VAT Ruling No. 053-91

May 31, 1991 VAT RULING NO. 053-91 Tacoma Integrated Port Services, Inc. South Harbor, Manila Attention: Ms . Ma . Cornelia L . Besa Manager-Finance Gentlemen : This refers to your letter dated March 15, 1990 requesting information on the applicable internal revenue tax pertaining to your port services business, particularly in connection with your gross receipts from the chartering of your vessels; from berthing and terminalling fees; from rentals of your equipments; and from your warehousing services. cdta Please be informed that the value-added tax and the percentage taxes under the National Internal Revenue Code (NIRC) are taxes on businesses. The tax is based on the taxpayer's independent line of business, i.e., whether a particular line of business is subject to VAT or to other percentage taxes. Revenue arising from an activity which is merely incidental to or as a necessary consequence of a particular line of business is not considered arising from another independent line of business. (See the case of City of Manila vs. Fortune Enterprises, Inc., G.R. No. L-7294, Sept. 30, 1955; also, BIR Ruling No. 224-90, November 29, 1990) Thus, a taxpayer's revenue derived in his pursuit of an independent line of business, whether arising from the pursuit of his main business activity or merely incidental to or as a necessary consequence thereof, are all subject to tax applicable to such particular independent line of business. Port Services business is described, as follows: "A wharf is intended to afford conveniences for the landing of vessels, the loading and unloading of their cargoes, and to supply a place on which wares discharged from vessels or awaiting shipment may be laid or deposited . . . Wharfage not only includes mooring on vessels for loading and unloading cargo, but also for the purpose of protection and safety . . ." (WORDS & PHRASES, Vol. 45, pp. 48; 52). Thus, your revenues from berthing, terminalling, lease of equipments and warehousing services for cargoes loaded and unloaded in the port are mainly connected to, if not incidental or as the necessary consequence of, your port services business. Conversely, your vessels chartering business operation is not embraced by your port services business, hence, the former is classifiable as another independent line of business under the Tax Code. Your Chartering Business Please be informed that there are two distinct types of charter hire contracts for vessels, viz ., a charter of demise commonly known as a bareboat charter and, a charter of affreightment which is commonly known as a time charter. In a charter of demise the vessel owner delivers the chartered vessel to the lessee without provisions and complement of the crew, hence, a "bareboat charter". The lessee himself supplies the necessary provisions for the operation of the vessel, particularly the complement of the crew to run the same. This type of charter hire is considered a contract of lease . On the other hand, in a charter of affreightment, the vessel owner himself operates and runs the vessel through his own crew for the purpose of transporting the person and/or cargo of the charterer. This letter type of charter hire is considered a contract of carriage. Your company's charter hire contracts are classified as charter of affreightment since your company operates and runs the vessels through its own crew, hence, the same are classified as contracts of carriage. Being engaged in the business of common carriage your company is subject to the 3% common carrier's tax, based on its gross quarterly receipts therefrom, pursuant to Section 115, NIRC. Said gross receipts are, accordingly exempted from the 10% VAT, pursuant to Section 103(j), NIRC. cdti Your Port Services Business All your revenues from port services business, as an independent line of business, including the aforementioned revenues from berthing fees, terminalling fees, from the use of your service equipments at the port, and from your warehousing services, being main or integral part of your certain persons." (BLACK'S LAW DICTIONARY, citing Cawrse V. American Surety Co. of New York) Thus, a warehouseman's services is for hire, i.e., he offers his personal services to receive and store goods and merchandise for others, for a fee. Hence, his gross receipt from the sale of his personal services is subject to 10% VAT pursuant to Section 102, NIRC. It follows, your gross receipts from your warehousing activities, being part of your Port services business remain subject to the 10% VAT. cdt Very truly yours, JOSE U. ONG Commissioner of Internal Revenue