BIR Ruling No. 174-84

November 6, 1984 BIR RULING NO. 174-84 24-b-000-00-174-84 S i r : This refers to your letter dated February 23 and August 6, 1984 requesting a ruling as to the tax applicable to a Japanese enterprise engaged in the international carriers operation in the Philippines under the provisions of the RP-Japan Tax Treaty, in case said enterprise operates/charters a vessel belonging to a resident of a non-treaty country. In reply, please be informed that under Article 8(1) of the RP-Japan Tax Treaty profits of a Japanese enterprise derived in the Philippines from the operation of ships in international traffic are taxable at the rate of 1-% (60% of the domestic rate) on its gross Philippine billings. In the case of vessel belonging to a resident of a non-tax treaty country but operated/chartered by a Japanese enterprise, the tax status of the Japanese enterprise depends on the nature of the charter agreement. If, under the agreement, the owner retains the possession, command and navigation of the vessel, said owner, and not the Japanese enterprise, is the party engaged in the operation of ships in international traffic; hence subject to income tax at the rate of 2-% on gross Philippine billings, pursuant to Section 24 (b) (2) of the Tax Code. On the other hand, if the agreement is a bareboat charter, the Japanese enterprise, and not the owner of the vessel, is the party operating the vessel in international traffic; hence the Japanese enterprise is subject to the preferential rate of 1-% on gross Philippine billings, pursuant to Article 8(1) of the RP-Japan Tax Treaty. cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner