Filipino Crewmen's Salaries Considered Foreign Source Gross Income Derived by Non-resident Citizens

December 23, 1986 BIR RULING NO. 283-86 21 (b) 283-86 Gentlemen : This refers to your letter dated June 20, 1986 to the Ministry of Finance requesting reconsideration of BIR Ruling No. 21-a-000-00-123-89 dated July 5, 1983 to the effect that the Filipino crewmember of the vessels owned by your subsidiary companies are considered resident citizens subject to tax under Section 21(a) of the Tax Code as amended by B.P. Blg. 135. It is represented that the PNOC Tankers Corporation, Petrophil Tankers Corporation, Petron Tankers Corporation, PNOC Oil Carriers, Inc., PNOC Petroleum Carriers Corporation and PNOC Crude Oil Tankers, Inc., all wholly-owned subsidiaries of the Philippine National Oil Company (PNOC), each owns an international vessel that brings crude and other petroleum products into the country; that all of these corporations were incorporated locally and the crewmen of their vessels are mostly Filipinos; that the vessels spend most of the year either steaming to and from your Middle East and other foreign suppliers or waiting to be loaded at the port of such suppliers; that dry-docking is likewise done generally abroad; and that the salaries of the crewmen are mostly paid in this country. In reply thereto, I have the honor to inform you that this Office after a careful study of the aforementioned facts is of the opinion and so holds that the Filipino crewmen of the vessels of your company are considered contract workers hence, considered as non-resident citizens as defined in Section 20(e) of the Tax Code. Hence, their salaries are considered foreign source gross income derived by non-resident citizens subject to tax under Section 21(b) of the Tax Code, as amended by Executive Order No. 37. Moreover, every employer or person who pays or who has the control, receipt, custody, disposal or payment of compensation paid to and received by citizens of the Philippines for services performed outside of the country irrespective of the number of days of such service during the calendar year shall deduct and withhold income tax thereon in accordance with Section 7(11)(b)(1) of Revenue Regulations No. 6-82 dated October 1, 1982 implementing Section 21(b) of the Tax Code, as amended by Executive Order No. 57. This revokes BIR Ruling No. 21-a-000-00-123-83 dated July 5, 1983. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue