Aero Pacific GSA Co., Inc.

June 16, 2009 BIR RULING [DA-(VAT-056) 299-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR4-2007; BIR Ruling No. DA-364-2007 Aero Pacific GSA Co., Inc. Miascor Cargo Center, Ninoy Aquino Avenue 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 General Sales Agent to Air Macau and Cebu Pacific's international air transport operations are subject to VAT at zero percent (0%) rate. ITESAc The facts as represented are as follows: AERO PACIFIC GSA CO., INC., ("AERO PACIFIC") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. 189782 dated April 15, 1991. It is a duly registered value-added tax (VAT) taxpayer. AERO PACIFIC has been appointed by AIR MACAU CO., LTD., INC., a foreign registered airline company as its General Sales Agent in the Philippines on September 19, 2006. In addition, on November 25, 2006, AERO PACIFIC has also been appointed 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 to Jakarta, Indonesia, Seoul, South Korea and Osaka, Japan. As General Sales Agent, AERO PACIFIC provides the following services to the Air Macau and Cebu Pacific Air: 1. Represent the airline in the territory in accordance with the terms and conditions contained in the Agreements; 2. Provide and operate dedicated offices that are acceptable to the airlines in the most appropriate commercial centers; 3. Maintain reservations and booking offices and customer care facilities to answer all queries/complaints from cargo forwarders and agents; 4. Establish interline linkages with other international carriers; 5. Assist Air Macau and Cebu Pacific Air in their endeavours to ensure that their products are featured in the various reservation and distribution channels; 6. Service and supervise Cargo Agents through distribution of accountable documents, including settlement of accounts for non-CASS agents; and 7. Update the two airlines on all recent developments in local laws, regulations and restrictions affecting the passage of aircraft and cargo, including those related to taxes, customs duties, currency, etc. CASaEc As compensation for the foregoing services, you are being paid a commission equivalent to a certain percentage of the total value of airway bills sold. All transactions are denominated in U.S. dollars, by the two airlines, including but not limited to the rates you sell the cargo space at and the resulting commissions paid to you. 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 companies with international air transport operations and that the corresponding commission 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: "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: CDTHSI 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 AERO PACIFIC to Air Macau and 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 AERO PACIFIC 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) 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