Tax Liability of Foreign Steamship Companies

August 1, 1958 BIR RULING NO. 423-58 4th Indorsement Respectfully returned, thru the Honorable, the Secretary of Finance, to the Honorable, the Secretary of Foreign Affairs, Manila. cdpr Foreign steamship companies whose vessels call on Philippine ports are subject to the annual fixed tax of P20.00, and to the 2% common carrier's tax on their gross receipts derived from outgoing passenger and freight services, pursuant to Sections 182(A)(1) and 192 of the National Internal Revenue Code, as amended. They are not, however, subject to the 2% common carrier's tax on gross receipts derived by them from incoming passenger and freight services. As regards their income tax liability, the aforesaid companies are subject to income tax at the rate of 20%, or 20% and 28%, as the case may be, on the total net income received by them from all sources within the Philippines, such as income received from outgoing passenger or freight services, computed in accordance with Section 163 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, which is quoted as follows: "SEC. 163. Foreign Steamship companies . The returns of foreign steamship companies whose vessels touch ports of the Philippines should include, as gross income, the total receipts of all outgoing business whether freight or passengers. With the gross income thus ascertained, the ratio existing between it and the gross income from all ports, both within and without the Philippines of all vessels, whether touching ports of the Philippines or not, should be determined as the basis upon which allowable deductions shall be computed upon a basis which recognizes that the income arising and accruing from business done in and from this country shall bear its share, and no more, of expense, incident to the earning or creation of such income, in the ratio that the gross income arising in and from this country bears to the entire gross income arising from business done both within and without this country. In other words, the net income of a foreign steamship company doing business in or from this country is ascertained for the purpose of the income tax, by deducting from the gross receipts from outgoing business such a portion of the aggregate expenses, losses, etc., as such receipts bear to the aggregate receipts from all ports of all vessels, including in each case income of a nonshipping character but incidental to the shipping business such as dividends from investments, interests on deposits, etc. For example LLpr GIVEN (a) Gross receipts from outgoing freights and passengers from P.I. ports P20,000.00 (b) Gross receipts from outgoing freights and passengers from all ports other than those of P.I. 200,000.00 (c) Interests and other nonshipping income received by P.I. office 5,000.00 (d) Interests, dividends, and other non-shipping income received by all offices other than those in P.I. 50,000.00 (e) Total expenses and deductions of the company as a whole, including those incurred by P.I. office 150,000.00 COMPUTATION OF P.I. NET INCOME (f) P.I. gross income: Freight and passengers P20,000.00 Interests and other income 5,000.00 Total P25,000.00 (g) P.I. expenses: P.I. gross income x World's expenses, or World's gross income 20,000 plus 5,000 x 150,000 or 200,000 plus 20,000 plus 50,000 plus 5,000 25,000 x 150,000 = 13,636 275,000 (h) P.I. net income: P.I. gross income less P.I. expenses, or P25,000 less P13,636 = P11,364". At present, this Office does not have copies of revenue regulations available for distribution to the public. (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue