January 30, 2008

REVENUE MEMORANDUM CIRCULAR NO. 031-08

SUBJECT : Clarification of Issues Concerning Common Carriers by Sea

and their Agents Relative to the Transport of Passengers,
Goods or Cargoes

TO : All Internal Revenue Officers and Others Concerned

I. Background

This Revenue Memorandum Circular is issued to clarify certain provisions of

the National Internal Revenue Code of 1997, as amended (Code), as it applies to
shipping companies and their agents as well as their suppliers to ensure that the law is
properly implemented and taxes are properly collected, in a manner that aligns with
acceptable business practices.

II. Definition of Terms

1. Common Carrier — refers to individuals, corporations, firms or

associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water or air, for
compensation, offering their services to the public and shall
include transportation contractors.

2. Gross Receipts — the term refers to the total amount of money or

its equivalent representing the contract price, compensation,
service fee, rental or royalty, including the amount charged for
materials supplied with the services and advance payments
actually or constructively received during the taxable
quarter/period for the services performed or to be performed for
another person, excluding VAT, but shall not include amount
earmarked for remittance to a third party as agreed in an implied or
express contract or mandated by law and invoiced/receipted by
such third party directly to the real customer or actual recipient of
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 the service. ISADET

For common carriers, gross receipts is the amount actually or

constructively received as compensation for the services of
undertaking the contract of carriage.

3. International Sea Carrier — refers to a foreign shipping company

doing business in the Philippines, having touched or intention of
touching any Philippine port to perform international sea
transportation services/activities from the Philippines to anywhere
in the world and vice versa, in the case of on-line carrier, or having
maintained business establishment, agent or representative office
in the Philippines for the sale of owned tickets/passage documents
or tickets/passage documents of other shipping companies, which
shipping companies operate without touching any Philippine port,
in the case of off-line carrier. International sea carrier includes
both off-line carrier and on-line carrier.

III. Questions and Answers

Q-1: Who are the common carriers subject to the regular VAT rate (10% effective
Nov. 1, 2005/12% effective Feb. 1, 2006) under R.A. 9337 ?

A-1: The common carriers subject to VAT under R.A. 9337 are domestic common
carriers by sea or air where they are liable to pay the regular 10%/12% output
VAT on their domestic operation and 0% output VAT on their on-line
international operation. Domestic common carriers which transport goods and
cargoes by land, however, are already subject to VAT even prior to R.A.
9337.

Common carriers by land with respect to their gross receipts from the
transport of passengers including operators of taxicabs, utility cars for rent or
hire driven by the lessees and tourist buses used for the transport of
passengers shall be subject to the 3% percentage tax imposed under Section
117 of the Code, but shall not be liable to VAT. On-line international
common carrier by air and sea shall continue to be subject to the 3% common
carrier's tax under Section 118 of the Code. IDESTH

Q-2: What transactions of domestic sea carriers are subject to VAT?

A-2: Transport of passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines is subject to 12% VAT. Any other income

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 incidental to its operations shall likewise be subject to 12% VAT.

Q-3: Are on-line international sea carriers subject to VAT?

A-3: No. On-line international sea carriers are not subject to VAT they being
subject to percentage tax under Title V of the Tax Code. They are liable to the
three percent (3%) percentage tax imposed on their gross receipts from
outbound fares and freight, pursuant to Section 118 of the Code.

However, if these on-line international sea carriers engage in other

transactions not exempt under Section 119 of the Code, they shall be
liable to the twelve percent (12%) VAT on these transactions.

Q-4: Are demurrage fees collected by on-line international sea carriers due to
delay by the shipper in unloading their inbound cargoes subject to tax?

A-4: Yes. Demurrage fees, which are in the nature of rent for the use of property of
the carrier in the Philippines is considered income from Philippine source and
is subject to income tax under the regular rate as the other types of income of
the on-line carrier. Said other line of business may likewise be subject to VAT
or percentage tax applying the rule on threshold discussed in the succeeding
paragraph.

Q-5: Are detention fees and other charges collected by international sea carriers
subject to tax?

A-5: Detention fees and other charges relating to outbound cargoes and inbound
cargoes are all considered Philippine-sourced income of the international sea
carriers they being collected for the use of property or rendition of services in
the Philippines, and are subject to the Philippine income tax under the regular
rate, and to the value added tax, if the total annual receipts from all the
VAT-registered activities exceed one million five hundred thousand pesos
(P1,500,000.00). However, if the total annual gross receipts do not exceed one
million five hundred thousand pesos, said taxpayer is liable to pay the 3%
percentage tax. cTECHI

Q-6: Are domestic common carriers engaged in both domestic and international
transport operations subject to VAT on both operations?

A-6: Domestic carriers are subject to 12% VAT on income derived from their
domestic operations. However, their income from international transport
operations, involving the transport of passengers, goods and cargoes from the
Philippines to a foreign country, shall be subject to VAT at zero rate (0%)
while income from international transport operations involving the transport

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 of passengers, goods and cargoes from a foreign country to the Philippines
shall be VAT-exempt, the latter being revenue/receipts from foreign source.

Q-7: Can on-line international sea carriers opt to be under the VAT system and be
subject to VAT at zero-rate on their international operations similar to
domestic corporations?

A-7: No. The business of an international sea carrier is exempt from VAT because
this is a service subject to percentage tax. If the main business is exempt from
VAT, the VAT-exempt person can not elect that its exempt business/es be
placed under the VAT system. The option to be subject to VAT on its exempt
transactions is available only to a VAT-registered person.

Q-8: Are domestic shipping carriers with international operations considered as

"international carriers" and be subject to the 3% common carrier's tax under
Section 118 of the Code?

A-8: No. "International shipping carriers" refers to foreign shipping companies

only. It does not include domestic sea carriers/corporations with international
shipping operations.

Q-9: Are shipping carriers which operate under a government franchise still
required to pay the franchise tax in addition to the VAT?

A-9: No. The VAT is in lieu of the franchise tax.

Q-10: Are the sale, importation or lease of passenger or cargo vessels, including
engine, equipment and spare parts thereof for domestic or international
transport operations exempt from VAT? acTDCI

A-10: The sale, importation or lease of passenger or cargo vessels, including engine,
equipment and spare parts thereof for domestic or international transport
operations, are exempt from VAT. Provided, that the exemption from VAT on
the importation and local purchase of passenger and/or cargo vessels shall be
limited to those of one hundred fifty (150) tons and above, including engine
and spare parts of said vessels. Provided, further, that the vessels to be
imported shall comply with the age limit requirement, at the time of
acquisition counted from the date of the vessel's original commissioning, as
follows: (i) for passenger and/or cargo vessels, the age limit is fifteen (15)
years old; (ii) for tankers, the age limit is ten (10) years old; and (iii) for
high-speed passenger crafts, the age limit is five (5) years old. Provided,
finally, that the exemption shall be subject to the provisions of Section 4 of
Republic Act No. 9295 , otherwise known as "The Domestic Shipping
Development Act of 2004."
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 Q-11: What is the consequence if the domestic shipping carrier fails to comply with
Section 4 of R.A. 9295?

A-11: The importation or local purchase of passenger and/or cargo vessels, including
engine, equipment and spare parts thereof, shall not be exempt from VAT.

Q-12: Are the importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other
metal plates, including marine-grade aluminum plates, used for
transportation operations of Philippine Registered Vessel, exempt from VAT?

A-12: Yes, provided that it has complied with Section 4 (b) of R.A. 9295.

Q-13: Are importation of fuel, goods and supplies by persons engaged in

international shipping exempt from VAT? TIAEac

A-13: The importation of fuel, goods and supplies for use in the international sea
transport operations is VAT exempt. Provided, that the said fuel, goods and
supplies shall be used exclusively or shall pertain to the transport of goods
and/or passenger from a port in the Philippines directly to a foreign port
without stopping at any other port in the Philippines to unload passengers
and/or cargoes loaded in and from another domestic port; Provided, further,
that if any portion of such fuel, goods or supplies is used for purposes other
than that mentioned in this paragraph, such portion of fuel, goods and supplies
shall be subject to 12% VAT.

Q-14: Are sales of goods, supplies, equipment, fuel and services to persons engaged
in international shipping operations subject to VAT?

A-14: The sale of goods, supplies, equipment, fuel and services (including leases of
property) to the common carrier to be used in its international sea transport
operations is zero-rated. Provided, that the same is limited to goods, supplies,
equipment, fuel and services pertaining to or attributable to the transport of
goods and passengers from a port in the Philippines directly to a foreign port
without docking or stopping at any other port in the Philippines to unload
passengers and/or cargoes loaded in and from another domestic port;
Provided, further, that if any portion of such fuel, equipment, goods or
supplies and services is used for purposes other than that mentioned in this
paragraph, such portion of fuel, equipment, goods, supplies, and services shall
be subject to 12% VAT.

Q-15: Are importation of fuel by shipping company exclusively engaged in

international operations automatically exempt from the imposition of VAT?
What about its purchases of fuel from domestic suppliers? Will these
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 purchases automatically qualify as zero-rated?

A-15: Direct importations of fuel by a shipping company that is exclusively engaged

in international operations are considered as VAT exempt. However, the
importer has to secure a VAT-exempt Authority to Release Imported Goods
(ATRIG) from the appropriate BIR office prior to the release of imported fuel
from the custody of the Bureau of Customs.

With respect to its domestic purchases of fuel, considering that the same are
normally loaded directly to the international carrier/vessel, the sales thereof by
its suppliers are considered as automatically zero-rated; hence, there is no
need to secure prior approval for zero-rating from the BIR. The seller of the
fuel must issue a zero-rated VAT invoice in the name of the international
carrier/vessel and the same must be supported by Delivery Receipt or any
document, evidencing the actual loading of the fuel to the international
carrier/vessel duly acknowledged by its captain or duly authorized
representative. aEIcHA

Q-16: How shall we tax petroleum products imported by/directly sold to sea
transportation companies that are engaged in both domestic and international
operations?

A-16: It will depend upon the nature of procurement of petroleum products by these
sea transportation companies:

1. If the sea transport operators locally purchase petroleum products

on a per voyage basis, such that the specific lifting/purchase of
the fuel can be directly identified to be used by the loading vessel
for outbound international voyage, the said sales are considered
effectively zero-rated or the importation is considered
VAT-exempt. The domestic seller of the fuel must issue a
zero-rated VAT invoice in the name of the carrier and the same
must be supported by Delivery Receipt or any document
evidencing the actual loading of the fuel to the carrier for
outbound international voyage duly acknowledged by its captain
or duly authorized representative;

2. If the petroleum products are imported/sold in bulk and the

destinations of the vessel may be known only upon loading of
the fuel to the departing vessel, such bulk importation by/direct
sales to the sea transport operators shall be subject to the 12%
VAT. The concerned sea transport operators can either utilize the
VAT paid on the importations or local purchases of fuel as credit
against their output tax liabilities, or can claim for tax
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 refund/credit such portion of VAT payments on local as well as
imported purchases that are attributable to their zero-rated sales.

3. If the sea transport operator is maintaining dedicated tanks for

the storage of fuel to be used exclusively for international
voyage, and the imported/locally purchased petroleum products
will be delivered directly to these dedicated storage tanks upon
release from BOC custody/supplier oil company, the importation
of these fuel by the sea transport operator shall be exempt from
VAT, while its local purchases will be subject to VAT effective
zero rating. In both cases, however, the maintenance of these
storage tanks shall be subject to prior approval and regular
monitoring by the BIR. Otherwise, the rule in the immediately
preceding paragraph will apply.

Q-17: If the country of registry of the international vessel purchasing locally the
petroleum product does not grant similar tax treatment to
Philippine-registered carriers, are we still going to treat the sale of these
products as zero-rated for VAT purposes?

A-17: Yes. Unlike the provisions of Section 135 of the Code with respect to the
imposition of excise taxes on petroleum products, the provision of the new
VAT law treating the direct sales of petroleum products to shipping
companies engaged in international operations as zero-rated did not make any
distinction. As such, the rule on reciprocity on these sales will not apply.

Q-18: What is the basis in the computation of output VAT on sale of services of the
shipping company?

A-18: The basis in the computation of output VAT of a shipping company is its
gross receipts as defined in this Circular. ETIcHa

Q-19: Which transactions with international sea transport operators are zero-rated?

A-19: Sale of services to persons engaged exclusively in international sea transport,

including leases of property for use thereof, and the sale of goods supplies,
equipment and fuel are zero-rated. However, sale of goods, supplies,
equipment and fuel as well as services to persons engaged in both domestic
and international sea transport operations shall be zero-rated only with respect
to the portion that will be used in international operations.

Q-20: How shall we tax petroleum products imported by/directly sold to

international sea carriers that are engaged in both domestic and international
operations?
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 A-20: It will depend on the nature of procurement of petroleum products by these
international sea carriers:

1. If the international sea carrier locally procures petroleum

products on a per voyage basis, such that the specific purchase of
the fuel can be directly identified to be used by the loading vessel
for outbound voyage, the said sales are considered zero-rated or
the importation is considered VAT-exempt. The domestic seller
of the fuel must issue a zero-rated VAT invoice in the name of
the carrier and the same must be supported by Delivery Receipt
or any document evidencing the actual loading of the fuel to the
carrier for outbound international voyage duly acknowledged by
its captain or duly authorized representative.

2. If the petroleum products are imported/sold in bulk and the

destinations of the vessel may be known only upon loading of
the fuel to the departing vessel, such bulk importation by/direct
sales to the transport operators shall be subject to the 12% VAT.
The concerned transport operators can either utilize the VAT
paid on the importation or local purchase of fuel as credit against
their output tax liabilities, or can claim for tax refund/credit such
portion of the VAT payments on local as well as imported
purchases that are attributable to their zero-rated sales. aSEHDA

3. If the transport operator is maintaining dedicated tanks for the

storage of fuel to be used exclusively for international voyage
and the imported/locally purchased petroleum products will be
delivered directly to these dedicated storage tanks upon release
from BOC custody/supplier oil company, the importation of
these fuel by the transport operator shall be exempt from VAT
while the local purchases will be subject to VAT at zero rate. In
both cases, however, the maintenance of these storage tanks shall
be subject to prior approval and regular monitoring by the BIR.
Otherwise, the rule in the immediately preceding paragraph will
apply.

Q-21: Who among the sea transport operators are required to register as VAT
taxpayer effective November 1, 2005?

A-21: Philippine shipping companies, whether engaged in domestic or international

trade, whose gross sales and/or receipts from the transport of passengers,
goods and cargoes for any 12-month period exceed P1,500,000 are required to
register as VAT taxpayers.
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 Q-22: Can domestic tickets, bills of lading and excess baggage tickets issued by
domestic sea transport carriers serve as a VAT official receipt?

A-22: No. VAT-registered domestic sea transport carriers are still required to issue
VAT Official Receipts on their sale of passenger or cargo tickets for both
domestic and international operations. The passenger or cargo tickets are
considered contracts of passage/carriage and cannot serve as official receipts.
VAT Official Receipts are issued upon receipt, actual or constructive, of
payments from the purchasers. In case of tickets sold thru general sales agents
of such domestic sea transport carriers, the agents shall issue the VAT official
receipts of the domestic sea transport carriers since the sellers of the tickets
are the domestic sea transport carriers and not the agents who merely collect
the proceeds of sales from the buyers on behalf of the domestic sea transport
carriers. AcTDaH

The agents shall, in turn, bill the domestic sea carriers for their commissions
and the 12% VAT on said commission, if the agents are VAT-registered or
VAT-registrable taxpayers. The VAT official receipts issued by the agents to
the domestic sea carriers shall be the bases of the latter in claiming input taxes
on commissions paid to agents. On the other hand, if the agent is a qualified
non-VAT taxpayer, he shall issue non-VAT official receipt to the domestic
carrier. However, said non-VAT official receipt issued by the agent to the
domestic common carrier cannot generate input tax to the latter.

On the other hand, if the intermediary-entity between the carrier and the
customer purchases in bulk passenger spaces or cargo spaces and resells the
same to the said customer at a price dictated by said intermediary as
evidenced by the issuance of the intermediary's official receipt and sales
invoice/billing statement, a wholesaler-distributor/retailer relationship is
created between the carrier and the intermediary and they shall be taxed
accordingly.

Q-23: What is the basis of the 12% VAT on the commission of the general sales
agents with respect to their sales of domestic sea tickets?

A-23: On the sale of passage tickets by agents, the said agent's gross receipts shall
pertain to or cover their commission which is included in the price of passage
tickets. The price of the passage tickets plus the 12% VAT passed on by the
domestic sea carrier (seller) to the buyer shall, after issuance of the carrier's
VAT official receipt to the said buyer, be collected by the agent on behalf of
the domestic sea carrier. The agent shall remit to the carrier the following: the
price of the tickets (less the agent's commission); the 12% VAT (less the VAT
accruing on the agent's commission); and the 10% creditable withholding of

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 income tax on agent's commission.

The proceeds of the sale of the ticket do not form part of the gross receipts of
the agent. These are gross receipts of the carrier that personally, or through the
agent, issued the carrier's VAT official receipt: EDISaA

Example: SL SHIPPING sold domestic ticket at P1,000.00 through its general

sales agent (agent's commission is 3.5%). Shown herein-below is the
computation:

Buyer
Top 10,000 Others
Corporations
Price of Ticket P1,000.00 P1,000.00
Add: 12% VAT 120.00 120.00
–––––––– ––––––––
Sub-Total P1,120.00 P1,120.00
Less: 2% Withholding Tax (20.00)
Total Amount Collected from Buyer P1,100.00 P1,120.00
Less: Agent's Commission (35.00) (35.00)
12% VAT on Commission (4.20) (4.20)
–––––––– ––––––––
Sub-Total P1,060.80 P1,080.80
Add: 10% Withholding of Income Tax 3.50 3.50
on Agent's Commission –––––––– ––––––––
Amount to be remitted by the Agent P1,064.30 P1,084.30
to SL SHIPPING ======== ========

The agent shall remit to the BIR the 12% VAT accruing on its commission,
net of input taxes incurred by the agent. On the other hand, the domestic
shipping company shall remit the VAT on transport business, net of input
taxes which includes the VAT on commission charged by the agent.

For buyers classified as belonging to the Top Ten Thousand (10,000) private
corporations, they have to deduct and withhold 2% on their payments for
domestic sea tickets and issue a Certificate of Creditable Tax Withheld at
Source (BIR Form No. 2307) in the name of the domestic sea carrier as the
income recipient. The latter shall in turn issue BIR Form No. 2307 to the
income recipient-agent for the 10% creditable withholding tax withheld from
the agent's commission.

Q-24: Will a non-VAT registered ticket agent be liable for VAT as a result of the
12% VAT passed on to buyers of domestic shipping ticket?

A-24: No. The 12% VAT on the sale of domestic passage tickets is passed on to the
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 buyer by the seller which is the domestic sea carrier. The agent collects the
payments for the domestic passage ticket plus the 12% VAT on behalf of the
domestic sea carrier. The non-VAT registered ticket agent shall be liable to
three percent (3%) tax on his gross receipts of commission income pursuant to
Section 116 of the Tax Code, which commission income is evidenced by
his issuance of Non-VAT Official Receipt to his customer which is the sea
carrier. It is assumed, of course, that the annual gross receipts of the agent
does not exceed P1,500,000. cDaEAS

Q-25: How much should be the passed-on VAT on services rendered to the
government? Is it 12% or 5% VAT?

A-25: The gross payments made by the government to sellers of goods and services
shall be subject to a final VAT withholding of five percent (5%) on gross
payments. However, the VAT to be passed on by the sellers of goods and
services to the government shall still be 12% to cover the final VAT of 5%
and the standard input tax of 7% (The 12% rate is effective on Feb. 1, 2006).
The standard input tax shall cover the actual input tax plus or minus the
difference between the standard input tax and the actual input tax, which
difference shall be an adjustment to cost.

Q-26: Are shipping companies who are subject to VAT starting Nov. 1, 2005 entitled
to transitional input tax?

A-26: Shipping companies are entitled to transitional input tax as follows:

(i) For goods, materials or supplies not for sale but purchased for
use in business in their present condition, which are not intended
for further processing and are on hand as of October 31, 2005, a
transitional input tax equivalent to 2% of the value of the
inventory on hand as of Nov. 1, 2005, or actual VAT paid on
such goods, materials or supplies, whichever is higher, shall be
allowed.

(ii) For goods purchased with the object of resale in their present
condition, the same transitional input tax equivalent to 2% of the
value of such goods or the actual VAT paid on such goods
unsold as of October 31, 2005, whichever is higher, shall be
allowed, which amount may be credited against the output tax of
the VAT-registered shipping company.

For this purpose, an inventory as of October 31, 2005 of such

goods or supplies showing the quantity, description and amount
should have been filed with the RDO or concerned BIR office
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 not later than November 30, 2005. DSATCI

In recognizing transitional input tax as of October 31, 2005, a

journal entry should be made in the books debiting the input tax
account and crediting the inventory/asset account.

Q-27: When a Philippine shipping company charters a vessel to an oil company

doing business in the Philippines for use in domestic trade, is the charter
income subject to VAT?

A-27: The charter income of the shipping company is subject to VAT since the
service is performed within the Philippines.

Q-28: What is the treatment for VAT purposes on the charter income of a Philippine
overseas shipping company engaged in international trade to another
Philippine shipping company likewise engaged in overseas shipping?

A-28: Income earned/gross receipts from the charter of the vessel between two
Philippine shipping companies which are domestic corporations whose
operations are exclusively for overseas operation is subject to zero-percent
(0%) VAT.

Q-29: Is the transport service rendered to a government agency by domestic carrier

engaged in international shipping originating from foreign port to Philippine
port subject to five percent (5%) final withholding VAT?

A-29: The transaction is not subject to five percent (5%) final withholding VAT
since the service was rendered outside the Philippines which service is
VAT-exempt.

Q-30: When a Philippine overseas shipping company charters to an oil company

doing business in the Philippines for use in the overseas trade, is the charter
income subject to VAT?

A-30: The charter income derived by a Philippine overseas shipping company from
the charter of a vessel used for overseas trade is subject to VAT.

Q-31: What is the treatment for VAT purposes of the revenue derived from the
charter of a vessel to a domestic shipping company where said vessel is used
both for domestic operation and international operations? CSDAIa

A-31: The charter revenue is subject to the 12% VAT. The portion of the charter fee
relating to the international operations may be claimed as a refund because it
is attributable to a zero-rated activity. The portion relating to domestic
operations will give rise to a creditable input tax since the domestic operation
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 is subject to 12% VAT.

Q-32: When a Philippine shipping company whose vessel carries cargo from a
foreign port to the Philippines and transships it on a domestic registered ship
bound for another Philippine port, is the income derived therefrom subject to
VAT?

A-32: Only the portion where the cargo is carried by a domestic ship from one
Philippine port to another Philippine port is subject to VAT which is assessed
on and payable by the Philippine company/domestic shipping corporation.

Q-33: What are the consequences if domestic common carriers failed to register as
VAT taxpayers?

A-33: Non-registration as VAT taxpayers does not exempt said companies from
their output tax liability on their sales of service and other taxable
transactions. However, in computing their VAT payable for the period, no
input tax credits on their purchases of goods, properties or services prior to
registration shall be allowed to be credited against their output tax liability.

Q-34: Are commission incomes received by the local shipping agents from their
foreign principals subject to VAT?

A-34: The commission income or fees received by the local shipping agents for
outbound freights/fares received by their foreign principals which are on-line
international sea carriers (touching any port in the Philippines as part of their
operation) shall be zero-rated pursuant to the provisions of Section 108 (B) (4)
of the Code. Said provision does not require that payments of the
commission income or fees for "services rendered to persons engaged in
international shipping operations, including leases of property for use
thereof," be paid in acceptable foreign currency in order that such transaction
may be zero-rated. On the other hand, commission income or fees received by
the local shipping agents pertaining to inbound freights/fares received by their
foreign principals/on-line international sea carriers or pertaining to
freights/fares received by off-line international sea carriers shall be subject to
VAT at 12%. aICHEc

Q-35: Are other income of domestic shipping companies earned on cancelled tickets
subject to VAT?

A-35: All related income such as penalty or charges earned on the cancellation of
tickets by the clients of domestic shipping companies are subject to VAT.

Q-36: Can a taxpayer whose main/principal line of business is subject to VAT and

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 therefore VAT-registered, likewise register under the VAT its secondary lines
of business which are exempt from VAT under Section 109 of the Tax
Code?

A-36: Yes. Section 109 (2) of the Tax Code provides — "A VAT-registered person
may elect that Subsection (1) [referring to exempt transactions] not apply to
its sale of goods or properties or services". Perforce, if the main/principal line
of business is subject to VAT and the taxpayer engaged thereon is
VAT-registered, said taxpayer may elect that all his exempt transactions will
be placed within the VAT system.

Q-37: Can an international shipping company which is engaged in other activities

subject to VAT, i.e. leasing of properties, etc., elect that all its business
activities be subject to VAT?

A-37: No. The main or principal business of an international shipping company is

VAT-exempt because it is subject to the percentage tax under Title V of
the Tax Code. Therefore, it can not elect that said exempt principal business
be subject to VAT even if its secondary businesses are subject to VAT.

Q-38: How do we determine the main or principal business of a taxpayer who is

engaged in mixed business activities?

A-38: In determining the main or principal business of a taxpayer, we apply the

pre-dominance test. Under this test, if more than fifty percent (50%) of its
gross selling price and/or gross receipts comes from its business/es subject to
VAT, its main/principal business falls within the VAT system making its
status as a VAT person. Otherwise, he can not be considered as a VAT person
eligible for the election provided for under Section 109 (2) of the Tax Code.
TAESDH

Q-39: How should the foreign international shipping line register as a taxpayer with
the Bureau of Internal Revenue?

A-39: The domestic shipping agent shall apply for a Taxpayer Identification Number
(TIN) for each principal it represents. Each principal is by itself a taxpayer
separate and distinct from the agent and the other principals of the same agent.
For purposes of registration and securing the TIN of the principal/s, the
shipping agent must submit the Agency Agreement between him and his
principal/s which will suffice as the documentation requirement.

Q-40: How should the foreign international shipping line file its tax returns?

A-40: The shipping agent shall file the pertinent tax returns for each principal using

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 the TIN and name of the particular principal. The shipping agent should not
use its own TIN in filing the returns of the principal it represents.

Q-41: Should the foreign international shipping line issue "Receipts" and maintain
"Books of Accounts" in its own name (meaning using the name and TIN of the
principal)?

A-41: Yes. Whether the foreign international shipping line operates business on its
own or through a shipping agent, it is required to issue receipts and maintain
books of accounts in its own name being a taxpayer in itself.

Q-42: In the case of transport by a domestic carrier of passengers and/or cargoes

from a domestic port to a foreign port but passing through another domestic
port to load additional passengers and/or cargoes bound for foreign
destination, will the entire journey be subject to a zero rate VAT?

A-42: Yes, the receipts from the entire journey from a domestic port to a foreign port
shall be subject to zero rate VAT. However, if before proceeding to the
foreign port the carrier loads passengers and/or cargoes from a domestic port
and unloads them in another domestic port, the gross receipts therefrom
(domestic port to another domestic port) shall be subject to 12% VAT. cTADCH

Q-43: If the purchaser of the domestic sea ticket refused to voluntarily disclose the
information that he is a VAT-registered person, will the seller of the domestic
ticket be liable for non-indication in the official receipt of the required
information prescribed under Sec. 113 (a) and Sec. 237 of the
Code?

A-43: If the purchaser is a regular customer, the seller has no valid excuse for not
knowing whether the purchaser is VAT-registered or not. As such, it shall be
liable for any omission of the prescribed information in the Receipt to be
issued. Official receipts issued to VAT-registered purchasers that do not
reflect the information prescribed under Sections 237 and 113 of the Code will
not be allowed as sources of input tax credits on the part of the
VAT-registered purchasers. However, for non-regular customers, the seller
will not be held liable for such omissions.

Q-44: If an international carrier issues a contract of carriage of goods from Davao

to Los Angeles, USA but said carrier picks up the goods only in Manila and
therefore sub-contracts to a domestic carrier the carriage service from Davao
to Manila, what are the tax liabilities of the two (2) carriers in this continuing
transaction?

A-44: In this scenario, the international carrier shall be liable to pay the Gross
Copyright 2018 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Third Release 2018 15
 Philippine Billing Tax (Income Tax) and the common carrier tax based on
freight from Davao to Los Angeles whereas the domestic carrier shall be
liable for income tax on the freight or service income from Davao to Manila.
However, said freight income of the domestic carrier shall be subject to VAT
at zero percent (0%), it being service rendered to international carrier engaged
in international transport operation.

All internal revenue officers and others concerned are hereby enjoined to
strictly implement the provisions of this Circular.

(SGD.) LILIAN B. HEFTI

Commissioner of Internal Revenue
Published in The Philippine Star on April 12, 2008.

Copyright 2018 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Third Release 2018 16