Southwest Ships Agencies, Inc.

October 26, 2009 BIR RULING [DA-(VAT-091) 619-09] RR #16-2005; DA (VAT-020) 34-2006 dtd. 10/24/08 Southwest Ships Agencies, Inc. 6/F Suite 609, S & L Bldg. 1500 Roxas Blvd., Ermita Manila Attention: Concepcion C. Santos Financial Controller Gentlemen : This refers to your letter dated August 28, 2009, requesting zero-rated VAT on your services rendered to foreign principal providing complete marine services, pursuant to Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005. cEHITA It is represented that SOUTHWEST SHIPS AGENCIES, INC. (SSAI, for short) with TIN: 206-912-419-000, is a duly registered domestic corporation engaged in the general business of shipping agents providing complete marine services as agents to ship owners, ship operators and managers and to any person, association, firm or corporation engaged in the international or inter-island marine business: that it is rendering services to its foreign principals calling Philippine Ports; that as such, all expenses incurred by its vessels such as port expenses and services rendered by local contractors are billed to the said foreign principals; that foreign principal in turn remits to SSAI in acceptable foreign currency and duly accounted for in accordance with the rules and regulations of the BSP; Hence, as the local agent, SSAI merely act as conduit of the foreign principal for whose account the expenses are incurred; that it is paid with agency fees as compensation for the fulfillment of the term of the contract in acceptable foreign currency, duly accounted for in accordance with the rules and regulations of the BSP. In reply, please be informed that Section 108 (B) (4) of the 1997 Tax Code, as amended by Republic Act (RA) No. 9337, provides that: "Section 108. Value Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx "(B) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: "(4) Services rendered to vessels engaged in international shipping or international air transport operations, including leases of property for use thereof;" The above provision must be read in connection with Section 4.108-5 (b) (4) of Revenue Regulations (RR) No. 16-2005, as amended by RR 4-2007, to wit: "Section 4.108-5. Zero-Rated Sale of Services. (b) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: HDTSCc (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;" It is clear from the foregoing that services rendered by VAT-registered entities to persons engaged in international shipping are entitled to VAT zero-rating. Thus, the services rendered by SSAI to foreign principals calling Philippine Ports are subject to VAT zero-rating pursuant to the above provisions. However, it must be stressed that the above entitlement of SSAI to VAT zero-rating does not extend to its services rendered to common carriers by sea with respect 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 VAT in accordance with Section 4.108-5 (b) (4) of RR No. 16-2005, as amended by RR 4-2007. (BIR Ruling No. DA-364-2007 dated July 6, 2007) 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service