Davtug Multi-Purpose Cooperative

July 6, 2007 BIR RULING [DA-364-07] VAT Ruling No. 21-2001; Sec. 108 (B) (4), NIRC; Sec. 4 108-5 (b) (4), RR 16-2005; RR 4-2007 Davtug Multi-Purpose Cooperative J.P. Cabaguiao Avenue, Davao City Attention: Capt. Jose F. Orge Chairman Gentlemen : This refers to your letter dated April 2, 2007, requesting this Office's opinion on whether or not the services you render to foreign vessels are subject to VAT zero rating. It is represented that Davtug Multi-Purpose Cooperative (DTMPC), a VAT-registered entity, provides tug assistance services to international vessels in the pilotage district of Davao. The request for tug assistance service is forwarded to DTMPC by the shipping agent of the vessel in the Philippines. The Chit is signed by the master of the vessel and is used as basis for billing. The billing invoice is addressed to the shipping agent with the dollar charges for the service appearing thereon, including the peso conversion rate. The shipping agent collects from the shipping company and pays DTMPC in peso. DTMPC now requests this Office to confirm its opinion that under Section 108 (B) (4) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, its tug assistance services rendered to vessels engaged exclusively in international shipping are subject to VAT zero rating. ACcISa In reply, please be informed that Section 108 (B) (4) of the same Tax Code provides that: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate. xxx xxx xxx (4) Services rendered to vessels engaged in international shipping or international air transport operations, including leases of property for use thereof;" The above provision must be read in connection with Section 4.108-5 (b) (4) of Revenue Regulations (RR) No. 16-2005, as amended by RR 4-2007, to wit: "Sec. 4.108-5. Zero-Rated Sale of Services . xxx xxx xxx (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: AIcECS 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 twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;" It is clear from the foregoing that services rendered by VAT-registered entities to persons engaged in international shipping are entitled to VAT zero-rating. This certainly includes the tug assistance services rendered by DTMPC to vessels engaged in international shipping in pilotage district of Davao. Thus, the tug assistance services rendered by DTMPC to such vessels are subject to VAT zero-rating pursuant to the above provisions. However, it must be stressed the above entitlement of DTMPC to VAT zero-rating does not extend to its tug assistance services rendered to common carriers by sea with respect 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 VAT in accordance with Section 4.108-5 (b) (4) of RR No. 16-2005, as amended by RR 4-2007. 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. DSITEH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service