Starline Shipping Agencies Phils., Inc.

October 23, 2018 ITAD BIR RULING NO. 112-18 Article 8 (Shipping and Air Transport), Philippines-Singapore tax treaty Starline Shipping Agencies Phils., Inc. 6th Floor GE Antonio Building TM Kalaw Street corner J. Bocobo Street 1000 Ermita, Manila Attention: AAA _______________ Gentlemen : This refers to your application for tax treaty relief dated May 19, 2014 requesting confirmation that BLPL Singapore Pte. Ltd. ("BLPL") is subject to income tax at the rate of 1 1/2 percent on its Gross Philippine Billings pursuant to the Convention between the Republic of the Philippines and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Singapore tax treaty") . It is represented that BLPL is a foreign corporation organized and existing under the laws of Singapore and a resident thereof based on its amended Memorandum and Articles of Association and Certificate of Residence issued by the Inland Revenue Authority of Singapore; that BLPL 's object is to establish, maintain and operate shipping and ancillary services; that it is not registered as a corporation or partnership in the Philippines as confirmed by the Certification of Non-Registration issued by the Securities and Exchange Commission; and that on the other hand, Starline Shipping Agencies Phils., Inc. ("Starline") is a domestic corporation organized and existing under Philippine laws. HTcADC It is also represented that on April 1, 2013, BLPL and Starline entered into an Agency Agreement where BLPL , as principal, appoints Starline as its non-exclusive cargo handling agent for sea freight in the Philippines; that the appointment shall include less-than-container load and full-container load consignments; that Starline shall be responsible at destination for receiving, unpacking and control of paperwork and collection on behalf of BLPL , including notifying consignees of arrival of cargoes and requesting proper documents in accordance with local statutory requirements to allow the release of BLPL 's individual shipments; that Starline shall be responsible for collection of outward freight for manifested cargoes and inward freight and other recoveries from consignees; and that in consideration, BLPL will compensate Starline as follows: (a) 5% for exports on basic freight only with minimum of $10.00 per container; (b) 2.50% for imports on basic freight only; and (c) documentation collections on imports and exports. It is further represented that the income subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, per sworn statement issued by Starline . In reply, please be informed that under Section 28 (A) (3) (b) of the National Internal Revenue Code of 1997, as amended ("Tax Code") , international shipping doing business in the Philippines are subject to 2 1/2% income tax on its Gross Philippine Billings, thus: " (A) Tax on Resident Foreign Corporations. xxx xxx xxx (3) International Carrier . An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings' as defined hereunder: xxx xxx xxx (b) International Shipping . 'Gross Philippine Billings' means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents." However, under Section 32 (B) (5) of the Tax Code, said income is exempt or partially exempt pursuant to a treaty obligation binding upon the Philippine government, viz. : " (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title. xxx xxx xxx (5) Income Exempt under Treaty . Income of any kind, to the extent required by any treaty obligation binding upon the government of the Philippines." With respect to the treaty, Article 8 (Shipping and Air Transport) of the Philippines-Singapore tax treaty provides: " Article 8 SHIPPING AND AIR TRANSPORT 1. Profits from sources within a Contracting State derived by an enterprise of the other Contracting State from the operation of ships or aircraft in international traffic may be taxed in the first-mentioned State but the tax so charged shall not exceed whichever is the lesser of either: a) one and one-half per cent of the gross revenues derived from sources in that State; or b) the lowest rate of Philippine tax that may be imposed on profits of the same kind derived under similar circumstances by a resident of a third State." Under paragraph 1 of Article 8, profits from sources within the Philippines derived by an enterprise of Singapore from the operation of ships in international traffic may be taxed in the Philippines at a rate not to exceed (a) 1 1/2% of the gross revenues derived from sources in the Philippines, or (b) the lowest rate of income tax that may be imposed by the Philippines on such profits derived under similar circumstances by a resident of a third State ("most-favored-nation treatment") . Accordingly, since the Philippines has not yet granted such most-favored-nation treatment to any international shipping under a tax treaty, BLPL is subject to income tax of 1 1/2% on its Gross Philippine Billings. Moreover, under Section 118 (A) of the Tax Code, BLPL , being an international air carrier doing business in the Philippines, is subject to common carrier's tax at the rate of 3% of its quarterly gross receipts, thus: "A) International air carriers doing; business in the Philippines on their gross receipts derived from transport of cargo from the Philippines to another country shall pay a tax of three percent (3%) of their quarterly gross receipts." This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. aScITE Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue