Lorenzo Shipping Corporation

July 22, 2009 BIR RULING [DA-(VAT-069) 390-09] 108 (B) (4); RMC 31-08; BIR Ruling No. DA 374-07; VAT Ruling No. 62-98 Lorenzo Shipping Corporation Pier 6 North Harbor Manila Attention: Ms. Julita M. Valeros VP-Finance Gentlemen : This refers to your letter dated February 6, 2009 requesting for clarification on the payment of Value-Added Tax (VAT) for shipping services rendered. It is represented that LORENZO SHIPPING CORPORATION (LSC) is a domestic corporation engaged in the domestic shipping business. As evidenced by the bill of lading, the domestic corporations are the shippers and the international carrier being merely a consignee. As such, it collects value-added tax (VAT) on the shipping services rendered. In reply, please be informed that in DA(VAT-059) 572-2008 which subjected the services to zero percent (0%) rate, Hanjin Shipping, for its international shipping operations in the Philippines, engaged the services of various local suppliers with respect to the following: "a. cleaning, repairs, washing, storage and other special services of empty international containers; b. partial or full crewing to ocean-going foreign vessels, and maritime services such as documentation, vessel clearing in and out of the port, assistance in and arrangement of the provisioning, storage and maintenance of said vessels and like services; c. pilotage and launch services; d. collection of solid and liquid waste from inbound ocean-going foreign vessels per contract entered into with the Philippine Ports Authority; e. container handling, storage and related services; f. outbound transshipment of goods or cargoes; g. transshipment of empty foreign containers bound for ports outside of the Philippines; STaHIC h. marine hull insurance services; i. tugging, linemen handling and wharf usage as well as attendance services; j. printing services relative to bills of lading/inter-charge receipts; and k. agency services." The above-mentioned services pertain to those rendered to the international vessel itself and not to the goods or cargoes that are the subject of the domestic transshipment. In fact, Section 108 of the Tax Code of 1997 subjects the common carriers relative to their transport of goods or cargoes from one place in the Philippines to another place in the Philippines to value-added tax, to wit: "SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties . (A) Rate and Base of Tax . There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: CSIcHA xxx xxx xxx The phrase 'sale or exchange of services' means the performance of all kinds or services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by . . . 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. . ." Moreover, LORENZO SHIPPING CORPORATION is consistent with RR 16-2005 in imposing the collection of 10% [now 12%] VAT on the transshipment of foreign boxes: "(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: 4. Services rendered to persons engaged in international shipping or air transport operations including leases of property for use hereof; 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% [now 12%] VAT under Sec. 108 of the Tax Code ". Furthermore, Revenue Memorandum Circular No. 31-2008 particularly Question number 44 clarifies the issue concerning common carriers by sea and their agents relative to the transport of passengers, goods or cargoes, to wit: "Q.44: If an international carrier issues a contract of carriage of goods from Davao to Los Angeles, USA but said carrier picks up the goods only in Manila and therefore sub-contracts to a domestic carrier the carriage service from Davao to Manila, what are the tax liabilities of the two (2) carriers in this continuing transaction? A-44: In this scenario, the international carrier shall be liable to pay the Gross Philippine Billing Tax (Income Tax) and the common carrier tax based on freight from Davao to Los Angeles whereas the domestic carrier shall be liable for income tax on the freight or service income from Davao to Manila. However, said freight income of the domestic carrier shall be subject to VAT at zero percent (0%), it being service rendered to international carrier engaged in international transport operation." In the instant case, LORENZO SHIPPING CORPORATION renders service to the domestic corporations, and not to an international carrier. This can be gleaned from the very fact that the shippers are the domestic corporations. In fact, the bill of lading refers to the international carrier only as a consignee. Therefore, the contract for the shipping services is between the domestic corporations (shipper) and LORENZO SHIPPING CORPORATION. IDETCA In view of the foregoing, LORENZO SHIPPING CORPORATION falls under the general rule that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax. 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.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group