International shipping carriers
SECTION 28(A)(3) of the Tax Code states that an international carrier doing business in the Philippines shall pay an income tax of two and one-half percent on its ‘Gross Philippine Billings’. On the other hand, ‘Gross Philippine Billings’ (GPB) for international shipping carriers is defined as 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 [Section 28(A)(3)(b) of the Tax Code].
The definition implies that if the cargo is transshipped at any port outside the Philippines on another ship, the GPB shall include the entire freight including the freight corresponding to the leg from the transshipment port to the final destination.
By analogy, we refer to the provisions on GPB for international air carriers. Revenue Regulations No. 15-02 provides as follows:
“Section 5. Determination of Gross Philippine Billings. — (a) In computing for “Gross Philippine Billings”, there shall be included the total amount of gross revenue derived from passage of persons, excess baggage, cargo and/or 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 passage documents:
XXX
The gross revenue for freight or cargo and mail shall be determined based on the revenue realized from the carriage thereof. The amount realized for freight or cargo shall be based on the amount appearing on the airway bill after deducting therefrom the amount of discounts granted which shall be validated using the monthly cargo sales reports generated by the IATA Cargo Accounts Settlement System (IATA CASS) for airway bills issued through their cargo agents or the monthly reports prepared by the airline themselves or by their general sales agents for direct issues made.
The amount realized for mails shall, on the other hand, be determined based on the amount as reflected in the cargo manifest of the carrier.”
Although RR 15-02 governs international air carriers and no similar regulation governs international shipping carriers, the provision may be applied by analogy to international shipping carriers considering that Section (28(A)(3) of the Tax Code provides the same tax base, namely gross revenue, for the imposition of the 2½ % income tax to both international air carriers and international shipping carriers.
The precursor of Section 28 (A)(3)(b) of the present Tax Code is Section 24(b)(2) which provides as follows:
“Gross Philippine billings includes gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or mail originates from the Philippines. The gross revenue realized from the cargo or mail shall include the gross freight charge up to final destination. Gross revenues from chartered flights originating from the Philippines shall likewise from part of gross Philippine billings regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability of revenues from chartered flights, the term “originating from the Philippines” shall include flight of passengers who stay in the Philippines for more than 48 hours prior to embarkation.”
Based on the provision, the tax base for the imposition of the income tax on the transportation of cargo by international shipping carriers shall include the gross freight charge up to final destination. However, this provision has not been retained by Section 28 (A)(3)(b) of the present Tax Code. Thus, we believe that the tax base for the imposition of the 2 ½ % tax on GPB may not only be limited to gross freight charges but to all payments for the transportation of cargo from the Philippines up to its final destination which may constitute as “gross revenue.”
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