling/opinion relative to your application for VAT zero-rating and whether prior approval is still necessary for purposes of VAT zero-rating entitlement pursuant to Revenue Regulations No. 16-2005. aSACED It is represented that Philippine Transmarine Carriers, Inc. (PTC) is registered with the Securities and Exchange Commission under SEC Certificate of Registration No. 84631; and that the purpose for which PTC is formed is "to own and operate vessels for international and Philippine coastwise trade, upon the high seas and upon all navigable waters, and to provide complete marine services, as principal or agent to ship-owners, ship operators and managers and to any person, association, firm or corporation engaged in marine and maritime business, such as but not limited to, full and partial crewing of vessels, voting as manager of ships or their crew, acting as ship chandler, shipbroker and trading in marine supplies and equipment. In reply, please be informed that Section 4.108-5 (b) (4) and Section 4.108-6 of Revenue Regulations No. 16-2005 provide, viz: "Sec. 4.108-5. Zero-Rated Sale of Services. (b) Transactions Subject to Zero Percent (0%) VAT Rate. The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: xxx xxx xxx (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to 12% VAT under Section 108 of the Tax Code." HTacDS xxx xxx xxx "Sec. 4.108-6. Effectively Zero-Rated Sale of Services. The term "effectively zero-rated sales of services" shall refer to the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. Under these regulations, effectively zero-rated sale of services shall be limited to local sales to persons or entities that enjoy exemptions from indirect taxes under subparagraph (b) nos. (3), (4), and (5) of this Section. The concerned taxpayer must seek prior approval or prior confirmation from the appropriate offices of the BIR so that a transaction is qualified for effective zero-rating. . . . " From the foregoing, it can be seen that to qualify for VAT zero-rating, the services of PTC must be rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof. Inasmuch as PTC operates vessels for international and Philippine coastwise trade, its services qualify for VAT zero-rating but only with respect to services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof. In addition, to qualify PTC's sale of services to its foreign clients as VAT zero-rated sales, PTC must be a VAT-registered taxpayer in accordance with Section 4. 108-5 (b) of RR 16-2005. SaAcHE Moreover, you are required to secure an approved application for effective zero-rating. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. 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