Allan M. Basarte Certified Public Accountant

July 6, 2007 BIR RULING [DA-368-07] 108 (B) (4) DA-139-2006 Allan M. Basarte Certified Public Accountant Suite A-307, 3/F Plaza de Luisa Bldg. R. Magsaysay Avenue, Davao City S i r : This refers to your letter dated May 18, 2007 requesting on behalf of your client, ND Shipping Agency and Allied Services, Inc. (ND for brevity), a ruling whether or not the business activities engaged in by said corporation are covered by the provisions on zero-rated sale of services under Sec. 12 of Revenue Regulations (RR) No. 4-2007, amending Sec. 4.108-5 (b) (4) of RR 16-2005. It appears that ND is a domestic corporation registered on October 4, 1991 with the Securities and Exchange Commission (SEC) under SEC Reg. No. DS-091-006191. Its core business is acting as "husbanding agent" for international shipping cargo, and provides partial or full crewing to ocean-going vessels. As husbanding agent, it affords maritime services such as documentation, vessel clearing in and out of the port, assist and arrange in the provisioning, storage and maintenance of the vessels and like services. ND is paid in foreign-denominated currency (US dollars) for the services rendered to international shipping companies, duly accounted for with the Central Bank of the Philippines and ND caters its services only to international shipping companies. You likewise submitted herein the following documents: 1. BIR Form No. 1556 (Certificate of Registration of ND); 2. Articles of Incorporation of ND; 3. Certificate of Registration from Philippine Overseas Employment Agency (POEA); DCATHS 4. MetroBank Certification of Deposit Account of ND (in US Dollars). In reply, please be informed that Section 108 (B) (2) of the 1997 Tax Code, as amended by RA 9337 (implemented by Sec. 4.108-5 (b) (4) of RR 16-2005), provides, viz: "(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 persons engaged in international shipping or international air transport operations, including leases of property for use thereof;" The said provision is further amended by Sec. 12 of Revenue Regulations (RR) No. 4-2007, to wit: "Section 12. Zero-Rated Sale of Services . Sec. 4.108-5(b)(4) of RR No. 16-2005 is hereby amended to read as follows: "Sec. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (b) Transactions 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 twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006; " In BIR Ruling No. DA-139-2006 dated March 17, 2006, the Bureau ruled that the sale of services to persons engaged exclusively in international shipping the consideration of which is paid for in foreign currency, remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) shall be subject to VAT at 0% pursuant to Section 108 (B) (4) of the 1997 Tax Code. STaHIC Similarly, ND in this instance, performs services as "husbanding agent" for its clients engaged in international shipping providing therein partial or full crewing to its ocean-going vessels and offering maritime services such as documentation, vessel clearing in and out of the port, assist and arrange in the provisioning, storage and maintenance of said vessels and like services for which ND will be paid for in foreign currency inwardly remitted to the Philippines in accordance with the rules and regulations of the BSP. Such being the case, the business activities of ND are within the ambit of Sec. 12 of Revenue Regulations (RR) No. 4-2007, amending Sec. 4.108-5 (b) (4) of RR 16-2005. As such, this Office hereby opines that the fees to be paid to ND for the services it performed to its foreign-based clients as husbanding agent and paid in foreign currency inwardly remitted are subject to VAT at zero percent (0%) rate. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service