Haniship, Inc.

July 2, 2009 BIR RULING [DA-(VAT-064) 336-09] 108 (B) (4); Sec. 4.108-6, RR 16-05; VAT 01-06; DA-374-07; DA-365-07; DA-364-07; DA (VAT-044) 260-09 Haniship, Inc. Unit 1002 Standford Tower Condominium M.H. Del Pilar St., Malate, Manila Attention: Ms. Noralyn G. Orbeta Accountant Gentlemen : This refers to your letter dated June 22, 2009 stating that sometime in July 27, 2006, Haniship, Inc., a VAT-registered entity with Taxpayers Identification No. 210-383-222-000, filed an application for VAT zero rating with the Audit Information, Tax Exemption and Incentive Division (AITEID) of the Bureau of Internal Revenue (BIR), relative to its sale of services to various international sea carriers; that on a subsequent date, it filed another application and made a follow-up of its previous applications, thus, making the number of pending applications with the AITEID to three, covering the years 2005, 2006 and 2007; that on November 13, 2008, Haniship, Inc. was informed by the Assistant Commissioner, Assessment Service, that its applications were endorsed to the Law Division thru the Legal Service on October 27, 2008, for clarification concerning its sale of services to international sea carriers, whether it is considered as automatically zero-rated (no need to file Application for VAT-zero rate) or effectively zero-rated (need to file Application for VAT-zero rate) under Revenue Memorandum Circular No. 31-2008, hence, this follow-up letter. In reply, please be informed that Section 4.108 (b) (4) of Revenue Regulations No. 16-2005, as amended by RR No. 4-2007, provides as follows: "Sec. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (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: xxx xxx xxx (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 February 1, 2006;" The above provision must be read in connection with Section 4.108-6 of the same Revenue Regulations which provides as follows: "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 exemptions from indirect 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 application for effective zero-rating." It is clear from the foregoing that the services rendered by VAT-registered entities to persons engaged in international shipping are entitled to VAT zero-rating. Accordingly, services which Haniship, Inc. renders to vessels engaged in international shipping are subject to VAT at zero percent (0%) rate. However, it must be emphasized that Haniship, Inc. must seek prior approval or prior confirmation from the appropriate offices of the BIR so that the transactions would qualify for effective zero-rating. (BIR Ruling Nos. VAT 011-06 dated November 3, 2006; DA-354 & 365-2007 dated July 6, 2007; DA-374-07 dated July 12, 2007; and DA (VAT-044) 260-2009 dated May 27, 2009) This ruling serves as an approval of the applications of Haniship, Inc. for VAT zero-rating for transactions covered by taxable years 2005, 2006 and 2007. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service