BIR Ruling [UN-106-94]

March 28, 1994 BIR RULING [UN-106-94] National Shipping Corporation of the Philippines Knights of Rizal Bldg. Bonifacio Drive, Port Area Manila Attention: Mrs . Concepcion C . Santos VP-Finance Gentlemen : This refers to your request for exemption from the payment of income tax on income derived from overseas shipping pursuant to the provisions of R.A. No. 7471, otherwise known as the Philippine Overseas Shipping Development Act, which was approved on May 5, 1992 but the implementing rules and regulations of which took effect on December 13, 1992. Documents submitted show that the National Shipping Corporation of the Philippines (NSCP) is a government-owned corporation duly registered with the Maritime Industry Authority (MARINA) on February 13, 1986 to engage in overseas shipping business; that it operates the three (3) Philippine flag carriers owned by the National Development Company (NDC), namely, National Honor, National Dignity and National Pride, under bareboat charter making NSCP as the disponent owner; that it is not engaged in Philippine domestic shipping trade; that it is the only Filipino shipping line offering a fully-containerized liner service between the Far East Ports of Manila, Hongkong, Taiwan, Korea and the United States Westcoast Ports of Long Beach and San Francisco; that you were favorably indorsed by the MARINA in its 1st Indorsement to this Office dated April 15, 1993 and recommended for exemption from income tax, pursuant to Section 4.05 of the Rules and Regulations, implementing R.A. 7471; and that on the basis, and since the aforementioned R.A. 7471 is approved on May 5, 1992, you filed your exempt income tax return for the taxable year 1992. In reply thereto, please be informed that under Section 4.05 of the Rules and Regulations to implement the provisions of R.A. 7471, a Philippine Shipping Enterprises shall be exempt from payment of income tax on income derived directly from Philippine overseas shipping for a period of ten (10) years from the date of approval of the Act on May 5, 1992, or up to May 5, 2002, Provided that: a. The entire net income, after deducting not more than ten percent (10%) thereof for distribution of profits or declaration of dividends, which would otherwise be taxable under the provisions of Title II of the National Internal Revenue Code, is actually reinvested in accordance with the Regulations not later than May 5, 2002 for: (1) the construction, purchase or acquisition of vessel and related equipment; and/or (2) the improvement or modernization of its vessels and related equipment. b. The cumulative amount so reinvested shall not be distributed as profits or dividends until after May 5, 2012 or until the vessel or related equipment so acquired have been fully paid, whichever date comes earlier. c. Any amount not so reinvested, or withdrawn prior to the expiration of the period stipulated in paragraphs (a) and (b) hereof, respectively, shall be subject to the payment of the corresponding income tax due thereon, including penalties, surcharges and interests, as provided for in the National Internal Revenue Code. d. The income derived from Philippine Overseas Shipping entitled to exemption from the payment of income tax hereunder, is limited to income from the transport of goods and/or passengers overseas. It does not include income not directly related to transport of goods and passengers overseas. e. A Philippine Shipping Enterprise availing itself of the incentive shall submit to the Bureau of Internal Revenue reports and other documents that shall be prescribed in revenue regulations that shall be issued for the purpose. Since it is clear that the exemption from income tax on income derived directly from Philippine overseas shipping business is ten (10) years from the date of approval of the Act on May 5, 1992, you are exempt from the payment of income tax otherwise due from you effective May 5, 1992 and up to May 5, 2002. Considering, however, that you have already filed your income tax return for 1992 and the subject income tax exemption does not cover your income earned from January 1 up to May 4, 1992, you are hereby advised to file an amended income tax return for the taxable year 1992 and pay the corresponding income tax thereon. It is requested that a copy of the amended returns filed and evidence payment of income tax thereon be submitted to this Office as a condition to the issuance of this exemption letter. It is of course understood that your books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for purposes of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives or your tax liability, if any, pursuant to Section 235 of the Tax Code, as amended by P.D. No. 1959. Finally, you are required to file on or before April 15 of each year a profit and loss statement, balance sheet and statement of sources and application of funds with the annual information return under oath, stating your gross income and expenses incurred during the year . A copy of this letter of exemption must be attached to the annual information return which you will file on said date. cdtech This exemption shall be valid FOR A PERIOD OF ONE YEAR, renewable every year thereafter. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue