BIR Ruling [DA-140-98]

April 13, 1998 BIR RULING [DA-140-98] Emerald Shipping Corporation 4th Flr. R. Magsaysay Center 1680 R. Blvd. Malate, Manila Attention: Ms . Anita Pea Manager Gentlemen : This refers to your letter dated May 19, 1997 which was referred to this Office by Revenue Region No. 6, Manila, by way of its 1st Indorsement dated May 29, 1997 relative to your request for exemption from the payment of income tax on income derived from Philippine Overseas Shipping pursuant to Republic Act No. 7471, otherwise known as the "Philippine Overseas Shipping Development Act". LibLex In reply, please be informed that under Revenue Regulations No. 15-93 dated September 1, 1993, implementing Republic Act No. 7471, a Philippine Shipping Enterprise shall be exempt from the 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 on May 5, 1992 or up to May 5, 2002, provided that. a) The entire net income, after deducting not more than ten percent (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 dividends until after May 5, 2012 or until the vessel or related equipment so acquired have been fully paid, whichever date comes earlier. c) Any amount not so reinvested, or withdrawn prior to the expiration of the period stipulated in paragraphs (a) and (b) hereof, respectively, shall be subject to the payment of the corresponding income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. llcd d. The income derived from Philippine Overseas Shipping entitled to exemption from the payment of income 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, you are exempt from the payment of income tax otherwise due from you effective May 5, 1992 and up to May 5, 2002. It is of course understood that your books of accounts and other pertinent records shall be subject to periodic examination by revenue 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 on your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. 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 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. (BIR Ruling No. 175-95 dated October 25, 1995) cdlex This exemption shall be valid FOR A PERIOD OF ONE YEAR, renewable every year thereafter. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)