Sulpicio Lines, Inc.

December 11, 2009 BIR RULING [DA-(VAT-113) 769-09] 106 (A) (2) (a); DA-180-08; DA-(VAT-018) 335-08]; DA-124-05; DA-532-06; DA-678-06; VAT Ruling No. 10-2004; 004-07 Sulpicio Lines, Inc. Don Sulpicio Go Building Sulpicio Go Street Reclamation Area, P.O. Box 137 Cebu City Attention: Victoriano S. Go Senior Vice President Gentlemen : This refers to your letter dated November 21, 2009 requesting for confirmation of your opinion that the sale of one (1) motor vessel, M/V Princes of Paradise, registered with Maritime Industry Authority ("MARINA") in Sulpicio Lines, Inc.'s name, to a foreign buyer not engaged in trade or business in the Philippines, is an export sale and thus subject to value-added tax (VAT) at zero percent (0%) rate pursuant to Section 106 (A) (2) (a) (1) of the 1997 Tax Code, as amended by Republic Act (RA) No. 9337, and as implemented by Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007. It is represented that Sulpicio Lines Incorporated ( "SLI" for brevity) is a domestic corporation duly organized and existing under the laws of the Philippines, with principal address at Don Sulpicio Go Bldg., Sulpicio Go Street, Cebu City, Philippines. Its primary purpose is to engage in the business of domestic shipping, operating vessels in the coastwise trade in routes between any port of the Republic of the Philippines, and to secure or acquire a franchise in connection thereto. It is a duly VAT-registered taxpayer. SLI is the registered owner of one (1) motor vessel, M/V Princes of Paradise, which it sold to Trade Ventures Investments Limited, a foreign corporation with registered office at P.O. Box 957, Road Town, Tortola, British Virgin Islands. The latter has no permanent establishment in the Philippines and is not duly registered as a corporation in the Philippines per Certificate of Non-registration of Corporation/Partnership issued by the Securities and Exchange Commission. On November 5, 2009, a Memorandum of Agreement was executed between the two parties in relation to the above-mentioned sale with the following basic terms and conditions: SEIacA 1. The purchase price shall be payable in US Dollars which will be inwardly remitted to the Philippines by way of swift and/or telegraphic transfer SLI's bank account with the Bank of the Philippine Islands Cebu Ayala Center Branch, Cebu City; 2. The vessel is to be delivered and taken over on an "AS-IS, WHERE-IS BASIS" at the Port of Cebu, Philippines. The SELLER shall prepare the vessel so that it is in tow worthy condition under tow voyage. The delivery of the vessel will be coordinated with the arrival of the Buyer's towing tugboat. The Vessel will be towed and brought to a port of destination outside of the Philippines where it will be docked and registered in the name of the buyer as evidenced by an Export Declaration dated November 13, 2009. In reply, please be informed that Section 106 (A) (2) (a) of the Tax Code of 1997, as implemented by Section 4.106-5 of Revenue Regulations (RR) No. 16-2005 subjects export sales to VAT at zero percent (0%) rate, thus: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or properties or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. The term 'export sales' means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods and services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);" THCSAE The above provision has been applied in a number of rulings issued by this Office notably BIR Ruling [DA-030-07] dated January 19, 2007, where this office was asked to rule on a request made by Negros Navigation Company, Inc. (Nenaco) with regard to its intended sale of four (4) passenger and cargo vessels to foreign buyers not engaged in trade or business in the Philippines. This Office held thus: "Considering that (i) Nenaco shall sell the Vessels to various foreign companies not engaged in trade or business in the Philippines, (ii) respective foreign buyers shall bring the Vessels outside of the Philippines, and (iii) the respective foreign buyers shall pay Nenaco in United States Dollars by way of swift and/or telegraphic transfer to the bank account of Nenaco in the Philippines, which shall be accounted for in accordance with the rules and regulations of the BSP, the said sale of Vessels to the foreign buyers shall be considered export sale and shall be subject to VAT at a zero percent (0%) rate under Section 106 (A) (2) (a) (1) of the 1997 Tax Code, as amended. (BIR Ruling No. 076-98 dated March 27, 1998)" Based on the foregoing, since SLI is a VAT-registered taxpayer, its sale of motor vessel, M/V Princes of Paradise, to Trade Ventures Investments Limited is an export sale inasmuch as the sale is made to a foreign buyer not engaged in trade or business in the Philippines; the vessel will be towed and brought outside of the Philippines; and the payment shall be made in foreign currency by way of swift and/or telegraphic transfer to the bank account of SLI and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Consequently, this Office is of the opinion that the sale of M/V Princess of Paradise, being an export sale, is subject to VAT at zero percent (0%) rate pursuant to Section 106 (A) (2) (a) of the Tax Code of 1997, as implemented by Section 4.106-5 of Revenue Regulations (RR) No. 016-2005, as amended. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service