Cabanero, Katigbak, Clemente & Co., CPAs

April 27, 2007 BIR RULING [DA-269-07] DA 154-04 Cabanero, Katigbak, Clemente & Co., CPAs 4/f Saville Building 8728 Paseo de Roxas Makati City Attention: Ma. Cecilia C. Katigbak Partner Gentlemen : This refers to your letter dated September 4, 2006 stating that your client, Golden Bear Travel Corporation (GBTC), is a domestic corporation engaged in the business as General Sales Agent (GSA) for airlines, shipping lines and other transportation and travel related companies; that GBTC's registered address and place of business is located at Unit 348 Mile Long Building, Amorsolo Street, Legaspi Village, Makati City; that presently, GBTC is a GSA of some foreign airlines that have no landing rights and/or airlines which have no flight to and from the Philippines or better known as "off-line carriers"; that GBTC sells the tickets in the Philippines on behalf of those foreign airlines for their foreign routes or flights outside the Philippines; that being a GSA, GBTC serves as the Philippine representative of those foreign airlines for any of their business transactions in the Philippines including their obligation to pay taxes if there are any; and that GBTC seeks confirmation on the issue for the benefit of their existing clients and future clients. In connection therewith, you now request confirmation of your opinion that 1. An off-line international air carrier, which has no flight operation to and from the Philippines, is not deemed engaged in business as a common carrier in the Philippines by reason merely of its entering into a contract with a GSA in the Philippines for the purpose of selling passage documents covering its off-line flights. Thus, said off-line carrier is not subject to the two and one-half percent (2 1/2%) tax on Gross Philippine Billings imposed by Section 28 (A) (3) of the Tax Code of 1997; and 2. An off-line international air carrier is not also subject to the three percent (3%) international carrier's tax imposed by Section 118 (A) of the Tax Code of 1997. In reply thereto, please be informed that Section 28 (A) (3) (a) of the Tax Code of 1997 provides that "Gross Philippine Billings" refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, that tickets revalidated, exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided, further, that; for a flight which originates from the Philippines, but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings. Corollarily, Section 2 (g) of Revenue Regulations No. 15-02, the phrase "Originating from the Philippines" shall include the following: (1) Where passengers, their excess baggage, cargo and/or mail originally commence their flight from any Philippine port to any other port or point outside the Philippines; (2) Chartered flights of passengers, their excess baggage, cargo and/or mail originally commencing their flights from any foreign port and whose stay in the Philippines is for more than forty-eight (48) hours prior to embarkation save in cases where the flight of the airplane belonging to the same airline company failed to depart within forty-eight (48) hours by reason of force majeure; (3) Chartered flights of passengers, their excess baggage, cargo and/or mail originally commencing their flights from any Philippine port to any foreign port; and (4) Where a passenger, his excess baggage, cargo and/or mail originally commencing his flight from a foreign port alights or is discharged in any Philippine port and thereafter boards or is loaded on another aircraft, owned by the same airline company, the flight from the Philippines to any foreign port shall not be considered originating from the Philippines, unless the time intervening between arrival and departure of said passenger, his excess baggage, cargo and/or mail from the Philippines exceeds forty-eight (48) hours, except, however, when the failure to depart within forty-eight (48) hours is due to reasons beyond his control, such as, when the only next available flight leaves beyond forty-eight (48) hours or by force majeure. Provided, however, that if the second aircraft belongs to a different airline company, the flight from the Philippines to any foreign port shall be considered originating from the Philippines regardless of the intervening period between the arrival and departure from the Philippines by said passenger, his excess baggage, cargo and/or mail. HTSIEa The phrase "Continuous and Uninterrupted Flight" refers to a flight in the carrier of the same airline company from the moment a passenger, excess baggage, cargo, and/or mail is lifted from the Philippines up to the point of final destination of the passenger, excess baggage, cargo and/or mail. The flight is not considered continuous and uninterrupted if transshipment of passenger, excess baggage, cargo and/or mail takes place at any port outside the Philippines on another aircraft belonging to a different airline company. ( Sec. 2(h), Rev. Reg. No. 15-02 ) The above-cited regulations enumerates four (4) distinct and separate circumstances, the presence of any of which immediately gives rise to the presumption that the flight is originating from the Philippines and therefore revenue derived by the said carrier is subject to the 2.5% Gross Philippine Billings, conversely, if the flight is not covered by the exclusive enumeration, it is not considered as originating from the Philippines and consequently not subject to the Gross Philippine Billings imposed under Section 28 (A) (3) (a) of the Tax Code of 1997, as implemented by Revenue Regulations No. 15-02. On the other hand, the flight is continuous and uninterrupted from the moment a passenger, excess baggage, cargo, and/or mail is lifted from the Philippines up to the point of final destination, otherwise, it is not considered continuous and uninterrupted if the transshipment takes place at any port outside the Philippine on another aircraft belonging to a different airline company. In stressing the rationale of the above-mentioned rule, this Office elucidated the matter in BIR Ruling No. DA154-04 dated March 31, 2004 as follows: "It is clear from the foregoing that AAI is an off-line carrier, as it is not engaged in a continuous and uninterrupted flight originating from the Philippines and consequently does not derive any income subject to the Gross Philippine Billings under Section 28(A)(3)(a) of the Tax Code of 1997. This notwithstanding that AAI has a sales office and ticket office in the Philippines although majority of the ticket sales being undertaken by its agents for as long as the tickets sold are exclusively AAI tickets. "SUCH BEING THE CASE, this Office holds that AAI, an off-line international air carrier, is not considered as engaged in business as an international air carrier and therefore not subject to the Gross Philippine Billings tax under Section 28(A)(3)(a) and the Common Carrier's tax under Section 118(A) of the Tax Code of 1997." WHEREFORE, in view of the foregoing , this Office hereby confirms your opinion that 1. An off-line international air carrier, which has no flight operations to and from the Philippines, is not deemed engaged in business as a common carrier in Philippines by reason merely of its entering into a contract with a GSA in the Philippines for the purpose of selling passage documents covering its off-line flights. Accordingly, said off-line carrier is not subject to the 2 1/2% tax on Gross Philippine Billing imposed under Section 28 (A) (3) of the Tax Code of 1997. HTAEIS 2. An off-line international air carrier is not also subject to the 3% international carrier's tax imposed under Section 118 (A), Ibid . 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service