REVENUE MEMORANDUM CIRCULAR NO. 59-2005 issued on October 24, 2005 clarifies the guidelines and rulings laid down in BIR Ruling No. DA 427-2004 and BIR Ruling No. 001-2004 on the excise tax consequence affecting petroleum products sold to international marine vessels.
           Section 135 of the Tax Code provides that petroleum products sold to the following are exempt from excise tax:
          (a) International carriers of Philippine or foreign registry on their use or consumption                             outside the Philippines: Provided, that the petroleum products sold to these international                 carriers shall be stored in a bonded storage tank and may be disposed of only in                             accordance with the rules and regulations to be prescribed by the Secretary of Finance,                  upon recommendation of the Commissioner.
         (b) Exempt entities or agencies covered by tax treaties, conventions and other international                 agreements for their use or consumption: Provided, however, that the country of said                     foreign international carrier or exempt entities or agencies exempts from similar taxes                     petroleum products sold to Philippine carriers, entities or agencies; and
         (c) Entities which are by law exempt from direct and indirect taxes.                                                     It has been ruled that to be entitled to exemption under Section 135(a) of the Tax Code from the payment of excise tax, which is imposed under Section 148 of the same Code, the petroleum products must be sold to an international carrier for its use and consumption outside the Philippines and that the country of said carrier exempts from payment of excise tax petroleum products sold to Philippine carrier (BIR Ruling No. DA 427-2004).
         While the requirement for direct sale of petroleum products to international marine vessel, in order to qualify for excise tax exemption, is not expressly provided for by the aforecited provisions of the Tax Code, the excise tax exemption on removals intended for delivery to international marine vessel is not considered absolute. Such transaction is treated only as conditionally tax-exempt removal subject to certain administrative requirements in order to prevent any tax leakage arising from possible diversion of delivery of petroleum products to unqualified entities.
         The following conditions shall be strictly complied with on the sale of petroleum products to international marine vessels in order to avail of the said excise tax exemption:
          a. The petroleum products covered by this Circular shall be limited to bunker fuel, special                    fuel oils, and diesel fuel that are used by the international marine vessels for their own                     fuel consumption outside the Philippines;
          b. The excise tax on these petroleum products shall not be billed or passed on by the                           manufacturers or oil refiners to the international marine vessels;
          c. The petroleum products are sold, directly or through an oil broker, to an international                       marine vessel. The excise tax exemption herein may be availed of though the sale is                         made through other intermediary party/ies like traders provided that their roles are                          limited to that of a broker as defined herein, and as long as they also comply with the                      requirements of this Circular;
          d. The international marine vessel shall utilize such petroleum products for their exclusive                     use or consumption outside the Philippines;
          e. The country of registry of the international marine vessel to whom the petroleum                             products are sold also exempts from a similar tax the petroleum products sold to                             Philippine-registered international marine vessels;
          f. The petroleum products to be sold shall be entirely sourced from the oil refinery or from                 BIR-bonded tanks, since the products stored thereat are still not subject to excise tax,                     unless the same are removed and delivered to taxable entities;
          g. For purposes of monitoring, the BIR shall be informed by the oil refiner/company-seller                    for each and every transaction, or for a series of transactions involving a particularly                        identified international marine vessel customer before any withdrawal (i.e., delivery to                      the marine vessel) of petroleum products, either from the refinery or from the bonded                    storage tank. In cases of emergency, however, notification shall be made within twenty-                  four hours from such delivery;
          h. For purposes of item g above, the following documents shall be submitted by the oil                        company-seller and the same shall provide sufficient basis for notification and/or permit:
              h.1 Supply Invoice and Nomination Letter/Purchase Order, in the absence of the Supply                        Contract, either for a single sale or series of sales transactions;
               h.2 Certification by the Bureau of Customs (BOC) that the purchaser is an international                           marine vessel or that the said vessel does not ply the domestic waters. For purposes                       of entitlement to excise tax exemption, the international marine vessel must depart                          from a port in the Philippines directly to a foreign port without stopping or docking                          to any other port in the Philippines.
          i. All transfers of such petroleum products shall be accounted for and recorded in the                         Official Register Book (ORB) with a separate subsidiary ledger therefor, and with all                         stocks on hand accounted for on a First-in-First-out basis;
          j. Each and every removal of the petroleum product shall be accompanied by a Withdrawal               Certificate (WC) issued by the oil company-seller duly attested to by the Revenue Officer               on Premise (ROOP). In addition to the information prescribed to be reflected in the WC,                   the phrase “EXEMPT SALE TO INTERNATIONAL MARINE VESSEL UNDER SECTION 135”                   must be clearly indicated on the face of the said WC. The name of the international vessel               as well as its registered name shall be indicated as the consignee-buyer in the WC;
         k. The Sales Invoice to be issued by the seller shall indicate the name of the international                     marine vessel as the buyer and the registered name of the vessel. The name of the                          broker shall not be interchangeably used as the name of the buyer but the same may                      be indicated in the address field provided for in the invoice with the phrase as follows:
                                                                                                                                                                                                            “c/o Name of Intermediary Party/Broker”                                                                  
         l. The petroleum products shall be delivered directly from the refinery or bonded storage                    tank to the international marine vessel; and
         m. A duly executed Certificate by the Master or Captain of the international carrier or its                       local agent shall immediately be issued to the seller upon completion of delivery,                              including an acknowledgment of the date of receipt, the volume and description of such                 petroleum products received and measured at air, and the immediate and final                                 destination of the international marine vessel. A copy of the Manifest shall be attached                   to the Certification. This certification shall serve as one of the proofs of the delivery of                     the petroleum product to the international marine vessel and the same shall be                                 presented upon request to any duly authorized representative of the BIR.