Tax Liability of Eastern Shipping Lines, Inc

September 3, 1990 BIR RULING NO. 164-90 102 (a) (2) 000-00 164-90 Gentlemen : This refers to your letter dated October 20, 1989 in behalf of your client Eastern Shipping Lines, Inc., requesting a ruling that the consideration for services rendered to the vessels of your client if paid for with foreign exchange earned abroad will qualify for zero-rating. cdta It is represented that Eastern Shipping Lines, Inc. is a domestic corporation engaged in both inter-island and inter-ocean shipping; that it is wholly-owned by Filipinos; that when your vessels used in inter-ocean shipping call on Philippine ports, they avail of the services of various contractors/entities such as, but are not limited to: 1.) Tug Boat services for docking/undocking 2.) Launch service 3.) Security service by watchmen on board 4.) Line handlers 5.) Stevedoring charges 6.) Terminal handling fee 7.) Stripping charges 8.) Cranage 9.) Arrastre Charges 10.) Lift on/lift off charges 11.) Container repair and cleaning 12.) Pre-trip inspection charges on refrigerated containers 13.) Surveyor fees 14.) Brokerage fees on transshipment 15.) Container stuffing 16.) Cartage and handling expenses; and 17.) Printing of bill of lading/intercharge receipt. that these services are paid for by the carrier from its earnings which accrue from its operation, including charges earned abroad; and that charges earned abroad consist of fees paid by shippers abroad. aisadc 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 corporation 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 in 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 Philippine ports; 3. That the local shipping company interested in availing of the benefit of 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 of various services and the persons or firms 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 foreign shipping company used in international trade. Very truly yours, (SGD.) JOSE U. ONG Commissioner