BIR Ruling No. 148-99

September 17, 1999 BIR RULING NO. 148-99 130 (D), 106, 148 Principle of Reciprocity-000-00-148-99 Petron Corporation 7901 Makati Avenue Makati, Metro Manila Attention: Atty . Luis A . Maglaya Legal Counsel Gentlemen : This refers to your letter dated June 25, 1997 requesting for confirmatory ruling on the following: 1) That sales of petroleum products including lubricants to foreign international marine vessels constitute "export sales"; and 2) As export sales, the excise tax paid on the raw material component used in the manufacture of petroleum products including lubricants, to the extent of the exact volume used, can be the subject of tax credit claims pursuant to Section 127, paragraph (d) of the Tax Code. LibLex Your request is anchored on the following considerations: 1. The goods subject of the sale will be used by the buyer outside the Philippines as these products will be used/consumed by the foreign international marine vessels while plying the international waters; 2. The buyers of the petroleum products are foreign flag-registered international marine vessels meaning that these vessels are registered under the laws of a foreign country pursuant to BIR Ruling No. 210-90 dated November 24, 1990; and 3. While the term "export sale" has been defined as the sale and actual shipment of goods from the Philippines to a foreign country, the definition of the term has been broadened in the light of the special laws. Hence, it is your position that the sale of goods to foreign international marine vessels for use/consumption outside the Philippines should likewise be treated as an export sale. Furthermore, under special laws such as the PEZA Law and the Bases Conversion Development Act, the sales/deliveries to enterprises located inside the ECOZONE are treated as constructive exports. Corollarily, it is your contention that sales of goods to foreign international marine vessels for their consumption outside the Philippines falls within the ambit of "export sales". In reply, please be informed that Section 4.100-2(a) of Revenue Regulations No. 7-95, otherwise known as the "Consolidated Value-Added Tax Regulations", implementing Republic Act No. 7716, as amended by R.A. No. 8241, and Section 106 of the Tax Code of 1997, define "export sales" as follows, "SEC. 4.100-2. Zero-rated Sales . . . . (1) Export sales " Export Sales " shall mean: "(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); "(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer of goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); "(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; "xxx xxx xxx "(4) Sale of gold to the Bangko Sentral ng Pilipinas; and "(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g., Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992. "xxx xxx xxx" Based on the above definition, this Office is of the opinion as it hereby holds that A. For tax purposes, sales of petroleum products including lubricants, to foreign international marine vessels do not fall within the definition of " export sales " as contemplated by law. It should be noted that while the buyers are said to be foreign flag-registered international marine vessels and the transactions transpire in the Philippines, the circumstances surrounding the transaction do not involve exportation since there was no actual shipment to foreign country. Rather, these foreign flag-registered marine vessels buy the above goods for their own personal consumption while plying the international waters, and not for the purpose of transporting the same to a foreign destination for unloading. Thus, the sale of petroleum products by Petron Corporation to end-consumer, that is, the foreign vessel in this case, without actually transporting the same from the Philippines to a foreign destination or free-port zone, is not "export sale" as contemplated by law. " While plying the international waters " is not a foreign destination, since exportation contemplates a foreign destination with intention to unload. B. Since the above transactions are not "export sales" as contemplated by law, the sale of these petroleum products, including lubricants, to a foreign international marine vessels for their own consumption while plying the international waters, is subject to excise tax on petroleum products under Section 148, Chapter V, of the Tax Code of 1997 (then Section 145 of the Tax Code of 1977). In view of the foregoing, your claim for tax credit for excise tax on goods actually exported under Section 130(D) of the same Code [then Section 127(d) of the Tax Code of 1977] on your sale of petroleum products, including sale of lubricants to foreign flag-registered international vessels for their own consumption while plying the international waters, not being considered "export sales", cannot be given due course for lack of legal basis. However, under the principle of reciprocity, the Philippine Government through the Bureau of Internal Revenue may consider granting excise tax exemption to these foreign flag-registered marine vessels on their purchase of petroleum products for their own personal consumption while plying the international waters, from domestic oil companies, e.g. Petron Corporation in the instant case, if they can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of a special legislation or international agreement showing that their Government allows similar tax exemption to Philippine-flag registered marine vessels purchasing similar petroleum products in their country. (BIR Ruling No. 026-99 dated March 9, 1999.) Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue