Penalties charged by shipping firms subject to income tax: SC

MANILA — The Supreme Court (SC) has upheld a regulation imposing income taxes on certain fees charged by shipping firms on consignees and shippers for delays both in picking up shipped cargo and in the return of their containers.

The SC’s 1st Division denied “for lack of merit” the petition filed by the Association of International Shipping Lines Inc., APL Co., Pte Ltd., and Maersk-Filipinas Inc. in a decision dated January 15 and made available to the public on Friday.

The petitioners challenged the validity of portions of Revenue Regulation (RR) No. 15-2013 issued on Sept. 20, 2013, by then finance secretary Cesar Purisima, which among other things ruled that “demurrage” and “detention” fees are subject to a 30-percent regular income tax rate and 12% value-added tax (VAT).

Demurrage fees are charged by shipowners from charterers, consignees and/or shippers for delays in getting the shipment while detention fees are charged by the same for delays in returning shipping containers.

The High Court’s ruling affirmed the Quezon City Regional Trial Court Branch 77’s verdict on the case which said RR 15-2013 is a “reasonable tax regulation and an interpretative issuance, the effectivity of which does

not require a public hearing, nay, prior registration with the UP Law Center.”

The ship owners had claimed that RR 15-2013 unduly widens the scope of the law by imposing additional taxes on international shipping carriers.

The shipping firms claimed demurrage and detention fees are “not income but penalties” imposed by the carrier on the charterer, shipper, consignee, to allow the carrier to recover losses or expenses arising from the undue delay in the loading and/or discharge of the latter’s shipments from the containers.

The Bureau of Internal Revenue, meanwhile, earlier claimed that the said fees “not only serve as penalties for consignees, (but) they also serve as compensation for the extended use of containers”.

The petitioners said these fees are akin to damages and should only be taxable only if they form part of Gross Philippine Billings (GPB) and taxed at the preferential rate of 2.5 percent instead of subject to regular income tax of 30 percent.

GPB refers to gross revenues for passenger, cargo or mail from the Philippines up to its destination.

Ruling against the petitioners’ argument, the court said the exclusion of demurrage and detention fees from the preferential rate of 2.5% for GBP “is proper” since they are “not considered income derived from the transportation of persons, goods, or mail.”