Tax Exemption Privileges and Preferential Treatment Enjoyed by Orient Airlines Association in Light of PD 1955

November 10, 1986 BIR RULING NO. 240-86 24 240-86 Gentlemen : This refers to your letter dated August 13, 1985 requesting clarification as to whether the tax exemption privileges and preferential treatment enjoyed by the Orient Airlines Association (OAA) under P.D. 1253 are not withdrawn by P.D. 1955. cdt Investigation conducted in this case disclosed that the Orient Airlines Association was established in 1966 as a non-stock and non-profit organization composed of several airlines of the Orient which are the flag carriers of their respective countries such as the Cathay Pacific Airways, China Airlines, Japan Air Lines, Korean Air Lines, Malaysian Airline System, Philippine Airlines, Qantas Airways, Royal Brunei Airlines, Singapore Airlines and Thai Airways International, that its primary purpose is the development of air commerce in the region in the interest of the safety and convenience of the travelling public; that it serves as a forum for discussing matters and problems of common interest and concern, fostering closer cooperation, development of the travel and tourism industry in the region, and the individual and collective growth of its member airlines as instruments of international cooperation in the economic, social and cultural fields, and that P.D. No. 1253 dated November 28, 1977 granted a corporate legal personality to OAA as a non-profit and non-stock corporation and exemption from income tax under the provisions of Section 27(f) of the NIRC as amended, as a business league not organized for profit, and its operations and transaction shall be exempt from any and all taxes, duties, fees, charges, imposts, licenses and assessments of whatever nature and description, direct or indirect, imposed by the Republic of the Philippines or any of its political subdivisions or taxing authorities except only the tax on any real property owned and held by the organization in the Philippines. In reply thereto, please be informed that pursuant to Section 2 of P.D. No. 1955, and to clarify further the scope of said decree, the Ministry of Finance issued its Ministry Order No. 39-84 which provides that the withdrawal of exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts and other charges as provided for under P.D. No. 1955 does not apply to exemptions or preferential treatment embodied, among others, in the National Internal Revenue Code, as amended. Accordingly, since OAA is a business league not organized for profit under Section 27(f) of the Tax Code as amended, it is still exempt from the payment of income tax in respect of income received by it as such organization and, therefore need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes, imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation purposes pursuant to Section 27 of the Tax Code as amended by P.D. No. 1457. Moreover, any exemption from or preferential treatment in the tax on interest income from bank deposits and yield or any other monetary benefit from deposit substitutes, trust fund and similar arrangements shall remain withdrawn pursuant to Section 24(e)(1) and 51(a) of the Tax Code, as amended. (Sec. 2, Ministry Order No. 39-84 supra). Accordingly, OAA shall be subject to the final tax of 20% on interest and/or yield on deposit substitute instruments and interest on its savings and time deposits paid or accrued beginning August 1, 1986. cdtech Very truly yours, (SGD.) ROMULO M. VILLA Acting Commissioner