| Related to Freight Tax in the Philippines ** Income Tax (2.5%) : An International carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its ' Gross Philippine Billings' as defined hereunder: 1. International Air Carrier - 'Gross Philippine Billings' refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, That tickets Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings. 2. International Shipping - 'Gross Philippine Billing' means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents. ** Percentage Tax (Common Carriers Tax 3%) on International Carriers : 1. International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts. 2. International shipping carriers doing business in the Philippines shall pay a tax equivalent to three percent (3%) of their quarterly gross receipt. ** Income Tax paying 1.5% not 2.5% as per Tax Treaty signed between Philippines and following countries : Denmark, Singapore, Canada, France, United Kingdom, Pakistan, Australia, Japan, Belgium, New Zealand, Finland, Indonesia, Austria, USA, Thailand, Germany, Malaysia, Korea, Sweden, Italy, Nethelands, Brazil, Spain, India, Israel. (example: part of Philippines - South Korea Tax Treaty) Article 8. Shipping and air transport 1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. 2. The provisions of paragraph 1 shall also apply to profits derived from the participation in a pool, a joint business or an international operating agency. 3. Notwithstanding the provisions of paragraph 1, profits from sources within a Contracting State derived by an enterprise of the other Contracting State from the operation of ships or aircraft in international traffic may be taxed in the first mentioned State but the tax so charged shall not exceed the lesser of; a. one and one-half (1 1/2%) percent of the gross revenues derived from sources in that State; and b. the lowest rate of Philippine tax that may be imposed on profits of the same kind derived under similar circumstances by a resident of a third State. ** Letter reply by Bureau of Internal Revenue 1. Re : 1.5% of Income Tax on Ocean Freight , March 5, 1997 This refers to your request for information regarding the Philippine tax liabilities of Tropical Shipping, your US-based principal. You have represented that you are registered with the SEC and the BIR as Citadel Shipping Lines but uses the trade name Citadel Lines; that you have been acting as a general shipping agent for various shipowners around the world; that as such, you solicit cargoes to be loaded or discharged from their designated vessels in return for freight payments; that as agent, you pay in behalf of your principals the 3% common carrier's tax and the 2 1/2% income tax on the gross outward freight earnings on billings on a quarterly basis; that on June 1, 1995, you were appointed by Tropical Shipping as its agent in the Philippines to perform certain sales and cargo agent services; and that the said shipping company will operate services from Manila to the Caribbean via Florida. In reply, please be informed that pursuant to Section 25(a)(2) of the Tax Code, as amended, International carriers doing business in the Philippines shall pay a tax of two and one-half (2 1/2%) percent on their Gross Philippine Billing. However, Article 9 of the RP-US Tax Treaty provides, and since Tropical Shipping is a non-resident American shipping company operating in international traffic, the gross freight earnings derived by it from such operation shall be subject to a tax of 1-1/2% pursuant to said Article 9 of the RP-US Tax Treaty. 2. Re : Common Carrier's Tax 3% on Ocean Freight collect, May 15, 1997 This refers to your letter dated October 12, 1995 stating that your client, Direct Container Line Phils (DCL Phil.) is a corporation registered with the SEC as a nonvessel operating common carrier; that unlike other common carriers, it does not own the vessel it intends to use in its operations; that it is 40% owned by Direct Container Line (DCL) USA; that DCL USA has affiliate all over the world; that DCL USA and its affiliates source shippers of cargoes to the Philippines and forward the cargoes to Philippine importers, also known as Philippine consignees; that freight and other charges on cargoes are determined and agreed upon between the shippers and DCL at that point of loading; that freight charges are on collect basis; that DCL's foreign afiliates handling cargo forwarding abroad advise the DCL Phil and provide advance copies of Bills of Lading to various Philippine consignees. Upon arrival of vessel carrier in the Philippines, DCL Philippines undertakes the following services: (a) notifies Phil consignees about the arrival of the cargoes; (b) clears the cargoes with the Bureau of Customs for the account of the consignees; (c) engages customs brokers and freight howlers to transport the cargoes from the customs area to the consignee's warehouse for the account of the Phil consignees; (d) collect the agreed "collect freight" for the account of the DCL affiliate who shipped the cargoes; (e) DCL Phil incoices the consignee for (1) the collect freight agreed abroad, (2) a collection fee, (3) terminal handling cost, (4) turn over fee and (5) others such as transfer fees, and (f) the amount received for freight collect is remitted to DCL who initiated the shipment or uses the amount to pay obligations of the shipper affiliate to a local agent of the ship for the account of the DCL USA. Based on the foregoing representations, you now request for a ruling as to whether or not DCL Phil is subject to VAT or to the common carrier's tax. In reply, please be informed that in the case of Japan Air Lines vs.Commissioner of Internal Revenue, CTA Case No. 1643, Jan 28, 1968, it is not necessary that the carrier should own the means of transportation to be subject to the 3% common carrier's tax. In other words, the law does not require ownership of the vessels, aircraft, or other means of transport by the operator to be categorized as a common carrier. Accordingly, the fact that DCL does not own but merely leases the vessel used in its operations, it is still considered a common carrier. Since common carriers, with respect to their gross receipts from carrier of cargo were covered by VAT beginning January 1, 1996, DCL shall be held liable to VAT effective said date only. However, freight collection corresponding to the international route by the International Carriers shall remain subject to the common carrier's tax of 3% pursuant to Section 17 of Republic Act No.7716 as amended by Section 8 of R.A.No.8241 |