ITAD BIR Ruling No. 025-14

April 1, 2014 ITAD BIR RULING NO. 025-14 Republic Act 10378 KLM Royal Dutch Airline 39th Floor Yuchengco Tower RCBC Plaza corner Sen. Gil Puyat and Ayala Avenue Makati City 1200 Attention: Jurriaan Pieter Stelder General Manager Gentlemen : This refers to your letter dated May 21, 2013 requesting confirmation that Koninklijke Luchtvaart Maatschappij N.V. (KLM) Royal Dutch Airlines ("KLM") is exempt from tax on its Gross Philippine Billings on the basis of reciprocity under Republic Act (RA) No. 10378. IcCEDA It is represented that KLM is an international air carrier organized and existing under the laws of the Netherlands with business address at Amsterdamseweg 55, 1182 GP AMSTELVEEN, the Netherlands; that it was issued a license to establish its branch office in the Philippines on August 8, 1955; and that according to Chapter III, Article 19 of the 1969 Corporation Tax Act of the Netherlands, foreign shipping and air transport companies will not be taxed in the Netherlands on income, profits and gains from the operation of ships or aircraft in international traffic travelling to and from Netherland harbors or airports, provided that the foreign country does not tax the income, profits and gains derived from the operation in international traffic of ships or aircraft by shipping and air transport companies, that are residents of the Netherlands as certified by the Competent Tax Authority in the Netherlands on March 15, 2013, and the Netherlands does not tax, on a reciprocal basis, the income, profits and gains from the operation of ships or aircraft in international traffic of the Republic of the Philippines's shipping and air transport companies. Based on the above representation, you now seek to confirm the exemption provided under RA No. 10378, otherwise known as "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". In reply, please be informed that as a general rule 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 provided under Section 28 A (3) of the NIRC of 1997, as amended. However, with the enactment of RA 10378, an international carrier doing business in the Philippines may now avail of exemption on the tax imposed on its gross revenue derived from the carriage of persons and their excess baggage if its home country also grants income tax exemption to Philippine Carriers, to wit: " Section 1. Section 28(A)(3)(a) of Republic Act No. 8424, otherwise known as the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows: SEC. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. (1) . . . (2) . . . (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: (a) International Air Carrier 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 . xxx xxx xxx (Emphasis Provided) " Based on the foregoing and considering that the Netherlands grants reciprocal tax exemption to Philippine Air Carriers, this Office is of the opinion and so holds that KLM is exempted from income tax on its Gross Philippine Billings on the carriage of persons and their excess baggage pursuant to RA No. 10378. aCITEH In relation thereto, under Section 7 of Revenue Regulations (RR) No. 15-2013, KLM, through 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 KLM was issued a ruling by the BIR confirming its Gross Philippines Billings Tax exemption 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue