BIR Ruling [DA-514-04]

September 30, 2004 BIR RULING [DA-514-04] 28 (A) (3); DA-154-04 M.S. Banaria and Company Unit 201, Corporate Center Building 948 Aurora Blvd., Quezon City Attention: Mr. Marcelino S. Banaria Managing Partner Gentlemen : This refers to your letter dated July 6, 2004 requesting for a ruling on the income tax and common carriers tax implication of Egyptair Manila's decision to stop operation to/from Manila and to go on as "Offline Carrier." It is represented that Egyptair Manila is a foreign airline company operating in the Philippines on two frequency flights (Wednesday and Saturday since early seventies; that on March 31, 2004, Egyptair Headquarters in Cairo, Egypt decided to stop operation to/from Manila and to go on "Offline Carrier"; that Egyptair Manila will issue tickets starting Bangkok, Thailand to Cairo and beyond and plane fares will be collected while Manila/Bangkok sector will be issued on another airlines; that Egyptair operations is thru a General Agency Agreement with AERO ASIA, Inc. which is sharing with Egyptair in the office expenses, sales promotion and ticketing services; and that Egyptair still maintains an office in Makati. In reply thereto, please be informed that Section 3 of Revenue Regulations No. 15-2002 provides, viz : "SEC. 3. Foreign Airline Companies Without Flights Starting From or Passing Through Any Point in the Philippines . An off-line airline having a branch office or sales agent in the Philippines which sells passage documents for compensation or commission to cover off-line flights of its principal or head office, or for other airlines covering flights originating from the Philippine ports or off-line flights, is not considered engaged in business as an international air carrier in the Philippines and is, therefore, not subject to Gross Philippine Billings Tax provided for in Section 28(A)(3)(a) of the Code nor to the three percent (3%) common carrier's tax under Section 118(A) of the same Code. This provision is without prejudice to classifying such taxpayer under a different category pursuant to a separate provision of the same Code. Considering that Egyptair Manila has decided to stop operation to/from Manila and to go on as "Offline Carrier", hence, not engaged in a continuous and uninterrupted flight originating from the Philippines, the same does not derive any income subject to the Gross Philippine Billings, and therefore is not subject to tax imposed under Section 28(A)(3)(a) of the Tax Code of 1997. This notwithstanding that Egyptair Manila has a sales office and ticketing services in the Philippines although majority of the ticket sales being undertaken by its agents for as long as the tickets sold are exclusively Egyptair tickets. (BIR Ruling No. DA-154-2004 dated March 31, 2004) SUCH BEING THE CASE, this Office holds that Egyptair Manila; 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. aESIDH 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group