ITAD BIR Ruling No. 026-16

March 17, 2016 ITAD BIR RULING NO. 026-16 Republic Act No. 10378; Revenue Regulations No. 15-2013 Etihad Airways 22nd Floor, Tower 1 The Enterprise Center Ayala Avenue Makati City Attention: John Rees Evans General Manager-Philippines Gentlemen : This refers to your letter dated May 8, 2013 requesting confirmation that Etihad Airways ("Etihad Air") is exempt from tax on its Gross Philippine Billings on the basis of reciprocity under Republic Act (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" , as implemented by Revenue Regulations (RR) No. 15-2013 . It is represented that Etihad Air is an international air carrier organized and existing under the laws of United Arab Emirates (UAE); that it was issued a license to establish its branch office in the Philippines on January 13, 2005 per certification of registration issued by the Securities and Exchange Commission on July 10, 2013; that according to a consularized certification signed by Undersecretary of the Ministry of Finance of UAE, UAE will continue to grant exemption of tax to Philippine National Airlines operating in international traffic in the UAE, whereas UAE Emirates Airlines, Etihad, Emirates, and other UAE national airlines operating in the Philippines will enjoy the same treatment; that the Philippine Airlines (PAL) is currently flying to UAE from the Philippines, in particular to Abu Dhabi five (5) times a week; and that PAL does not pay any corporate income taxes to UAE government on its revenue or income generated in UAE per certification issued by PAL on June 15, 2015. HTcADC Based on the above representation, you now seek to confirm the income tax exemption on international carriers provided under RA No. 10378 . 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. . . (Emphasis Provided) " Based on the foregoing, international carriers doing business in the Philippines may be exempted from tax on gross revenue from carriage of persons and their excess baggage through (1) an applicable tax treaty to which the Philippines is a signatory; or (2) Reciprocity. Similarly, revenues of international carriers from carriage of cargoes or mail may be entitled to the preferential rate of 1 1/2% pursuant to an effective tax treaty. However, gross receipts of international carriers derived from transport of cargo are subject to a 3% Common Carrier's Tax (Percentage Tax of International Carriers) pursuant to Sec. 118 of the NIRC, as amended by RA 10378. It provides: "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." In view of all the foregoing, this Office is of the opinion and so holds: (1) Etihad is exempted from income tax on its GPB on carriage of persons and excess baggage considering that UAE grants reciprocal tax exemption to Philippine Air Carriers based on the authenticated certification by UAE's Undersecretary of Ministry of Finance and PAL's certification that it has current flight to UAE five (5) times a week and that it does not pay any corporate income taxes to UAE government on its income earned in UAE; (2) Etihad is subject to 1.5% GPB tax on carriage of cargo and mail pursuant to Section 28 (A) (3) (a) of the NIRC, as amended, and the Agreement between Government of the Philippines and the Government of United Arab Emirates for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes of Income and on Capital; (3) Etihad is liable to pay the 3% Common Carrier's tax on its carriage of cargo but exempted from the transport of passenger pursuant to Sec. 118 (A) of the NIRC, as amended, as implemented by Section 5 of Revenue Regulations (RR) No. 15-2013; and (4) Etihad is exempted from 12 percent VAT both on its transport of cargo and passenger, as provided under Section 109 (E) and (S), of the NIRC, as amended by RA 10378, as implemented by Section 6 of RR No. 15-2013. aScITE In relation to the exemption granted to Etihad , under Section 7 of RR No. 15-2013, Etihad , 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 this ruling was issued to Etihad 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 this 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