Crewmember's Length of Stay Abroad Should be Considered in Resolving whether the Filipino Crewmember is a Resident Citizen or Not

June 1, 1977 BIR RULING NO. 003-77 Crewmember's length of stay abroad rather than the principle of extraterritoriality of Philippine vessels should be considered in resolving whether the Filipino crewmember is a resident citizen or not . This refers to your letter dated December 7, 1976 inviting your attention to the joint letter dated April 12, 1976 of the Filipino Shipowners Association (FSA), the Conference of Interisland Shipowners and Operators (CISO) and the Philippine Shipowners Association (PSA) wherein they complained of "a legal discrimination that has worked to the disadvantage of Philippine registered vessels the disparity in the levying of personal income taxes on Filipino crewmen working on those vessels and those on foreign owned ships." It appears that, pursuant to BIR Ruling No. 76-003 dated May 27, 1976, Filipino crewmen of vessels of foreign registry or of vessels owned by a foreign shipping company which do not touch Philippine ports are considered non-resident citizens and therefore, subject to income tax on gross income, after deducting the personal exemption provided for in Presidential Decree 323, at the rates of 1%, 2% and 3% only. However, Filipino seamen on board vessels of Philippine Registry are considered resident citizens or residents of the Philippines even if said vessels are abroad for an entire taxable year, the basis therefor being the rule that vessels form in law part of the territory of the state of registry (Conflict of Laws by Beale, Vol. 1, p. 287, citing Crapo vs. Kelly, 16 Wall 610), and therefore citizens of the country on board its registered vessels are still considered within its territory and not in foreign soil. Accordingly, Filipino crew of vessels of Philippine registry are subjected to income tax on their net income at rates provided for in Section 21 of the Tax Code, the minimum of which is 3%, and the maximum, 70%. The above-named associations claim that the aforementioned rulings discriminate against Filipino crew of vessels of Philippine registry as they are made to pay more income tax than Filipino crew of foreign-owned vessels, and that because of this inequity, Philippine registered vessels lose out in the recruitment of good officers and crew. cdta In reply, I have the honor to inform you that after a restudy and analysis of the pertinent provisions of Section 21 of the Tax Code, and considering the declaration in American jurisprudence that the fiction of the territoriality of merchant ships of American registry should not be expanded to the extent that men employed on American vessels engaged in foreign commerce can be said to be performing labor in the United States (Paul Scharranberg vs. Dollar Steamship et al., 245 U.S. 122; 1 Moore, International Law Digest; Story, Conflict of Laws, 8th Ed. Sections 21 and 22), we have arrived at the conclusion that the principle of extraterritoriality of Philippine vessels should not be the factor in resolving the question of whether Filipino crew of said vessels are to be considered nonresident citizens. The factor that should resolve the aforesaid question is the length of their stay abroad as required by Section 21 of the Tax Code, which states that "SEC. 21. Rates of Tax on citizens or residents . . . . Provided, Further , That on the income of nonresident citizens from all sources without the Philippines, there is hereby imposed a tax on the gross amount of such income determined as follows: aisa dc Not over $6,000 1% Over $6,000 but not over $20,000 2% Over $20,000 3% Provided, still further , that for purpose of this section, a non-resident citizen is one who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad for an uninterrupted period which includes an entire taxable year." Thus if the vessel, be it of foreign or Philippine registry, is abroad for an uninterrupted period which includes an entire taxable year, then the Filipino crew working on board said vessel for the same period may be considered nonresident citizens, subject to income tax at the rates prescribed in the abovequoted proviso of Section 21 of the Tax Code. cd