Publishing Central Bank Letter Dated July 7, 1988, Endorsing the Request of the Association of International Shipping Lines with the BIR for Zero-Rating of All Services Rendered to Foreign Shipping Lines

September 12, 1988 REVENUE MEMORANDUM CIRCULAR NO. 47-88 SUBJECT : Publishing Central Bank Letter Dated July 7, 1988, Endorsing the Request of the Association of International Shipping Lines with the BIR for Zero-Rating of All Services Rendered to Foreign Shipping Lines TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, hereunder is the full text of the Central Bank letter dated July 7, 1988 addressed to the Chairman of the VAT Review Committee: "July 7, 1988 Mr. Jaime M. Maza Chairman, VAT Review Committee Bureau of Internal Revenue Diliman, Quezon City Subject : ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC. Request with the BIR for zero-rating of all services rendered to foreign shipping lines . Dear Mr. Maza: We refer to attached copy each of letters dated May 27, 1988 and June 9, 1988 from the Association of International Shipping Lines, Inc. seeking confirmation from this Office "that the portions of freight collections used to pay services rendered to the vessel can be deemed inwardly remitted funds" which is one of the requirements for the applicability of 0% value-added tax on services under Section 102(a)(2) of the NIRC as amended by E.O. 273. From our meeting held with you and the representations made by the Association of International Shipping Lines, Inc., we were made to understand that: 1. For VAT purposes, the rate of 10% applies to all business sales which are not specifically zero-rated or exempted; and 2. Services, the consideration for which are paid for in acceptable foreign currency remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank are zero-rated. Under existing Central Bank foreign exchange rules and regulations, specifically Central Bank Circular 1028 dated October 12, 1984, all foreign exchange earnings or acquisitions of residents from services rendered to non-residents are required to be inwardly remitted into the country within fifteen (15) calendar days from the date ownership accrues over the funds, and sold for pesos to authorized agent banks within three (3) days from their receipt in the Philippines. On the other hand, under existing regulations, shipping companies authorized to do business in the Philippines, are, subject to prior Central Bank approval, allowed to remit abroad thru authorized agent banks their freight collections net of: a) commissions and fees due to resident agents and B) reimbursements of advances made by local shipping agents for vessel related expenses. aisa dc In view thereof, we interpose no objection to the request of the Association of International Shipping Lines, Inc., that "the portions of freight collections used to pay services rendered to the vessels be deemed inwardly remitted funds" provided that in all cases, prior Central Bank approval is secured to deduct said funds from the remittable freight collections. Very truly yours, (SGD.) GREGORIO R. SUAREZ Director cc: Association of International Shipping Lines, Inc. Features of the Central Bank Letter: Under this Central Bank letter, the proposal of the Association of International Shipping Lines, Inc., that the portions of freight collections used to pay services rendered to the vessels be deemed inwardly remitted funds, and hence, be subject to zero-rating, is endorsed by the Central Bank, provided that, in all cases, prior Central Bank approval is secured to deduct said funds from the remittable freight collections. Similarly situated taxpayers can avail of the same privileges extended to the associations as long as they comply with the requirements set by the Central Bank. All internal revenue officers and others concerned are enjoined to be guided accordingly and to give this circular as wide a publicity as possible. cd i VICTOR A. DEOFERIO, JR. Acting Commissioner