Asia Pacific Economic Enterprises Corporation

November 24, 2009 BIR RULING [DA-(VAT-100) 700-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR 4-2007; BIR Ruling Nos. DA(VAT-046) 272-09; DA(VAT-048) 276-09; DA(VAT-049) 277-09; DA(VAT-051) 292-09; DA(VAT-052) 293-09 Asia Pacific Economic Enterprises Corporation Rm. 231 Miascor Cargo Center Ninoy Aquino Avenue, Paraaque City Attention: Hubert Sy General Manager Gentlemen : This refers to your letter dated November 8, 2009 requesting for confirmatory ruling that the services you render as General Sales Agent for cargo for China Southern Airlines, a foreign airline incorporated under the laws of China are subject to VAT zero rating. DACaTI The facts as represented are as follows: ASIA PACIFIC ECONOMIC ENTERPRISES CORPORATION ("APEEC") is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. ASO94-00010368. It is a duly registered value-added tax (VAT) taxpayer. As GSA, APEEC provides the following services to China Southern Airlines: 1. Represents it with the Philippine regulatory agencies such as the Civil Aeronautics Board, Civil Aviation Authority of the Philippines (formerly "ATO") and the Bureau of Customs; 2. Perform marketing and promotional activities for the airline; 3. Provide custody of inventory of airline airway bills, control its issuance to various accredited local cargo agents in the Philippines; 4. Distribute and display timetables as provided by the airline; 5. Supervise Cargo Agents through distribution of accountable documents; 6. Compile and dispatch statistics and reports on sales effected on the services on behalf of the airline; and 7. Promote and implement incentive programs approved by the Principal. TaDSCA In consideration of the foregoing services, APEEC is being paid a commission equivalent to a certain percentage of the total value of airway bills sold and actually flown. All transactions are denominated in U.S. dollars including but not limited to the rates it sells. Payments for tickets and airway bills sold are directly remitted by the agent to the airline's bank account abroad. Subject to the airline's determination of which airway bills actually used, the airline process and remit the commission due to APEEC via its USD and PHP local bank accounts. Under Section 108 (B) of the 1997 Tax Code as recently amended by RA 9337 Section 108 (B) (4), and relatedly, VAT Ruling No. 044-98 dated November 26, 1998, you consider APEEC services to be zero-rated considering that these are rendered to international aircraft carrier and that the corresponding commission are actually and regularly remitted to it by the international airlines using the country's authorized banking channels. AaEcDS In reply, please be informed that Section 108 (B) (4) of the 1997 Tax Code, as amended by Republic Act (RA) 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;" CDESIA 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 APEEC to China Southern Airlines, an international air transport carrier, are subject to VAT zero-rating pursuant to the above provisions. 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. CcAIDa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service