VAT Ruling No. 045-01

July 16, 2001 VAT RULING NO. 045-01 R.R. No. 7-95 VAT Ruling No. 62-98 Domestic Shipowners Association G/F Standford Tower Condominium 1870 M.H. del Pilar Street Malate, Manila Attention: Mr . Raul A . Tanchoco President Gentlemen : This refers to your letter dated April 6, 2000 requesting for opinion regarding the (1) effectivity date of the VAT liability for the inbound transshipment of goods or cargoes, whether December 15, 1998 (date of VAT Ruling No. 62-98) or January 1, 1996 (effectivity of R.A. 7716, otherwise known as the E-VAT Law) and (2) liability to VAT on the transshipment of empty foreign containers bound for ports outside of the Philippines. It appears that on February 10, 1998, VAT Ruling No. 010-98 was issued denying your request for VAT zero-rating of the transshipment services provided by the domestic shippers to foreign international carriers. Subsequently, in response to your request for reconsideration of said VAT Ruling No. 010-98, this Office issued on December 15, 1998 VAT Ruling No. 62-98 discussing the Cross Border Doctrine, thereby allowing the zero-rating of transshipment services to international carriers with respect to transshipment of goods or cargoes from a Philippine port to a foreign port, i.e., zero-percent VAT only for outbound transshipment of goods or cargoes shall be subject to the 10% VAT, pursuant to Section 108(A) of the Tax Code of 1997. In reply, please be informed that under the transitory provisions of Revenue Regulations No. 7-95 which implemented Republic Act No. 7716, it is provided that: " Effectivity . These Regulations shall take effect fifteen (15) days after publication in a newspaper of general circulation in the Philippines . Provided however, that the provisions of these Regulations shall be implemented beginning January 1, 1996 ." Accordingly, the period of effectivity of the VAT on inbound transshipment of goods and cargoes cannot be based on VAT Ruling No. 62-98 since the latter merely interprets or clarifies the provisions of Section 102(a) of the EVAT law which became effective beginning January 1, 1996. This finds support in VAT Ruling No. 10-96 dated June 19, 1996 wherein it was held that the freight on domestic shipping of imported cargoes bound for Mindanao is subject to VAT effective January 1, 1996. On your second query wherein you made the following representations, viz: 1. international shipping lines bring in imports through the port of Manila loaded in foreign vans; 2. domestic shipping lines tranship these laden vans to the ports outside of Manila; 3. domestic shipping lines tranship the empty foreign vans from the outports of Manila aHSAIT 4. international shipping lines bring the empty foreign vans to foreign ports. we hold that the transporting by the domestic shipping companies of the empty container vans from the outports back to Manila and the bringing by the international shipping lines of the said empty foreign vans to foreign ports are both subject to VAT at 0% pursuant to the Cross Border Doctrine enunciated in said VAT Ruling No. 62-98 as follows: " Accordingly, the onus of taxation under our VAT System is in that country where goods, property or services are destined, used or consumed. This is the reason why under our VAT Law, goods, property or services destined to, used or consumed in the Philippines are subject to the 10% VAT whereas those destined, used or consumed abroad are subject to zero percent (0%) VAT. Thus, unless otherwise expressly provided for by law, sale of services, such as those rendered to vessels engaged exclusively in international shipping business, may be treated qualified for the zero percent VAT provided the use or benefit derived from such services crosses the Philippine territory, in accordance with the Cross Border Doctrine, which is the underlying principle of our VAT System. For this reason, this Office is amenable to apply the zero percent (0%) VAT on the transshipment services rendered by the aforesaid domestic carriers to the aforementioned international carriers with respect to transshipment of goods or cargoes from a Philippine port to a foreign port of entry (i . e . zero percent (0%%) VAT only for outbound transshipment of goods or cargoes) . Conversely, Inbound Transshipment of goods or cargoes shall be subject to the 10% VAT, pursuant to Section 108 (A) of the TaxCodeof 1997 ." Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group