Meaning of the Phrase "The Country of Said Carrier Exempts from Similar Taxes Petroleum Products Sold to Philippine Carriers"

October 24, 1990 BIR RULING NO. 210-90 132-00 000-00 210-90 S i r : This refers to your Memorandum dated June 6, 1990, requesting for a ruling on the following queries: aisadc "I. What does the phrase "the country of said carrier exempts from similar taxes petroleum products sold to Philippine carriers" contemplate? "(a) Does it mean the country of registry of the carrier or the nationality of the owner of the international carriers? Supposing that a Japanese national is the owner of an international carrier but registered in Panama, is it the law of Japan that shall be considered for the purpose of reciprocal tax-exemption or the law of Panama, the country where the international carrier is registered? "(b) Again, in the sale example, assuming that the Japanese national registered his international carrier in Panama and is being chartered (bareboat) by the Taiwanese national, will the law of Taiwan be applied in determining the reciprocal tax exemption? "II. What is the scope of the aforesaid Section 132 of the Tax Code? Does it cover all international carriers regardless of its being engaged in common carriers or private carriers? Are private international carriers for personal use of the owner, including international carriers for fishing, as well as, for pleasure (yachts), oil and scientific exploration, naval warships; other than those of the U.S. covered by the provision of Section 132 of the Code?" In reply, a settled concept in international transportation is quoted hereunder: "Where contract for transportation of passenger by air designated New York a place of departure and place of destination, with agreed stopping places in and other territories subject to the sovereignty of other powers, carriage was "international transportation" within rules relating to international air transportation as established at the Warsaw Convention". (Volume 22 W. & P. p. 371) Based on the foregoing, it can be said that a common carrier engaged in international transportation or contract of carriage between places situated in different territorial jurisdictions is an international carrier. Under Section 3 (e) of P.D. No. 474, a vessel is a foreign flag international carrier if registered under the laws of a foreign country; hence, the place of registration, rather than the Nationality of the Owner, determines the country of the carrier for purposes of applying the reciprocal tax exemption under Section 132 of the Tax Code quoted hereunder: "Sec. 132. Petroleum Products Sold to Foreign International Carriers . Petroleum products sold to an international carrier for its use or consumption outside of the Philippines shall not be subject to excise taxes; Provided: That the country of said carrier exempts from similar taxes petroleum products sold to Philippine carriers." Accordingly, in a situation where a Japanese national owns a vessel which is registered in Panama and chartered (bareboat) by a Taiwanese national, Panama is the country of the vessel for purposes of applying the reciprocal tax exemption above cited. Warships or vessels owned by another country are considered extensions of the territory of such country (U.S. vs/Luk Chaw, 18 Phil. 573) and are not subject to registration under Sec. 12 of P.D. No. 474. As such, they are not considered international carriers or common carriers within the contemplation of Section 115 of the Tax Code, engaged in international transportation or contract of carriage between places situated in different territorial jurisdictions; hence, the taxability of their purchases of petroleum products while in Philippine waters is to be determined not under Section 132 of the Tax Code but in accordance with the principle of comity and the reciprocal obligation of countries under international law. In other words, the reciprocal tax exemption provision under Section 132 of the Tax Code applies only to international carriers, which undertake to carry cargoes or persons who might apply for passage; hence, private carriers for personal use of the owner, e.g. for fishing, for pleasure (yachts), oil and scientific exploration, which do not carry passengers or cargoes for hire , cannot avail of the tax exemption privilege provided therein. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner