Inbound transshipments

A domestic shipper seeks clarification on 1) whether the VAT liability for the inbound transshipment of goods or cargoes took effect on Dec. 15, 1998 (the date of VAT ruling no. 62-98) or Jan. 1, 1996 (the effectivity of Republic Act 7716, otherwise known as the E-VAT Law); and 2) the VAT liability on the transshipment of empty foreign containers bound for ports outside the Philippines.

The letter sender’s request for VAT zero-rating of the transshipment services provided to foreign international carriers was denied in VAT ruling no. 010-98 dated Feb. 19, 1998. As a result of the letter sender’s request for reconsideration, VAT ruling no. 62-98 was issued and discussed the cross border doctrine. Based on Section 109(a) of the Tax Code of 1997, the doctrine allows the zero-rating of transshipment services to international carriers so long as the transshipment of goods and services is from a Philippine port to a foreign port. Said another way, zero percent VAT is allowed only for outbound transshipment of goods or cargoes but a 10% VAT is charged inbound transshipment of goods and services.

Under the transitory provisions of Revenue regulations no. 7-95, which implemented RA 7716, "these regulations shall take effect 15 days after publication in a newspaper of general circulation in the Philippines" or beginning Jan. 1, 1996.

Consequently, the VAT on inbound transport of goods and cargoes cannot be based on VAT ruling no. 62-98, which merely interpreted or clarified the provisions of Section 102(a) of the E-VAT Law that took effect on Jan. 1, 1996. This ruling is supported by VAT ruling no. 10-96 dated June 19, 1996, which held that the freight on domestic shipping of imported cargoes bound for Mindanao was subject to VAT effective Jan. 1, 1996.

The second issue raised deals with the following:

• international shipping lines bring in imports loaded in foreign vans through the port of Manila;

• domestic shipping lines transship these laden vans to ports outside of Manila;

• domestic shipping lines transship the empty foreign vans from ports outside of Manila ; and

• international shipping lines bring the empty foreign vans to foreign port.

We hold that the transporting by the domestic shipping companies of the empty container vans from the outports back to Manila and the bringing by the international shipping lines of the said empty foreign vans to foreign ports are both subject to VAT at zero percent under the cross border doctrine.

Based on VAT ruling no. 62-98:

"The onus of taxation under our VAT system is in that country where goods, property or services are destined, used or consumed. This is the reason why, under our VAT Law, goods, property ors services destined to, used or consumed in the Philippines are subject to the 10% VAT whereas those destined, used or consumed abroad are subject to zero percent VAT.

"Unless otherwise expressly provided for by law, the sale of services, such as those rendered to vessels engaged exclusively in the international shipping business, may qualify for the zero percent VAT, provided the use or benefit derived from such services crosses Philippine territory, in accordance with the cross border doctrine, which is the underlying principle of our VAT system."

(VAT ruling No. 45-2001 dated July 16, 2001. This ruling is issued on the basis of represented facts. However, if upon investigations, it will be disclosed that the facts are different, then this ruling shall be considered null and void).