BIR Ruling No. 295-12

May 3, 2012 BIR RULING NO. 295-12 Sec.108 (B) (4); 00-000 P.F. Tatunay & Co. 3B-20 Francesca Tower Condominium Sct. Borromeo cor. EDSA South Triangle, Quezon City Attention: Mr. Prudencio F. Tatunay Managing Partner Gentlemen : This refers to your letter dated November 26, 2010 stating that your client, Astra Marine International, Inc. (Astra), is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 183060 with TIN 000-362-511-000; that is primarily organized to "own and operate ocean-going vessels for international trade, to charter in and charter out any such vessels and to provide complete marine services, as principal or agent, to ship owners, ship operators and managers, and to any person, association, firm or corporation engaged in international marine and maritime business, such as, but not limited to, full and partial crewing of ocean-going vessels, acting as managers of ships or their crew, acting as ship chandler, shipbroker and trading in maritime supplies and equipment." that Astra is engaged in the business of crewing (recruitment/manning) of several foreign owned ocean-going vessels; and that its compensation for services rendered is paid for in foreign currency. In support of its request, you have submitted the following documents, to wit: 1. Certified true copy of its SEC Registration; 2. Certified true copy of its Articles of Incorporations and By-Laws; 3. BIR Certificate of Registration; 4. Copy of the Crewing (Contract) Agreement with its clients; and 5. Certification of regular remittance from its depository bank. Based on the foregoing representations, you now request for a ruling that services rendered by Astra to foreign owned ocean-going vessels and paid for in foreign currency shall be subject to VAT at zero percent (0%). ESTDIA In reply, please be informed that Section 108 (B) (4) of the 1997 Tax Code, as amended by Republic Act (RA) No. 9337, provides that: "Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx "(B) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: "(4) Services rendered to vessels engaged in international shipping or international air transport operations, including leases of property for use thereof;" The above provision must be read in connection with Section 4.108-5 (b) (4) of Revenue Regulations (RR) No. 16-2005, as amended by RR 4-2007, to wit: "Section 4.108-5. Zero-Rated Sale of Services . (b) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;" HAICcD It is clear from the foregoing that services rendered by VAT-registered entities to persons engaged in international shipping are entitled to VAT zero-rating. Thus, the services rendered by Astra to foreign principals are subject to VAT zero-rating pursuant to the above provisions. However, it must be stressed that the above entitlement of Astra to VAT zero-rating does not extend to its services rendered to common carriers by sea with respect to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to VAT in accordance with Section 4.108-5 (b) (4) of RR No. 16-2005, as amended by RR 4-2007. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue