BIR Ruling [DA-208-02]

November 15, 2002 BIR RULING [DA-208-02] 22, 23, 42; 001-61, 003-76 Cem Bulk Corporation 3rd Floor People's Insurance Building 420 Calle Magallanes, Intramuros, Manila Attention: Melecio T. Edem Jr. Crewing Manager Gentlemen : This refers to your undated letter inquiring on the issue of the taxability of a seaman's income from abroad while onboard a registered Philippine Flag vessel trading abroad. It is represented that Cem Bulk Corporation and Apo Cement are Philippine based and registered corporations with an existing chartering contract over the vessel "Cem Feeder"; that "Cem Feeder" is registered under Philippine flag; that Filipino seamen, with overseas contract via Fairview Manning Agency and processed under POEA, were hired for "Cem Feeder"; that it is the seamen's position that their income is tax exempt because they are considered Overseas Filipino Workers (OFWs) and their income are derived from the services they performed abroad onboard the vessel trading in Spain; and that they contend that the issue on whether their income is taxable or not should not be based on the citizenship of their employer but should be based on where they performed the services that produce the income. In reply, please be informed that "(a)n individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker." (Section 23(c), Tax Code of 1997). In relation thereto, Section 42 of the Tax Code of 1997 provides that compensation for labor or personal services performed within the Philippines shall constitute income from sources within the Philippines. Conversely, compensation for labor or personal services performed without the Philippines shall form part of income from sources without the Philippines which shall not form part of the taxable compensation of an overseas contract worker. Hence, a seaman who, being a member of the complement of a vessel engaged exclusively in international trade and is treated as an overseas contract worker who may be taxed only on his income derived from sources within the Philippines shall not be subject to income tax on his income derived from services which he rendered outside the Philippines. With respect to whether income by a seaman is derived from within or without the Philippines, it was laid down in BIR Ruling No. 003-76 dated May 27, 1976 that "(i)n the case, however, of Filipino seamen working on board foreign vessels that touch Philippine ports to load and unload cargoes, their services are considered rendered partly within and partly without the Philippines, in which case, only that portion of their salaries which correspond to services rendered within the Philippines is subject to the withholding tax." Thus, the situs of the income of seamen is not determined based on the citizenship of the vessel in which they are on board. Income is considered earned in the place where the service was actually rendered and as such may be considered as rendered where the vessel is docked for the purpose of rendering services. In addition, and as consistently held by this Office, BIR Ruling No. 001-61 dated January 6, 1961 states that ". . . the criterion in determining the source of income is the situs of the service rendered, regardless of the residence of the payor, of the place in which the contract of services was made, or of the place of payment." Similarly, seamen aboard a Philippine vessel engaged exclusively in international trade, and which docks in foreign ports, may be considered as earning income from sources without the Philippines when they render services in foreign ports. In the instant case, while salaries of seamen aboard the Philippine vessel "Cem Feeder" is paid by Cem Bulk, a Philippine corporation, compensation received by seamen from Cem Bulk shall be considered as income from sources without the Philippines if said income was earned for services rendered while the vessel is trading in Spain. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group