Remittance of Withholding Tax on Charter Fees When Payment of the Charter Fees Has Been Suspended

October 1, 1987 BIR RULING NO. 308-87 25 (b) (3) 000-00 308-87 S i r : This refers to your letter dated September 14, 1987 requesting a ruling as to whether the Philippine Floating Hotel, Inc. is under legal obligation to remit to the government the 4.5% withholding tax on charter fees payable to Philtrust Finance Ltd. considering that by mutual agreement between the former and the latter, payment of the charter fees has been suspended. It is represented that on February 1, 1985, a bareboat charter agreement was entered into by and between Philtrust Finance Ltd., a non-resident foreign corporation and Philippine Floating Hotel, Inc., a domestic company for a period of three (3) years effective from date of delivery of the vessel, that the bareboat charter agreement was approved by the Maritime Industry Authority (MARINA); and that on March 5, 1986, the parties executed an addendum to the bareboat charter agreement whereby it is agreed that in view of the inability of the Philippine Floating Hotel, Inc. to find employment for the vessel, it is temporarily relieved from paying the stipulated bareboat hire, effective April 1, 1986 until it shall be able to find employment for the vessel in which event it shall resume payment of the charter hire. In reply, I have the honor to inform you that pursuant to Section 25(b)(3) in relation to Section 51(a) of the Tax Code, as amended, rentals, lease and charter fees derived by non-resident owners of vessels chartered by Philippine nationals and which charter or lease has been duly approved by the Maritime Industry Authority are subject to a 4.5% final tax. However, since the payment of the charter fees by the Philippine Floating Hotel, Inc. to Philtrust Finance, Ltd. has been suspended effective April 1, 1986, Philippine Floating Hotel, Inc. has nothing from which it could withhold the 4.5% final tax on said charter fees. Such being the case, Philippine Floating Hotel, Inc. is under no legal obligation to withhold said tax. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner