SMC Shipping and Lighterage Corporation

July 15, 2009 BIR RULING [DA-(IL-022) 376-09] E.O. 226; RR 2-98; DA-231-02; DA-418-04; 163-94; UN 339-94; DA-231-02 SMC Shipping and Lighterage Corporation Pasig City Attention: Mr. Michael G. Sususco Chief Financial Officer Gentlemen : This refers to your letter requesting, in effect, for exemption from income and expanded withholding taxes since SMC Shipping and Lighterage Corporation ("SMCSLC" for brevity) is entitled to income tax holiday (ITH) on account of its registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". HEaCcD It is represented that SMCSLC is a domestic corporation registered with the BOI as a new operator of domestic shipping under Certificate of Registration (COR) Nos. 2008-306 and 2009-072, as follows: Effectivity ITH Activities Status Date Period A. Under COR No. 2008-306 as a New Pioneer December 2008 4 yrs. Operator of Domestic Shipping (3 Cargo Vessels Kalikasan 3, Kayamanan 2 and Kayamanan 3) B. Under COR No. 2009-072 as a New Pioneer July 2009 6 yrs. Operator of Domestic Shipping (Cargo Vessel M/T Samho Snipe) Being a BOI-registered company, SMCSLC is entitled, among other benefits, to an ITH for a period of four (4) years and six (6) years as above shown starting from the company's actual start of commercial operation, but in no case earlier than the date of each registration. As such, it is your opinion that SMCSLC is exempted from the payment of income taxes pursuant to Article 39 (a) (1) of the Omnibus Investments Code of 1987. In reply, please be informed that Article 39, Title III of the Omnibus Investments Code of 1987 states, thus: "ART. 39. Incentives to Registered Enterprises . . . . (a) Income Tax Holiday (1) For six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government . . . Relative thereto, Section 1 (t), Rule I, Part I of the Rules and Regulations implementing the Code provides that the 'income' of the registered firm entitled to income tax holiday shall be confined to income directly derived from registered operations." CEDHTa Accordingly, since SMCSLC is a BOI-registered enterprise, its domestic shipping operations therefore are exempt from payment of income taxes as follows: (1) for its domestic shipping operation for three (3) cargo vessels, namely: 1) Kalikasan 3, Kayamanan 2 and Kayamanan 3, exempt from payment of income taxes for a period of four (4) years reckoned from December 2008; and (2) for its domestic shipping operation of the cargo vessel M/T Samho Snipe, for a period of six (6) years reckoned from July 2009. Moreover, under Section 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, as amended, the withholding tax prescribed in the said Regulations shall not apply to income payments to person enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. Accordingly, SMCSLC is exempt from the payment of the creditable withholding tax imposed under RR 2-98, as amended, on income payments received by it during the aforementioned periods with respect to its domestic shipping operations involving the above-named vessels. (BIR Ruling No. DA-425-2007 dated July 27, 2007; BIR Ruling No. DA-231-02 dated December 3, 2002; DA-418-04 dated August 8, 2004; BIR Rulings No. 163-94 dated December 2, 1994 and UN 339-94 dated December 6, 1994; DA-231-02 dated December 3, 2002) ESIcaC 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