ITAD Ruling No. 007-99

May 31, 1999 ITAD RULING NO. 007-99 Sec. 107 Sec. 109 000-00 Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles Law Offices 30th Floor, Citibank Tower, Citibank Plaza, 8741 Paseo de Roxas, Makati City Attention: Atty . Edmundo P . Guevarra and Atty . Jayson L . Fernandez Gentlemen : This refers to your letter dated 14 August 1998 requesting in effect for a confirmation of your opinion that the ground equipment, spare parts, engines, fuel, lubricants and other consumable technical supplies which are brought into the Philippines by the United Parcel Service Co. (UPSCo) exclusively for the servicing, maintenance, use or repair of its aircraft are exempt from all taxes and duties imposed under the National Internal Revenue Code of 1997 and the Tariff and Customs Code pursuant to Article 9 of the RP-US Air Transport Agreement dated September 16, 1982, as amended, and Article 24 of the Convention of International Civil Aviation which was signed at Chicago on December 7, 1944. It is represented that UPSCo is a foreign corporation organized and existing under the laws of the State of Delaware, U.S.A. with a branch office in the Philippines; that said corporation is licensed by the Philippine Securities and Exchange Commission (SEC) to coordinate the movement of air freight and to carry property, cargo, and mail as a certificated international US carrier in the Philippines; that UPSCo is a wholly-owned subsidiary of United Parcel Services of America, Inc. (UPS), one of the largest package distribution companies in the world specializing in express door-to-door delivery services; that UPSCo maintains a fleet of aircraft which transport property, cargo and mail belonging to UPS customers to and from different parts of the world; that it is a holder of an Air Carrier Operating Permit and a Certificate of Public Convenience and Necessity issued by the U.S. Department of Transportation; that UPSCo has been officially designated by the U.S. Government to operate all cargo services on US route No. 3 to and from the Philippines pursuant to Article 3 of the RP-US Air Transport Agreement; that it has been issued a Temporary Operating Permit by the Philippine Civil Aeronautics Board, pending the approval of its Foreign Air Cargo Carriers Permit; that its flights to the Philippines constitute UPS aircraft connection to its Asia-Pacific air network; that in order to ensure the airworthiness and safety of UPSCo's aircraft at all times during the course of its operations, it will become necessary for UPSCo to import and maintain in the Philippines an inventory of ground equipment, spare parts, engines, fuel, lubricants and other consumable technical supplies not generally available in the Philippines to allow for the timely servicing, maintenance, use or repair of its aircraft so it could continue its voyage; and that the ground equipment, spare parts to be brought into the Philippines by UPSCo will be for the exclusive use of UPSCo's aircraft only. cdlex In reply, please be informed that Article 9 of the Air Transport Agreement between the United States of America and the Government of the Republic of the Philippines dated September 16, 1982, as amended, provides, viz: "Article 9 " Customs and Duties "(1) On arriving on the territory of one Party, aircraft operated in international air transportation by the designated airlines of the other Party, their regular aircraft equipment, fuel, lubricants, consumable technical supplies, spare parts, including engines, aircraft stores (including but not limited to such items as food, beverages and liquor, tobacco and other products destined for sale to use or by passengers in limited quantities during the flight), and other items intended for or used solely by the designated airlines in connection with the operation or servicing of aircraft engaged in international air transportation shall be exempt, on the basis of reciprocity, from all import restrictions, property taxes and capital levies, customs duties, excise taxes, import taxes and similar fees and charges imposed by the national authorities, and not based on the cost of services provided, provided such equipment and supplies remain on board the aircraft. LexLib "(2) There shall also be exempt, on the basis of reciprocity, from the taxes, duties, fees and charges referred to in paragraph 1 of this Article, with the exception of charges based on the cost of the services provided, as follows: "b) ground equipment and spare parts including engines introduced into the territory of a Party for the servicing, maintenance or repair of aircraft of a designated airline of the other Party used in international air transportation; and "(c) fuel, lubricants and consumable technical supplies introduced into or supplied in the territory of a Party for use in an aircraft of a designated airline of the other Party engaged in international air transportation, even when these supplies are to be used on a part of the journey performed over the territory of the Party in which they are taken on board. Finally, Section 109 (q) of the National Internal Revenue Code of 1997 provides in part as follows: "Section 109 " Exempt Transactions The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590;" Considering that the Government of the United States of America is a signatory to the said Air Services Agreement with the Philippines, UPSCo, being a corporation organized and existing under the laws of the U.S.A, shall enjoy exemption from taxes specified under paragraph 1, Article 9 of the R.P.-U.S.A. Air Transport Agreement, including the Value-Added Tax on importations imposed under Section 107 of the Tax Code. cdll In view of all the foregoing, this Office is of the opinion as it hereby holds that the regular aircraft equipment, spare parts, engines, fuel, lubricants and other consumable technical supplies which are brought into the Philippines by UPSCo exclusively for the servicing, maintenance, use or repair of its aircraft engaged in international air transportation are exempt from all taxes, provided that such equipment and supplies remain on board the aircraft. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue