Jetstar Japan Company Ltd.-Philippine Branch Office

April 3, 2018 ITAD BIR RULING NO. 060-18 Article 8 Philippines-Japan tax treaty, as amended Jetstar Japan Company Ltd.-Philippine Branch Office 10th Floor, Sebastian D. Ty Tower 104 Paseo de Roxas Legaspi Village 1229 Makati City Attention: AAA __________ Gentlemen : This refers to your tax treaty relief application filed on June 5, 2015 requesting confirmation that Jetstar Japan Company Ltd. (" Jetstar ") is subject to income tax of 1 1/2% on its Gross Philippine Billings (" GPB ") pursuant to the Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income . 1 cSEaTH FACTS Jetstar is a corporation organized and existing under the laws of Japan and a resident thereof based on its amended Articles of Incorporation and Certificate of Residence issued by the Narita Tax Office in Japan. The objects of Jetstar are to engage in air transport services; aerial work services; sale, purchase, and lease of aircraft, aircraft parts and accessories; storage and maintenance of aircraft and aircraft parts; and ground support services with respect to air transport service, such as passengers' check-in or baggage loading, among others. Jetstar has a License to Transact Business in the Philippines issued by the Securities and Exchange Commission on January 14, 2016, where it is licensed to establish a branch office in the Philippines to provide air transport service between Japan and the Philippines. The branch office referred to is Jetstar Japan Company Ltd.-Philippine Branch Office with office in Makati City, Philippines. RULING In reply, please be informed that under Section 28 (A) (3) of the National Internal Revenue Code of 1997, as amended (" Tax Code "), international carriers (air transport and shipping) doing business in the Philippines are subject to income tax on their GPB at the rate of 2 1/2%. Likewise, international carriers may avail of a preferential rate or exemption on their GPB on the basis of an applicable tax treaty or international agreement to which the Philippines is a signatory, or on the basis of reciprocity where the home country of these carriers exempt Philippine carriers from income tax doing business in the former's territories. Section 28 (A) (3) provides: " SEC. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. xxx xxx xxx (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. 'Gross Philippine Billings' refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo, and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, That tickets revalidated, exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place at any part outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings . (b) International Shipping. 'Gross Philippine Billings' means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents. 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." 2 In the instant case, Jetstar invokes solely the Philippines-Japan tax treaty. Article 8 thereof provides: " Article 8 1. The profits of an enterprise of a Contracting State derived in the other Contracting State from the operation of ships or aircraft in international traffic may be taxed in that other Contracting State, but the tax so charged shall be 60 per cent of the tax which is chargeable under the laws of that other Contracting State in force on the date of signature of this Convention. 2. The provisions of the preceding paragraph shall also apply to profits from the participation in a pool, a joint business or an international operating agency." Under Article 8, profits of an enterprise of a Contracting State derived in the other Contracting State from the operation of ships or aircraft in international traffic may be taxed in the other State, but the tax so charged shall be 60% of the tax chargeable under the laws of that State. Accordingly, since Jetstar is engaged in the operation of aircraft in international traffic, it is subject to income tax of 1 1/2% ( i.e. , 60% of the regular 2 1/2% income tax rate) on its GPB pursuant to paragraph 1, Article 8 of the Philippines-Japan tax treaty. ECTSDa Furthermore, under Section 118 (A) of the Tax Code, Jetstar is subject to common carriers' tax of 3% on its quarterly gross receipts, thus: " 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." 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.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. As amended by the Protocol Amending the Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income , effective January 1, 2009 . 2. Introduced under 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 , as implemented by Revenue Regulations 15-2013 .