Del Monte Fresh Produce International, Inc. Subject to the 2 1/2% Tax on Gross Philippine Billings, and to the 3% Common Carrier's Tax

June 20, 1996 BIR RULING NO. 066-96 25 000-00 66-96 Meer, Meer & Meer 9TH Floor, PLDT Building Legaspi Street Makati City Attention: Atty . Lamberto Meer Gentlemen : This refers to BIR Ruling No. UN-303-94 which was issued to you by this Office on November 4, 1994 in response to your letter dated June 1, 1994 requesting for confirmation of your opinion to the effect that your client, DEL MONTE FRESH PRODUCE INTERNATIONAL, INC. (DMFPI) is not subject to the 2 1/2% tax on gross Philippine Billings, and to the 3% common carrier's tax, the dispositive portion of which reads thus; aisadc ". . . Considering that your client will be carrying cargo solely for its own account and shall not carry cargo for any third party, it is not subject to the 2 1/2% income tax on gross Philippine billings imposed by Section 25 (a) (2) of the Tax Code, as amended, as it cannot derive income in carrying its own cargo. It cannot also be subjected to the 3% common carrier's tax imposed by Section 115 of the same Code, (BIR Ruling No. 401-87 dated September 15, 1987) Moreover, any income to the charter agreement between the two (2) offshore companies, DMFPI and GRC, shall not be subject to Philippine taxes, the taxable transaction/activity being performed outside our taxing jurisdiction. (BIR Ruling No. 464-93 dated November 19, 1993)". It appears that said ruling was based on your representation that your client, Del Monte Fresh Produce International, Inc. (DMFPI), is a Liberian corporation with principal office of 80 Broad St., Monrovia, Liberia, primarily engaged, among others, in the purchase of bananas from Philippine growers for export to the international overseas market; that DMFPI shall be chartering vessels from GLOBAL REEFER CARRIERS, LTD. (GRC), also a Liberian corporation, to carry cargo solely for its (DMFPI) own account; that the charter agreement between the two (2) offshore companies, DMFPI and GRC, shall be executed abroad, involving vessels of foreign registry, and all charter payments thereon shall take place abroad. In connection therewith, please be informed that according to the final report dated August 28, 1995, submitted by agents of the Economic Intelligence & Investigation Bureau (EIIB), who conducted an investigation on the alleged tax evasion case of GRC upon orders of the Secretary of Finance as evidenced by Mission Order No. 192-95 dated April 18, 1995, it was ascertained that GRC is a Liberian Corporation holding office at the Powerhouse Building, owned and occupied by DEL MONTE FRESH PRODUCE PHILIPPINES, INC. (DMFPPI) at J.P. Laurel Avenue, Km. 9, Bo. Pampanga, Sasa, Davao City under Contract of Lease executed on March 8, 1994 by and between DMFPPI as Lessor and GRC as Lessee; that as of August 28, 1995, the date of said report, GRC "is not yet registered with the Securities and Exchange Commission (SEC), although it has a reservation for registration"; that the office is manned by a full staff of foreign and Filipino employees, complete with such office equipment as computers, telephones, cabinets, typewriters, office tables, etc.; that it is engaged in the shipping business more specifically in transporting fresh fruits of various fruit growers of Mindanao , like Del Monte Fresh Produce (Phils.) Inc., (DMFPPI) Del Monte Philippines, Inc., Evergreen Farms, Inc., Marsman Estate Plantation, AMS Farming Corporation, F.S. Dizon & Sons, Inc., Camval Tropical Fruits, Inc., Soriano Fruits, Inc., Farmingtown Agri. Dev. Corp., Lapanday Agri Dev. Corp., Guining Agri Dev. Corp., Gameco Agri Dev. (Phils.), Inc., Tagum Agri Dev. Co., Davao Agri Ventures Corporation and etc. from the ports of Cagayan de Oro City and Davao City to Korea, Japan and other Far East Countries (per outward Foreign Manifest); that it started its shipping operations on December 29, 1993 with twenty six (26) foreign registered ships at its service and even up to the present it has effectively pursued its business; that it has a shipping agent in Cagayan de Oro City; and that it has also contracted Davao Multi Maritime & Marketing Corporation (DMMMC) as its husbanding or shipping agent in Davao City for an indefinite period of time, thus, showing that it has long resided and is intending to continuously stay and engage in business here in the Philippines. cdpr It is clear from the foregoing, that both DEL MONTE FRESH PRODUCE INTERNATIONAL INC. (DMFPI and GLOBAL REEFER CARRIERS LTD. (GRC) are resident foreign corporations, with their respective offices and places of business in the Philippines. In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. (Pacific Micronesian Line, Inc. vs. Del Rosario and Peligon, 96 Phil. 23, 30 citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's Philippine Law of Stock Corporation, p. 415) As resident foreign corporations, they are subject to Philippine income tax on taxable income derived from all sources within the Philippines. In other words, the test of taxability is the "source", and the source of an income is the property, activity or service that produced the income. [CIR vs. British Overseas Airways Corporation (BOAC) et. al., G.R. Nos. 65773-74, April 30, 1987; Mertens' Law of Federal Income Taxation, Vol. 8 cited in Howden & Co. Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 (1965)] Investigation conducted in this case disclosed "that GRC is a "Tonnage Provider" for DMFPPI. This means that they provide ships on which the fresh fruits cargoes of DMFPPI are loaded for export to the Far East countries, like Korea, Japan, etc. They mobilize Twenty Six (26) ships for this purpose." The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines. (BOAC case supra ; Manila Gas Corporation vs. Collector of Internal Revenue, 62 Phil. 895) Based on the abovementioned findings, and contrary to your representation, GRC is a resident foreign corporation doing business here in the Philippines and is therefore subject to the 2 1/2% income tax on gross Philippine billings imposed by Section 25 (a) (2) of the Tax Code, as amended and the 3% common carrier's tax imposed by Section 115 of the same Code reckoned from the time, it started its shipping operations in the Philippines on December 29, 1993 up to the present. However beginning January 1, 1998, GRC as an international shipping company (on its international cargo vessels) will be subject to the 10% value-added tax, instead of the 3% common carrier's tax under Section 102 as amended by Republic Act No. 7716. In fine, BIR Ruling No. UN-303-94 dated November 4, 1994, is hereby revoked and declared void ab initio, insofar as the exemption from Philippine taxes on any income that would be derived by GRC and DMFPI under the Charter Agreement adverted to in the aforesaid ruling is concerned. casia Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue