BIR Ruling [DA-441-00]

December 29, 2000 BIR RULING [DA-441-00] R.A. 7471; RR 15-93; RMC 17-93 175-95; 99-94 International Tankers Corporation 2868 Lamayan St., Sta. Ana, Metro Manila Attention: Mr . Manuel M . Leyson, Jr . Executive Vice President Gentlemen : This refers to your letter dated December 6, 1999 which was endorsed to this Office by the Department of Finance, requesting for an exemption from the payment of income tax and other taxes allowable under Republic Act No. 7471. Documents submitted disclose that International Tankers Corporation (ITC) is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. A199805240 dated April 6, 1998; that it was organized for the purpose of engaging in the general business of international shipping, to own and operate vessels of any class, type or description for international trade, and to charter in and charter out such vessel; that the Board of Directors of ITC resolved on December 3, 1997 to buy a tanker vessel to be used for foreign trade; that on January 5, 1998, ITC executed a Special Power of Attorney through its President, Antonio L. Loo, whereby ITC named, constituted and appointed International Towage and Transport Corporation (ITTC) represented by its Executive Vice President, Manuel M. Leyson, Jr. for the following purpose: "To look for a tanker vessel that can be used for foreign trade, negotiate the price, conclude, enter into a contract, execute, purchase for and on behalf of International Tankers Corporation said Tanker vessel." that on February 10, 1998, ITTC has been authorized and appointed by the Board of Directors of ITC to negotiate, purchase and sign document for ITC, that on March 20, 1998, the Bill of Sale was executed by Chembridge Tankers Limited in favor of ITTC for the sale of a Motor Tanker vessel with the following specifications: No., Year & Port of Whether a sailing, Horse power of Official Number Name of ship Registry steam or motor ship engines SHOGUN 19199-90(ex) (Wreck, no flag, no HP577 of Panama class) (ex) Motor Tanker 100ps that on May 14, 1998, Shogun's Panamanian Registration was definitely deleted from the Panamanian registry; that ITC is a shipping corporation accredited by the Maritime Industry Authority (Marina); that a Certificate of Vessel Registry was issued by the MARINA on September 16, 1999 for the motor tanker Shogun, covered by Official Number MNLA000487 with ITC as its owner/operator; and that MARINA favorably recommended the issuance of a Certificate of Exemption pursuant to R.A. 7471 and Section 4.05 of RMC 17-93. In reply, please be informed that under Sec. 4.05 of the Rules and Regulations Implementing the provisions of RA 7471, as approved by the Secretary of Finance, Governor of Central Bank and Administrator of the MARINA on November 17, 1992, a Philippine Shipping Enterprise shall be exempt from 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 05, 1992 or up to May 04, 2002, subject to the following conditions: a. The entire net income, after deducting not more than ten percent (10%) thereof for the 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 the 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 vessel 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, surcharges and interests, as provided for in the National Internal Revenue Code. CcaASE d. The income derived from Philippine Overseas Shipping entitled to exemption from the payment of income tax 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 of the incentive shall submit to the Bureau of Internal Revenue reports and other document that shall be prescribed in revenue regulations that shall be issued for the purpose. In view of the foregoing, the income derived by ITC directly from its Philippine overseas shipping business shall be exempt from income tax up to May 5, 2002, provided that the foregoing conditions are complied with. The income derived from Philippine overseas shipping entitled to exemption from the payment of income tax is limited to income from the transport of goods and/or passengers overseas. It does not include income not directly related to the transport of goods and passengers overseas, such as, but not limited to, interest income, gain from sale of vessels, or charter fees/lease income. On the other hand, Section 6 of RA No. 7471 provides that the importation by a Philippine Shipping enterprise of ocean-going vessels for registration under the Philippine flag shall be exempt from the payment of import duties and taxes. It is likewise exempt from import duties and taxes on the spare parts for the repair and/or overhaul of vessels provided such items are destined or consigned either to (a) a Philippine dry-docking or repair facility accredited by MARINA and registered as a custom bonded warehouse, which will undertake the necessary repairs on the vessel; and (b) the vessel in which the items are to be installed: This provision of RA No. 7471 was not repealed by the subsequent enactment of RA No. 8424 otherwise known as the Tax Reform Act of 1997. It is basic in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have a repealed a special law. It is a well-settled rule in Philippine jurisdiction that a special statute, provided for a particular case or class of cases, is not repealed by a subsequent statute, general in its terms, provisions and application, unless the intent to repeal or alter is manifest, although the terms of the general law are broad enough to include the cases embraced in the special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute. The special law is to be taken as an exception to the general law in the absence of special circumstances forcing a contrary conclusion. This is because implied repeals are not favored and as much as possible, given to all enactments of the legislature. A special law cannot be repealed, amended or altered by a subsequent general law by mere implication. ( Laguna Lake Development Authority vs. The Court of Appeals, et al . , G.R. No. 120865, December 7, 1995) It is, therefore, our opinion that RA 7471, being a special law should prevail over RA 8424, a general law. Thus, the provision of Section 109(g) of the Tax Code of 1997 which exempts from VAT the importation of passenger and/or cargo vessels of more than five thousand (5,000) tons is not applicable therein. Such being the case, the tanker vessel Shogun purchased and imported by ITC which consists of 717.00 gross tonnage and 299.00 net tonnage shall be exempt from the value-added tax. In any event, however, that ITC shall import engines and spare parts of said vessel, the said importation shall be subject to the following conditions in order that it can be exempt from the payment of VAT, viz: 1. The imported spare parts are intended for the repair and/or overhaul of the vessels used in overseas shipping and registered under Philippine flag; 2. The imported spare parts are destined to a Philippine dry-docking or repair facility which is accredited by MARINA and registered as a customs-bonded warehouse; 3. The imported spare parts are to be installed to Philippine registered vessels which are used in overseas shipping for the transport of cargo or passengers; DACcIH 4. Availment of this privilege shall be initiated by way of an application filed with the Bureau of Customs copy furnished the Bureau of Internal Revenue; and 5. After verification of your VAT exemption eligibility the Bureau of Customs shall then issue authority to release imported goods, without collecting the value-added tax. It is understood that the books of accounts and other pertinent records of ITC shall be subject to periodic examination by revenue enforcement officers of this Bureau for purposes of ascertaining whether the conditions under which it has been granted tax exemption or tax incentives or its tax liability, if any, have been complied with, pursuant to Section 235 of the Tax Code of 1997. Finally, ITC is required to file on or before April 15 of each year a profit and loss statement, balance sheet and statement of sources and applications of funds with annual information return under oath, stating the gross income and expenses incurred during the year. A copy of this letter of exemption must be attached to the annual information return which ITC will file on said date. (BIR Ruling Nos. 175-95 dated October 25, 1995; 099-94 dated April 26, 1994) 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, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue