Trans Pacific Air Service Corporation

June 16, 2009 BIR RULING [DA-(VAT-057) 300-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR4-2007; BIR Ruling No. DA-364-2007 Trans Pacific Air Service Corporation G/F SGV I Building, 6760 Ayala Avenue Makati City Attention: Atty. Henry D. Castro Legal Counsel Gentlemen : This refers to your letter dated February 5, 2009 requesting for confirmatory ruling that the services you render as General Sales Agent for passengers and cargo to Continental Airlines and Sri Lankan, which is your foreign airline principals are subject to VAT at zero percent (0%) rate. DaScHC The facts as represented are as follows: TRANS PACIFIC AIR SERVICE CORPORATION, ("TRANSPAC") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. 154304. It is a duly registered value-added tax (VAT) taxpayer. TRANSPAC is the General Sales Agent for passenger and cargo for Continental Airlines, Inc./Continental Air Micronesia, a foreign airline incorporated in the laws of the state of Nevada, U.S.A., since August 1988 up to the present. TRANSPAC was also appointed by Sri Lankan Airlines, Ltd., a foreign airline incorporated under Sri Lankan laws as its general sales agent for passenger in the Philippines since January 31, 2003 up to the present. As a general sales agent, TRANSPAC provides the following services to Continental Airlines and Sri Lankan Airlines, among others: 1. Represent them with the Philippine regulatory agencies; 2. Take custody of inventory of airline passenger tickets and control 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; 5. Service and supervise Cargo Agents through distribution of accountable documents; 6. Implement the incentive programs approved by the principal airline to encourage agents to aggressively push the routes covered by the said airline; and 7. Establish interline linkages with other international airlines. As compensation for the foregoing services, TRANSPAC is paid a commission equivalent to a certain percentage of the total value of tickets and airway bills sold and actually flown. All transactions are denominated in US dollars including but not limited to the rates you sell. Payments for tickets sold are directly remitted by the agent to the airline's bank account abroad. cADEIa In turn, and subject to the determination of which tickets were actually flown or airway bills used, the airline process and remit the commission due to TRANSPAC via its 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;" 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;" DaHISE 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 TRANSPAC to Continental Airlines and Sri Lankan Airlines, an international air transport carriers, 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