TAX TREATMENT OF INTERNATIONAL CARRIERS IN THE PHILIPPINES (as of 2011)

Income Tax

1. International carriers doing business in the Philippines are subject to a tax of 2.5% based on their Gross Philippine Billings (GPB)

2. Non-resident owners or lessors of aircraft are subject to a tax of 7.5% of gross rental or fees earned by them while non-resident owners or lessors of vessels are subject to a tax of 4.5% of the gross rentals, lease, or charter fees from leases or charters to Filipino citizens or corporations, as approved by the Maritime Industry Authority

3. RR No. 15-2002 classifies international air carriers as either on-line or off-line.

   1. An on-line carrier is an international air carrier having or maintaining flight operations to and from the Philippines and is subject to the 2.5% tax on GPB as well as 3% Common Carriers Tax (CCT).

   2. An off-line carrier is an international carrier having no flight operations to and from the Philippines. Section 3 of RR No. 15-2002 states that tan off-line carrier which has a branch office or a sales agent in the Philippines which sells. Passage document for compensation or commission to cover off-line flights of its principal or head office, or for other airlines covering flights originating from Philippine ports or off-line flights, is not considered engaged in business as an international carrier in the Philippines, thus, is not subject to the 2.5% GPBT and the 3% CCT.

4. The GPBT is the counterpart of the regular corporate income tax imposed on domestic and resident foreign corporations.

Percentage Tax

1. The percentage tax on international carriers is 3%, under RA No. 8424.

2. Under Sec. 5 of RR No. 15-2002, the gross receipts as tax base for the CCT on international carriers was the same as that for the GPBT. However, with the issuance of RR No. 11-2011, the tax base of the CCT was changed from average to actual billing per passenger. It also broadens the coverage of gross revenues to include rentals, penalties, deposits applied as payments, advance payments, and other service charges and fees actually or constructively received during the taxable year.

Value-Added Tax (VAT)

1. International carriers doing business in the Philippines are exempt from the VAT. Their sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof for international transport operations is also exempt from VAT under Sec. 109(S) of the NIRC.

2. With respect to importation of fuel, goods, and supplies by persons engaged in international air transport operations, the same is exempt from VAT. However, the sale of goods, supplies, equipment, and fuel to persons engaged in international air transport operations is zero rated (0%), subject to the following conditions:

   1. The sale is limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port, or vice versa; and

   2. The international air carrier shall not dock or stoop at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad.

3. Accordingly, if any portion of such fuel, goods, or supplies is used for purposes other than that mentioned above, such portion of fuel, goods, and supplies shall be subject to the 12% VAT.

4. On the other hand, services rendered to persons engaged in international air transport operations including leases of property for use thereof are considered as zero-rated transactions under Sec. 108(B)(4) of the NIRC. Provided, however, that the services referred to shall not pertain to those made to common carriers by air relative to their transport of passengers, goods, or cargoes from one place to another in the Philippines, the same being subject to the 12% VAT.

Excise Tax Treatment of Petroleum Products Sold to or Imported by International Air Carriers

1. Sec. 135(A) of the NIRC states that the petroleum products sold to international carriers of foreign registry shall be exempt fro

m the payment of excise tax if:

1. The petroleum products to be sold are stored in bonded storage tanks, and

2. The disposition thereof shall be in accordance with duly promulgated rules and regulations of the Secretary of Finance.

1. In addition, petroleum products sold to foreign international air carriers are exempt from the payment of excise tax under Sec. 135(b) of the NIRC, if the country of the international air carrier exempts from similar taxes petroleum products sold to Philippine carriers.

2. Petroleum products sold to international air carriers by a local manufacturer/producer or importer of petroleum products are billed net of excise taxes. Under Sec. 130(A)(2) of the NIRC, excise taxes on locally manufactured petroleum products are paid before removal while excise taxes on imported petroleum products are paid before the release of the imported articles from the customs house. Thus, petroleum products sold and delivered to qualified purchasers such as international air carriers are sourced form tax-paid inventories.

NEW RULE ON TAX EXEMPTION OF AIRLINES (as of 2013)

Pursuant to RR No. 15-2013, international carriers may now avail of preferential rates or exemption from income tax on their gross revenues derived from the carriage of persons and their excess baggage based on the principle of reciprocity or an applicable tax treaty or international agreement to which the Philippines is a signatory.

This is to improve competitiveness of the Philippine tourism industry by encouraging more international carriers to maintain flight and shipping operations in the country and by the eventual reduction of international plane and ship fares.