BIR Ruling [DA-648-06]

November 2, 2006 BIR RULING [DA-648-06] Section 108 (B) (4); BIR Ruling No. 054-03 Metro Cebu Harbor Pilots Company, Inc . Jesever Building Osmea Boulevard Capitol Site, Cebu City Attention: Mr. Loreto C. Obrero Treasurer Gentlemen : This refers to the request of Metro Cebu Harbor Pilots Company, Inc. ("MCHPCI"), for a ruling that its sale of pilotage services rendered to vessels engaged exclusively in international shipping is subject to VAT at zero percent (0%), indorsed to this Office by OIC-Chief of the Audit Information, Tax Exemption and Incentive Division Olivia O. Lao on October 9, 2006. Documents show that MCHPCI is a duly registered VAT taxpayer with TIN 005-256-948 and Securities and Exchange Commission (SEC) Registration No. C199800406 effective May 14, 1998. Its primary purpose is to furnish and render pilotage services to coastwise and foreign ships within the limits of the Cebu Pilotage District, in accordance with the laws of the Philippines and of the rules and regulations promulgated by the Department of Finance, Bureau of Customs and/or Cebu Ports Authority. It has registered as a Non-VAT taxpayer on March 31, 1999 and updated its registration to VAT effective January 21, 2000. In reply, please be informed that Section 4.108-(b)(4) of Revenue Regulations No. 16-2005 implementing Section 108(B)(4) the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337 reads as follows: (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: (1) . . . (2) . . . 3) . . . (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 10% VAT under Sec. 108 of the Tax Code; CHDTIS xxx xxx xxx" Moreover, Section 4.108-6 of the same Regulations provides, viz: "SEC. 4.108-6. Effectively Zero-Rated Sale of Services . The term "effectively zero-rated sales of services" shall refer to the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. Under these Regulations, effectively zero-rated sale of services shall be limited to local sales to persons or entities that enjoy exemption from direct taxes under subparagraph (b) nos. (3), (4) and (5) of this Section. The concerned taxpayer must seek prior approval or prior confirmation from the appropriate offices of the BIR so that a transaction is qualified for effective zero rating. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to effectively implement the processing of applications for effective zero-rating. In view of the foregoing, this Office is of the opinion that MCHPCI is within the ambit of Section 108(B)(4) of the Tax Code of 1997, as amended by R.A. No. 9337, considering that it regularly renders in the Philippines services to persons engaged in international shipping. Hence, MCHPCI's income for services performed in the Philippines to persons engaged in international shipping is subject to VAT at zero percent (0%) rate. However, services and goods pertaining in transport from one place in the Philippines to another place in the Philippines is subject to the 12% (then 10%) 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service