BIR Ruling No. 016-83

February 10, 1983 BIR RULING NO. 016-83 Gentlemen : This refers to your letter dated December 23, 1960 requesting a ruling as to whether or not the charter fees being paid by your client, Botelho Bulk Transport Corporation in favor of Serpens (Panama) S.A. is subject to tax. It is represented that your client entered into a Bareboat Charter Agreement with Supreme (Panama) S.A., a foreign corporation not engaged in trade or business in the Philippines which is the owner of the ship "M/V General Lim"; that the whole vessel was let to your client, with a transfer to it of the entire command and possession of the vessel and subsequent control over its navigation; that the "M/V General Lim" was temporarily registered under P.D. Nos. 760 and 866 which allow any foreign-owned vessel under charter to Philippine nationals for use in overseas or coastwise trade to be temporarily registered under Philippine law; and that the charter has been approved by the Maritime Industry Authority and the Central Bank of the Philippines. You also represented that your client, in turn, time-chartered the vessel to A/S Kristian Jebsens Rederi (Jebsens) a foreign shipping company not doing business in the Philippines; and that the vessel will never touch Philippine ports during the period of her temporary Philippine registration and will be used exclusively by Jebsens abroad. You contend that while the charters fees paid by Jebsens form part of your client's gross income for income tax purposes, the charter fees paid by your client to Serpens are not subject to tax. In reply thereto, I have the honor to inform you that the charter fees payable by your client to Serpens are subject to the 4.5% final tax. [Sec. 24(b)(1)(v), Tax Code] Your contention that said charter fees cannot be subject to the withholding tax for the reason that the vessel will be utilized abroad in which case, the charter fees are foreign source income is untenable. It should be noted that said Section 24(b)(1)(v) imposes the 4.5% final tax on charter fees payable to non-resident ship-owners whether the chartered vessel is used in overseas or coastwise trade. This is shown by the fact that under P.D. No. 760, as amended by P.D. No. 866, MARINA approves the charter of a foreign-owned vessel for use in coastwise or overseas trade. In short, Section 24(b)(1)(v) of the Tax Code, in effect, considers charter fees realized by foreign ship-owners as Philippine source income since the charterer is a Philippine national regardless of whether the vessel will be used in coastwise or overseas trade. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue