Tax Exemption Privileges of Philippine Airlines

January 29, 1999 BIR RULING NO. 013-99 P.D. 1590; E.O. 93-000-00-013-99 Philippine Airlines Post Office Box 1955 Manila Attention: Mr . Elvis A . Yao Senior Asst . Vice President Fuel Management Department Gentlemen : This refers to your letters dated July 23, 1997 and November 14, 1998 requesting for a ruling on the tax exemption privileges of Philippine Airlines, Inc. (PAL), granted under Presidential Decree (PD) No. 1590 dated June 11, 1978, in relation to Letter of Instruction (LOI) No. 1483 dated October 31, 1985. It is represented that Sec. 13(b) Par. 1 and 2 of PD No. 1590, provides among others, that purchases by PAL of aviation gas, fuel and oil to be used in its transport and non-transport operations are exempt from the payment of all taxes, duties, charges, royalties or fees; that since then, PAL had been enjoying this tax-exemption privileges until the same was withdrawn partially when LOI No. 1483 was issued by the President of the Philippines, the main text of which is quoted as follows: ". . . the tax exemption privilege granted to PAL on its purchase of domestic petroleum products for use in its domestic operations is hereby withdrawn" (emphasis supplied) that the wordings of LOI No. 1483 is very clear that the tax-exemption privilege being withdrawn refers specifically to the purchase of domestic petroleum products by PAL for use in its domestic operations; that it does not include purchases from abroad or foreign countries; and that it is for this reason that the Bureau of Customs does not impose any tax or customs duties on arrivals of petroleum products imported or purchased by PAL from abroad. In reply, please be informed that we confirm your opinion that petroleum products purchased or imported by PAL from abroad can be used by it in its domestic operations without payment of tax since the said products were not a domestic purchase. The intention of LOI No. 1483 is to impose a tax on domestic petroleum products purchased by PAL for use in its domestic operations. Furthermore, the grant of such exemption is not contrary to Executive Order No. 93, withdrawing the tax and duty exemption privileges, including the preferential tax treatment of all units of government and private entities in view of Sec. 24 of PD No. 1590 which provides, viz: "SEC. 24. This franchise, as amended, or any section or provision hereof may only be modified , amended , or repealed expressly by a special law or decree that shall specifically modify , amend , or repeal this franchise or any section or provision thereof." (emphasis supplied) The foregoing finds support in the letter of then Executive Secretary Catalino Macaraig, Jr. of the Office of the President of the Philippines dated March 30, 1988 addressed to the President of Philippine Airlines which ruled that: ". . . this Office finds and so declares that EO Nos. 72 and 93, both series of 1985, have not effectively amended or modified any provision or section of PD No. 1590." (emphasis supplied) Moreover, Aurora T. Aquino, Director IV of the Office of the President of the Philippines issued an undated certification that: ". . . according to the records available on file on this Office, Presidential Decree No. 1590 dated June 11, 1978, entitled "AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIR TRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN THE PHILIPPINES AND OTHER COUNTRIES" has not been amended nor revoked by any issuance." LexLib Finally, the Department of Finance through Director Vicente G. Quintos, Head, Fiscal Incentives Review Board (FIRB) Secretariat in his letter dated May 5, 1992 addressed to Mr. Fortunato Gupit, Jr., Vice President - General Counsel, Philippine Airlines in reference to the aforequoted letter-ruling of the Office of the President through then Executive Secretary Catalino Macaraig, Jr., dated March 30, 1998, stated that: ". . . the FIRB is in agreement with the aforecited position of the Office of the President." Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue