Emirates

January 9, 2020 ITAD BIR RULING NO. 007-20 Philippines-United Arab Emirates tax treaty; Republic Act No. 10378; Revenue Regulations No. 15-2013 Emirates 18th Floor, Pacific Star Building, Makati Avenue corner Gil Puyat Avenue 1200 Makati City Attention: AAA _______________ Gentlemen : This refers to your letter dated July 5, 2019 requesting confirmation that Emirates is exempt from tax on its Gross Philippine Billings on the basis of reciprocity under Republic Act ("R.A.") No. 10378, 1 as implemented by Revenue Regulations ("R.R.") No. 15-2013. 2 CAIHTE It is represented that Emirates is an international air carrier organized and existing under the laws of the United Arab Emirates ("UAE"). It was issued a license by the Securities and Exchange Commission to establish its branch office in the Philippines and to engage in commercial air services. Based on the consularized certification signed by the Undersecretary of the Ministry of Finance of UAE, UAE will continue to grant income tax exemption to Philippine air carriers operating in international traffic in UAE, provided UAE Emirates Airlines, Etihad, Emirates, and other UAE air carriers operating in the Philippines are granted the same benefits. The Philippine Airlines ("PAL"), on the other hand, issued a certificate on March 10, 2015 stating that it is currently flying to UAE from the Philippines, Abu Dhabi in particular, on a daily basis and PAL does not pay any corporate income taxes to the UAE government on its revenue or income generated in UAE. In reply, please be informed that under Section 28 (A) (3) (a) of the 1997 National Internal Revenue Code ("NIRC"), an international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings' ("GPB"). However, with the enactment of R.A. No. 10378, as implemented by R.R. No. 15-2013, an international carrier doing business in the Philippines may avail of a preferential rate or exemption from tax imposed on their gross revenue derived from the carriage of persons and their baggage on the basis of an applicable tax treaty or international agreement or on the basis of reciprocity if its home country grants income tax exemption to Philippine carriers, to wit: " SEC. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (3) International Carrier . An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings' as defined hereunder: xxx xxx xxx Provided, That international carriers doing business in the Philippines may avail of a preferential rate or exemption from the tax herein imposed on their gross revenue derived from the carriage of persons and their excess baggage on the basis of an applicable tax treaty or international agreement to which the Philippines is a signatory or on the basis of reciprocity such that an international carrier, whose home country grants income tax exemption to Philippine carriers, shall likewise be exempt from the tax imposed under this provision . " (Emphasis provided) Based on the foregoing, international carriers doing business in the Philippines shall be exempt from tax on their gross revenue derived from carriage of persons and their excess baggage: (1) if an applicable tax treaty or international agreement to which the Philippines is a signatory so provides; or (2) on the basis of reciprocity. aScITE Considering that PAL does not pay any corporate income taxes to the UAE government on its income earned in UAE, Emirates shall likewise be exempt from income tax on its gross revenue derived from the carriage of persons and excess baggage on the basis of reciprocity. However, its gross revenue derived from cargo and mail cannot be granted the same tax exemption on the basis of reciprocity because R.A. No. 10378 does not expressly so provide. It is a basic rule in taxation that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; thus, where the State has granted in express terms certain exemptions, only those expressly mentioned shall be considered, nothing more, nothing less. Applying this principle in the case, when the law grants exemption only to gross revenue derived by international carriers from the carriage of persons and their excess baggage, it should not be interpreted in a manner so as to include the gross revenue derived from cargo and mail originating from the Philippines. Any interpretation that would give it an expansive construction, i.e. , to cover those not intended by the lawmaking body, would be unwarranted. The avowed purpose of tax exemption "is some public benefit or interest, which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption." 3 The transport of cargo and mail does not directly contribute to the increase of foreign tourist arrivals in the country or to the development, promotion and expansion of international trade and travel, the purposes sought to be realized by the passage of R.A. No. 10378. However, gross revenue derived by international carriers of UAE from the Philippines in the carriage of cargo and mail may be entitled to the preferential rate of 1 1/2% pursuant to Article 8 (Shipping and Air Transport) of The Agreement between the Government of the Republic of the Philippines and the Government of the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital ("Philippines-UAE tax treaty"). Furthermore, international carriers doing business in the Philippines shall be subjected to 3% common carrier's tax on their quarterly gross receipts derived from the transport of cargo from the Philippines to another country pursuant to Sec. 118 on the NIRC, to wit: " SEC 118. Percentage Tax on International Carriers. (A) International air carriers doing; business in the Philippines on their gross receipts derived from transport of cargo from the Philippines to another country shall pay a tax of three percent (3%) of their quarterly gross receipts. DETACa (B) International shipping carriers doing business in the Philippines on their gross receipts derived from transport of cargo from the Philippines to another country shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts." In view of all the foregoing, this Office is of the opinion and so holds that: (1) Emirates is exempt from income tax on its GPB on carriage of persons and excess baggage considering that UAE grants reciprocal tax exemption to Philippine air carriers; (2) Emirates is entitled to the preferential rate of 1 1/2% on the gross revenues derived from carriage of cargo and mail pursuant to Article 8 of the Philippines-UAE tax treaty; and (3) Emirates is liable to pay the 3% Common Carrier's tax on its carriage of cargo pursuant to Sec. 118 of the NIRC, as amended. In relation to the exemption granted to Emirates under Section 7 of R.R. No. 15-2013, its authorized representative or personnel is obliged to submit to the International Tax Affairs Division (ITAD) a sworn certification stating that there is no change in the domestic laws of its home country granting income tax exemption to Philippine carriers before January 31 of each year from the time Emirates was issued a ruling by the BIR confirming its tax exemption on gross revenue derived from carriage of persons and excess baggage on the basis of reciprocity. Failure to submit the sworn certification shall be a ground for the revocation of such ruling. This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. HEITAD Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. An Act Recognizing the Principle of Reciprocity as Basis for the Grant of Income Tax Exemptions to International Carriers and Rationalizing Other Taxes Imposed thereon by Amending Sections 28 (a) (3) (a), 109, 118 and 236 of the National Internal Revenue Code (NIRC), as Amended, and for Other Purposes. 2. Revenue Regulations Implementing Republic Act No. 10378 entitled "An Act Recognizing the Principle of Reciprocity as Basis for the Grant of Income Tax Exemptions to International Carriers and Rationalizing other Taxes Imposed thereon by Amending Sections 28 (A) (3) (A), 109, 118 and 236 of the National Internal Revenue Code (NIRC), as amended, and for other Purposes." 3. Commissioner of Internal Revenue, et al. v. Botelho Shipping Corp., et al. , 126 Phil 846, 851.