Various Services Performed by Vessels while Docked in Philippine Ports Shall be Accorded the Same Treatment Provided Under RMC 47-88

May 21, 1991 BIR RULING NO. 090-91 102 (a) (2) 164-90 090-91 Gentlemen : This refers to your letter dated November 22, 1990 requesting exemption from the payment of the 10% value-added tax billed to you by your local contractors on various services performed when your vessels call on the Port of Manila. It is represented that National Shipping Corporation of the Philippines (NSCP) is a government-owned corporation engaged mainly in overseas shipping as a ship liner operator; that NSCP is not engaged in the Philippines domestic cargo trade; that you are the only Filipino shipping line offering a fully-containerized liner service between the Far East ports of Manila, HongKong, Taiwan, Korea and the U.S. Westcoast ports of Long Beach and San Francisco; that as a carrier serving the foreign trade; your freight billings are in U.S. dollars in all your ports of call including Manila; that NSCP competes directly with foreign shipping lines calling Manila who offer the same shipping service across the Pacific; that NSCP's operations are basically the same as that of the foreign flag shipowners; that presently, NSCP vessels call Manila every 15 days at the Manila International Container Port; that this requires you to avail of the services of various local contractors/entities which include but not limited to the following: cdti 1. Tug boat services for docking/undocking 2. Launch services 3. Security services by watchmen on board 4. Line handlers 5. Stevedoring charges 6. Terminal-handling fees 7. Stripping Charges 8. Cranage 9. Arrastre charges 10. Lift on/lift off charges 11. Container repair and cleaning 12. Inspection charges on container 13. Surveyors fee 14. Surveyors fee 15. Container stuffing 16. Cartage and handling expenses 17. Chassis and container rental 18. Printing of bill of landing/equipment interchange receipt that NSCP's overseas operations is not in any way different from the foreign flag vessels calling at Philippine ports; that NSCP is a dollar earning venture; that in realty, your dollar proceeds are inwardly remitted and converted to Philippine pesos which are then used to pay for the aforementioned charges and expenses; that NSCP derives about 30% of its gross revenues from the Philippines direct exports and imports; and that you are place at a disadvantage since your foreign competitors are exempt from the 10% value-added tax for the same services rendered to them under RMC No. 47-88 dated September 12, 1988. In reply, please be informed that pursuant to Revenue Memorandum Circular No. 47-88 dated September 12, 1988, that portion of freight collection used to pay services rendered to foreign vessels while in Philippine port are deemed inwardly remitted provided prior Central Bank approval is secured to deduct said fund from its remittable freight collections. This ruling appears to have created a lopsided situation in favor of the foreign shipping companies vis-a-vis the domestic shipping company engaged in international trade. Since services rendered to foreign vessels docked in Philippine ports are zero-rated while services rendered to inter-ocean vessels of a domestic corporations are subject to 10% VAT, the latter is unable to compete with the former in charging freight on their foreign shippers. In order to correct the lopsided disadvantage of a domestic shipping company engaged in international trade vis-a-vis the foreign shipping company in charging freight on cargoes loaded on their vessels used in the international trade, the various services rendered on such vessels while docked in Philippine ports shall likewise be accorded the same treatment as that provided under Revenue Memorandum Circular No. 47-88 subject to their conformity with the following terms and conditions: 1. That the domestic shipping company shall for the various services rendered to their vessels used in international trade while docked in the Philippine ports, pay in foreign currency generated from the freight collection of their branch offices abroad; 2. That such freight collection is foreign currency shall be remitted to the Philippines and deposited to a special foreign currency account in a designated bank; and from such account shall be drawn exclusively the foreign currency for conversion to pesos to be used in the payment of the various services rendered to their vessels while docked in the Philippine ports; 3. That the local shipping company interested in availing of the benefit of the zero-rating for the services rendered to their vessels while in Philippine ports shall attach to their quarterly percentage tax return a statement indicating the name of their vessels used exclusively in international trade; the number of times and date each vessel docked in Philippine ports; the amount paid for various services and the persons or firm rendering the same, and the amount of foreign currency withdrawals from the special foreign currency account and proof of conversion of such amount to Philippine pesos. The statement shall be furnished to the seller of the services and attached to the seller's application for zero-rating of the sale of services to the vessels of a domestic shipping company used in international trade. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner