VAT Ruling No. 001-03

January 6, 2003 VAT RULING NO. 001-03 108 (B) (4) 044-98 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Mr. Emmanuel C. Alcantara Tax Division Gentlemen : This refers to your letter dated July 4, 2001 concerning your request for a confirmation of your opinion that the services provided to your client, Cathay Pacific Airways Limited (CPAL) by various local contractors/entities which are directly connected to CPAL's international flight operations are subject to the zero (0%) VAT rate pursuant to Section 108(B)(4) of the Tax Code of 1997. It is represented that your client is an international airline company organized and existing under the laws of Hong Kong, with a branch office in the Philippines; that as an international air carrier, it operates international flights to and from the Philippines; and that in connection with the operation of its international flights to/from the Philippines, CPAL engages the services of various local contractors/entities for services directly connected to CPAL's international flight operations which include but is not limited to the following: 1. Landing, parking, tacking, lighting and night landing/take off services; 2. Rental of office space at the Ninoy Aquino International Airport (NAIA) mainly to handle arrivals and departures of CPAL passengers; 3. Rental of passenger lounge at NAIA; 4. Use of check-in counter at the NAIA; 5. Rental of warehouse for interline baggages; 6. Rental of space for cargo and engineering services; 7. Laundry of aircraft linen; 8. Brokerage services for incoming catering, cargo and engineering equipment; 9. Water, light and power for rented office space at the NAIA; and 10. Janitorial and sanitary services for rented office space at the NAIA. In reply, please be informed that Section 108(B)(4) of the Tax Code of 1997, as implemented by Section 4.102-2 (b)(4) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, provides as follows: aEDCSI "The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx "(4) Services rendered to vessels engaged exclusively in international shipping; xxx xxx xxx The above provision speaks of services rendered to vessels engaged exclusively in international shipping. However, applying the doctrine of statutory construction of ejusdem generis where general terms follow the designation of particular things or classes of persons or subjects, the general term will be construed to include those things or persons of the same class or of the same nature as those specifically enumerated, the same provision, likewise, covers aircraft carrier. Accordingly, except for Nos. 2, 3, 5, 8, 9 and 10, the services provided to your client which are directly connected to its operations as an international air carrier, such as Nos. 1, 4, 6 and 7, are subject to zero percent (0%) VAT pursuant to the aforecited provision. (VAT Ruling No. 044-98 dated November 26, 1998) 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, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group