BIR Ruling No. 665-2019

REPI BLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Sections 106. 108 & 109 of the NIRC

Sen. Gil Puyat and Ayala Avenue Makati City 1223 KLM Royal Dutch Airlines 39th Floor Yuchengco Tower RCBC Plaza corner BIR Ruling 099-2011 0665-2019 OCT 2 1 25

Attention: Jurriann Pieter Stelder

General Manager

Gentlemen: *

This refers to vour letter dated August 26. 2013 requesting confirmation of the

Royal Dutch Airlines ("KLM") for purchases and availment of supplies and services from local suppliers. value-added tax (VAT) status of Koninklijke Luchtvaart Maatschappij N.V. (KLM)

the laws of the Netherlands with Philippine business address at 39th Floor. Yuchengco It is represented that KLM is a foreign air carrier organized and existing under

Tower. RCBC Plaza corner Sen. Gil Puyat and Ayala Avenue, Makati City; that it was issued a license to establish its branch offic in the Philippines on August 8. 1955: that it has been granted landing r Dpines perform international air

port without dockin transportation se in the worid and vics passenger and/or ThGrame om the Philippines directly to foreign from the Philippines to anywhere the Philippines to unload ctAA t; that it currently purchases and avails of from local supj opliers which consist of office and operational st catering for its flights and rental for its office spaces which are all intended and attributabie to its business of transporting by air goods and passengers from the Philippines to any port in the world.

KLM with respect to its purchases and availment of supplies and services from local Based on the above representation. you now seek to confirm the VAT status of

suppliers.

KLM Roya' Dutch Airlines Page 2 of 4 0665-2019 OCT 2 1 2019

(1)(()) of the NIRC. as amended. provide: In repiy. please be informed that Sections 106 A (2)(a)(6). 108 B (4) and 109

"Sec. 106 Value-added Tax on Sale of Goods or Properties.--xxx

(2) The following sules by VAT-registered persons shull be subject to eero percen (0%) rate:

(u) Export Sules. -- Thc term "export sales " means:

XXX XXX XXX

by R.A. No. 9337t. xxx' internationul shipping or international air transport operations. (Added (6) The sule of goods, suppi:es, equipment and fuel to persons engaged in

"Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.- xxx

Zero percent (0%) rate: performed in the Philippines by VAT-registered person shall be subject to (B) Transactions Subiect to Zero Percent (0%) Rate. -- The following services

XX XXX XXX

use thereof. xxx international air-transport operations, including leases of property for (4) Services rendered io persons engaged in internutional shipping or

"Sec. 109. Exempt Transactions.

(Ii Subject to the provisions of Subsection (2) hereof. the following transactions (2 shull he exempt from the value-added ux: XXX XXX XXX

(O) Export Sales by persons who are not vAT-registered

amending certain provisions of Revenue Regulations No. 16-2005. otherwise known as the consolidated Value-Added Tax Regulations of 2005. which is further clarified by Revenue Memorundum Circular 46-2008'. provide: Furthermore. Sections. 4.106-5 and 4.108-5 of Revenue Regulations No. 04-07

docking or stopping at any other port in tne Philippines to unload passengers and/or cargoes loaded in anc from another domestic port; Proviaea, further, that ii any portion of sucr: fuei, equipment, goods to the common carrier to be used in its international air transport operations is zero-rated. Provided. that the same is limited to goods, supplies, equipment, fuei and services pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directiy to a foreign port without international air transport operation subject to VAT? A-11: The sale of goods, suppiies, equipment, fuel and services (including leases of property) Q-1: Are sales of goods, supplies, equipment, fuel and services to persons engaged in

KLM Royal Dutch Airlines Page 3 of 4 665 - Z019 OCT 2 1 2019

"Sec. 4.106-5. Zero-Rated Sales of Goods or Properties.

XXX XXX XXX

(6) The sale of goods. supplies. equipment and fuel to' persons

unless the docking or siopping at any other Philippine port is for the purpose of unloading passengers andior cargoes that originated from abroud. or to loud pussengers andior cargoes bound for abroud; for purposes other than that mentioned in this puragraph. suc!t pon iio., ss fuel goods und supplies shall be subject to rwelve percent (12%) oup:.t engaged in internutional shipping or international air transport equipment und fuel pertaining to or attribuitable io the transport of goods and passengers from a port in the Philippines directly' to a foreign port, or vice versu. withour docking or stopping at anv other port in the Philippines Provided. further, thau if cmy portion of such fuel, goods or supplies is used VAT starting February I. 2006." Operutions: Provided. thut the same is limited to goods, supplies.

XXX XXX XXX

"SEC. 4.108-5. Zero-Rated Sale of Services.

XXX XXX XXX (b) Tramsactions Subiect to Zero Percent (0%) VAT Rate

(+) Services rendered io persons engaged in international shipping or air to conmon carriers by air und sea relative to their transport of pussengers. goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec 108 of the Tax Code starting Feb. 1, 2006: transport operutions, including leases of propcrty for use thereof: Provided however. that the services referred to herein shall not pertain to those made

XXX XXX XXX.

engaged in international air transport operations must pertain to or must be attributable supplies. equipment. fuel and services rendered by a VAT-registered person to a person Based on the foregoing. in order to qualify for zero-rating. the sale of goods.

to the portion that will be used in their internationai operations. including teases of property for use thereof, and the sale of goods, supplies, equipment and fuel are zero-rated. However, sale of goods, suppies, equipment and fuel as well as services rendered to of fuet, equipment, goods, supplies and services shall be subject to 12% VAT. persons engaged in both domestic and international operations shall be zero-rated only with respect or supplies and services is used for purposes other than that mentioned in this paragraph, such portion A-14: Saie of services to persons engaged exclusively in international air transport operations, Q-14: Which transactions with international air transport operators are zero-rated?

KLM Royal Dutch Arlines Page 4 of 4 0665- OCT 2 1 2019 2019

to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any port in the Philippines.

Accordingiy. KLM's purchases of office and operational supplies, computers and printers. as weli as the catering services for its fiights, from VAT-registered local Suppliers which are all intended -and attributable to KLM's business of transporting by air. goods and passengers from the Philippines to any port in the world without docking or stopping at any other port in the Philippines to unload passengers and/or cargoes loaded in and from another domestic airport are subject to zero percent (0%) VAT rate. However. the sale of the aforesaid supplies and services to KLM by persons who are 'not VAT-registered is exempt from VAT.

As regards the lease of office space, while said service is not being rendered to the aircraft itself, the same can he characterized as service directly connected with or attributable to the transport of goods or passengers from the Philippines to a foreign port and. thus, subject to zero perten: "/) VAT. However. the lease of office space to KLM by persons who are not VA'T -registered is exempt from VAT.

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.

Very truly yours.

Commissioner of Internal Revenue CAESAR R. DULAY 029930

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