VAT Ruling No. 090-90

April 10, 1990 VAT RULING NO. 090-90 Castillo, Laman Tan & Pantaleon Singapore Airlines Building 130 H. V. de la Costa St., Salcedo Village, 1200 Makati Metro Manila Attention: Mr . Paulino C . Petralbo Mr . Quirino B . Bisquera, Jr . Gentlemen : This refers to your letter dated November 22, 1989 requesting a ruling on the applicability of the value-added tax on the following transactions undertaken by your client, ALBAR Shipping and Trading Corporation: (a) charter fees on the bareboat charter agreement between your client and a non-resident foreign shipping corporation; (b) charter fees on the time charter: (in the form of manning and crewing services) entered by your client with a non-resident foreign shipping corporation. LLjur It is represented that your client, as a domestic corporation engaged in shipping business, charter vessels from foreign shipping corporations not engaged in trade or business in the Philippines and that it pays a charter fee to the foreign shipping corporation net of the 4.5% withholding tax remitted to this office as provided under Section 25(b) (3) of the Tax Code, as amended, and that the contract between your client and the foreign shipping corporation is contained in a bareboat charter executed abroad. Upon approval by the Maritime Industry Authority (MARINA) of said charter, the ship was registered with the Philippine Coast Guard in the name of your client who, as the disponent owner, entered into a time charter with a foreign shipping corporation not engaged in trade or business in the Philippines. The vessel which is delivered and redelivered in Japan, is being used in cross country trading abroad with your client providing manning and crewing services. In payment for the aforementioned services, the Central Bank (Reference No. IPCD Ref. No. A-0010-85 dated May 23, 1985) has authorized your client to remit to the Philippines its net foreign exchange earnings from the bareboat charter-in and the time charter-out. The net foreign exchange represents the gross income from the charter out less the payments for bareboat charter. In reply, please be informed of the following: (a) The charter fees paid by your client to a non-resident foreign corporation are not subject to VAT because the person who is supposed to have rendered services is not engaged in trade or business in the Philippines. VAT is an excise tax which is within the tax jurisdiction of the Philippines if the transaction is executed and consummated in the Philippines. Inasmuch as the bareboat charter was executed and consummated in Japan, i.e., the vessel is delivered and redelivered in Japan, the transaction is beyond the taxing jurisdiction of the Philippines. (b) Before the execution of the time charter your client for all practical purposes is the owner of the vessel for the period of the bareboat charter. Thus, when it entered into a time charter with another foreign corporation, your client, as the owner continues to operate the vessel by contracting service by its master to carry goods loaded on the vessel and the master as well as the crew remains servant of the owner. (Black's Law Dictionary) On the basis of these facts, your client is the vessel operator which is engaged in transporting cargo and is subject to 3% common carrier's tax based on the total amount paid by its client which constitutes its gross receipts from the operation of its business as a common carrier (Section 115 of the Tax Code as amended) except those realized from cross country trading. Such being the case, whatever gross income your client receives is exempt from VAT pursuant to Section 103 (j) of the same Code. aisadc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue