Jebsens Maritime, Inc.

November 18, 2009 BIR RULING [DA-(VAT-099) 681-09] BIR Ruling No. 90-91, DA-94-07, VAT-02-09, DA-(VAT-044) 260-09 & DA-(VAT-045) 264-09 Jebsens Maritime, Inc. 2nd Floor, Harbor Center II Railroad Street South Harbor Port Area, Manila Attention: Ms. Ma. Theresa D. Paguio VP-Finance Gentlemen : This refers to your letter dated June 23, 2009 requesting on behalf of Jebsens Maritime, Inc. (JMI) for confirmation of your opinion that the purchase of goods and/or services by JMI from its domestic suppliers or service-providers for and in behalf of its foreign principals qualify as zero-rated transaction. As represented, JMI is the crewing arm of the Aboitiz Jebsen Group which is extensively engaged in the supply of Filipino seamen. JMI entered into contract of agency with several foreign principals. These foreign principals are not doing business in the Philippines and may not be legally deemed as such under the Tax Code and Treaty Agreement/s, as applicable. Among their agreements provided that JMI shall enter into transactions for and in behalf of a foreign principal, which include among others the: (1) sourcing of Accredited Medical Providers for the pre-employment of medical crews; (2) purchasing of plane tickets; and (3) purchasing of uniforms and supplies for the crew/s. Documents i.e., VAT official receipts, VAT invoices, etc. supporting these transactions entered into by JMI are issued under the name of foreign principal c/o JMI. All domestic suppliers/service-providers are passing-on the 12% output VAT on these transactions. Transactions entered into by JMI is denominated and paid for in foreign currency. JMI records the total amount of each transaction as "Receivable from Foreign Principals", including the 12% VAT. These receivables are subsequently billed to foreign principals at actual cost. DcSEHT In reply, please be informed that Section 12 of Revenue Regulations (RR) No. 4-2007, implementing Republic Act (R.A.) No. 9337, reads as follows: "SEC. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (b) Transactions 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 Section 108 of the Tax Code starting Feb. 1, 2006; xxx xxx xxx" The above provision is a reiteration of Section 4.108-5 (b) (4) of RR No. 16-2005 which provides that the services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof, are subject to 0% VAT. In addition, Section 4.108-6 of the same Regulations provides: "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 applications for effective zero-rating." Such being the case, the crewing services i.e., sourcing of medical crew/s and the purchase of the latter's place tickets, uniforms and supplies, rendered by JMI to foreign vessels engaged in international shipping are subject to zero percent (0%) VAT in accordance with paragraph (b) (4) of Section 4.108-5 of RR No. 16-2005, as amended by RR No. 4-2007. It is understood, however, that similar services rendered to coastwise vessels or 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, are subject to 12% VAT. AacSTE 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