ITAD BIR Ruling No. 014-09

May 11, 2009 ITAD BIR RULING NO. 014-09 Section 135 (A) & (B) of the Tax Code of 1997, as amended Taipei Economic & Cultural Office in the Philippines Taiwan, Republic of China 41/F Tower 1, RCBC Plaza, 6819 Ayala Avenue, Makati City Attention: Amb. Donald C.T. Lee Representative Taiwan, R.O.C. Gentlemen : This refers to your letter dated 12 January 2009 requesting for exemption from the payment of excise tax on aviation fuel purchased from the Philippines for use in its international flights beginning April 2009. EICSTa It is represented that China Airlines is a foreign corporation organized and existing under the laws of Taiwan, Republic of China with office address at G/F Suite A-26B, Midtown Arcade, M. Adriatico St., Ermita Manila; that it is principally engaged in the business as an on-line international carrier, operating the Philippines-Taiwan and Taiwan-Philippines routes and buying, including importation, of oil and other petroleum products for its use and consumption. In reply, please be informed that Section 135 of the Tax Code of 1997, as amended provides: "Sec. 135. Petroleum products sold to foreign international carriers and Exempt Entities or Agencies. Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption; Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies." (Emphasis supplied) China Airlines' purchases of petroleum products in the Philippines, as represented, are used exclusively for its international flights. Hence, it qualifies for excise tax exemption under Section 135 (a) of the Tax Code of 1997, as amended. Likewise, Section 135 (b) of the same Code also allows exemption of international carriers from the payment of excise taxes on petroleum products pursuant to international agreements and practices. Based on the said Section, the only other requisite for such exemption is that the Republic of Taiwan exempts from similar excise taxes petroleum products sold to Philippine carriers. It is noteworthy that the Philippines' local carriers, the Philippine Airlines (PAL) and Cebu Pacific are exempted from the payment of excise taxes and enjoy zero rated VAT in Taiwan on their purchases of aviation fuel for use in their international flights as confirmed in the Certification issued by the Department of Taxation, Ministry of Finance of Taiwan dated 15 November 2002. IN VIEW OF THE FOREGOING, this Office holds that the sale of petroleum products to China Airlines is exempt from excise tax pursuant to Section 135 (a) and (b) of the National Internal Revenue Code of 1997. IEaHSD 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue