VAT Ruling No. 097-99

September 16, 1999 VAT RULING NO. 097-99 Sec. 106 (A) (2)-062-98-097-99 EBMS Enterprises 83 C.C. Santos Street, BF Homes Paraaque, Metro Manila Attention: Ms . Angelina A . Barete Account Officer Gentlemen : This refers to your letter dated June 11, 1999 representing that EBMS Enterprises ("EBMS") is registered with the Department of Trade and Industry and the Bureau of Internal Revenue ("BIR") as a sole proprietorship engaged in general trading activities; that from the start of its commercial operations on July 14, 1997 sales by EBMS were all made to non-resident foreign corporations (not engaged in trade or business in the Philippines) who own ocean-going vessels plying international routes; that no sales were made to domestic shipping companies; that the said EMBS sales includes the sale of uniforms to the said non-resident foreign shipping corporations for the use of the latter's Filipino crews which they have hired; that the said Filipino crews depart from the Philippines, proceed to foreign ports, and report to their respective vessel assignments directly; that these Filipino crews no longer report to the head office of the non-resident foreign corporations which have hired them to man the ocean-going vessels; that therefore the said uniforms sold by EBMS Enterprises to the non-resident foreign shipping corporations are delivered to the respective local manning agents which in turn deliver the uniforms to the individual crews leaving the Philippines for their vessels assignments; that for instance, while the principal office of a foreign shipping company is in Germany, the Filipino crew leaves the Philippines and may board the vessel in Spain, US or Canada depending on the nearest port of call of his vessel assignment; that therefore EBMS delivers the crews' uniforms to the Philippine manning agents concerned and the latter delivers the uniforms to the departing crews; that consequently, the uniforms are individually hand-carried by the individual crew when they depart from the Philippines; that payments to EBMS Enterprises for the sale of uniforms are remitted in US Dollars by the non-resident foreign shipping corporations to the local manning agent; that the Philippine manning agent in turn remits said payments to the US dollar account of EBMS in the Philippines; and that EBMS then issues official receipts in the name of the non-resident foreign shipping corporation. You now request for a ruling on the value-added tax (VAT) implication of the sale by EMBS Enterprises of uniforms to non-resident foreign corporations for the use of crews on board ocean-going vessels plying international routes. In reply, we hold that since the crew uniforms sold by EBMS Enterprise would actually cross Philippine border in that the same would be used by crews on board vessels plying international routes and paid for by the non-resident shipping corporation, then zero-rating of the transaction is proper under the Cross Border Doctrine which is the underlying principle of the VAT system being followed in this jurisdiction (VAT Ruling No. 062-98 dated December 05, 1998). It must be understood however that zero-rating is applicable only to such sales made to the non-resident foreign shipping corporations as evidenced by the corresponding foreign-currency payments. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue