Malayan Towage & Salvage Corporation

February 16, 2009 BIR RULING [DA-(VAT-020) 085-09] RR 4-2007 Malayan Towage & Salvage Corporation 18th Floor, Equitable Bank Tower 8751 Paseo de Roxas, Makati City, 1226 Attention: Mr. Generoso L. Alava Comptroller Gentlemen : This refers to your letter dated May 3, 2008 requesting for a reconsideration of BIR Ruling No. DA-077-2007 denying Malayan Towage & Salvage Corporation's (Malayan) request for exemption from the requirement of bank certificates of dollar remittance of its principals and the yearly filing of application for VAT zero rating and tax credit. Documents submitted disclosed that Malayan is a VAT registered domestic corporation with principal address at 18th Floor, Equitable Bank Tower, 8751 Paseo de Roxas, Salcedo Village, Makati City; that Malayan's Taxpayer's Identification No. is 000-130-189-000; that Malayan failed to file an application for VAT Zero Rating for the years 2002, 2003, 2004 and 2005; that Malayan's revenues are derived from: (a) Towing, Lighterage and Salvage Services, (b) Oil Spill Projects, (c) Agency Fees for Manning of Vessels of Foreign Principals; that it has been issued a Certificate of VAT zero-rate for the year 2001 and prior years for the sale of various services enumerated above; that Malayan could not comply with the requirement for securing a renewal of its application for VAT zero-rating for the successive years because the shipping agents of foreign principals adamantly refused to give the desired information invoking the Bank Secrecy Law; that Malayan opines that the case falls squarely within the ambit of Republic Act No. 1405, approved on September 9, 1955, which expressly prohibits the disclosure of all deposits whatever nature with any bank or banking institution; that Malayan believes that the requirement of this Office regarding the submission of a Bank Certification of dollar remittance by your shipping agents falls squarely within the prohibition against disclosure found in R.A. No. 1405; that under Revenue Regulations No. 16-2005 dated September 1, 2005, services rendered to persons engaged in international shipping are considered zero-rated, as such it does not require an annual application for VAT zero-rating; that Malayan invokes the case of CIR vs. Seagate Technology (GR No. 153866 dated February 11, 2005) wherein it was ruled that the requirement to secure prior approval for effective Zero Rating has no basis in law; that it submitted an explanation as to why Malayan has no approved prior application for Zero-Rating for the years 2002 through 2005; that Malayan opines that it is engaged in purely zero-rated transaction and not an effectively zero-rated transaction which requires prior approval from the BIR; that if effectively zero-rated taxpayers will no longer be required to secure prior approval for effective zero-rating, it follows that as a zero-rated taxpayer, the requirements imposed on Malayan will no longer be enforced; that in your supplemental letter dated October 17, 2006, you reiterated your request that the requirement for the submission of the Bank Certification on Inward Remittance be waived and that you be exempt from the yearly application for VAT zero-rating; that BIR Ruling No. DA-077-2007 dated February 2, 2007 issued to Malayan Towage & Salvage Corporation denying its request for exemption from the requirement of bank certificates of dollar remittance of its principals be revoked, likewise the yearly filing of application for VAT zero rating and tax credit. cASIED In reply, please be informed of the following: Section 12 of Revenue Regulations No. 4-2007 provides viz. : "Section 12. ZERO-RATED SALE OF SERVICES. Sec. 4.108-5(b)(4) of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (b) Transactions Subject to Zero Percent (0%) VAT Rate. . . . (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 twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006." Thus, Malayan's revenues derived from: (a) Towing, Lighterage and Salvage Services, (b) Oil Spill Projects, (c) Agency Fees for Manning of Vessels of Foreign Principals, paid for in acceptable foreign currency remitted inwardly and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, shall be subject to VAT at zero percent (0%) rate. In the case of Commissioner of Internal Revenue versus Seagate Technology (Philippines) G.R. No. 153866 dated February 11, 2005, the Supreme Court ruled that: "A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero-rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as clearly indicated in, its VAT registration papers and photocopied documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, the VAT exemption would be determined, not by their nature, but by the taxpayer's negligence a result not at all contemplated. Administrative convenience cannot thwart legislative mandate." Applying the same Supreme Court decision in the instant case, the failure of Malayan to file an application for VAT zero-rating for the years 2002, 2003, 2004 and 2005 was due to adamant refusal of foreign principal's shipping agents to give the desired information invoking the Bank Secrecy Law. Moreover, as provided for under the aforementioned jurisprudence, a VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero-rating of the transactions of a taxpayer. In the case of Commissioner of Internal Revenue versus Seagate Technology (Philippines) G.R. No. 153866 dated February 11, 2005, the Court ruled that registration is an indispensable requirement under the VAT law. The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of the transaction. The scope of such regulations is not within the statutory authority granted by the legislature. Without disturbing the pronouncement of the Supreme Court under the aforementioned Seagate Case, supra, and considering that Section 108 (B) (4) of the Tax Code does not require payment in acceptable foreign currency for services rendered to persons engaged in international shipping or international transport operations, the requirement of bank certificates of dollar remittance of its principal may be dispensed of. However, for purposes of monitoring, registration of present and future services that may be rendered to persons engaged in international shipping shall have to be registered with the Audit Information, Tax Exemption and Incentives Division (AITEID) for purposes of zero rating. Failure to register shall not however affect the vat-zero rated status of the taxpayer-seller of services on the qualified transaction for as long as the transaction can be sufficiently proven as one entitled to 0% VAT. Similarly, considering that a certificate of VAT zero-rate for the year 2001 and prior years has been issued in your favor, your claim for tax credit or refund may be granted provided that no change in registration has been effected. 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