Varig Brazilian Airlines Gross Philippine Billings Subject to Preferential Tax Rate of 1 1/2% Pursuant to Protocol of the RP-Brazil Tax Treaty

February 22, 1996 BIR RULING NO. 022-96 28 (b) (b) 000-00 022-96 Varig Brazilian Airlines G/F. Unit 14-A Colonnade Residences 132 C. Palanca Jr. Street Legaspi Village, Makati City Attention: Ms . Divina S . Abad Santos General Manager Gentlemen : This refers to your letter dated December 15, 1994, in effect, requesting confirmation of your opinion that your gross Philippine Billings is subject to the preferential tax rate of 1 1/2% pursuant to paragraph 1 and 5. Article 8, Protocol of the RP-Brazil Tax Treaty from the effectivity thereof on January 1, 1992 through and after January 1, 1995. cd It appears that on May 27, 1992, then Commissioner Jose U. Ong rendered an opinion to the effect that you are subject to the preferential tax rate of one and one-half percent (1 1/2%) on your Gross Philippine Billings effective January 1, 1992 and valid for a period of three (3) years unless sooner revoked by this Bureau. Accordingly, you posed the question as to whether or not you still enjoy said preferential tax rate after the lapse of three (3) years beginning January 1, 1995 and after. In reply please be informed that pursuant to paragraph 1, Article 8 and paragraph 5 of the Protocol of the RP-Brazil Tax Treaty stating "Article 8 SHIPPING AND AIR TRANSPORT "1. Profits derived from sources within one of the Contracting States by a resident of the other Contracting State from the operation of ships or aircraft in international traffic may be taxed in both Contracting States. PROTOCOL "xxx xxx xxx "5 With reference to Article 8 it is understood that the tax that may be imposed by one of the Contracting States in profits from sources within that Contracting State derived by a resident of the other Contracting State from the operation of ships or aircraft in international traffic shall not exceed the less of: (a) one and one-half (1 . 5%) percent of the gross revenue derived from sources in that State : and (b) . . ." (Emphasis supplied) your opinion that your Gross Philippine Billings derived from the operation of aircraft in international traffic in the Philippines is subject to the preferential tax rate of one and one-half percent (1 1/2%) is hereby confirmed. "Gross Philippine Billings" means gross revenue realized from uplifts of passengers anywhere in the world and excess baggage, cargo and mail originating from the Philippines, covered by passage documents sold in the Philippines: Provided, That documents sold outside the Philippines under a "prepaid ticket advice" scheme for passenger originating from the Philippines shall be considered as documents sold in the Philippines. Gross revenue from chartered flights originating from the Philippines shall likewise form a part of the "Gross Philippine Billings" regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability of revenues from chartered flights. The term "originating from the Philippines" shall include flights of passenger who stay in the Philippines for more than forty-eight (48) hours prior to embarkation. In accordance with the international law principle of Pacta Sunt Servanda , the aforesaid preferential tax treatment shall be observed in good faith and shall continue indefinitely unless the Convention is terminated in accordance with Article 29 thereof. casia Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue