CTA Case No. 3531 (Decision)

�t:i'OBLlC 0 vlt� _.,t!lll.lPJ"tr4Pt ~OURT OF TAX APP�AU QUI!lt014 CH:-, l'lEISHIN SHIJc)InNG CO .. LTD .. , TOKYO SHIPPING CO .. , YS NEAH.SEA~i CO .. LTD 01 KYOSE! STEA!1SHIP CO .. LTD . , and SUNRITZY SHIPPING CO. LTD. , represented by SORIAMONT STEAMSHIP AGENCIES, INC., Petitioners, -� versus �- C.T.A. CASE NO. 3531 COMJ'1ISSIONER OF INTERNAL REVENUE,. Respondent., X- � - - - - - - - - - - - - X DE CI S I 0 N This is H judicial claim for tax credit of alleged excess payment of income tax in the total amount of F54 1 589 ~ 38 for the year 1980 by herein petitioners, all Japanese foreign shipping corpo- rations, and represented in the Philippines by Soriamont Steamship Agencies, !nee based uoon the provisions of the RP-Japan Tax Convention, which fixed a preferential rate of 1~% income tax due on gross earnings of the~e shipping companies from the carriage of goods or cargo from the Philippines. During the hearing before Us and upon his t~rn to present his ~ase, respondent did not present ., \ 34 9

Dl!.CISION - - -') "- CTA CASE NC. 3531 {. any countervuiling evidence ~ga in s t peLitioners, insteud his counsel had firstly manifested that they were awaiting the comment of the lnternaticnal r. Tax Division of his office with respect to this claim for tax credit until finally he submitted his case for decision, without the comment which was not forthcoming., This Court is now ccnvtrained to d~cide this case based solely on the evidence of petitioners presented to Us by petitioner Soriamont Jteamship Corporat.ion in behalf of. petitione::rs, said Jananese shipping corporations. It appears that peti tion ers were eng~ged in the business of international shipning . All these peti- tioners are Japanese shipping enterprises, represented here as aforesaid by the Soriamont StE.':lmship ,.0 enc ies, Inc. (herein~fter referred to c1s SORL\~�iC'N'r for brevity) 1 which is a domf'~�-.;tic ccrpor;1tion. (Exh s. H, H-1 to H-4b; TSN, June 16, 1983, pp . 4. 5, 50-53; ibid ., Nov. 22, 1983, p. 3.) During the period from Janu.. ry, 1981 to June, 1981, petitioners� vessels, all foreign registri~s , lo ~ded at , and transported sugar, fertilizer , copra and copper concentrate from, Prnl ippine. ports to \ 350

'I i' �� DECL.J ON - - 3- CTL. Cl:.!:JE !W. 353J ' foreign destination. (Exhs. K, K-1 to K-7 , I I-1 to I-4, J , J-1 to J - 4 ; T.s.N., June 16, 1983, p~. 4, 10 , .11, 53, 60.) These petition rs o.r princjpals t. were the Meish in Shipping Co. Ltd . , Tokyo Shipping Co ., YS Nearseas Co. Ltd ., Kyosei Steamship Co. Ltd. , and Sunritzy Shipping Co. (T.S.N., June 16, 1983, pp 13-48; ibid ., Nov. 22 , 1983, pp . 3, 4 0 ) They have appointed GORIAMONT to represent them with res- pect to the loading of cargo in the Phi l ippines. This agency relation is embodied in varicus agenc y agreements, letters and telex s . (T.S~N., June 16, 1983, PP � 49-60; Exhs . H, H-1 to H-4b. ) Before any of petitioners � foreign vessels arrived in the Philippines to load cargo, peti ioners- principals notifies SORIAMONT by telex particulars of the date of t he vessel' s arrival , the kind and volum e of cargo to be loaded, the p~rt of lodding , the dest i nation and many other s. (T.S.N., June 16 , 19 83, p. 9. ) On the basis of this information, SORI A ONT goes to various government aqen cies and offices s uch as the Bureau of Customs, lttllnigrdtion \. and to secure the needed clearances therefro 1., T.S.N , J~ne 16, 1983, pp. 9 1 10. ) SORIAM0NT also filed, ten- tatively, the declar ation of income and paid the \ 35

------ DECI.... IC- - CTA CASE N0 . 1~31 - 4- " es~imatcd income tax due before the clrrival cf CdCh of the vessel. (T.S .. N., June 16, 1983, PP~ 9 , 10 .. ) n the basis of the recei 1_ ts evidencing "Jayment c,f the 2~% in.come tax on the gro::...s receii_)t to the i;ureuu of Internal Rr-venue , the varir.us offices then grr-lnted the clearances or p rmi ts rcq ues ted by SORiidt.GNT . Afte r l eadi ng the ressels 0~ petltio~ers, the ex~ct qua nti ty of volume of the c2rgo ~rd once the freig� tage of the v c.sself~ bec::me )<DO'm �.~:e inc on'e tax d� e ther<'-'on wen:� rom-;;uted a.n(1 c::;r res'I''Ld ingly paid. If the ini tia ar1u ten tat .i. vc tax pdyme nts mi'lde were ro ,�:ever shor t, add l tic ni3. l ,in�,oun ts of j ucome t ax due were later paid . In the case ot petitioner Mei~hin Sh nping co .. Ltd ., its vessel, the MS Prince~s Jurly V3, which is a n int e rn ational cc. rrier, a.ctu<:~lly i1rrived in the Philippines on ~arch 26 ,. 1981 (t;>xh , l:l) ana loaded cargo for whirh j t had paid previously, or t entatively on Deremb~'>r 27~ 1980.,. or before the vessP1 1 s arrival, a 2~% of income tax on the ir <;ro,,s Phili~1'")ine billing., under .Se ct ion 24 (b) (2) of the Tax ~ode, in the sum of P14 1 790.75 {Exh. c, C-2 & C-3) 1 Hnd thereafter h,.ad paid an add itional tax of r<'99 s 81 or: E'pril r 1961. (Exh. C-1, C-4 & C-5 . ) \ 352

DECISION - CTA CASE ~0. 3531 - 5- " Anent petitioner Tokyo Sh i pping Co ., it pQid o n the g ro ss billings of it carrier in t � .r c h, 1981 a 2~% income tax in t h e ~um of f:'G,9J7 . 50,. D-1 to D-6ao ) \'>l ith respect t o netit i one r Y � .:.~ . i:r.arseas Co ., Ltd ., its in t2r1 '�!tiona l c 2rrie r, the t1 . 3 . Pi ne V2llc.1 V79 , arr ived in the ~1 i li ppines (D J an~e ry 3, 1981 (Exh. JJ) �tc load C<3rgo ,. and i t paid 2!~~:, i ncorre tnx 011 i t;, gross Philippine b illings tent?t ively, prior to its vessei'> a r ri.v,-11 , on December 20, J. 980 , thP surr, of P5 ,39 2.75 (Exhs. E, E-1 , E- ) ), ~ ~din March and May, 1981, it paid an addit i ona l income tax of PlOJ.31 (Lxl"& E-3 , E-4, E-4 a) and P25 ,82 1 ., 00 (Ext& E-6 to E-10), r esnectivelye Coming now to th e petitioner Kyos~i Ste amsh ip co ., Ltd., i t pa id on the yross Phili~nine b il l ings in the amounts of F-'18 , 453.75 (Exhs. F, F- 2 to 2-5) and P374.06; in May, 198 1, the 2~r i nco me t ax in the sum of P13 1 306.88 (�xhs . F-6 to F-8); in April, 1 98 1 the 2~% in c ome tax in the . amount of l� 10 ,400.00 ( E xhs. F-11 to F-lla) and in June, 1981, t he 2l.z% i n come tax in the runount of P27 , 180 .00 0 (Exh . F-12 to F-14~ \ 353

:�;:.\~.1 ;_liON .~. CTA CASE t:Cv ~531 - 6- FinallyJ with respect to 9etitioner Su 1ritzy :::Jhipp.ing Co .. ~ L�td.,, it paid on the gro~:::> Plr.ilippine . billings of its carrier on June 11 , 1981". '� (ExrG,. G.l! p . 4 .. ) l ) -.c: . . . 1r.' ,.�"~~,..,a.� ,trt,�E.> C [� " E:.,�r~.���I'�-.�';.~.lE>. ( T...' X'~L) ., Cn the basin of said .; ~; gross Philippine billings of ?5 1 159 , 027.50. and ~ot filed its claim daLed July 29 , 1981 , {or tax redlt of said excess payments 'Exh ~ h; T .B~ N �� June 16 , 198J ~ pp . 6 ,s,; 7: 'I'.S~l�L. 01 !\ov .. 2 .. , 19c?3, p,. f.j) in th8 35 4

DECI;:.;ICN CTA CASE NC . 3531 - 7 �- Me i shin Sh i pping Co . f' 6 t 0 36 . 22 f, rokyo Sh i~pi~g Co o 7. : 831 ,. ?. 5 YS N e,1 rseas Co . ,. Lt.d " 12 ~ 529~22 Kyos ei �ste�3IHf;1'. ip Co{l 27 ~ b85 .. 0 4 Sun r itzy Shi9D ing Co 4 __54 .3.2..l.Lf::.2. P: 54 :;::; :::;: ~: =:::::8: 9.,~::!.!: 3 8 ::;:-:;::: The r e Lei~g nc ~ c t icn of res~cndcnt Com- r efund ., po. t.t t ioner!.::; b:ccugh t. this 5udic L .. l cla irn I nterna l Rev�n ue adm i t t ed t hat the tota l amo unt of P54 , 589 . 38 , as a ll eg-d overpaj~ income tax sough t fer t~x credit in ~e~ i t. i oner ~LrliAMO ~T ' s l e t t er.:� d.::.; ted ..Jul j 2S' ,. 19f:>1 \'.fc:cs r> id .by pet i ti.cner, Treaty t eak e f fect only on Janu0ry l , 1981, it c anno t be a basis for pet i tioner s ' clalm for tax c n~ d "i 1::. c� .r ,,.1.1.. were accrued a nd pa i d hbfcre Jonuery 1, 1981 . I r1 .. J~~f.':' S pOXld C="il t:. rllf:: \ I 355

I " DECISIC~ - 1.~ - CTh C~~? NO. 35 31 ,� tax made by peti ticmer i.\Je.i sh in Sh i pping Co .. in "h"" amc Lnt of �~14,790~75 {E C . .�)r.'.r��. v.~ ~t ll C"�" -� ".::.. 1 \,..,~- -�~1 ) I . '1d tl1 <~ t .herefore , pa.id prior to Janu.:.u:�y 1 , 1981 , v/r,en the aforesaid RP-Japan Income T.:;x T=eaty took effect. ruination in this case is whether or not peti� ioners ar e 1t.i t.led to the cla. i m for t .:;x cn::�J i t in thf~ t:otr"ll .retiti onf~ rs con:en::l U::1t uLdec _,cc tior; 8 "f the RP-Jqpan T~x Conventi Gn, eff ~ctivP on J~nu,ry 1, 1981, which provides as fellows: i\rt:icle ( 1 ) The profits of an ente rpri~e of a Con tr a cting 3t.:;te deriv~d in th~ other Contracting Stdte from the oper~ t ion of ships or: ai.rcr<:1ft i.n internaticnu.l traffic may be taxed in th a t other Con- trc:-;ct::.t.n~J ~;tat e.~~ but the tax fW cr1-'lrged ::;hall be 60 per cent of UK: tax vlh ch is chargeable under.. tflE! lctit.1 tl o f T:1 1 2. t~ other Contractinq o;_;,1f. ate in fcccc o n th date of signeture lhi s ~onvention ~ (2} Tte previsions of thP prs ceding paragrR?h shal l also apply to profi t s from the carti:~oation in a pool, a _joi .t business :;;r a~ int.E':.cr1.:'1t.ional operating agency . \ 356

DECI::>ION - CTJ, c,.,t;E. l\U. 3531 - 9 �- Jap3nese international carri ers sl1al l he entitle~ to a pr~fArontial tax tre atment of pey ing 60% of is normall y 2~% inccme tax rn the gross Phili~pine bi.lling s on car9os lifted from p�hili;�nine pcrt.s , or whi c h is equal only to 1~% on such grcss Philippine b illings of these Japanese intern2tional carriers . their gross Philippine billings 6 res2o de nt does not interpose his disagreenent 1d th t.'e ti ticne r s Ja ~Jancse in t:.ernc: tion a l carriers, excc'pt only to ~' :'IY 1 in effect , that these 2~~~ income tax paid by two ( 2 ) pet i tionPrs, t he Meishin Sh i pp ing Co.~Lt d . anJ the Y.S . Nearsean Co ., Ltd. i n the ar:-tounts of l 14,790 .7 5 and .1:-' 5 1 3~2.75 1 respectively. ca1not ~0 refunded becau~c these ~ere. payments m~de prior to January 1 , 1SB1 1 when the ;:jfc resaid t.reat.y became eff0;ctive . ~I 0 e::.r�e in f ull agreerPent. 1d.tl-i fH:t.i t:.i.or.ers tJvi.t they ~r e all 8ntit l ed to the clain for tax credit of thc. total :1um of t'54 , 589 o 3 fi , repr e:-; ,nt. Jn g errorH'lCu~ly ov e rpaid inc(mc taxes~ T~e p~yments made by pe t i - tioners Meishin Shipping co~ and ~he Y.S. NPflrs~as Co!', �both on December 23 , 19BO, ".-:e.r<~ tcn�tatj.vely macJe en those d<"Ates , v.�hich lic.(lili�r.ies fr r inc orre \ 35 '7

L~;CTS ICl�; CJ~ CAGE NC. 3531 -� 10 - t.c:.xes <::cc1: u.cd actu<:1lly at �the Cd tes i. \ :c�ir vesuelt: MS Pri n cess Judy V3 ~na M~ Pine Val l ey V79 arrived and January 3, 1981 1 respectively . ( I~xh ~ B . ) Co. , Ltd . and Y.S . Ncarsees Co . , Ltd . maturerl on t~~ said dates cf errival of sa i d vessels to load cargo cH:c} , benet~ ~ t'��,rned :i ncor.-1e ~:}:o.rt-:frorn �'�I riel thereaftc~r ~eparted to Gther foreign destinations . which arrivAl �yea.r. 198 1 in que::3ticm i s P5,45Si , 0~>.7 . 50, abd t he norrnal �tax o f 21~<::~. under ~)ect i on 24 (1�.) ( 2 ) of tl!e 'l''X Ceodc \ 35 8

I I !, I. 11 �~� ,. J<Jpan 'l'a~-.: Tr(~~,�cy,. Lli<'�-.: } tl,.� .rec ulting Jn the a ~: .ua :t. and ].(,;(F:1l 1 i..1�.i l. i t ..: 1 \. , . .LLC< '-� ta~ in the sum of ?81 , 885 . 4~. of ~; 1..~':.( j~ rJc (,~rne ta1c r.)(~ :L (J. j:� 1 3 6 I 4 7 (}- D ~} 2 I.JC ;::; s : 1-~-.;~/, i rl<::.:f)lttfs t ~-~. :~ (l u '.:-.~ - ...w~�-t) : ./i..::_~~~-~~~:t ~-~ J!t_ Creel i t,:.t l e o1.ren,)a l� J.:1ccrce t-<n: Dhipp ing Co .. ; c:.;:.cc ~ : t�;.�:_t i..t t.:L 'f../(~ 1 ' r <'� 1 u3 c. , ~: 2 to \ 359

DECJ.:..., ION �� I , t. .... o ; �' '' liE cc: .cuR: \ 36u Ii I