Xpert Air Services, Inc.

June 16, 2009 BIR RULING [DA-(VAT-051) 292-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR4-2007; BIR Ruling No. DA-364-2007 Xpert Air Services, Inc. 7 Ideal Street, Mandaluyong 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 to Korean Air, an international air transport carrier, are subject to VAT at zero percent (0%) rate. EHCDSI The facts as represented are as follows: XPERT AIR SERVICES, INC., ("XPERT") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. A2002-00437 dated January 11, 2002. It is a duly registered value-added tax (VAT) taxpayer. XPERT has been appointed by KOREAN AIR, a foreign registered international airline, as one of its legitimate service contractor for a period of two (2) years from February 10, 2007 to February 9, 2009, automatically renewable for additional periods of two (2) years, unless sooner terminated in accordance with the provisions of the Service Agreement. As a service contractor, XPERT provides the following services to Korean Air: 1. Represents Korean Air with Philippine regulatory agencies; 2. Provide reservations, ticketing, cargo and airport support services; 3. Establish interline linkages with other international carriers; and 4. Establish a customer care facility to handle all queries and complaints from passengers, forwarders and travel agents; As compensation for the foregoing services, XPERT is paid a service fee of ten (10%) percent of the actual amount incurred by it in the performance of the above services. 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 amounts paid to you are actually and regularly remitted to you by Korean Air 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 . HcSCED 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;" 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 XPERT to Korean Air, 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. cHDAIS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service