Europac Cargo Sales, Inc.

June 5, 2009 BIR RULING [DA-(VAT-049) 277-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR4-2007; BIR Ruling No. DA-364-2007 Europac Cargo Sales, Inc. Unit E, S.T.I.L. Building, Sta. Agueda corner Delbros Avenue, Pascor Drive Sto. Nio, Paraaque City Attention: Atty. Henry D. Castro Legal Counsel Gentlemen : This refers to your letter dated November 7, 2007 requesting for confirmatory ruling that the services you render as Cargo General Sales Agent to Cebu Pacific Air's international air transport operations are subject to VAT at zero percent (0%) rate. ISCDEA The facts as represented are as follows: EUROPAC CARGO SALES, INC., ("EUROPAC") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. A1999186 dated December 13, 1999. It is a duly registered value-added tax (VAT) taxpayer. EUROPAC has been appointed by CEBU AIR, INC. (doing business as CEBU PACIFIC AIR), a domestic airline with international transport operations, as its Cargo General Sales Agent ("CGSA") for its carriage of goods from Cebu and Manila to Singapore, Kuala Lumpur, Malaysia, Hong Kong, Seoul, South Korea, Bangkok, Thailand, Taipei, Taiwan and Shanghai, China. As CGSA, EUROPAC provides the following services to Cebu Pacific Air: 1. Staff each town and airport office with sufficient number of qualified personnel; 2. Provide and operate dedicated offices in the most appropriate commercial centers; 3. Maintain reservations and booking offices on behalf of the carrier; 4. Assist the carrier in the development of interline relationships including, but not limited to, special prorate agreements and code sharing; 5. Ensure that the carrier's product is featured in the various reservation and distribution channels; 6. Service and supervise Cargo Agents in the territory through distribution of airway bills and other accountable documents and including settlement of accounts for non-CASS agents; and 7. Inform and regularly update carrier on all relevant information concerning local laws, regulations and restrictions affecting the passage of aircraft and cargo, including those related to taxes, customs duties, currency, etc. ECDaTI The currency used by Cebu Pacific in pricing its cargo space to the various international destinations is the United States Dollar and has required EUROPAC to sell to cargo agents and shippers also in U.S. dollars. EUROPAC remits the sales proceeds to Cebu Pacific also in U.S. dollars. As compensation for the foregoing services, EUROPAC is paid a commission equivalent to a certain percentage of the dollar sales it generates. 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 a company with international air transport operations. 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;" TaISDA 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 EUROPAC to Cebu Pacific Air's international air transport operations are subject to VAT zero-rating pursuant to the above provisions. However, it must be stressed that the above entitlement of EUROPAC to VAT zero-rating does not extend to its services rendered to Cebu Pacific Air with respect to the latter's transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to VAT in accordance with Section 4.108-5 (b) (4) of RR No. 16-2005, as amended by RR 4-2007. (BIR Ruling No. DA-364-2007 dated July 06, 2007) HAEDIS 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