Taxes Payable by Owners of Vessels Engaged in Foreign Trade

July 22, 1986 BIR RULING NO. 120-86 173 000-00 120-86 Gentlemen : This refers to your letter dated January 14, 1986 requesting clarification as to the taxes payable by owners of vessels engaged in foreign trade as well as the deduction and withholding of the 1% expanded withholding tax and 3% common carrier's tax from freight payments made to them. In reply, please be informed as follows: (1) Owners of vessels engaged in foreign trade or overseas shipping, whether the vessels are of domestic or foreign register, are subject to the 3% common carrier's tax imposed by Section 173 of the Tax Code based on the total amount of gross receipts derived from passage of persons, excess baggage, freight or cargo, including mail cargo, originating from the Philippines. In other words, only the gross receipts derived from outgoing freight and passenger service are subject to the percentage tax. (BIR Ruling No. 019, S. 1968) (2) Since the tax exemption of domestic corporations, engaged in overseas shipping has already expired on September 9, 1985 (see Republic Act No. 1407, as further amended by P.D. No. 764), said corporations are now subject to income tax. (3) All bureaus, offices and instrumentalities of the government, including government-owned or controlled corporations, provinces, cities and municipalities, shall, before making any money payment to private individual, corporation, partnership engaged in the common carrier's business, deduct and withhold the 3% common carrier's tax due from said payee on account of such money payments. (Sec. 1, R.A. No. 1051; Sec. 2.A.2(f), Revenue Regulations No. 4-83 implementing R.A. No. 1051) Hence. government offices and corporations making money payments to owners of vessels which payments form part of the latter's outgoing freight and passenger revenue shall deduct and withhold the 3% common carrier's tax in accordance with the withholding provisions of Revenue Regulations No. 4-83. (4) The gross payments consisting of freight payments in the among of P5,000 or more for a particular shipment shall be subject to the 1% expanded withholding tax under Section 1(e)(2)(e) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 8-85, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 51(f) of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner