VAT Ruling No. 021-01

May 15, 2001 VAT RULING NO. 021-01 108 (B) (4) VAT 010-98 Keppel Smit Transpacific, Inc . (KSTI) 3721 Bautista St., Palanan 1235 Makati City Attention: Mr . Alan I . Claveria Finance and Administrative Manager Gentlemen : This refers to your letter dated 17 July 2000 concerning your request for information whether your sale of services rendered to foreign vessels may be treated subject to the zero percent (0%) value-added tax. It is represented that KSTI is a domestic corporation engaged in providing the following services to both local and foreign vessels: " Tug boat services for docking and undocking Tugboat services are provided to ships calling on Philippine ports by safely pushing them alongside the pier (referred to as docking) so that the vessels can discharge its passengers and/or cargoes. Afterwards, the tugboat then pulls the vessels from the pier and safely out the port (referred to undocking). " Marine salvage KSTI also provides marine emergency response to ships in distress by quickly going to the accident area and prevent the ship from sinking by towing it to safety. In case the vessel has already sunk, KSTI can refloat and recover (referred to salvage) the vessel for rehabilitation or scrapping. " Special marine services " Oil pollution response KSTI also provides containment of oil spills from damaged vessels from spreading further in open waters. " Fire-fighting KSTI can also provide assistance in putting out fire on board vessels. " Fresh water delivery KSTI also sells fresh water to vessels. " Ferrying service KSTI also transports passenger or freight from vessels to the pier and vice versa. "After providing tug services to the vessels, KSTI bills the vessel's owner or their shipping agent in local currency. In almost all cases, our invoices are addressed to the shipping agent. In some cases, we are able to directly bill the owner of the foreign vessel in foreign currency. "Our main concern is whether or not the services we have rendered to foreign vessels and whose billing is subsequently addressed to the local shipping agent representing said foreign vessels are considered as zero-rated transactions. In reply, please be informed that a VAT registered person is entitled to the benefit of the zero percent (0%) VAT on "Services rendered to vessels engaged exclusively in international shipping; . . ." pursuant to the provisions of Section 108(B) (4) of the National Internal Revenue Code of 1997, as implemented by Section 4.102-2(b)(4) of Revenue Regulations No. 7-95, and further amplified in VAT Ruling No. 010-98 dated 10 February 1998, where the Commissioner ruled that ". . . the VAT zero-rated services contemplated in the above-cited 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 . . . ." TAaEIc In view of the foregoing, all your aforementioned sale of services, including your aforesaid "ferrying service" from the vessel to the pier, or vice versa, if "rendered to vessels engaged exclusively in international shipping," shall be entitled to the benefit of the zero percent VAT, pursuant to the provisions of the aforesaid law and regulations. Otherwise, the same shall be subject to the 10% VAT, pursuant to the provisions of Section 108(A) of the said Code. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group