Phil. Airport and Ground Services Globeground, Inc. (PAGS-GlobeGround)

December 13, 2001 VAT RULING NO. 083-01 VAT Ruling No. 044-98 000-00 Quasha Ancheta Pena & Nolasco Lawyers Don Pablo Building, 114 Amorsolo St. 1229 Makati City, Metro Manila Attention: Attys. Alfredo Z. Pio de Roda III and Daisy C. Inocentes Subject: Phil. Airport and Ground Services Globeground, Inc. (PAGS-GlobeGround) Gentlemen : This refers to your letter dated 15 May 2000, for and in behalf of your above stated client, concerning your request for information whether the services supplied by PAGS-GlobeGround, Inc. to international air carriers (i.e., international airline companies), which are paid for in foreign exchange and which are duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), may qualify to the zero percent (0%) value-added tax (VAT). It is represented that the Philippine Airport and Ground Services, Inc. (PAGS) and Philippine Airport and Ground Services GlobeGround, Inc. (PAGS-GlobeGround) are your clients; that PAGS was heretofore engaged in the business of providing baggage and cargo handling as well as other ground services to various international air carriers owned by various international airline companies with landing rights at the Ninoy Aquino International Airport (NAIA); that in VAT Ruling No. 044-98 dated 26 November 1998, it has been held that PAGS' supply of baggage, cargo handling and other ground services, as a VAT-registered domestic corporation, to the aforesaid international air carriers is subject to the zero percent (0%) VAT, pursuant to Section 108(B) of the National Internal Revenue Code (NIRC of 1997), as implemented by Section 3(b) of Revenue Regulations No. 7-95, as amended by Section 4.102-2(b) of Revenue Regulations No. 5-96; that in the year 1999, pursuant to a reorganization of the PAGS, PAGS-GlobeGround was incorporated and organized, with PAGS owning the majority of the outstanding shares of stock of PAGS-GlobeGround; that as a result of the said reorganization, the baggage and cargo handling and other ground services which, heretofore, were the function and activities of PAGS, were transferred to PAGS-GlobeGround; that, henceforth, these business undertakings became the function of PAGS-GlobeGround. In reply, please be informed of the following: 1. Philippine Airport and Ground Services, Inc. (PAGS) . Since the PAGS ceased to engage in the aforestated line of business, and which line of business was the factual basis for which the aforesaid VAT RULING NO. 0044-98 had been issued, the PAGS shall no longer be entitled to the benefit of the zero percent (0%) VAT immediately after the aforementioned reorganization of the said corporations. 2. Phil. Airport and Ground Services GlobeGround, Inc. (PAGS-GlobeGround). It may be stated that, IN VAT RULING NO. 044-98, the aforesaid supply of services has been treated as entitled to the benefit of the zero percent VAT because of the basic principle underlying our VAT system, which is a Consumption-Type/Destination-Type VAT, adhering to the "Cross Border Doctrine" of the VAT System, i.e., that " the onus of taxation is in that country where the goods, property or services, supplied by a VAT-registered person, are destined, used or consumed ;" that, the aforesaid services to international air carriers of various international airline companies, with landing rights at the NAIA, are destined for use or consumption outside the border of the Philippines since the same are directly connected to the international flights of the aforesaid international air carriers; that, therefore, the same is also embraced under Section 108 (B), NIRC, as implemented by Sec. 3 (b) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, relating to " services rendered to vessels engaged exclusively in international shipping ," pursuant to the doctrine of ejusdem generis in Statutory Construction. Since the zero rated VAT services engaged in by PAGS have been assumed by, transferred to and undertaken by PAGS-GlobeGround immediately after the aforementioned corporate reorganization, PAGS-GlobeGround shall, accordingly, also be treated as entitled to the zero percent (0%) VAT in respect of its supply of baggage, cargo handling and other ground services to the aforesaid international air carriers of various international airline companies. This ruling is being issued based on your representations. However, if upon investigation, it will be revealed that the facts are different from what have been represented, then this ruling shall be rendered null and void from the date of issuance. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue