1% Expanded Withholding Tax Imposed on Foreign Shipowner

November 16, 1988 BIR RULING NO. 550-88 25 (a) (2) 000-00 550-88 Gentlemen : This refers to your letter dated August 9, 1988 requesting reconsideration of BIR Ruling No. 150-88 dated April 19, 1988 which ruled that since foreign shipowner has a local agent, gross payments made by Zamboanga Wood Products, Inc. to said foreign shipowner are subject to the expanded withholding tax of 1% pursuant to Section 1(e)(2)(e) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 8-85, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended. The reason for your request is that your client, the Inter-Asia Marine Transport, Inc., is the local agent of the aforementioned foreign shipowner which periodically handles the contract of affreightment between Zamboanga Wood Products, Inc. and the foreign shipowner; and that a 3% common carrier's tax as well as a 2 1/2% income tax are being paid by the foreign shipowner through its local agent. In reply thereto, I have the honor to inform you that your request cannot be granted. Under Revenue Regulations No. 6-85, expanded withholding tax is creditable income tax withheld from items of income payments to persons residing in the Philippines. [See also Section 50(b), Tax Code] In the instant case, the fact that the foreign shipowner pays, thru its local agent, the 2 1/2% income tax on gross Philippine billings, shows that said foreign shipowner is an international carrier and, therefore, considered for income tax purposes, as a resident foreign corporation. [Sec. 25(a)(2), Tax Code] Such being the case, said foreign shipowner is considered residing in the Philippines in which case, income payments to it for the carriage of goods belonging to Zamboanga Wood Products are subject to the 1% expanded withholding tax which is creditable against the 2 1/2% income tax due from it. In this connection, under Revenue Regulations No. 13-86 which further amends Section 1(e)(2)(e) of Revenue Regulations No. 6-85, the 1% withholding tax applies where the gross payment by Zamboanga Wood Products, Inc. to the foreign shipowner amounts to at least P2,000 per month, regardless of the number of shipments during the month. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner