Miascor Kalibo Corporation

December 7, 2009 BIR RULING [DA-(VAT-106) 740-09] Sec. 4.108-5 (b) (4), RR 16-2005; RR 4-2007; BIR Ruling No. DA-364-2007 Miascor Kalibo Corporation 4th Floor IPT 1 Building Ninoy Aquino International Airport Pasay City Attention: Fernando V. Detaunan VP/Group Controller Gentlemen : This refers to your letter dated November 5, 2009 requesting for confirmatory ruling that the ground handling services you render to Asian Spirit's aircraft plying international routes and other foreign airlines are subject to VAT zero rating. The facts as represented are as follows: MIASCOR KALIBO CORPORATION ("MIASCOR") is a start-up domestic airport ground handling corporation duly registered with the Securities and Exchange Commission under SEC Registration No. CS200706790 dated May 4, 2007. It is a duly registered value-added tax (VAT) taxpayer. MIASCOR services include passenger/baggage check in, passenger profiling, aircraft weight and balance, cargo acceptance, crating, checking and re-weighing, towing out/delivery of cargo/baggage to the plane side and airport conveyor/cargo releasing area, among others. MIASCOR started its commercial operations on May 11, 2007. Its airport operations is located at the Kalibo Airport, Kalibo Aklan, principally as a passenger, ramp and cargo handling service provider to the flights of Asian Spirit (now "Zest Airways") plying the international route of Kalibo-Incheon, South Korea-Kalibo. It also provides services to Mandarin Airlines and China Airlines for its Taipei-Kalibo-Taipei route. Recently, it also provides ground handling services to the charter flights of Trans Asia Airways for the route of Taipei-Kalibo-Taipei and Shanghai Air for its Pudong, China-Kalibo-Pudong routes. SATDEI For the ground handling services rendered to these foreign and local airlines, MIASCOR bill them in U.S. dollars and said airlines also pay U.S. dollars via telegraphic transfer to its dollar account at UCPB Paseo de Roxas branch, Makati City. Under Section 108 (B) of the 1997 Tax Code as recently amended by RA 9337 Section 108 (B) (4), you consider MIASCOR 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 (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;" 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;" AEIDTc 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 MIASCOR to Asian Spirit's international air transport operations and other foreign airlines are subject to VAT zero-rating pursuant to the above provisions. However, it must be stressed that the above entitlement of MIASCOR to VAT zero-rating does not extend to its services rendered to Asian Spirit 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. 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