Citadel Air Services Corporation

June 5, 2009 BIR RULING [DA-(VAT-048) 276-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR4-2007; BIR Ruling No. DA-364-2007 Citadel Air Services Corporation G/F SGV2 Building, 6758 Ayala Avenue Makati City Attention: Ramon S. Monzon President Gentlemen : This refers to your letter dated November 18, 2008 requesting for confirmatory ruling that the services you render as General Sales Agent for passengers to Turkish Airlines which is your foreign airline principal are subject to VAT at zero percent (0%) rate. SCaEcD The facts as represented are as follows: CITADEL AIR SERVICES CORPORATION, ("CITADEL AIR") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. CS200701325 dated January 30, 2007. It is a duly registered value-added tax (VAT) taxpayer. CITADEL AIR has been appointed by Turkish Airlines, a foreign registered airline company as its General Sales Agent for passenger in the Philippines on July 3, 2007. As a general sales agent, CITADEL AIR provides the following services to Turkish Airlines, among others: 1. Represents Turkish Airlines with the Philippine regulatory agencies; 2. Take custody of inventory of airline passenger tickets and contact its issuance to the various accredited travel agents located across the Philippines; 3. Conduct promotion for the principal airlines; 4. Process claim for refunds from travel agents/passengers for cancelled tickets; and 5. Implement the incentive programs approved by the principal airline to encourage agents to aggresively push the routes covered by the said airline. AEaSTC As compensation for the foregoing services, CITADEL AIR is paid a commission equivalent to a certain percentage of the total value of tickets sold and actually flown. Payments for tickets sold are directly remitted by the agents to the airlines bank account abroad. In turn, and subject to the determination of which airway bill were actually flown, the airlines process and remit the commission due CITADEL AIR via the latter's USD and PHP local bank accounts. Under Section 108 (B) of the 1997 Tax Code as recently amended by R.A. 9337 Section 108 (B) (4), and relatedly, VAT Ruling No. 044-98 dated November 26, 1998, you consider your services to be zero-rated considering that these are rendered to international aircraft carriers and that the corresponding commissions due to you are actually and regularly remitted to you by the international airlines using the country's authorized banking channels. In reply, please be informed that Section 108 (B) (4) of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 9337 provides that: "SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate. xxx xxx xxx (4) Services rendered to vessels engaged in international shipping or international air transport operations, including leases of property for use thereof;" HCSEcI The above provision must be read in connection with Section 4.108-5 (b) (4) of Revenue Regulations (RR) No. 16-2005, as amended by RR 4-2007, to wit: "Sec. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (b) Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;" It is clear from the foregoing that services rendered by VAT-registered entities to persons engaged in international air transport operations are entitled to VAT zero-rating. Thus, the services rendered by CITADEL AIR to Turkish Airlines, an international air transport carrier, are subject to VAT zero-rating pursuant to the above provisions. (BIR Ruling No. DA-364-2007 dated July 06, 2007) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service