PAL's Connecting Services Considered as Part of International Flight Hence, Exempt from Tax on Fuel Consumed in Such Flights

May 25, 1992 BIR RULING NO. 159-92 132 210-91 159-92 Philippine Airlines Philippine Airlines Building Legazpi St., Legazpi Vill. Makati, Metro Manila Attention: Mr . Feliciano Belmonte, Jr . President Gentlemen : This refers to your letter dated 2 August 1991 requesting a ruling on whether your connecting services, otherwise known as "Cebu Link," i.e. PR 512-Various Foreign Destinations-Manila-Cebu; and PR 511-Cebu-Manila- Various Foreign Destinations, be considered as part of international flight hence, exempt from tax on fuel consumed in such flights. It appears that the B.I.R. has been rejecting the claim of PETRON for refund of taxes paid on fuel deliveries to PAL for the latter's Manila-Cebu or vice versa portion of its international flight for fuel consumptions used within the Philippine territory on the ground that it was considered as a domestic consumption and therefore subject to tax. Since PETRON could no longer recover the corresponding refund they are constrained to pass on the tax to PAL. You now contend, that the Manila-Cebu link be considered as part of international flight: a) All passengers and cargo on board the flights are international passengers and cargo, i.e., destined for or coming from a foreign port. There is definitely no local traffic on board the Manila-Cebu or vice versa portions of these flights; b) PAL advertises, sells and reports the flights as part of its international network; c) The contracts of carriage (tickets) of all passengers plus the airway bills for all cargo on board the flights stipulate said flights as part of an international carriage; and d) Classifying the flights as domestic could cause serious repercussions to PAL's third party liability insurances in case of accident. In reply, we quote a settled concept in international transportation, viz: "Where contract for transportation of passenger by air designated New York a place of departure and place of destination, with agreed stopping places in and other territories subject to the sovereignty of other powers, carriage was "international transportation" within rules relating to international air transportation as established at the Warsaw Convention". (Volume 22 W. & P. p. 371) Based on the foregoing, it is our opinion that the Manila-Cebu link of your international route, viz: PR 434/433 Manila-Cebu-Tokyo-Cebu-Manila PR 438/437 Manila-Cebu-Tokyo-Cebu-Manila PR 436/435 Manila-Tokyo-Cebu-Manila PR 512 various Foreign Destinations-Manila-Cebu PR 511 Cebu-Manila-various Foreign Destinations are international flights by an international carrier, hence, petroleum products purchased by you and consumed in such flights shall not be subject to excise tax pursuant to Section 132 of the Tax Code, as amended. It should be understood that the said connecting link is only for the purpose of loading and unloading international passenger or cargo and no domestic passengers or cargo shall be allowed on said flights under any circumstances; otherwise, the petroleum products used thereon will be subject to excise tax. iatdc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue