BIR Ruling No. 032-64

May 6, 1964 BIR RULING NO. 032-64 1st Indorsement Returned to the Chief, Income Tax Division, thru the Revenue Operations Head (Assessment), BIR Manila, the within attached papers bearing on the income tax liability of foreign steamship companies on the outward freight realized on account of the cargoes loaded on their ships at Philippine ports. cdpr A "charter party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use. (Ward v. Thompson, 22 How. 330, 16 L. Ed. 249). There are, however, two kinds of contracts under the general name of "charter party" differing from each other very widely in their nature, their provisions, and their legal effects. The first kind, is a charter by whose terms the whole vessel is let to the charterer with a transfer to him of its entire command and possession and subsequent control over its navigation which amounts to a demise of the vessel, and the charterer will generally be considered as owner for the voyage or services stipulated. (United States v. Rvoslef, 237 U.S. 1, 59 L. Ed. 813, 35 S. Ct. 459) The second kind, is where the general owner retains the possession, command and navigation of the ship, and contracts for a specified voyage, the arrangement in contemplation of law is a mere affreightment, and act a demise of the vessel, and the charterer is not clothed with the character or legal responsibility of ownership. (New Orleans-Belize Royal Mail & C.A. S.S. Co. v. United States, 239 U.S. 202, 60 L. Ed. 227, 36 S. Ct. 76) It should be noted that, ordinarily, an assessment for income tax should be made against the recipient of the income who is generally the owner of record of the vessel (Smith v. Read, 51 Comm. 10; Penrose v. Succession of Gragard, 105 La. Ann. 145). Therefore, if the contract is of the nature whereby the whole vessel is let to the charterer with a transfer to him of its entire command and possession, the charter party amounts to demise of the vessel and consequently, the charterer is the one subject to income tax. On the other hand, if the contract is of the nature whereby the owner of the vessel retains the possession, command and navigation of the ship, and the contract is only for a specified voyage, the arrangement is a mere affreightment, and the shipowner is the one subject to tax. LexLib (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue