BIR Ruling [UN-224-95]

June 16, 1995 BIR RULING [UN-224-95] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: C . P . Noel Tax Division Gentlemen : This refers to your letters dated 14 December 1994 and 17 January 1995 requesting in behalf of your client, Madrigal-Wan Hai Lines (MWL), confirmation of your opinion that the services rendered to its vessels, while docked in the Philippines, by various local contractors/entities are subject to the zero (0%) VAT rate. cdtech It is represented that MWL is a domestic corporation engaged in overseas shipping; that it owns and operates three (3) oceangoing vessels (MV National Honor, MV National Pride and MV National Dignity) offering fully-containerized liner service between the Far East ports of Manila, Hongkong, Taiwan, Korea and the US West Coast ports of Long Beach and San Francisco; that MWL competes directly with foreign shipping lines in providing shipping service across the Pacific; that MWL's vessels dock at Manila and such docking requires MWL to avail of the services of various local contractors/entities which include but not limited to the following: 1. Tug boat services for docking/undocking 2. Launch services 3. Security services by watchmen on board 4. Line handlers 5. Stevedoring charges 6. Terminal-handling fees 7. Stripping charges 8. Carnage 9. Arrastre charges 10. Lift on/lift off charges 11. Container repair and cleaning 12. Inspection charges on containers 13. Surveyors fees 14. Surveyors fees 15. Container stuffing 16. Cartage and handling expenses 17. Chassis and container rental 18. Printing of bill of lading/equipment interchange receipt and, that MWL is a dollar earning venture and its earnings are inwardly remitted and converted into Philippine pesos, which have been used to pay for the aforementioned expenses and charges. In reply, please be informed that in order to correct the lopsided advantage created by Revenue Memorandum Circular No. 47-88 dated September 12, 1988 in favor of foreign vessels, your request that the above mentioned services be subject to 0% VAT is hereby confirmed subject to the following terms and conditions, viz: 1. That the domestic shipping company shall for the various services rendered to their vessels used in international trade while docked in the Philippine ports, pay in foreign currency generated from the freight collection of their branch offices abroad; 2. That such freight collection in foreign currency shall be remitted to the Philippines and deposited to a special foreign currency account in a designated bank; and from such account shall be drawn exclusively the foreign currency for conversion to pesos to be used in the payment of the various services rendered to their vessels while docked in Philippine ports; and 3. That the local shipping company interested in availing of the benefit of zero-rating for the services rendered to their vessels while in Philippine ports shall attach to their quarterly percentage tax return a statement indicating the name of their vessels used exclusively in international trade; the number of times and date each vessel docked in Philippine ports; the amount paid for various services and the persons or firms rendering the same; and the amount of foreign currency withdrawals from the special foreign currency account and proof of conversion of such amount to Philippine pesos. The statement shall be furnished to the seller of the services and attached to the seller's application for zero-rating of the sale of services to the vessels of a domestic shipping company used in international trade. (BIR Rulings No. 090-91 dated May 21, 1991) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)