VAT Ruling No. 011-06

November 3, 2006 VAT RULING NO. 011-06 R.A. 9337 Philippine Ports Authority Marsman Building, 22 Muelle De San Francisco South Harbor, Port Area Manila 1018 Attention: Ms. Aida P. Dizon Assistant General Manager Finance & Administration Gentlemen : This is to clarify the value-added tax (VAT) liability of the Philippine Ports Authority (PPA) on its various transactions. It is represented that PPA is a government-owned or controlled corporation and a VAT-registered taxpayer; that as such, all its fees and charges covering its sale of services and use or lease of properties are subject to VAT, and which it may legally shift to its port-users or customers and remit the same to this Bureau; and that several issues were raised by the clientele/customers of PPA in the imposition of VAT on their respective transactions. In reply, please be informed as follows: It is clear from Revenue Memorandum Circular No. 2-2004 1 under the heading, " VAT Liability of the Philippine Ports Authority ", all fees and charges collected by the PPA such as, but not limited to the following, are subject to VAT: 1. Port Dues (Harbor fees)/Anchorage fees 2. Dockage-Berthing Income 3. Usage fee 4. Wharfage fees 5. Storage fees 6. Lay-up fees 7. Share in Arrastre/Stevedoring Income 8. Fund Management Income TSAHIa 9. Pilotage 10. All Other Income PPA as a VAT-registered taxpayer is also subject to VAT at zero percent (0%) rate on its sale of service under the following circumstances: Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such service to zero percent (0%) rate. 2 Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof. 3 Based on the foregoing, when a transaction falls under any of the above enumerated transactions, it is subject to VAT at zero percent (0%) rate. Such being the case, services which PPA renders to vessels engaged in international shipping, whether the owners thereof are members of the association of international shipping lines or not, are subject to VAT at zero percent (0%) rate. However, it must be emphasized that the taxpayer must seek prior approval or prior confirmation from the appropriate offices of the BIR so that the transactions would qualify for effective zero-rating. Without an approved application for effective zero-rating, services otherwise entitled to zero-rating shall be considered exempt. Hence, VAT treatment of port charges collected from customers/port users exempt under special laws such as: PEZA and SBMA-Registered Enterprises, are covered under the specific provision referred to above. Thus, the effective VAT zero-rating of sale of services to PEZA-registered enterprises under the 5% regime, by VAT-registered suppliers from the Customs Territory, is premised on the provisions of Section 108(B)(3) of the Tax Code of 1997 in relation to the provisions of R.A. No. 7916, 4 and the "Cross Border Doctrine" of the VAT System enunciated in VAT Ruling No. 032-98 dated November 5, 1998. ( VAT Ruling No. 054-00 dated December 1, 2000 ) Wharfage fees, other charges and other fees which PPA collects on its coal shipment services (importation and local shipments) for the Philippine Chamber of Coal Mines are subject to VAT. The VAT which is imposed on the wharfage fees for the shipment services of such coals should not be confused, however, with the importation of the coal itself which is also subject to VAT under the Tax Code, as amended by R.A. No. 9337. 5 All arrastre and stevedoring services rendered by private cargo handling operators/contractors duly accredited by PPA for the benefit of cargoes and/or the owners of the cargoes are subject to VAT at 10%. 6 Finally if the sale of service by PPA involves transactions which are subject to VAT, VAT at zero-rate and VAT exempt, the receipt shall clearly indicate the breakdown of the sale price into its taxable, exempt and zero-rated components, and the calculation of the VAT on each portion of the sale shall be shown on the official receipt. PPA, however, has the option to issue separate receipts for the taxable, exempt and zero-rated components of the sale. 7 DcSACE This ruling is issued based on the facts as represented. If upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue Footnotes 1. Subject: Clarifying the Issues on VAT Taxable Transactions of PPA 2. Section 108(B)(3) of the National Internal Revenue Code, as amended 3. Section 108(B)(4), supra 4. An Act providing for The Legal Framework And Mechanisms For The Creation, Operation, Administration, And Coordination Of Special Economic Zones In The Philippines, Creating For This Purpose, The Philippine Economic Zone Authority (PEZA), And For Other Purposes, As Amended 5. 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 6. The rate shall be 12% effective February 1, 2006 (Revenue Memorandum Circular No. 7-2006) 7. RMC No. 62-2005 [Revised Guidelines in the Registration & Invoicing Requirements Including Clarification on Common Issues Affecting Value Added Tax (VAT) Taxpayers Pursuant to RA 9337]