BIR Ruling [DA-143-03]

May 5, 2003 BIR RULING [DA-143-03] P.D. 1590; R.A. 7151; R.A. 7909; R.A. 8337; 001-03 dtd 1/29/03 Ocampo Manalo & Ureta Law Offices 3rd Floor, Makati Executive Center Herrera Cor. L.P. Leviste St. Salcedo Village, Makati City Attention: Messrs. Manolito A. Manalo & Juan Victor S. Valdez Gentlemen : This refers to your request for a ruling on the tax treatment of LAOAG INTERNATIONAL AIRLINES, INC. (LAOAG) as a tax-exempt entity particularly in relation to its importation of petroleum products used in its operations. It is represented that LAOAG is a domestic corporation engaged in the business of domestic and international air transport services for the carriage of passenger, cargo, mail and related services pursuant to Republic Act 9103, an act granting to Laoag a legislative franchise; that its business of air transport services is similar to, if not identical with, Cebu Air Inc. ("CAI"), Pacific Airways Corp. ("PACIFICAIR") and Air Philippines Corp. ("APC"); that the importation or purchases from abroad of petroleum products are for use run its operations; that you are of the opinion that Laoag is not subject to VAT and/or excise tax on such importations or purchases from abroad of petroleum products; that in support of your request, you cited the following: 1. the legislative franchise of Philippine Airlines Inc. (PAL) as amended by Presidential Decree No. 1590 and Letter of Instructions (LOI) #1483 in conjunction with BIR Ruling No. 13-99, which held that PAL's importation of aviation gas, fuel and oil is exempt from VAT and/or excise tax; 2. the legislative franchise of Cebu Air Inc. (CAI) Republic Act #7151, granting CAI exemption from all taxes imposed by the NIRC on its importation or purchases of petroleum products from abroad for use in its domestic operations is reinstated by BIR Ruling #110-99; 3. VAT Review Committee Ruling #048-2000, which held that importation of petroleum products by Pacific Airways Corp. (PACIFICAIR), legislative franchise grantee under RA No. 7909, provides that PACIFICAIR's importation of the said petroleum products for use in its air transportation business is likewise exempt from taxation; and 4. Air Philippines Corporation's (APC) franchise, Republic Act No. 8399, was granted a similar exemption from taxation on importation or purchases of petroleum products from abroad under BIR Ruling No. 048-2000; In reply, this Office has now revisited the aforesaid rulings on the basis of the instruction of the Secretary of Finance to review the exemption from taxes granted to airline companies on their importation of aviation gas, fuel and oil for use in their domestic operations. Importation of petroleum products for domestic operations are tax-exempt in the presence of two conditions: (1) the purchases by sale or delivery of aviation gas, fuel and oil, whether refined or in crude form shall be for the exclusive use of the franchisee's transport and non-transport operations and other activities incidental thereto; and (2) in the case of importations, that they are not locally available in reasonable quantity, quality or price ( Sec. 13, PD 1590, as amended by Letter of Instruction No. 1483; PAL's Charter; Section 11, Republic Act No. 7151; Cebu Air's Charter, Section 14, Republic Act No. 7909; Pacific Airways' Charter, and Section 15, Republic Act No. 8337; Air Philippines' Charter ). Thus, importations of any such products may not be tax-exempt unless the two conditions are present. cSIHCA In the light of the certification of the Department of Energy dated December 20, 2002 that aviation gas, fuel and oil for use in domestic operation of domestic airline companies are locally available in reasonable quantity, quality and price, it is the considered opinion of this Office that there is now an absence of the second condition required for the airlines to continue to enjoy tax exemption on their importations of petroleum products for domestic operations as stated in Section 13 of PAL's Charter (PD 1590, as amended by LOI 1483) and which condition applies ipso facto to the other airlines. Accordingly, your importation may not be accorded the same treatment as before for as long as there is available domestic supply of petroleum products. This ruling, therefore, supersedes the above-stated rulings and all such other rulings that may be contrary to the intent of this ruling, and constitute the final decision of this Office on the matter. (BIR Ruling 001-03 dated Jan. 29, 2003) Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group