BIR Ruling No. 167-83

September 28, 1983 BIR RULING NO. 167-83 Gentlemen : This refers to your letter dated October 20, 1982, requesting a ruling on the following queries, viz: "1. Is the foreign shipowner subject to the withholding of 4.5% final tax prescribed under Section 24(b)(c) of the Tax Code? "2. Is our company subject to the 2.5% International Carrier's Tax and 2% common carrier's tax? "3. Is our company subject to compensating tax for the purchase of the vessel under the provisions of P.D. No. 760/1711? "4. Are we required to post bond to cover the tax on the monthly amortization should the transaction fail to materialize as you held in your recent ruling No. 24-b-125-246-82 despite our transaction being an irrevocable one and the presence of a 10% down payment? "5. Are we also required to withhold from the salary of our seamen the final tax despite the fact that payments are made in foreign countries and in foreign currencies?" It is represented that your Company is a duly accredited MARINA Enterprise engaged in overseas shipping operation; that you recently hired from Sirius Shipping S.A. of Panama under a lease with irrevocable purchase agreement, duly approved by the Marina the M/V "YUCCA", a 1972-built, 6017.70 tons/dwt, general cargo vessel at a lease purchase price of US$1,000,000.00 with a down payment of US$100,000.00, which shall be due and payable within one year. The remaining balance of $900,000.00 is payable in monthly amortization of US$15,000.00 for a period of five years; that the said vessel is simultaneously time chartered to Chiba Shipping Company Ltd. of Japan, and that the vessel will only be cross-trading abroad. cdta In reply, I have the honor to inform you as follows: 1. The agreement between you and the foreign shipowner is in reality a contract of purchase and sale. The monthly amortization of US$15,000.00 for a period of five (5) years to be paid are installment payments in said contract. Accordingly, they are not subject to the 4% final tax prescribed by Section 24(b)(1)(v) of the Tax Code which impose a tax on rentals, chartered by Philippine nationals. Should the said irrevocable purchase agreement fail to materialize and, therefore, the foregoing transaction shall remain a lease agreement the rentals shall be subject to the 4% final tax. To guarantee the payment of the said tax, you are requested to file within ten (10) days from receipt hereof, a surety bond the amount of which shall be determined by this 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% final tax under the Tax Code. 2. Since your company is a domestic corporation, it is not subject to the 2.5% tax on gross Philippine billings under Section 24(b)(2) of the Tax Code. Likewise, your company will not be subject to the 2% common carrier's tax prescribed under Section 207 of the same Code on the time charter fees paid by Chiba Shipping Co., Ltd. to you since they will be realized from the operation of the vessel in cross-trading abroad, i.e. from a foreign port to another foreign port, hence, beyond the taxing jurisdiction of the Philippines. 3. Since the displacement weight of the vessel purchased by your company does not exceed 10,000 tons, you are subject to the compensating tax thereof pursuant to Section 204, par.(d) of the Tax Code. The incentive granted to coastwise or overseas shipping projects under P.D. 760 and P.D. 1711 does not include exemption from taxes. 4. Since as represented, the payment of the salary of your seamen are made in foreign countries, i.e., you do not have the control, receipt, custody or disposal of the payment of such compensation, then you are not required to withhold the tax thereon. However, if you will actually have control, receipt, custody or disposal of the payment of the compensation of your seamen, then you shall withhold the tax pursuant to Section 7.11b of Revenue Regulations No. 6-82 dated October 1, 1982 implementing Section 21 (f) of the Tax Code, as amended by B.P. Blg. 135. (BIR Ruling No. 90-00-000-02-83). cdti Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue