BIR Ruling No. 086-61

March 27, 1961 BIR RULING NO. 086-61 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountants P.O. Box 589, Manila Gentlemen : Reference is made to your letter of October 6, 1960, stating as follows: "Our client, a foreign shipping company is a partnership with home offices at Oslo, Norway. Under the tax laws of the aforesaid country, a partnership is not a legal entity and hence it is not subject to the payment of income taxes. Instead, the partners of the firm are individually taxed for the firm's income. For this reason, the partnership does not prepare any balance sheet and profit and loss statement. For Philippine income tax purposes, however, the partnership prepares an authenticated and certified profit and loss statement reflecting earnings realized from vessels which touch Philippine ports. The vessels operated by the firm and the corresponding revenue realized and expenditures incurred during the year are listed therein. The figures covering Philippine income are also reflected in the said statement. On this basis, the taxable net income subject to Philippine income tax is computed in accordance with Section 163 of Revenue Regulations No. 2. It should be mentioned here that the shipping company derives its income mainly from the operation of its vessels which touch Philippine ports." cdti You now request information whether or not the filing with your client's income tax return of such profit and loss statement is a sufficient compliance with the requirement imposed upon foreign shipping companies whose vessels touch Philippine ports, which requirement is embodied in the approved memorandum dated December 24, 1957 of the Chief, Legal Department, this Office, to wit: "(1) Foreign shipping companies must submit statements of world operations duly certified by the tax authorities of their respective governments or, if the same are not available, financial statements certified by independent certified public accountants. In both cases, the statements must be authenticated by Philippine consular or Foreign Affairs officials. In the absence thereof, only verified Philippine deductions should be allowed. You also stated that in said profit and loss statement, there is reflected a list of the vessels operated by your client, which should include vessels whether touching ports of the Philippines or not, as well as the corresponding receipts realized and expenses incurred from its world operations that from those data allocable expenses are determined and deducted from Philippine gross income in accordance with the formula prescribed in Section 163 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations. In answer thereto, I have the honor to inform you that, notwithstanding the peculiar circumstances of your client presented above, this Office is of the opinion and so holds that the filing of said profit and loss statement with its return is not a sufficient compliance with the aforequoted requirement. It should in addition file a certified and authenticated balance sheet. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue