BIR Ruling No. 312-82

July 7, 1982 BIR RULING NO. 312-82 24-O 000-00 312-82 Loadstar International Shipping, Inc. Loadstar Building 1294 Romualdez Street Paco, Metro Manila Attention: Mr . Teodoro G . Bernardino President and General Manager Gentlemen : This refers to your letter dated May 31, 1982 requesting a ruling as to whether you are subject to the 8% final tax imposed by Presidential Decree 1354 on income derived under a time-charter agreement with Philippines Cities Service, Inc. (PCSI). It is represented that you are a domestic corporation engaged in the overseas shipping business and, therefore, exempt from income tax, pursuant to Republic Act No. 1407, as further amended by P.D. No. 764; that on April 19, 1982, you entered into a Time Charter Agreement with PCSI whereby you will provide PCSI with a tanker to be used by the latter to load crude oil in its petroleum operations in Palawan; and that after loading crude oil the tanker may be directed by PCSI to discharge the crude oil overseas or to any port or vessel. In reply, I have the honor to inform you that under Republic Act No. 1407, you can claim exemption from income tax if you shall engage exclusively in the overseas shipping business. This means that you shall undertake "the carriages of goods and/or passengers from the Philippines to a foreign port, or from a foreign port to either another port or a Philippine port." (Sec. 11, R.A. No. 1407) However, in the instant case, it appears that you shall undertake the carriage of the crude oil from Palawan either to its destination overseas or to a local destination as directed by PCSI. Consequently, you shall not be considered as engaging exclusively in overseas shipping business and, therefore, you cannot claim exemption from income tax under Republic Act No. 1407, as amended. As regards your liability to the 8% final income tax, pursuant to P.D. No. 1354, it appears that your transportation of crude oil to a local destination falls within the purview of the term "petroleum operations." [Sec. 2(d), P.D. No. 87] Hence, with respect to this undertaking, you are considered a subcontractor of a service contractor and, therefore, the income derived therefrom is subject to the 8% final tax which is in lieu of all taxes. With respect to the transportation of crude oil to destination overseas, the same is no longer considered falling within the purview of petroleum operations. Hence, your income derived therefrom is subject to the corporate income tax at the regular rates and to the 2% common carrier's tax imposed by Section 207 of the Tax Code. cdtech Very truly yours, RUBEN B. ANCHETA Acting Commissioner