BIR Ruling [UN-433-95]

December 6, 1995 BIR RULING [UN-433-95] Sycip, Gorres, Velayo & Co. P. O. Box 256, Makati Central Post Office Makati, Metro Manila Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to the internal revenue tax case of your client Singapore Airlines, Limited (SAL), 138 H.V. dela Costa St., Salcedo Village, Makati, Metro Manila, involving the amounts of P2,815,856.10, P1,540,280.98 and P698,433.50 representing deficiency income tax for the years 1989 and 1990 and deficiency expanded withholding tax for the year 1990 respectively. cdtech (1) Re: Deficiency Income Tax (1989) P2,815,856.10 Deficiency Income Tax (1990) P1,540,280.98 Records of this case disclosed that SAL an international air carrier is a corporation organized and existing under and by virtue of the laws of Singapore; that it is operating in the Philippines as an "on-line airline" i.e., having or maintaining flight operations to and from the Philippines; that for fiscal year ending March 31, 1989 and March 31, 1990, SAL declared a gross Philippine billings of P465,702,560.38 and P487,183,175.09 respectively; that it paid a tax of 1 1/2% on its gross Philippine billings for 1989 and 1990 in the respective amounts of P7,002,029.02 and P7,307,747.63 pursuant to Art. 8(1) of the RP-Singapore Tax Treaty; that investigation conducted by Examiners of this Office disclosed that the gross Philippine billings of SAL for fiscal year 1989 was P566,652,925.12 and for fiscal year 1990, P550,804,455.86; that as a result thereof this Office issued Assessment Notice Nos. FAS-1-89-92-0001080 and FAS-1-90-92-0001081 involving the amounts of P2,815,856.10 and P1,540,280.98 representing deficiency income taxes for fiscal year ending March 31, 1989 and for fiscal year ending March 31, 1990; that the basis of the Examiners in computing SAL's gross Philippine billings is the gross value of the passage documents sold or issued in the Philippines whether for passengers, cargo or mail originating from the Philippines i.e., the ticket sales as recorded in the Bank Settlement Plan Account and the Cash Sales Account; that in the letters dated April 8, June 1, 1992 and April 30, 1993, you protested the aforementioned assessments on the ground that it is not correct to use the ticket sales as basis in determining the tax base of the gross Philippine billings tax since the Bank Settlement Plan Account and the Cash Sales Account did not distinguish which of the tickets sold were flown by SAL and which tickets were serviced by other airlines; that the gross Philippine billings as submitted by SAL's head office and reported by SAL in its quarterly returns is accurate and truly reflective of SAL's income; and that SAL's gross revenue which is already based on computerized figures was arrived at by the head office by allocating from the worldwide income earned by all branches of SAL the revenue which properly accrue to it, taking into consideration the proceeds of ticket sales in the Philippines and its tickets honored by other airline companies. Pursuant to Section 25(a)(2)(A) of the Tax Code, as amended, "Gross Philippine Billings" means gross revenue realized from uplifts of passengers anywhere in the world and excess baggage, cargo and mail originating from the Philippines, covered by passage documents sold in the Philippines. Provided, that documents sold outside the Philippines under a "prepaid ticket advice" scheme for passengers originating from the Philippines shall be considered as documents sold in the Philippines. Gross revenue from chartered flights originating from the Philippines shall likewise form part of the "Gross Philippine Billings" regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability of revenues from chartered flights, the term "originating from the Philippines" shall include flights of passengers who stay in the Philippines for more than forty-eight (48) hours prior to embarkation. The gross freight charges in the airway bills, bills of lading and/or value of tickets sold by each international carrier doing business in the Philippines shall be prima facie evidence of its gross lifted revenue (Sec. 2, Revenue Regulations No. 6-78 dated April 25, 1978). Such being the case, and since the basis used by the Examiners in determining the gross Philippine billings of SAL is the gross value of the passage documents sold or issued in the Philippines i.e., the ticket sales as recorded in the Bank Settlement Plan Account and the Cash Sales Account, the aforementioned deficiency income tax assessments involving the amounts of P2,815,856.10 and P1,540,280.98 for the years 1989 and 1990 are legal and proper. (2) Re: Expanded Withholding Tax (1990) P698,433.50 SAL was assessed for expanded withholding tax for its failure to withhold tax on alleged overriding commissions but which actually is travel agent's commission for fiscal year ended March 1989. Payments for travel agent's commissions are subject to the expanded withholding tax of 5% pursuant to Section 1 (g) of Revenue Regulations No. 6-85 as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50 (b) of the Tax Code, as amended. Such being the case, the assessment involving the amount of P698,433 . 50 for expanded withholding tax on travel agent's commissions has legal and factual bases . In view thereof, you are requested to urge your client, Singapore Airlines, Limited 138 H.V. dela Costa St., Salcedo Village, Makati, Metro Manila, to pay the amounts of P2,815,856.10, P1,540,280.98, P698,433.50 representing deficiency income tax for fiscal years ending March 31, 1989 and 1990 and expanded withholding tax for the year 1990 within thirty (30) days from receipt hereof otherwise this Office will enforce collection thereof through the summary remedies prescribed by law. cdta This constitutes the final decision of the Office in this case. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue