BIR Ruling [DA-285-03]

August 29, 2003 BIR RULING [DA-285-03] P.D. 1590; 097-94 Atty. Oscar C. Ventanilla, Jr. 7 Juan Luna Street University of the Philippines Campus Diliman, Quezon City S i r : This refers to your letter dated May 26, 2003 requesting for a ruling to the effect that BIR Ruling No. 097-94 dated April 13, 1994 exempting Philippine Airlines, Inc. (PAL) from the payment of documentary stamp tax on bank notes/documents under the "in lieu of all taxes" clause of Section 13 of Presidential Decree No. 1590, is still true and correct. In reply thereto, please be informed that Section 13 of P.D. 1590, otherwise known as An Act Granting A New Franchise to Philippine Airlines, Inc. to Establish, Operate and Maintain Air-Transport Services in the Philippines and Between the Philippines and other Countries, provide "Sec. 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: (a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code; or (b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non-transport operations; provided, that with respect to international air-transport service, only the gross passenger; mail and freight revenues from its outgoing flights shall be subject to this tax: The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency; now or in the future, including but not limited to the following: (1) All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on to the grantee either as part of the price or cost thereof or by mutual agreement or other arrangement; provided, that all such purchases by, sales or deliveries of aviation gas, fuel, and oil to the grantee shall be for the exclusive use in its transport and non-transport operations and other activities incidental thereto; (2) All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; (3) All taxes on lease rentals, interest, fees, and other charges payable to lessors, whether foreign or domestic, of aircraft, engines, equipment, machinery, spare parts, and other property rented, leased, or chartered by the grantee where the payment of such taxes is assumed by the grantee; (4) All taxes on interest, fees, and other charges on foreign loans obtained and other obligations incurred by the grantee where the payment of such taxes is assumed by the grantee; (5) All taxes, fees, and other charges on the registration, licensing, acquisition, and transfer of aircraft, equipment, motor vehicles, and all other personal and real property of the grantee; and (6) The corporate development tax under Presidential Decree No. 1158-A. The grantee, shall, however, pay the tax on its real property in conformity with existing law. For purposes of computing the basic corporate income tax as provided herein, the grantee is authorized: a. To depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation; and b. To carry over as a deduction from taxable income any net loss incurred in any year up to five years following the year of such loss. In interpreting the above-cited provisions, this Office had already occasioned to rule on the matter, when it said that ". . ., the payment by PAL of 2% franchise tax based on gross revenues shall be in lieu of all taxes, and therefore, documentary stamp tax which is excluded in the enumeration of taxes it shall pay is deemed included in the term taxes of the "in lieu of" clause to which PAL shall not be subject. "In view of the foregoing, your request for reconsideration is hereby granted. Accordingly, since PAL is exempt from documentary stamp tax, the Philippine National Bank, Landbank and such other banks in whose favor the promissory notes and/or documents are executed by PAL, shall be liable for the payment of the corresponding documentary stamp taxes pursuant to Section 173 of the Tax Code which provides that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Moreover, Section 24 of P.D. No. 1590 provides that the franchise of PAL, or any section or provision thereof, may only be modified, amended or repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise or any section or provision thereof. Hence, in the absence of a law expressly repealing P.D. 1590, PAL's tax exemption privilege under the "in lieu of all taxes" clause of Section 13 of the said Presidential Decree still stands. WHEREFORE, this Office holds that BIR Ruling No. 097-94 dated April 13, 1994 exempting PAL from the payment of documentary stamp tax on bank notes and other documents is still true and correct. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group