ITAD BIR Ruling No. 202-15

June 5, 2015 ITAD BIR RULING NO. 202-15 Republic Act 10378 & Revenue Regulations No. 15-2013 United Air Lines, Inc. 10th Floor, Rufino Pacific Tower 6784 Ayala Avenue Makati City 1226 Attention: Clodelsa Ty Country Manager Gentlemen : This refers to your letter dated September 26, 2013 requesting confirmation that United Airlines, Inc. (" United ") is exempt from tax on its Gross Philippine Billings on the basis of reciprocity under Republic Act (RA) No. 10378 . HTcADC It is represented that United is an international air carrier organized and existing under the laws of the Delaware, USA with business address 1209 Orange Street, Wilmington, New Castle County, Delaware, 19801; that it was issued a license to provide international air services to and from the Philippines, market its flight operations and sell its services in the country per certificate of amended license issued by the Securities and Exchange Commission on 19 April 2012; and that according to a consularized copy of Section 883 of the Internal Revenue Code of 1986 of America on the exclusions from gross income, gross income derived by a corporation organized in a foreign country from the international operation of aircraft and ships shall not be included in their gross income and shall be exempt from taxation if such foreign country grants an equivalent exemption to corporations organized in the United States. 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", as implemented by Revenue Regulations (RR) No. 15-2013. aScITE 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: HEITAD (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, 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: ATICcS "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) United is exempted from income tax on its GPB on carriage of persons and excess baggage pursuant to RA No. 10378 considering that the USA grants reciprocal tax exemption to Philippine Air Carriers based on Section 883 of the Internal Revenue Code of 1986 of America; (2) United is subject to 2.5% GPB tax on carriage of cargo and mail pursuant to Section 28 (A) (3) (a) of the NIRC, as amended; and (3) United is liable to pay the 3% Common Carrier's tax on carriage of cargo pursuant to Sec. 118 of the NIRC, as amended. In relation to the exemption granted to United , under Section 7 of Revenue Regulations (RR) No. 15-2013, United , 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 United 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. TIADCc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue