Galeo Equipment and Mining Company, Inc.

December 22, 2009 BIR RULING [DA-(VAT-117) 804-09] Sec. 107 (A); 109 (s); RR 16-2005 Galeo Equipment and Mining Company, Inc. Unit 4 & 5 Topy Bldg. Industrial Road Corner Economia St., Bagumbayan, Quezon City Attention: Isagani P. Ferrer Chairman Gentlemen : This refers to your letter dated December 1, 2009, requesting a confirmation of your opinion that the lease by Galeo Equipment and Mining Company, Inc. of an aircraft from Boom Line Investments Limited, is not subject to the value-added tax (VAT) pursuant to Section 109 (S) of the Tax Code of 1997. It is represented that GALEO Equipment and Mining Company, Inc. (Galeo, for short) is a corporation organized and existing under the laws of the Republic of the Philippines; that it entered into a Sublease Agreement with Boom Line Investments Limited (Boom Line, for short), a corporation existing and organized under the laws of the British Virgin Islands for the lease of one (1) Cessna Model 510 Citation Mustang (Aircraft); that the Agreement shall be for a period of two (2) years, starting on December 1, 2009, with a monthly fee of USD$30,000.00, inclusive of appropriate withholding tax and other incidental fees and charges (Lease Rentals); that Galeo intends to operate the aircraft in transporting passengers and/or cargo from points within and without the Philippines; that accordingly, Galeo as a sublessee under the Lease Agreement will be registering the aircraft with the Civil Aviation Authority of the Philippines (CAAP) and will be procuring all the clearance, permits and licenses required by CAAP for the operation of the aircraft in the Philippines; that at the end of the term of the contract; the aircraft shall be delivered and re-exported back to Boom Line. In reply, please be informed as follows: TICaEc Section 107 (A) of the Tax Code of 1997, subjects every importation of goods to the value-added tax (VAT) at the rate of 12% based on the total value used by the Bureau of Customs in determining tariff and customs duties, excise taxes, . . . . However, Section 109 (S) of the same Code, provides specifically for the exemption from the payment of the VAT the sale, importation or lease of aircraft, among others, to wit: "Sec. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; . . . (Emphasis ours) Moreover, under Section 4.109-1 of Revenue Regulations (RR) No. 16-2005 which implements the foregoing provision, provides to wit: (r) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; . . . (Emphasis ours) Accordingly, the importation and lease of Cessna Model 510 Citation Mustang (Aircraft) by Galeo for its operations involving the domestic and international transportation of passengers and/or cargo is exempt from the payment of VAT. 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. SECcAI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service