BIR Ruling [DA-509-03]

December 16, 2003 BIR RULING [DA-509-03] 28 (B) (3) DA 168-99 Romulo Mabanta Buenaventura Sayoc & De los Angeles 30/F Citibank Tower 8741 Paseo de Roxas Makati City Attention: Atty. Manuel M. Cosico and Atty. Jayson L. Fernandez Gentlemen : This refers to your letter dated May 31, 2002 requesting on behalf of your client, Gold Carousel Investments Ltd. (Gold Carousel), for a ruling that Manila Jumbo Palace, Inc. (MJPI) is under no obligation to remit the 4.5% withholding tax due on the charter hires which MJPI failed to pay to Gold Carousel. It is represented that Gold Carousel is a nonresident foreign corporation duly organized and existing under the laws of the British Virgin Islands, with principal place of business at 9th Floor, West Tower Shun Tak Center, 200 Connaught Road, Central Hong Kong; that it is the absolute and registered owner of two non-mechanized barges named "Manila Jumbo Palace (previously known as "Jumbo Palace Restaurant Boat") and "Manila Jumbo Kitchen" (previously known as "Sea Palace Kitchen Boat"), hereafter referred to as the "Vessels"; that on January 2, 2000, Gold Carousel executed two (2) Bareboat Charters for the hire of the Vessels effective until December 31, 2009 in favor of MJPI, a corporation organized and existing under the laws of the Philippines, that the Bareboat Charters were duly registered with MARINA on January 9, 2000; that pursuant to these Bareboat Charters, the Vessels were brought into the Philippines under the possession and control of MJPI; that under the Bareboat Charters, MJPI is obliged to pay Charter Hires to Gold Carousel in the total amount of US Dollars: Sixty Six Thousand Six Hundred Seventy Dollars (USS66,670.00), per calendar month payable in advance on the first day of each month after delivery of the Vessels; that the Vessels were delivered to MJPI on January 2, 2000 but despite its acceptance of such delivery, MJPI failed to pay Gold Carousel the stipulated Charter Hires for the Vessels; that as of end April 2002, MJPI is in arrears on such payment in the aggregate amount of US Dollars: One Million Eight Hundred Sixty Six Thousand Seven Hundred Sixty Dollars (US$1,866,760.00), exclusive of interest charges thereon; that on April 4, 2002, Gold Carousel served a written demand on MJPI for the full payment of the Charter Hires in arrears but MJPI failed to comply with such demand; that under Clause 10(e) of the Bareboat Charters, Gold Carousel, as Lessor, may withdraw the Vessels from the service of MJPI without any formality whatsoever, on default of payment of the stipulated Charter Hires; that Gold Carousel has elected to exercise this right, without prejudice to any other claim that it may have against MJPI; that as a condition for the approval of Gold Carousel's pre-termination of the Bareboat Charters, the MARINA is requiring Gold Carousel to submit, proof of payment of the 4.5% withholding tax on the agreed bareboat charter hire of US$66,670.00 per month from January 2, 2000 to April 4, 2002. In reply thereto, please be informed that pursuant to Section 28(B)(3) in relation to Section 57(A) of the Tax Code of 1997, rentals, lease and charter fees derived by non-resident owners of vessels chartered by Philippine nationals and which charter or lease has been duly approved by the Maritime Industry Authority are subject to the 4.5% final tax. However, since MJPI was unable to pay and remit any bareboat charter hire to Gold Carousel from January 2, 2000 to April 4, 2002, MJPI has nothing from which it could withhold the 4.5% final tax on said charter fees. Such being the case, MJPI is under no legal obligation to withhold the said tax. ( BIR Ruling No. 308-87 dated October 1, 1987; DA-168-99 dated March 19, 1999 ) CIHTac 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group