Carol Toledo

August 10, 2007 BIR RULING [DA-449-07] Section 4.109-1 (B) (s) of R.R. 16-2005; Sec. 109 (g) Carol Toledo No address given M a d a m : This refers to your phoned-in query endorsed to this Office on November 8, 2005, requesting for clarification as to whether or not passenger/cargo vessels are subject to VAT based on tonnage per vessel or total tonnage of all vessels of a shipping company. It is represented that the R-VAT quick guide provides that passenger/cargo vessels " of more than 5000 tons " are subject to VAT. Apparently, this has caused some confusion on your part on how to interpret the VAT liability of passenger/cargo vessels, whether the above-mentioned tonnage requirement applies on a per ship or total tonnage basis, considering that this requirement was not even mentioned in Revenue Regulations (RR) No. 16-2005. In reply, please be informed that Section 4.109-1 (B) (s) of RR 16-2005 provides that: "(B) Exempt transactions (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (s) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; Provided, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred and fifty (150) tons and above, including engine and spare parts of said vessels ; Provided, further, that the vessels to be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the vessel's original commissioning, as follows: (i) for passenger and/or cargo vessels, the age limit is fifteen (15) years old, (ii) for tankers, the age limit is ten (10) years old and (iii) for high speed passenger crafts, the age limit is five (5) years old; Provided, finally, that exemption shall be subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping Act of 1994;" HAECID xxx xxx xxx Based on the above-mentioned provision, it is evident that RR 16-2005, in implementing the VAT-related provisions of Republic Act (RA) No. 9337, now exempts from VAT importations and local sales of passenger/cargo vessels and aircraft of one hundred fifty (150) tons and above. This is regarded as an amendment to Section 109 (g) of the Tax Code of 1997 which formerly required that passenger/cargo vessels should be more than five thousand (5000) tons to be considered as VAT-exempt. Furthermore, pursuant to BIR VAT Ruling 045-2005, a vessel in a transaction under Section 109 (g) is evaluated according to its gross tonnage to determine if it qualifies for exemption or be held liable for VAT. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service