March 11, 2020

ITAD BIR RULING NO. 027-20

Sections 106 (A) (2) (a) (6) and 108 (B)

(4) National Internal Revenue Code of
1997, as amended
KLM Royal Dutch Airlines
29th Floor, Yuchengco Tower, RCBC Plaza
Ayala Avenue corner Gil Puyat Avenue
1200 Makati City

Attention: AAA
_______________

Gentlemen :
This refers to your letters dated August 26, 2013 and December 7,
2016 requesting confirmation of your opinion that the supply of goods and
services by local value-added tax ("VAT")-registered taxpayers to KLM
Royal Dutch Airlines ("KLM Airlines") is either exempt from VAT or
subject to zero percent (0%) VAT.
As represented, KLM Airlines is a foreign airline corporation
authorized to do business in the Philippines to perform international air
transportation activities, that is, flight operations originating in the
Philippines to a point outside the Philippines, and vice versa. It does not have
any domestic flights, and offers and operates international flights only. It
flies directly from the Philippines to a foreign port without docking or
stopping at any other port in the Philippines to unload passengers or
cargoes.
KLM Airlines purchases goods and services from local VAT-registered
suppliers, consisting of office and operational supplies, computers, and
printers, and catering services for its flights, and rental for its office spaces.
These are all intended for and attributable to KLM Airlines' international
flight business.
In reply, please be informed that Sections 106 (A) (2) (a) (6) and 108
(B) (4) of the National Internal Revenue Code of 1997 ("Tax Code") , as
amended by Republic Act No. 10963 otherwise known as the Tax Reform for
Acceleration and Inclusion Act, provide to wit:
"SEC. 106. Value-Added Tax on Sale of Goods or
Properties. —
(A) Rate and Base of Tax. — There shall be levied,
assessed and collected on every sale, barter or exchange
of goods or properties, a value-added tax equivalent to
twelve percent (12%) of the gross selling price or gross
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 value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
caITAC

xxx xxx xxx

(2) The following sales by VAT-registered persons shall be
subject to zero percent (0%) rate:
(a) Export Sales. — The term 'export sales' means:
xxx xxx xxx
(6) The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations: Provided, That
the goods, supplies, equipment and fuel shall be
used for international shipping or air transport
operations."
"SEC. 108. Value-Added Tax on Sale of Services and
Use or Lease of Properties. —
xxx xxx xxx
(B) Transactions Subject to Zero Percent (0%) Rate. —
The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%)
rate:
xxx xxx xxx
(4) Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use
thereof: Provided, That these services shall be
exclusively for international shipping or air transport
operations."
Further, Section 2 of Revenue Regulations No. 13-2018 clarified the
above provisions in this wise:
"SECTION 2. AMENDMENTS. — Sections 4.106-5, 4.108-
3, 4.108-5, 4.109-1, 4.109-2, 4.110-3, 4.112-1, 4.114-1, 4.114-2, and
4.116 of RR No. 16-2005, as amended, are hereby further amended
to read as follows:
SEC. 4.106-5. Zero-Rated Sales of Goods or
Properties. — x x x
The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:
(a) Export sales. — 'Export Sales' shall mean:
xxx xxx xxx
(5) The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or international
air transport operations: Provided, That the goods,
supplies, equipment, and fuel shall be used exclusively
for international shipping or air transport operations.
The sale of goods, supplies, equipment and fuel to persons
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 engaged in international shipping or international air transport
operations is limited to goods, supplies, equipment and fuel
that shall be used in the transport of goods and
passengers from a port in the Philippines directly to a foreign
port, or vice versa, without docking or stopping 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: Provided, further, that if any
portion of such fuel, goods, supplies or equipment is used
for purposes other than that mentioned in this
paragraph, such portion of fuel, goods, supplies, and
equipment shall be subject to 12% VAT." (Emphasis
supplied)
"SEC. 4.108-5. Zero Rated Sale of Services . —
xxx xxx xxx
(4) Services rendered to persons engaged in international
shipping or air transport operations, including leases of
property for use thereof: Provided, that these services shall
be exclusively for international shipping or air transport
operations. Thus, the services referred to herein shall not
pertain to those made to common carriers by air and sea
relative to their transport of passengers, 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." ICHDca

Applying the foregoing to the instant case, this Office is of the opinion
and so holds that sale of goods, supplies, equipment, fuel, and services,
including in-flight catering services and lease of property, to KLM Airlines
to be used exclusively for its international air transport operations is
subject to 0% VAT. However, any portion of such fuel, goods, supplies,
equipment, or services utilized for other purposes, office and operational
supplies, computers, printers, and office space rental are subject to 12% VAT
for the simple reason that they are not utilized aboard or are not used for the
international transport of passengers and cargoes of KLM Airlines.
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,

(SGD.) CAESAR R. DULAY

Commissioner of Internal Revenue

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