Request that Importation of Aircraft be Exempt from the Value-Added Tax

January 6, 1995 BIR RULING NO. 003-95 101 (a) 000-00 003-95 Cebu Air, Inc. Cebu Air Terminal, Old MIA Road Pasay City Attention: Mr . Ernesto S . Salgado C . E . O & Gen . Mgr . Gentlemen : This refers to your letter dated April 29, 1994, requesting that your importation of an aircraft be exempt from the value-added tax. prcd It appears that you are a grantee of a legislative franchise under R.A. No. 7151 approved on August 30, 1991 to establish, operate and maintain transport services for the carriage of passengers, mail, goods and property by air, both domestic and international, with Cebu as your base; that on March 23, 1995, a Deed of Absolute Sale was executed in Makati between Mr. Ralph Goulart of Segovia Terrace, Las Vegas, Nevada, U.S.A. as Vendor and you as Vendee whereby for a consideration of P14,225,000.00, the former sold, ceded, transferred and conveyed absolutely to you one (1) Beech Aircraft C-90 with Serial No. LJ993 and Registry Mark N-1837F; that your Petition the Civil Aeronautics Board (CAB) in its Resolution No. 24(94) dated March 3, 1994; and that on the basis of said authority, the Department of Finance authorized the Bureau of Customs to release the said aircraft duty-free but subject to the value-added tax. In reply, please be informed that under the pertinent provisions of Section 11 of R.A. No. 7151 in relation to Section 13 of P.D. No. 1590 (franchise of Philippine Airlines) which state as follows: "SEC. 11. Tax Provisions . The grantee shall pay to the Philippine Government during the life of this franchise a franchise tax of five percent (5%) of the gross revenues derived by the grantee from transport operations. " In the event that any competing individual, partnership or corporation receives and enjoys tax privileges and other favorable terms which tend to place the herein grantee at any disadvantage, then such provisions shall be deemed ipso facto part hereof and shall operate equally in favor of the grantee . "The grantee shall, however, be subject to income tax levied under Title II of the National Internal Revenue Code, as amended, and tax on its real property under existing revenues earned from activities other than air transportation". (Emphasis ours) "SEC. 13. (PAL's franchise) In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: "(a) . . . "(b) A franchise tax of two percent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or nontransport operations; provided, that with respect to international air-transport service, only the gross passenger, mail and freight revenues from its outgoing flights shall be subject to this tax. "The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license and other charges of any kind, nature and description, imposed levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future . . .". the tax exemption privileges granted to Philippine Airlines shall automatically become part of your franchise and shall operate equally in your favor. Such being the case, your importation of subject aircraft under the Deed of Absolute Sale executed on March 23, 1993 is not subject to the value-added tax imposed under Section 101 (a) of the Tax Code, as amended by E.O. NO. 273. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue