Tax Exemption of Philippine Airline Under Its Legislative Franchise

November 17, 1992 BIR RULING NO. 328-92 175 143-92 328-92 Land Bank of the Philippines 319 Sen. Gil J. Puyat Ave. Ext. Makati, Metro Manila Attention: Mr . Reynauld R . Villafuerte Head, BLO Gentlemen : This refers to your letter dated August 5, 1992, in effect, requesting for a ruling as to whether the exemption of Philippine Airline (PAL) from the payment of all taxes under its legislative franchise, P.D. No. 1590, includes exemption from the payment of documentary stamp taxes. It is represented that PAL has a credit line accommodation with your bank; that under said accommodation, PAL will shoulder the payment of documentary stamp and other related taxes; and that you were informed by the management of PAL that it is exempt from the payment of the documentary stamp tax pursuant to the ruling of then Executive Secretary Catalino Macaraig, Jr. In reply, please be informed that Section 13 of P.D. No. 1590 provides that in consideration of the franchise and rights herein granted, the payment by PAL of 2% franchise tax based on gross revenues shall be in lieu of all other taxes. Obviously, PAL is exempt from all taxes on income derived from activities connected with its franchised business. Hence, documentary stamp tax on bank notes/documents having no direct relevance to income on franchise activities, is not covered by PAL's tax exemption. Moreover, it appears that the reason from the assumption of taxes by PAL is to extend to you the preferential tax treatment accorded to the former. This cannot possibly be done because Section 173 of the Tax Code, as amended by P.D. No. 1994, expressly provides that whenever one party to the taxable document enjoys exemption from the tax therein imposed, the other party therein who is not exempt shall be the one directly liable for the tax. In other words, even assuming that PAL is indeed exempt from the payment of the documentary stamp taxes on documents executed by it in connection with its credit line accommodation with you, you will be the one directly liable for the payment of the tax/es. casia Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-In-Charge)