Direct Container Line Phils., Inc. Subject to VAT and Common Carrier's Tax

May 15, 1997 BIR RULING NO. 060-97 115 000-00 060-97 Gancayco, Nibungco & Balasbas Law Offices 7/F, 1000 A. Mabini corner T.M. Kalaw Streets, Ermita M a n i l a Attention: Atty . Virgelio T . Nibungco Gentlemen : This refers to your letter dated October 12, 1995 stating that your client, Direct Container Line Phils., Inc. (DCL Philippines) is a corporation registered with the Securities and Exchange Commission (SEC) as a non-vessel operating common carrier; that unlike other common carriers, it does not own the vessels it intends to use in its operation; that it is 40% owned by Direct Container Line (DCL) USA; that DCL USA has affiliated all over the world; that DCL (USA) and its affiliates source shippers of cargoes to the Philippines and forward the cargoes to Philippine importers, also known as Philippine consignees; that freight and other charges on cargoes are determined and agreed upon between the shippers and DCL at the point of loading; that freight charges are on collect basis; that DCL's foreign affiliates handling cargo forwarding abroad advise the DCL Philippines and provide advance copies of Bills of Lading to various Philippine consignees. Upon arrival of vessel carrier in the Philippines, DCL Philippines undertakes the following services: (a) notifies Philippine consignees about the arrival of the cargoes; (b) clears the cargoes with the Bureau of Customs for the account of the consignees; (c) engages customs brokers and freight haulers to transport the cargoes from the customs are to the consignees' warehouse for the account of the Philippine consignees; (d) collects the agreed "collect freight" for the accounts of the DCL affiliate who shipped the cargoes; (e) DCL Phils. invoices the consignees for (1) the collect freight agreed abroad, (2) a collection fee, (3) terminal handling cost, (4) turn over fee and (5) others such as transfer fees, and (f) the amount received for freight collect is remitted to DCL who initiated the shipment or uses the amount to pay obligations of the shipper affiliate or uses the amount to pay obligations of the shipper affiliate to a local agent of the ship for the account of DCL USA. Based on the foregoing representations, you now request for a ruling as to whether or not Direct Container Line Phils., Inc. is subject to VAT or to the common carrier's tax. In reply, please be informed that in the case of Japan Air Lines vs. Commissioner of Internal Revenue CTA Case No. 1643, Jan. 28, 1968, it is not necessary that the carrier should own the means of transportation to be subject to the 3% common carrier's tax. In other words, the law does not require ownership of the vessels, aircraft, or other means of transport by the operator to be categorized as a common carrier." Accordingly, the fact that DCL does not own but merely leases the vessel used in its operations, it is still considered a common carrier. Since common carriers, with respect to their gross receipts from carriage of cargo were covered by VAT beginning January 1, 1996, DCL shall be held liable to VAT effective said date only. However, freight collection corresponding to the international route by the International Carriers shall remain subject to the common carrier's tax of 3% pursuant to Section 17 of Republic Act No. 7716 as amended by Section 8 of R.A. No. 8241. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue