Shipping Agency Serving as Manning Agent and Husbanding Agent of Foreign Principals is Subject to Value-Added Tax

December 10, 1987 BIR RULING NO. 394-87 102 (a) (2) 355-87 394-87 Gentlemen : This refers to your letter dated October 27, 1987 stating that you are a shipping agency serving as manning agent and husbanding agent of various foreign principals in the Philippines; that as manning agent, you supply the Filipino crew complement as required by their vessels while as husbanding agent you attend to vessels activities in their ports of call in the Philippines; that your services are paid for by your foreign principals in $US thru inward remittances to your commercial banks; that for all inward remittances, you have complied with the Central Bank regulations by submitting your Monthly Report for foreign exchange cash receipts and cash disbursements; that the percentage taxes you are currently paying to this Bureau on a quarterly basis are 4% contractor's tax as manning agent, 7% commercial broker's tax as shipping agent and 3% common carrier's tax which is paid for the account of the foreign principals. Based on the foregoing, you now request information as to whether your business operation is subject to the Value-Added-Tax (VAT) law. In reply, please be informed in the affirmative. Pursuant to Section 102(a)(2) of the Tax Code as amended by Executive Order No. 273, services other than processing, manufacturing or repacking goods, the consideration for which is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, shall be subject to the value-added-tax at 0%. This means that starting January 1, 1988, you are no longer subject to the 4% contractor's tax on manning income and to the 7% commercial broker's tax on your commission income imposed by Sections 170 and 174 of the Tax Code, as amended. However, you will continue to pay for the account of your foreign principals the 3% common carrier's tax imposed by Section 115 of the Tax Code, as amended by Executive Order No. 273. Subsection (3) of Section 102 of Executive Order No. 273 applies only to services performed by VAT-registered persons for persons or entities whose exemption under special laws or international agreements effectively subject the supply of such services to zero rate. Your foreign shipping principals do not fall within this category. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner