Air Cargo Partners Corporation

June 16, 2009 BIR RULING [DA-(VAT-052) 293-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR4-2007; BIR Ruling No. DA-364-2007 Air Cargo Partners Corporation Miascor Cargo Center, Ninoy Aquino Avenue Paraaque City Attention: Atty. Henry D. Castro Legal Counsel Gentlemen : This refers to your letter dated January 9, 2009 requesting for confirmatory ruling that the services you render as General Sales Agent for cargo to airline companies engaged in international air transport operations are subject to VAT at zero percent (0%) rate. EICSDT The facts as represented are as follows: AIR CARGO PARTNERS CORPORATION, ("ACPC") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. A1997-13755 dated August 1, 1997. It is a duly registered value-added tax (VAT) taxpayer. ACPC has been appointed by the following foreign registered airline companies as its General Sales Agent for cargo in the Philippines, as follows: Name of Airline Date of Appointment 1. Vietnam Airlines October 1999 to present 2. Antonov Airlines March 2002 until August 2006 3. China Southern Airlines June 2002 to present 4. DHL Aviation November 2002 to present 5. Qatar Airways February 2004 to present 6. Qantas Freight October 2005 to present 7. Ruslan International August 2006 to present As a general sales agent, ACPC provides the following services to the aforesaid international airlines, among others: 1. Represent them with the Philippine and international regulatory agencies; 2. Take custody of inventory of airline airway bills and control its issuance to the various accredited travel and cargo agents located across the Philippines; 3. Establish interline linkages with other international carriers; 4. Conduct promotion for the principal airlines; 5. Process claim for refunds from travel agents for cancelled tickets/airway bills; ISCTcH 6. Establish a customer care facility to answer all queries/complaints from shippers, forwarders and agents; and 7. Implement the incentive programs approved by the principal airline to encourage agents to aggressively push the routes covered by the said airline. As compensation for the foregoing services, ACPC is paid a commission equivalent to a certain percentage of the total value of tickets and airway bills sold and actually flown. Since the aforelisted airlines avail of the International Air Transport Association (IATA) Billing Services Plan or BSP, payments for cargoes sold are directly remitted by the agent to IATA's BSP account. IATA then remits directly to the said airlines their share of the collection. In turn, and subject to the determination of which airway bills were actually flown, the airline process and remit the commission due to ACPC via its USD and PHP 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;" 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: DEICTS "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 ACPC to the above-named international airlines are subject to VAT zero-rating pursuant to the above provisions. (BIR Ruling No. DA-364-2007 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