VAT Ruling No. 010-98

February 10, 1998 VAT RULING NO. 010-98 Sec. 102 (b) (4)-000-010-98 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . Serafin U . Salvador Tax Division Gentlemen : This refers to your letter dated March 25, 1996 requesting confirmation of your opinion that the carriage of goods or cargoes by domestic shipping companies which are members of the Domestic Shipowners Association (DSA) to international carriers is zero-rated for value added tax purposes pursuant to Section 102 of the Tax Code as amended. aisadc It is represented that domestic carriers are contracted by agents of international carriers engaged exclusively in international shipping for the carriage of goods or cargoes from one point in the Philippines to another; that under the set up a shipper arranges with an international carrier for the latter to transport the goods or cargoes from the Philippines to another country; that a bill of lading is issued by the international carrier to cover the entire transaction; that to enable the international carrier to carry the goods, sometimes there is a need to carry the goods to the ports in Manila; that the agent of the international carrier would then contract a domestic carrier to transport the goods to the ports in Manila; charges for the transshipment of the goods are for the account of the foreign principals and are paid by the latter through agents in the Philippines; that the agents bill the principals for such services; that the foreign principals remit the payment to the agents who, in turn, pay the domestic carrier tendering the service; that the local agents merely act as a conduit of the foreign principal for whose account the expenses are incurred. In support of the foregoing, you have cited Section 102(b)(4) of the Tax Code as amended, pertinent provisions of which provide as follows: "SEC. 102. Value-Added Tax on Sales of Services and Use or Lease of Properties . xxx xxx xxx (b) Transactions subject to zero-rate . The following services performed in the Philippines by VAT-registered persons shall be subject to 0% xxx xxx xxx (4) Services to vessels engaged exclusively in international shipping." In reply, please be informed that the VAT zero-rated services contemplated in the abovecited provision refers to services with respect to the international vessel itself such as crewing, repair, catering, and other similar arrangements. It cannot apply to the carriage of goods and cargoes in domestic routes. cdta In view of the foregoing, your request is hereby denied for lack of legal basis. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue