BIR Ruling [DA-098-98]

March 20, 1998 BIR RULING [DA-098-98] SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated January 12, 1998 requesting confirmation of your opinion that your client, Continental Micronesia, Inc. (CMI), is subject only to one and one-half percent (1 %) tax instead of two and one-half percent (2 %) on its Gross Philippine Billings pursuant to Article 9(1) of the RP-US Tax Treaty. Cdphil It is represented that CMI is a non-resident foreign corporation organized and existing under the laws of the State of Delaware; that CMI is doing business in the Philippines and is engaged in the operation of air transportation in international traffic. In reply, please be informed that pursuant to Section 28(A)(3)(a) of the Tax Code of 1997, international carriers doing business in the Philippines shall pay a tax of two and one-half percent (2 %) on their Gross Philippine Billings. However, Article 9 of the RP-US Tax Treaty provides, viz: "ARTICLE 9 " Shipping and Air Transport "(1) Notwithstanding any other provision of this Convention, profits derived by a resident of one of the Contracting States from sources within the other Contracting State from the operation of ships in international traffic may be taxed by both Contracting States; however, the tax imposed by the other Contracting State may be as much as, but shall not exceed the lesser of "(a) One and one-half percent of the gross revenues derived from sources in that State; and "(b) . . ." Such being the case, since Continental Micronesia, Inc. (CMI), is a non-resident American airline company operating in international traffic, the gross freight earnings derived by it from such operation shall be subject to a tax of 1-% pursuant to said Article 9 of RP-US Tax Treaty (BIR Ruling No. 22-97 dated March 5, 1997) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. LLphil Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)