BIR Ruling No. 148-83

August 17, 1983 BIR RULING NO. 148-83 Gentlemen : This refers to your letter dated June 6, 1983 requesting confirmation of your opinion to the effect that your client, Loadstar International Shipping, Inc. (LISI) is not subject to the 4.5% final tax prescribed under Section 24(b)(v) of the Tax Code, as amended. Evidence submitted show that Philippines-Cities Services, Inc. (PCSI) entered into a contract with LISI, a domestic corporation, for the use of tankers M/T "Nido Oil" as crude oil storage in the Nido Oil field in Palawan; and that said tanker is utilized by LISI from the Jepson Maritime S.A. Panama on a lease purchase agreement, that the agreement is for a term of 12 months at a monthly rental of U.S. $75,000 per month, with a purchase price at the end of the 12th month of U.S. $920,000.00. cdtech In reply, I have the honor to inform you that under the foregoing facts, the agreement between your client and the foreign shipowner is in reality a contract of purchase and sale. It has been ruled that "the fact that the price of the machine was fixed in the contract makes the latter not a lease but a purchase and sale because in contracts of lease, as distinguished from those of purchase and sale, it is plain redundancy to fix or make any mention of the price of the thing given in lease. (H.E. Heacock & Co., vs. Buntal Manufacturing Co., 66 Phil. 245)". Moreover, contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of the term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest upon the lessee, are leases in name only. The so-called rents must necessarily be regarded as payment of the price in installments, since the due payment of the agreed amount results by the terms of the bargain, in the transfer of title to the lessee. ( Teodorica R. Vda. de Jose vs. Julio Veloso Barruecoo, 67 Phil. 191). In view thereof, the so-called "rentals" to be paid by your client to the foreign shipowner are considered installment payments if the sale will be ultimately consummated. Accordingly, they are not subject to the 4% final tax. To guarantee the payment of the said tax, you are requested to urge your client to file within ten (10) days from your receipt hereof a surety bond the amount of which shall be determined by the Bureau: and, for this purpose, you may get in touch with the Chief, Law Division. If you fail to do so, we shall require you to pay the aforesaid 4% tax under the tax Code. cd Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue