Tax Liabilities of Austral Asia Line B.V. and How to Avail of the Tax Treaty Relief Pursuant to the RP-Netherlands Tax Treaty

April 14, 1997 BIR RULING NO. 050-97 259 (a) (2) 000-00-50-97 Citadel Lines Citadel Building 637 Bonifacio Drive Port Area, Manila Attention: Ms . Malaya T . de la Paz Comptroller Gentlemen : This refers to your letters stating that you are registered with the Securities and Exchange Commission (SEC) and the BIR as Citadel Shipping Lines but uses the trade name Citadel Lines; that since 1960, you have been acting as a general agent for various shipowners around the world, soliciting cargoes to be loaded or discharged from their designated vessels in return for freight payments; that said freight payments may be made at the point of origin or destination depending on the agreement between the shipper and the consignee; that as agent, you pay in behalf of the principals 3% common carrier's tax and 2 % income tax based on the gross outward freight earnings or billings on a quarterly basis; and that on July 25, 1995, you were appointed by Austral Asia Line B.V., a Netherland-based company, as Agent for its Liner Service for the port (S) of the Philippines, effective June 1, 1995. Based on the foregoing, you are requesting information regarding the tax liabilities of Austral Asia Line B.V. and how to avail of the tax treaty relief pursuant to the RP-Netherlands Tax Treaty. cdta In reply, please be informed that pursuant to Section 25 (a) (2) of the Tax Code, as amended, international carriers doing business in the Philippines shall pay a tax of two and one-half percent (2 %) on their Gross Philippine Billings. However, Article 8 of the RP-Netherlands Tax Treaty provides, viz: "ARTICLE 8 "Shipping and Air Transport "1. Profits derived by an enterprise of one of the States from the operation of ships and aircraft in international traffic may be taxed in that State. "2. However, such profits may also be taxed in the other State, but only in so far as such profits are derived from that other State. The tax so charged shall not exceed the lesser of "a) the rate of 1 percent applied on the gross revenue derived from that other State; or "b) the lowest rate of Philippine tax applied on such profits derived by an enterprise of a third State. xxx xxx xxx Since Austral Asia Line B.V. is a non-resident shipping company incorporated under the laws of Netherlands and operating in international traffic, the profits derived by it from such operation shall be subject to a tax of 1 % pursuant to the aforecited provisions. As regards the question if you can apply the alleged overpayment of 2 % tax on Gross Billings for the 2nd quarter of 1995 against future payments in behalf of your principal, please be informed in the negative. You must file a written claim for tax credit with the Commissioner of Internal Revenue within two (2) years from the date of the payment of tax, pursuant to Section 204 (3) of the Tax Code, as amended. This ruling is 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 null and void. cdi Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue