Lloyd's Register of Shipping Not Exempt from Income Tax

October 17, 1969 BIR RULING NO. 012-69 Mr. Fermin L. Piezas Rm. 403 Magsaysay Bldg. 520 T.M. Kalaw Street Ermita, Manila S i r : This refers to your letter dated February 3, 1969 requesting information as to the whether or not the Lloyd's Register of Shipping (hereinafter referred to as the Society) is exempt from income tax as a business league under Section 27(f) of the Tax Code. cdtech It appears that the Society is an unincorporated foreign classification society organized and existing under the laws of England; that the main purpose for which it was formed is the establishment of construction and maintenance standards for ships, and the provision of a technical service to help shipowners to maintain of a technical service to help shipowners to maintain those standards; that on December 9, 1965, said Society was granted a license by the Security and Exchange Commission, as per order dated December 7, 1965, of the Secretary of Commerce and Industry, to engage in the survey and classification of shipping and to undertake marine inspection in the Philippines; that the Manila Office is engaged (a) to perform the general work of the Society to effect survey, supervise repairs of vessels, (b) to hold examinations of vessels and issue necessary survey reports and certificate relating thereto, in the name and for and in behalf of the Society in order to ensure that vessels will be duly and correctly classified in the Register of the Society; and generally (c) to do other acts connected with the business of the aforesaid Society including research and other similar work considered necessary for the furtherance of the interests of the Society; and that the sources of income of the Manila Office come from fees charged for the services of its surveyors and being disposed of for expenditures necessarily incurred in the operation of the Manila Office, and for the improvement of the Society's activities exclusively to meet overhead and possible future expenditure. In reply, I have the honor to inform your that a business league" is an association of persons having some common interest and not to engage in a regular business of a class as a chamber of commerce or board of trade. Thus, its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. (1965, Commerce Cleraring House, Inc., par. 3036 p. 36, 053). Obviously, an organization such as the Society, whose purpose is to engage in the survey and classification of shipping and to undertake non-marine inspections for use of merchants and shipowners, is not a business league within the purview of Section 27(f) of the Tax Code since it has no common interest with shipowners other than what will result from its regular business operations the establishment of construction and maintenance standards for ships. Moreover, as heretofore, mentioned, the Society is organized to engage in a particular business and not merely to improve the business conditions of shipowners. Not being an organization within the purview of Section 27(f), the Society is not exempt from income tax. The statutory scheme of the exemption provision is quite simple. An organization is exempt only if it comes within one of the classes exempted by the Code. That an organization is of a type similar to those exempted, or that it is not organized for profit is not sufficient to established the exemption (Mertens, Law of Federal Income Taxation, Vol. 6, 43.01, p. 3) The general rule that one claiming the benefits of a statute must bring himself substantially within its term is aid to be particularly applicable to statutes purporting to exempt from taxation. Even though the policy of Congress may be to foster cooperative efforts and other undertakings of the kind indicated in these exemption provisions, such provisions will not be extended to institutions which cannot meet the specific statutory language (Ibid, par. 34.02, pp. 4-5). Granting, for the sake of argument that the Society is a business league enjoying tax exemption under the laws of its constitution, such exemption has no extraterritorial effect and therefore, is not enforceable in this country. The records show that the Society is a business league enjoying tax exemption under the laws of its constitution, such exemption has no extra-territorial effect and therefore, is not enforceable in this country. The records show that the Society is a foreign entity formed under the laws of England and merely licensed to engage in business in the Philippines. It does not admittedly have s member any resident of the Philippines. It does not admittedly have as member any resident of the Philippines. The court generally construe the constitutional and statutory provisions granting such institutions from taxation to refer and apply only to the institutions from state and not to those of foreign states (5) Am. Jur., par. 556, p. 550) aisadc In view thereof, this Office believes and so holds that the Lloyd's Register of Shipping of Manila is subject to income tax and to the contractor's tax under Section 191 of the Tax Code, and its principal, the Llyod's Register of Shipping of London is likewise subject to the income tax on all income from sources within the Philippines. This ruling supersedes the previous ruling dated October 8, 1955 of the then Collector of Internal Revenue. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue