BIR Ruling No. 372-2021

REPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTM!NT OF FINANCE

Quezon City

BIR Ruling No. 204-2021 Section 109 (1)(T) of the Tax Code of 1997, as amended VTI372-2721 OCT _6_2021

Suite 2802 Discovery Center, 25 ADB Avenue Ortigas Center, Pasig City PILIPINAS ASIAN PEARL AIRWAYS, INC.

Attention: Atty. Maria Farah Z.G. Nicolas-Suchianco

Treasui'er and Corporate Secretary

Gentlemen:

and fees on the importation of aircraft, engines, equipment machinery, spare parts, accessories, commissary and catering supplies or materials. PEARL AIRWAYS, INC. (Pilipinas Air) from Value-Added Tax (VAT) and custom duties This refers to your request for confirmation of the exemption of PILIPINAS ASIAN

Securities and Exchange Commission (SEC) under SEC Registration No. It is represented that Pilipinas Air is a domestic corporation duly registered with the with

the carriage of passengers, cargo, freight and mail of all kinds and nature whatsoever; for itself or for others, scheduled or non-scheduled, wvithin and outside the Philippines; and to build, in all their aspects, including the operation of any aircraft of any kind and description, including operate and maintain facilities for its operations. the primary purpose of engaging in the business of air transportation and other related activities airplanes and helicopters, owned or leased or acquired in any manner, as a common carrier for

domestic and international air transport services under Republic Act No. 10901 (Franchise) which lapsed into law on 21 July 2016. In pursuance thereof, Pilipinas Air entered into a Deed of Absolute Sale and Aircraft Lease Agreements with several parties for the acquisition or lease of aircraft described as follows (Aireraft): Pilipinas Air is a grantee of a congressional franchise to establish, operate and maintain

1. Acquisition from Challenger Aerc Air Corporation, a corporation duly organized and existing under the laws of the Republic of the Philippines

Registration Mark Manufacturer Serial Number Aircraft Model and Series :Bombardier Inc. BD-100-1A10 :RP-C8215 20215 Bombardier Inc.

2. Lease from Challenger Aero Corporation, a corporation duly organized and existing under the laws of the Republic of the Philippines

Aircraft Model and Series :Eurocopter EC130B4

9

Pilipinas Asian Peart Airways, Inc. VA OCT 6 6 2921

Page 2 of 4

Registration Mark Manufacturer Serial Number :Airbus Helicopters SAS : RP-C7395 7395

3. Lease from Challenger Aero Cayman, a corporation duly organized and existing under

the laws of the Cayman Islands

Registration Mark Serial Number Aircraft Model and Series Manufacturer : Guifstream Aerospace Corporation GV : VP-CAR, registered with the Civil Aviation Guifstream Aerospace Corporation 5 Authiority of the Cayman Islands

4. Lease from Gulf Aero Asean Ltd., a corporation duly organized and existing under the

laws of the Cayman Islands

Aircraft Model and Series Registration Mark Manufacturer Serial Number : 4040 : Gulfstream Aerospace Corporation G350 Gulfstream Aerospace Corporation VP-CAP, registered with the Civil Aviation Authority of the Cayman Islands

the Subic Bay Metropolitan Authority (SBMA). The Gulfstream GV and Gulfstream G350 Aircraft are currently located in the Philippines but are registered with the Civil Aviation will be importing them into the taxable territory of the Philippines. located within the Subic Bay Special Economic Zone (SSEZ), and within the jurisdiction of Authority of the Cayman Islands. In order to use the Aircraft for its operations, Pilipinas Air The Bombardier and the Eurocopter Aircraft were imported through and currently

of the National Internal Revenue Code, as amended (NIRC), which provides: domestic or international transport operations is exempt from VAT pursuant to Sec.109 (1)(T) In reply, please be informed that the importation or lease of an aircraft intended for

hereof, the following transactions shall be exempt from value-added tax: "Sec. 109. Exempt Transactions -- (1) Subject to the provisions of Subsection (2)

XXXXXXXXX

including engine, equipment and spare parts thereof for domestic or international transport operations; (T) Sale, importation or lease of passenger or cargo vessels and aircraft,

XXX XXX XXX

amended, provides: In relation thereto, Sec. 4.109-1(B)(1)(t) of Revenue Regulations (RR) No. 16-2005, as

"SEC. 4.109-1. VAT-Exempt transactions.

(B) Exempt transactions. XXX XXX XXX

Pilipinas Asian Pearl Airways, Inc. 0Ct 0 6 2021

Page 3 of 4

(1) Subject to the provisions of Section 4.109.2 hereof, the following transactions shall be exempt from VAT: XXX XXX XXX

(t) Sate, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations: Provided, however, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be subject to the requirements on restriction on vessel importation and mandatory vessel retirement program of Maritime Industry Authority (MARINA);

XXX XXX XXX"

The foregoing was likewise clarified hy the BIR in Revenue Memorandum Circular (RMC) No. 46-2008, to wit:

"Q-9: Are the sale, importation or lease of passenger or cargo aircraft, including

engine, equipment and spare parts thereof for domestic or international transport operations exempt from VAT?

A-9: The sale, importation or lease of passenger or cargo aircraft, including

engine, equipment and spare parts thereof for domestic or international transport operations is VAT-exempt pursuant to Section 109(2)' of the Code, as amended by R.A. 9337."

Moreover, Sec. 14 of Pilipinas Air's Franchise provides:

"SECTION 14. Equality Clause. - Any advantage, favor, privilege, exemption, or immunity granted under other existing franchises, or which may hereafter be granted, upon prior review and approval of Congress, shall become part of this franchise and shall be accorded immediately and unconditionally to the herein grantee: Provided. That the foregoing shall neither apply to nor affect provisions of air transport services franchises concerning territory covered by the franchise, the life span of the franchise or the type of service authorized by the franchise. " (Emphasis supplied)

Section 13 of Presidential Decree (PD) No. i 590 can also be availed of by Pilipinas Air. Pursuant thereto, the fiscai incentives granted to Philippine Airlines (PAL) under

its income and VAT on its purchases in accordance with the provisions of the NIRC2, as PAL's franchise provides that subject to payment of the basic corporate income tax on

amended, the tax paid by the grantee "shall be in lieu of all other taxes, duties, royalties registration, license, and other fees and charges of any kind, nature, or description, imposed.

authority or government agency, now or in the future, including but not limited to the following: levied, established, assessed, or collected by any municipal, city, provincial, or national

2 PD No. 1590, as amended by Section 22 of Republic Act No. 9337. 1 Now, Section 109(1)(T) of the 1997 Tax Code, as amended.

Page 4 of 4 Pilipinas Asian Pearl Airways, Inc. VAT -'372 -20a1 OCT 0 5 221

1. xxx xxx xxx

All taxes, including compensating taxes, duties, charges, royalties, or fees due the use of the grantee in its transport and non-transport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price3: on all importations by the grantee of aircraft, engines, equipment, machinery. and oil, whether refined or in crude form and other articles, supplies, oi materials; provided, that such articies or supplies or materials are imported for spare parts, accessories, commissary and catering supplies, aviation gas, fuel

xxx xxx xxx"(Emphasis supplied)

catering supplies or materials, to be used exclusively for its domestic and international transport Authority of the Philippines (CAAP). including engine, equipment and spare parts thereof, as well as accessories, commissary and the existing rules and regulations of the Civil Aeronautics Board (CAB) and the Civil Aviation operations shall be exempt from VAT, subject to the requirements as may be provided under In view of the foregoing, Pilipinas Air's importation of the purchased or leased Aircraft

the Bureau of Customs as the same is not within the jurisdiction of this Office Anent the request for exemption from customs duties, the same must be addressed to

if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void This ruling is being issued on the basis of the foregoing facts as represented. However.

Very truly you.

K Commissioner of Internal Revenue CAESAR R. DULAY E 046105 L

3 Section 13 of PD No. 1590