Claim of the Philippine Air Lines, Inc., for Exemption from the Payment of Residence Tax

April 16, 1959 BIR RULING NO. 199-59 3rd Indorsement Respectfully returned to the Provincial Auditor, Iloilo City, the attached papers bearing on the claim of the Philippine Air Lines, Inc., for exemption from the payment of residence tax. As a general rule, a franchise cannot be transferred by the grantee without the previous approval of the Philippine Legislature. The transfer to the "Philippine Air Lines, Incorporated" of the franchise of the "Philippine Aerial Taxi Co., Inc.," which was granted under Act No. 4271 to operate an aerial transportation service in the Philippines is authorized by Commonwealth Act No. 643. By virtue of such transfer, the Philippine Air Lines, Inc. becomes subject to the provisions of Act No. 4271 and its amendments. (Sec. 1, CA. 643). Consequently, the Philippine Air Lines, Inc. acquired the rights and privileges as well as the conditions, terms, restrictions and limitations under the franchise as fully and completely and to the same extent as if the franchise had been originally granted to it. (Sec. 21, CA 643). Pursuant to section 13 of Act No. 4271 as amended, the grantee (Philippine Air Lines, Inc.) "shall pay to the Insular Government during the first ten years of the life of the franchise a tax of one per cent (1%) of the gross revenue derived by the grantee from its operation under this franchise; and during the last fifteen years of the life of this franchise a tax of two per cent (2%) of such gross revenue. Such tax shall be due and payable quarterly and shall be in lieu of all taxes, of any kind, nature or description, levied, established or collected by any municipal, provincial or insular authority . The grantee shall pay the tax on its real property in conformity with existing law." (Emphasis supplied) Section 13 is explicit on the grant of exemption from all kinds of taxes, except the tax on its real property, after the grantee shall have paid the 1% or 2% tax, as the case may be, on the gross revenue derived from its operation under the franchise. This Office is therefore of the opinion that the Philippine Air Lines, Inc., is exempt from the residence tax, basic and additional, if its operations are limited to those covered by its franchise. If the PAL is undertaking activities other than those covered by its franchise, it is subject to the corresponding internal revenue taxes in respect thereof, in which case, it becomes subject to the basic residence tax and the additional residence tax on its receipts from such other activities. cdtech (SGD.) JOSE ARAAS Commissioner of Internal Revenue