Davao Pilots Association, Inc.

January 28, 2009 VAT RULING NO. 002-09 Section 108 (B) (4) NIRC, as amended; 054-2003 Davao Pilots Association, Inc. J.P. Cabaguio Avenue, Davao City Attention: Capt. Vicente A. Lagura President Gentlemen : This refers to your letter dated November 23, 2006 seeking opinion on whether the services rendered by the Davao Pilots Association, Inc. (DPAI) to foreign vessels are still subject to zero percent (0%) value-added tax (VAT) under Section 4.108.5 (b) (4) of the Revenue Regulations (RR) No. 16-2005. IAEcCa It is represented that DPAI provides pilotage services and launch services to both coastwise and foreign vessels in the pilotage district of Davao; that the request for pilotage service is forwarded to DPAI by the shipping agent of the vessel in the Philippines; that the Harbor Pilot boards the vessel and renders the required service and prepares a chit containing the details of the vessel, date of rendering the pilotage service, number of hours spent and other information; that the chit is signed by the master of the vessel and is used as basis for billing; that the billing invoice is addressed to the shipping agent with the dollar charges for the service appearing thereon including the peso conversion rate; and that the shipping agent collects from the shipping company and pays DPAI in peso. In reply, please be informed that, Section 4.108-5 (b) (4) of RR No. 16-2005 1 implementing Republic Act (R.A.) No. 9337 2 and subsequently amended by Section 12 of RR No. 4-2007, 3 reads as follows: "SEC. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (b) Transactions Subject to Zero Percent (0%) VAT Rate. xxx xxx xxx (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Section 108 of the Tax Code starting Feb. 1, 2006; xxx xxx xxx The above provision is a reiteration of Section 4.108-5 (b) (4) of RR No. 16-2005 which provides that the services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof, are subject to 0% VAT. Such being the case, the pilotage and launch services rendered by the Davao Pilots Association, Inc. (DPAI) to foreign vessels engaged in international shipping are subject to zero percent (0%) VAT under RR No. 4-2007. It is understood, however, that similar services rendered to coastwise vessels or those made to common carriers by air and sea, relative to their transport of passengers, goods, or cargoes from one place in the Philippines to another place in the Philippines, are subject to 12% VAT. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group Footnotes 1. Consolidated Value-Added Tax Regulations of 2005. 2. An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, as Amended, and for Other Purposes. acIHDA 3. Amending Certain Provisions of Revenue Regulations No. 16-2005, as Amended, Otherwise Known as the Consolidated Value-Added Tax Regulations of 2005.