Guidelines for Exemption from Taxes Granted to Airline Companies on Importation of Aviation Gas, Fuel and Oil

January 29, 2003 BIR RULING NO. 001-03 P.D. 1590; R.A. 7151; R.A. 7909; R.A. 8337 000-00 Philippine Airlines Post Office Box 1955 Manila Cebu Air, Inc. c/o Romulo Mabanta Buenaventura Sayoc & de los Angeles 30th Floor Citibank Tower Paseo de Roxas, Makati City Air Philippines Corporation R-3 Hangar, PAL Gate 2 Andrews Avenue, Pasay City Pacific Airways Corporation Domestic Airport Road, MIA, Pasay City Gentlemen : This refers to the rulings of this Office that have been separately issued to you, namely: 1. BIR Ruling No. 013-99 issued to PAL on January 29, 1999; 2. BIR Ruling No. 110-99 issued to Cebu Air, Inc. on July 20, 1999; 3. BIR Ruling No. 048-2000 issued to Air Philippines Corporation on October 23, 2000, and; 4. VAT Ruling No. 076-2001 issued to Pacific Airways Corporation on October 17, 2001, that we have now revisited on the basis of the instruction of the Secretary of Finance to review the exemption from taxes granted to airline companies on their importation of aviation gas, fuel and oil for use in their domestic operations. Importations of petroleum products for domestic operations are tax-exempt in the presence of two conditions: (1) the purchases by sale or delivery of aviation gas, fuel and oil, whether refined or in crude forms shall be for the exclusive use in the franchisee's transport and non-transport operations and other activities incidental thereto, and; (2) in the case of importations, that they are not locally available in reasonable quantity, quality, or price. ( Section 13, PD 1590, as amended by Letter of Instruction No. 1483; PAL's Charter; Section 11, Republic Act No. 7151: Cebu Air's Charter; Section 14, Republic Act No. 7909; Pacific Airways' Charter, and; Section 15, Republic Act No. 8337; Air Philippines' Charter ). Thus, importations of such products may not be tax-exempt unless the two conditions are present. In the light of the Certification of the Department of Energy dated December 20, 2002 that aviation gas, fuel and oil for use in domestic operation of domestic airline companies are locally available in reasonable quantity, quality and price, it is the considered opinion of this Office that there is now an absence of the second condition required for the airlines to continue to enjoy the tax exemption on their importations of petroleum products for domestic operations as stated in Section 13 of PAL's Charter (PD1590, as amended by LOI 1483) and which condition applies ipso facto to the other airlines. Accordingly, your importations may not be given the same tax treatment as before for as long as there is such available domestic supply of petroleum products. This Ruling, therefore, supersedes the above-stated rulings and all such other rulings that may be contrary to the intent of this Ruling, and constitutes the final decision of this Office on the matter. This ruling takes effect immediately. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue