BIR Ruling No. 513-11

December 20, 2011 BIR RULING NO. 513-11 Section 108 (B) (4); RMC 31-08; BIR Ruling No. DA-165-04; VAT Ruling No. 040-98 Cruise Professionals, Inc. 35F Unit 3504 Cityland Pasong Tamo Tower No. 2210 Don Chino Roces Ave., Makati City 1231 Attention: Marites E. Manlapaz Finance Officer Gentlemen : This refers to your letter dated January 25, 2011 requesting for the confirmation of your opinion that the business activities of CRUISE PROFESSIONALS, INC. are entitled to zero percent (0%) Value-Added Tax (VAT). It is represented that CRUISE PROFESSIONALS, INC., a duly registered VAT taxpayer with Taxpayer's Identification Number (TIN) 206-319-786, is a corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. AS200007244 dated May 19, 2000; and that the one of the primary purposes for which the corporation is formed is "to engage in the general business of travel service as ticketing outlet, both domestic travel service and foreign travel service." It is further represented that CRUISE PROFESSIONALS, INC. is an accredited international sales agent of Princess Cruise Lines, Ltd., a non-resident foreign corporation and an international passenger cruise line organized under the laws of the United States of America which provides luxurious cruises in Alaska, Mexico, Europe, Caribbean, Australia, Asia, Canada and New England; that the main service provided by CRUISE PROFESSIONALS, INC. is to handle cruise bookings and remittances from different local travel agencies on behalf of Princess Cruise Lines, Ltd., i.e., Travel Agent's passenger who wants to book and pay a particular cruise can transact thru CRUISE PROFESSIONALS, INC. which provides the following services reservation, confirmation, remittances and refunds of cruise on a US Dollar net/net transactions; and that Princess Cruise Lines, Ltd. will provide CRUISE PROFESSIONALS, INC. all the necessary cruise support which includes assistance in bookings of passengers, customer relations and communication on reservation, claims and refunds. TaDSHC Moreover, all deposit and final payments made by local travel agencies on a net/net basis will be remitted by CRUISE PROFESSIONALS, INC. to Princess Cruise Lines, Ltd. in Los Angeles, California; that as consideration for its cruise booking services to be performed in the Philippines, CRUISE PROFESSIONALS, INC. will be paid in US Dollars by Princess Cruise Lines, Ltd., in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. In support of your request, you have submitted the following documents: 1) Letter request for zero percent (0%) VAT rated transaction; 2) Certified true copy of BIR Certificate of Registration; 3) International Sales Agency Agreement of CRUISE PROFESSIONALS, INC. and Princess Cruise Lines, Ltd.; 4) Certified true copy of SEC Certificate of Incorporation; 5) Certified true copy of Articles of Incorporation; 6) Certified true copy of By-laws; 7) Copy of latest General Information Sheet; 8) Certified true copies of payments made by local travel agents; 9) Certified true copies of remittances; 10) Certified true copies of Bank Telegraphic Transfers; 11) Certified true copies of Annual Income Tax Returns together with the Audited Financial Statements for the last 3 years of operation; 12) Verification and Certification against non-forum shopping; and 13) Affidavit of Confirmation. In reply, please be informed that Section 108 (B) (4) of the Tax Code of 1997, as amended, states: "(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: IDASHa (4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof; xxx xxx xxx" In relation thereto, Revenue Memorandum Circular (RMC) No. 31-08, provides the following: Q-34: Are commission incomes received by the local shipping agents from their foreign principals subject to VAT? A-34: The commission income or fees received by the local shipping agents for outbound freights/fares received by their foreign principals which are on-line international sea carriers (touching any port in the Philippines as part of their operation) shall be zero-rated pursuant to the provisions of Section 108(B) (4) of the Code. Said provision does not require that payments of the commission income or fees for "services rendered to persons engaged in international shipping operations, including leases of property for use thereof," be paid in acceptable foreign currency in order that such transaction may be zero-rated. On the other hand, commission income or fees received by the local shipping agents pertaining to inbound freights/fares received by their foreign principals/on-line international sea carriers or pertaining to freights/fares received by off-line international sea carriers shall be subject to VAT at 12%. xxx xxx xxx The onus of taxation under our VAT system is in that country where goods, property or services are destined, used or consumed. This is the reason why under our VAT law, merchandise, goods or services destined to, used or consumed in the Philippines are subject to the 10% (now 12%) VAT whereas those destined, used or consumed abroad are subject to the zero percent (0%) VAT. (BIR Ruling No. DA-165-04 dated April 5, 2004 citing VAT Ruling No. 040-98) Considering that CRUISE PROFESSIONALS, INC. generates its VATable income from its commission from Princess Cruise Lines, Ltd., a non-resident foreign corporation, the VAT zero-rating shall apply only to CRUISE PROFESSIONALS, INC.'s commission from Princess Cruise Lines, Ltd. Hence, all other income generated from activities not entitled to zero-rating shall be subject to VAT at 12% and that CRUISE PROFESSIONALS, INC. should observe the invoicing requirements provided in Revenue Regulations No. 16-05. 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