BIR Ruling No. 246-82

September 14, 1982 BIR RULING NO. 246-82 24-b 125-82 246-82 Sea Wind Navigation Co. Inc. Rm. 302 Ferros Building 176 Salcedo St., Legaspi Village Makati, Metro Manila Attention: R . P . Santos President Gentlemen : This refers to your letter dated March 2, 1982 requesting a ruling on whether the alleged "rentals" paid by you to a foreign shipowner is subject to the 4 % final tax prescribed under Section 24(b)(C) of the Tax Code and on whether you are subject to the 2.5% international carriers tax and 2% common carrier's tax. It is represented that you acquire a second hand vessel named MV "Atlantic Charger" now "M/S Sea King No. I" under a bareboat lease contract with irrevocable purchase agreement with Sea Wide Lines Corporation of Panama; that said vessel cost US $6.95 million payable in eight (8) years, 10% of which shall be paid as down payment payable in one (1) year; and that said vessel is subsequently time chartered out to Kansai Steamship Co. Ltd. of Tokyo, Japan. In reply, I have the honor to inform you that under the foregoing facts, the agreement between you and the foreign shipowner is in reality a contract of purchase and sale, in which case, the monthly charter hire to be paid by you are considered 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 imposes tax on rentals, lease and charter fees payable to non-resident owners of vessels chartered by Philippine nationals. Moreover, 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 carriers tax prescribed under Section 207 of the same Code on the time charter fees paid by Kansai 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. Finally, if your company is exclusively engaged in overseas shipping business, the time charter fees paid to you by Kansai are not subject to income tax in accordance with Republic Act No. 1407. In this connection, however, should the above irrevocable purchase agreement fail to materialize and, therefore, the foregoing transaction shall remain a lease agreement, the rental 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 your 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 % tax under the Tax Code. Very truly yours, TOMAS C. TOLEDO Acting Commissioner