ITAD Ruling No. 030-02

March 19, 2002 ITAD RULING NO. 030-02 Section 28 (A) (3) 1164-88 Vietnam Airlines Corporation Philippine Branch Office 152 Xanland Corporate Centre, Amorsolo St. Legaspi Village, Makati City Attention: Nguyen Tien Nam General Manager Gentlemen : This refers to your letter dated July 2, 2000 requesting clarification of the phrase "continuous and uninterrupted flight" as basis in the computation of Gross Philippine Billings. In relation thereto, you have cited this example: a ticket is sold to a passenger routing from Manila/HochiMinh/Bangkok. From Manila to HochiMinh, flight VN933 was used and from HochiMinh to Bangkok, VN851 was used. Based on the foregoing example, you are asking for confirmation (1) whether or not there was a flight interruption considering there was a change of aircraft; and (2) whether the cost of ticket from HochiMinh to Bangkok is not a part of your gross income. In reply, please be informed that Section 28(A)(3)(a) of the National Internal Revenue Code of 1997 provides: Sec. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations (3) International Carrier. An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (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 port 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. (emphasis supplied) Based on the foregoing provision, it is evident that the phrase "continuous and uninterrupted flight" means a flight in the same airline from the moment a passenger or cargo is lifted in a port or point in the Philippines to the point of final destination of the same irrespective of the place of sale or issue and the place of payment of the ticket or passage document. In the given example, although there has been a change of aircraft, there is no flight interruption considering the fact that both flights belong to your company. What is contemplated by law as a flight interruption is the change or transshipment at any port outside the Philippines from an airline to another airline, which, in such case, 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 the Gross Philippine Billings. In other words, if there is a change in plane belonging to the same airline at a certain point which is not the final destination of the passenger or cargo, for any reason, the flight is still "continuous and uninterrupted." (BIR Ruling 164-88 dated April 27, 1988) Therefore, the cost of the ticket corresponding to the flight from Manila to HochiMinh shall form part of the Gross Philippine Billings. Moreover, the cost of the ticket corresponding to the second leg of the flight which is from HochiMinh to Bangkok still forms part of your Gross Philippine Billings. For your information and guidance. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue