BIR Ruling No. 324-2021

BLREAU OF INTERNAL REVENUE RETURIICOF THF THILIPTINES DEPARTNENT OF FINANCE

Quezon City

Y0.11506 Repuhlic Act

Date:

Mandaluy ong City 1550 SAN MIGUEL AEROCITY INC 40 San Miguel Avenue Attention: Mariano Miguel L. Trinidad Jr Comptroller

Gentlemen:

2021 -- to wit: requesting for the clarifications on the implementation of Sections 6 and 1 7 of Republic Act (RA) No. I1506. entitIed "THE ACT GRANTING SAN MIGUEL AER(CITY INC: A DOMESTIC AND INTERVATIONAL HIRPORT IN THE MNICIPALITY OF BILAKAN PROIINCE OF BULACAN HND TO) (ONSTRU(T DEIELOP. FSTABLISH. OPERATE AND MAINTANAN ADJACENT AIRPORI (IT} which became effective on JanUary IS FRANCHISE TO CONSTRUCT. DEIELOP. ESTABLISH. OPERATE. HND MAINTHIN A This refers to your request on behaif of San Miguel Aerocity Inc. ("SMAI").

provincial or national authoriny. collected. or mm he levied. estahlished or collected. hy am cin: mnicipul. percentage taxes. excise taxes. documentar stamp ues. eusioms dunies umd franchise taxes. superision fees. md permit fees levied. estuhlished or grantee. its successors or assignees. shall he exempt from am' omd all direct and indirect taxes and fees ot am kind. nature or description. which emmute exchusireh from the construction. developmen. estahlishmen. omd operation of the airport and Airport Cin. including imcome taxes. vale-udded tuxes. tariffs. taxes on real estate. huildings and personal propert. husincss tuxes "Section I6. Tax Exemptions. - During the ten-vear coustruetion period. the

its successors or assignees. shall he suhjected to all taxes under the National Internal Revenue Code of 199-. as amended. umd the Customs Nodernisation ad Tariff Act. from incone taxes and taxes on real estate. huildings amd personal propern iBIR: that the grantee. its successor imestment cost on the airport and on the Airport ('it. whereupom the grumtee estahlished or collected. or mn: he levied. estahlished or collected. hy ins cin: municipal. provincial or national auhorin. However. such exemption shall exnire as soon as i is determined h the Bureuu of Inernal Revemue franchise. the grantee. is successors or assignees. shall he exempi from income taxes and taxes on real estate. huildings and personal property. levied. Afler the ten-vear construction period md during thre remaining term of this or assignees. hus fulh reemered is

As represented. the phrase "construction. development. establishment. and operation" include all transactions that are necessary. related or incidental to the underiaking of the construction. development. establishment. operation and maintenance of the Airport and Airport City. such as. but not limited to:

1. Sales of goods and services. and other income generating activities

Purchases and importation of goods and services 3 Engagement of contractors and consultants 4 Purchase and'or sale of real and personal properties

Lease of real and personal properties 6. Financing transactions 1 Foreign exchange transactions 8. Hedging transactions 9. Management and other operations

In reply. please be informed that this Ruling ciarifies the implementation of the provisions on the Tax Exemptions (Section 16) of RA No. 11506 involy ing the franchise of SMAI ("Aerocity: Franchise". for short). For purposes of this Ruling. SNAJ. the grantee. shall necessarily include its successors or assignees.

It is provided under Section 16 of the Aerocity Franchise that during the Ten-Year Construction Period. SMAl shall be exempt from any and all direct and indirect taxes and fees of any kind. nature or description. which emanate exclusively from the construction. development. establishment. and operation of the Airport and Airport City. including income tax. value-added tax. percentage tax. excise tax. documentary stamp tax. customs duties and tariffs. taxes on real estate. buildings and personal property. business taxes. franchise taxes. supervision fees. and permit fees levied. established or collected. or may be lexied. established or collected. by any city. municipal. provincial or national authority .

sub-phases. such as (A) period of recovery : and (B) period after SMAI has fully recovered its remaining term of the Aerocity Franchise. The second phase. however. shall have two (2) Investment Cost on the Airport and on the Airport City . Year Construction Period: and (I) after the Ten-Year Construetion Period and during the The internal revenue taxes shall be implemented in two phases such as (!) the Ten-

I. DURING THE TEN-YEAR CONSTRUCTION PERIOD

construction. development. establishment. and operation of the Airport and and documentary' stamp tax. (effective date of the Aerocity Franchise) and ends on 1+ January 2031. SMA1 shall be exempt from any and all direct and indirect taxes. duties. tariffs and fees of any kind. nature or description. which emanate exclusively from the Airport City. including income tax. value-added tax. percentage tax. excise tax During the Ten-Year Construction Period. u hich starts on l5 January 202!

A. Income Iax

During the Ten-Year Construction Period. SMAl may generate income emanating exclusively from the construction. development. establishment. and

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operation of the Airpont and Airport City. As provided under the Aerocity Franchise. such income is exempt from income tas.

Section 27 of the National Internal Revenue Code of 1997 (lax Code). as amended. provides for the rate of the income tax on Domestic Corporations. to Wit.

Section Rutesof IneomeTuxon Domesti Corporations..

Code. am income tux of twentv-the pereen tE5"t etfeetive Ih I. Code amd taxahle umder this Title us a corporutiom. orgomiced in. or existing umder the kws of the Philippines. xxx 2020. is herehr imposed upon the taxuble ineome dernved during cuch taxahleyear from all sources within tm withot thn Philippines hy every corporution. as detimed m Section 22tB: of this (A) In (enerad.Except as otherwise prmided in this

exemptions under Sections 27(D) and 27(E) of the Tax (ode. as amended. to of SMAl. Accordingly. during the Fen-Year ('onstruction Period. the income However. the Aerocity Franchise expressty provides for ineome tax evemption of SMAl which emanates exclusively from the construetion. developnent. income tax. This income tas exemption SMAl shall inescapahty include establishment. and operation of the Airport and Airport City. is exempt frem

Wit:

"tD) Rates of Tex on (ertuin Possive fncomes

XXX XY K

Corporuions. (E) Ainimm (Corporue Ineone Tax( I Jomestic X. XXX X

Moreover. please be informed that Section 2.57.5(B)(2) of the Revenue Regulations (RR) No. 2-98. as amended. provides as foltow s:

follow ing: withholding of credituhle w nhhading tux preseribed in tese Regulations shall mot upphy fo imeomne pen'ments mikle to the SE(TIN2SF.S. Ex(mpion from W'hthhotding. The

XAX X XXX

pursuant to the provisions of any law. general or special. stch +ts hut not limited to the follow'ing: xxx (B) Persons cnjoving exemption from pavment of income taxes

for the purpose Nectou 20.22.252.20.34-40.57.20) 310.204 d 20) of the V:1on:l In1er:ni Res-e I9)-. as amended and creating thereu ths new T'nk NHH aud for othu't pnposes I Ys amended h R} Nn. It534,"Nn Net Reforming th (orporate Incomt Tx nd Inetneve. Som.anending

Based on the foregoing. Section 2.57.5 (B) of RR 2-98. as amended. is explicit in stating that the expanded withholding tax does not apply to income payments to persons enioying exemption fron payment of income taxes pursuant to the provisions of any law. general or special. Accordinghy. since SMAI is exempt under the Aerocity Franchise. which is a special law. incone pay'ments to be made to it during the Ten-Year Construction Period is not subject to expanded withholding tax prescribed under RR. No. 2-98. as amended.

to SMA! does not extend to its local or non-resident suppliers of goods. property' or services. Accordingly. SMAI. as a constituted w ithholding agent It must be emphasized. however. that the exemption from income tas granted

for the government. is required to withhold the withholding tax on income pay'ments to persons subiect to tax pursuant to Section 57 of the Tax Code. as amended. Provided. however. that in the case of non-resident suppliers. the applicable final withholding tax may be reduced or eliminated under relevant tax treaty provisions. subiect to compliance with applicable tax lav s. rules and regulations.

B. Yalue-Added Tax ("VAT")

As regards the VAT exemption of SMAl. Section 109 (! (K) of the TaN Code. as amended. provides:

provisions of Suhsection t?! Iereof. the following trumsactions "Section 9. Exempt Transactions tl: Suhiect to the

shall he exempt from the value-udded tax:

XX XXX XXX

except those under Presidential Decree No.529: supplied. to which the Philippines is u signatory or under special laws. tKi Transactions vhich are exempt umder intermutional ugreements (tsi

Accordingly. since the Aerocity: Franchise. which is a special law. expressls construction. development. establishment. and operation of the Airport and exempts SMAI from VAT. its sales of goods. property and sers ices during the Ten-Year Construction Period. which emanate exclusively from the Airport City. shall not be subject to VAT.

VAT at zero rate on sales to entities exempt under special laws. to w it: Moreover. Section 106(AX2)(b) of the Tax Code. as amended. pro ides for

"Section 106. Talue-Added Tax on Sale of Goods or Properties.

A. Rate and Base of Tax. - There shall he ler'ied. assessed and properties. a value-addted tax equivalen to trelve percen d-".. of the gross selling price or gross value in money of the gonds or collected on erer sale. harter or exchange of gouds or

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properties sold. hartered or exchimged. such tax to be puid hy the Seller or transferon

Y

(2i The following sulex hr IAT-registered persons shull he Suhject fo cero percen tt)in rute:

XXXXXX

special laws or internutional agreements to which the to cero rate. " temphosis supplied. thi Sales to persons or entities whose exenption under Philippines is a signatorr etfecthel suhiects such sules

Relatively. Section 108(B)3) of the Tax Code. as amended. prov ides for VAT at zero rate on services rendered to entities exempt under special law s. to wit:

Lease of Properties. "Section 108. Ialue-added Tax on Sale of Serices and ('se or

XX XX X

B) Transactions Suhject to Zero Percen "a. Rute. ..- The registered persons shall he suhiect to sero percent +". rute: falloning serices merformed in the Philippines hyIAT.

KX XX

Such services to tero percent (o"a) rate: " temphusis surplied. 13: Services rendered to persons or entities whose exemption Philippines is a signator effectivel subjects the supph of under special laws or mternational agreemens to vhich the

Airport City. shall not be subiect to VAT. Effectively. no VAT shall be duties. tariffs and fees of any kind. nature or description under the Aerocity Franchise. ail importations and domestic purchases of goods. property and services during the Ten-Year Construction Period. emanating exclusively fron the construction. development. establishment. and operation ef the Airport and Accordingly. as SMAi is exempt from any and all direct and indirect taxes.

passed on to SMAI on its importations and domestic purchases of goods and services emanating from the said activities for the Ten-Year Construction or services to treat their sales to SMAl as VAT-zero rated. No separate confirmatory ruling or certifieation is necessary: for the suppliers of S\Al. Period. This Ruling shall serve as sufficient basis and certification of SMAl's VAT exemption and for SMAI's VAT-registered supptiers of goods. property

C Percentage Tax

U'nder Section 16 of the Aerocity Franchise. SMAl shall be exempt from any development. establishment. and operation of the Airport and Airport City. is and ail direct and indirect taxes. including Percentage Tax. Accordingly. the sales or receipts of SMAI which emanate exclusively from the construction.

amended. not subiect to Percentage Tax imposed under Title Y of the Tax Code. as

D. Excise Tax

L'nder Section 16 of the Aerocity Franchise. SMAl shall be exempt from any and all direct and indirect taxes. including Excise Tax. exeisable transactions including importation of goods of SMAl u hich emanate exclusively from the construction. development. estahlishment. and operation of the Airport and Airport City. is not subject to Excise Tax imposed under Title VI of the Tax Code. as amended. Accordingly. all

E. Documentar Stamp Tax (DST)

and all direct and indirect taxes. including DST.Accordingly. SMAI is not Under Section 16 of the Aerocity Franchise. SMAl shall be exempt from any

of the Airport and Airport City. subject to DST imposed under Tit!e VHI of the Tax Code. as amended. upon documents. instruments. Ioan agreements and papers. w hich emanate exclusively from the construction. development. establishment. and operation

However. Section 173 of the Tax Code. as amended. provides as follows:

"Section I-3. Stamp Taxes Upon Documens. Loan Agreements.Instruments and Papers..- ( nndoctmems.

propert' incident thereto. there shall he levied. collected umd paid instruments. loan agreements amd papers. amd upon ocepiunces. assignments. sales md tramsfers of the ohligution. righi or

for. and in respect of the trumsaction so had or uccomplished. the

follouing Sections of this Title. h the person muking. signing. issuing. accepting.or transferring the sume vherever the document is made. signed. issued. accepted or trunsferred when the obligation or right arises from Philippine sourcex or the corresponding documentary stamp taxes prescrihed in the

one directhy liable for the tax. " temphusis supplied. is done or transaction had: Provided. That whenerer one part to the taxable document enjoys exemption from the tax herein imposed. the other partr thereto who is not exempt shall he the propert is situated in the Philippines. amf the same time such act

the DST imposed under Title V!1 of the Tax Code. as amended. Thus. considering that SMAI enjoy's exemption from the DST. the other party to the taxable document who is not exempt shall he the one directly liable to

F. Donor's Tax

development. establishment. and operation of the airport and Airport City:. is Linder Section 16 of the Aerocity: Franchise. SMAI shall be exempt from any donations made by SMAl which emanate exclusively from the construction. and all direct and indirect taxes. including Donor's Tax. Accordingly. the

:

not subiect to Donor's Tax imposed under Title IH!. Chanter H1 of the Tax Code. as amended.

G. All other internal revenue taxes

As provided under Section l6 of the Aerocity Franchise. SMAl sha!l he exempt from any and all direct and indirect taxes levied. established or collected. or may be levied. established or collected. by any city. municipal. provincial or nationa! authority. Accordingly. SMAI is not subject to any development. establishment. and operation of the Airport and Airport City other internal revenue taxes. which emanate exclusively from the construction

reflects the tax exemptions granted by the Aerocity Franchise. Certificate of Registration ("COR" of SMAI shall be updated such that it At the start of. and during the. Ten-Year Construction Period. the BiR

H. AFTER THE TEN-YEAR CONSTRUCTION PERIOD

It is provided under the second paragraph of Section 16 of the Aerocity Franchise. that after the Ten-Year Construction Period and during the remaining term of this franchise. the grantee. its successors or assignees. shall be exempt from income taxes and taxes on real estate. buildings and personal property. levied. established or collected. or may be levied. established or collected. hy any city. municipal. provincial or national authority. However. such exemption from income taxes and

determined by the Bureau of Internal Revenue BiR: that the grantee. its successors or assignees. has fu!ly recovered its investment cost en the airport and taxes on real estate. buildings and personal property shall expire as soon as it is

subjected to all taxes under the National Internal Revenue Code of 1997. as on the Airport City. whereupon the grantee. its successors or assignees. shall be

amended. and the Customs Modernization and Tariff Act.

A. After the Ten-Year Construction Period and During the Term of the Franchise but Before the Full Recovery: of the Investment Cost on the Airport and on the Airport City

but before the full recovery of the investment cost on the Airport and on the stated under Sec. 16 of the Aerociti Franchise. After the Ten-Year construction period and during the term of the franchise Airport City. SMAl shall continue to enjoy the exemption from income tax. as

B. After the Ten-Year Period and During the Term of the Franehise. and After the Full Recovery of the investment Cost on the Airport and on the Airmort C

SMAf shall'be subject to all taxes imposed under the Tax Code. amended. after the Full Recovery of the Investment Cost on the Airport and on the Airport City. all the tax exemptions of SMAl shall expire. After the Ten-Year Construction Period. during the term ot the franchise. and Accordigl

Franchise. SMAl is required to officially notify the BIR in writing of the same within sixty exemptions as approved hy Congress and set forth in Sections 1+ and 16 of the Aerocity In the event of the sale transfer assignment of rights and priv ileges ineluding the tax

Certificate of Registration. successor'transferee'assignee to SMAl and reflecting the rights. pri ileges and tax exemptions subject of the sale 'transfer assignment and granted under the Aerocity Franchise (60) days from the execution thereof and attaching copies of the Deeds of Sale TransferiAssignment thereto. as the case may be. An updated Certifieate of Registration and General Information Sheet shall also he submitted showing the relationship of the The BIR may require the submission of additional documents relative to the updating of the

corporation. San Miguel Corporation. The terms "affiliate" and "control" shall he governed by' existing laws' as well as relevant BiR" and SEC issuances":. construction. acquisition. ownership. leasing. operation. developinent or management of the Airport City in favor of an "affiliate" under Section l4 of the Aerocity Franchise. the term "affiliate" shall pertain to any entity whose "controlling interest is owned" hy SMAl's parent For purposes of sale'transfer'assignment of rights and pris ileges relative to the

SMAI. its successors and assignees. as provided under R.A. 11506 or the Aerocity Franchise which took effect on January 15. 2021. This Ruling shall serve as a Certification or confirmation of the tax exemptions of

then this ruling shall be considered null and v'oid. submitted. However. if upon investigation. the BiR ascertains that the facts are different. This Ruling is heing issued on the basis of the facts and documents as represented and

CReR oAN Yery trul' yours.

Commissiomer Qf Inernal Reveme CAESAR R. DULAY . K -

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