Tax Liabilities of the Parties under a Bilateral Marketing Representative Agreement

December 27, 1989 BIR RULING NO. 269-89 25 (a) (2) 000-00 269-89 S i r : This refers to your letter dated October 19, 1989 requesting a ruling on the tax liabilities of the parties under a Bilateral Marketing Representative Agreement entered into by and between your client, Aerotel Limited Corporation, and Air New Zealand Limited, a foreign corporation. It appears that your client, Aerotel Limited Corporation (Aerotel) with postal address at No. 15, Ground Floor, Asian Plaza I, Dela Costa Street, Salcedo Village, Makati, Metro Manila, having authorized to do business as an off-line carrier in the Philippines, entered into a Bilateral Marketing Representative Agreement with Air New Zealand (ANZ) Limited, Air New Zealand House, 1 Queen Street, Auckland I, New Zealand effective November 1, 1988; that the agreement provides that Aerotel shall be the sole marketing representative of ANZ in the Philippines; that among the functions of Aerotel as representative, are the promotional sale of passenger transport, handle and administer reservations for passenger and cargo transportation, display timetables and publicity materials, exert effort to organize publicity campaigns to enhance good will towards the principal, (Article 3); that in consideration for such services, ANZ shall pay sales/interline commissions in accordance with applicable IATA Sales Resolutions plus overriding commission of 3% based on prorated fare on sales exceeding ANZ's stipulated services for passenger. In reply, please be informed that based on the foregoing Aerotel performs service for ANZ for a fee, remuneration or consideration as a commercial broker; hence, it is subject to the 10% value-added tax, based on its gross receipts which consist of said consideration, pursuant to Section 102(a) of the Tax Code. Moreover, your client is subject to a corporate income tax of 35% pursuant to Section 24(a) of the same Code. On the other hand, ANZ being an off-line international airline and doing business in the Philippines by regularly selling tickets in this country thru Aerotel, shall be subject to an income tax of 2-1/2% based on Gross Philippine Billings which include, gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage, cargo or mail, provided the cargo or mail originates from the Philippines. (Section 25(a)(2), Tax Code, as implemented by Revenue Regulations No. 6-78) cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner