REVENUE MEMORANDUM CIRCULAR NO.46-2008
Clarificat Clarification ion of Issues Issues Concerning Concerning Comm Common on Carr Carrier ierss by Air Air and The Their ir Agent Agentss Relative to the Revenue and receipt from Transport of Passengers, Good/Cargoes and Mail, and from Excess Baggage I.
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BACKGROUND This revenue Memorandum Circular is issued to clarify certain provisions of the Code, as it applies to Air Transpo Transport rt Ope Operato rators rs and their their various various Travel Travel Agents as herein defined, as well as, their suppliers. • To ensure that the law is properly implemented and • Taxes are properly collected, in a manner consistent with acceptable business practices. DEFINITION OF TERMS 1. Comm Common on Carr Carriiers ers – ref refers ers to indi indivi vidu dual alss, corp corpor orat atiions ons, firms irms or busin siness ess of carr carryin ying g or tran transpo sporti rting ng associ associati ations ons engaged engaged in the bu passengers or goods or both, by • Land • Water, or • Air • For comp compens ensati ation, on, offer offering ing thei theirr servic services es to the the public public and and shall shall include transportation contractors . 2. Gr Gros osss Rec Recei eipt ptss shall refer to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount amount charge charged d for materi materials als suppli supplied ed with with the servic services es and advance advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding VAT, 2. Gr Gros osss Rec Recei eipt ptss but shall not include: • Amount earmarked for the remittance to a third party as agreed in an implied or express contract or mandated by law and Invoiced/ ed/rec receip eipted ted by such such third third party party direct directly ly to the real real • Invoic customer or actual recipient of the service.
For common carriers by air • Is the amount actually actually or constructive constructively ly received as compensati compensation on for their services of undertaking the contract of carriage by air. a. Inter Internat nation ional al Air Air Car Carrie rierr • Shall Shall ref refer er to to a foreign airline corporation doing business in the Philippines having been granted landing rights in any Philippine port to perform international air transportation services/activities or flight operations from the Philippines to anywhere in the world and vice versa, in the case of on-line carrier. Or • Having maintained maintained business business establishment, establishment, agent or representative representative office in the Philippines for the sale of its own tickets/ passage docu docume ment ntss or ticke tickets ts/p /pas assa sage ge docum document entss of othe otherr airl airlin inee companies, which airline companies operate without touching any Philippine port, in the case of off-line carrier. • International air carrier includes both off-line carrier and online carrier. b. Autom Automate ated d Ticke Ticketin ting g System System • Refers Refers to an automa automated ted process process which comprise comprisess the equipmen equipment, t, programs and procedures which allows access to airline data stor stored ed in a Cust Custom omer er Rese Reserv rvat atio ion n Syste System m (CRS) (CRS) or airl airlin inee rese reserv rvat atio ion n syst system em for for the the auto automa mate ted d issu issuan ance ce of Stan Standa dard rd Traffic Documents. c. Elec Electr tron onic ic Tic Ticke keti ting ng • Refe Refers rs to a meth method od utili utilize zed d to docum documen entt the the sale sale of passe passeng nger er transportation services (electronic ticket) and other related services without ut requi requirin ring g the (electronic (electronic miscellane miscellaneous ous documents) documents) witho issuance of paper value documents. d. Trav Travel el Agen Agents ts • Shall Shall refer refer to Interna Internatio tional nal Air Tran Transpo sport rt Assoc Associat iation ion’s ’s (IATA’ (IATA’s) s) duly accredited travel agents who are authorized to issue in the Philippines tickets of: o On-line and o Off-line international air carriers. e. IATA IATA Cargo Cargo Accounts Accounts Settle Settlemen mentt System System (CASS) (CASS) Cargo Cargo Agents Agents • Shal Shalll refer efer to IATA’ ATA’ss dul duly accr accred edit ited ed carg cargo o agen agentts who who are are authorized to issue in the Philippines Cargo airway bills/ passage documents of on-line international air carriers.
f. Gene Genera rall Sale Saless Agen Agentt (GSA (GSA)) • Shall Shall refer refer to trav travel el agents agents that that deal deal exclu exclusiv sively ely for for and behal behalff of
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A domestic carrier; or An on-line international air carrier, or An off-l off-line ine intern internati ational onal carrie carriers, rs, and earn earn commis commissio sion n income for their services.
g. Refund • Refe Refers rs to to the the repa repaym ymen entt to the the pur purch chas aser er of of all all or a port portio ion n of a fare rate or charge for unused carriage or service. Q-1: What kinds of common carriers are subject to 10% VAT rate effective November 1, 2005, and to 12% VAT rate effective February 1, 2006 under Republic Act (RA) No. 9337? • Answer A-1. Domestic 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 are now subject to 12% VAT, o
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But But with with respe respect ct to tran transp spor ortt of passe passeng nger ers, s, goods goods and carg cargoe oess from the Philippines to any foreign port, the same is subject to VAT at zero-rate (0%) o
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MNL – CEB – MNL
MNL – HKG – MNL
Domest Domestic ic comm common on carr carrier ierss whic which h trans transpor portt goods goods and cargoes by Land, however, are already covered by VAT even prior to R.A. 9337.
3% percentage tax/common carrier’s tax • Common carriers by land with respect to their gross receipts from the transport of passengers including: Operators of taxicabs o Utility cars for rent or hire driven by the lessees and o Tourist buses used for the transport of passengers shall continue to be o subject to the 3% percentage tax/common carrier’s tax imposed under Section 117 of the code, but shall not be liable for VAT. • On-line international common carriers by air and sea shall continue to be subject to the 3% common carrier’s tax under Section 118 of the Code. Q-2: What transactions of domestic air carriers are subject to 12% VAT? • A-2: A-2: Trans Transpor portt of passe passeng nger ers, s, good good or cargoe cargoess from from one place place in the Philippines to another place in the Philippines Ph ilippines is subject to 12% VAT. • Gros Grosss rece receiipts pts deri derive ved d from rom trans ansacti action onss inci incide dent ntal al to the mai main operations shall likewise be subject to 12% VAT.
Q-3: Are on-line international air carriers subject to VAT? • A-3: No. On-line international air carriers (international air carriers that that touc touch h any any port port in the the Phil Philip ippi pine ness as part part of thei theirr carri carriage age operation) are exempt from VAT. They are liable to the three perc percen entt (3%) (3%) perc percen enta tage ge tax tax on thei theirr gros grosss rece receip ipts ts from from outbound fares and freight, pursuant to Section 118 of the Code. Q-4 What about domestic air carriers engaged in both domestic and international transport operations, are they subject to VAT VAT on both operations? • No. Domestic air carriers are subject to VAT only on their services performed within the Philippines. Philippines. The 12% VAT shall apply to their income derived from domestic operations as mentioned under A-2 above. • However, their interna internation tional al transpo transport rt operatio operations ns involve involve both both performed within the Philippines services performed Philippines and services services performed performed with withou out. t. Thei Theirr inco income me from from serv servic ices es invo involv lvin ing g the the tran transp spor ortt of passengers, goods and cargoes from the Philippines to a foreign are deri derive ved d from from with within in but subj subjec ectt to zer country are zero-r o-rate ate VAT VAT pursuant to Section 108(8) of the Tax Code. • On the other other hand, hand, their their incom incomee from inte interna rnatio tional nal trans transpor portt operati operations ons involv involving ing the transp transport ort of passen passenger gers, s, goods goods and cargoe cargoess from from a foreign country to the Philippines are income derived from services rendered rendered outside outside the Philippines Philippines,, hence, exempt from business taxes (including the VAT), due to lack of tax jurisdiction. Q-5 In the case of transport by a domestic air carrier (engaged in both domestic and foreign operations) of passengers and/or cargoes from domestic port to a foreign port but passing passing through through another another domestic domestic port to load addition additional al passeng passengers ers and/or and/or cargoes bound for foreign destination, will the entire journey be subject to a zero rate VAT? • A-5: Yes, the receipts from the entire journey from a domestic port to a foreign port shall be subject to zero rate VAT. • Howe Howeve ver, r, if befor beforee proceed proceedin ing g to the fore foreig ign n port port the carr carrie ierr loads loads passengers and/or cargoes from a domestic port and unloads them in another domestic port, the gross receipts therefrom (domestic port to another domestic port) shall be subject to 12% VAT.
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Manila – Cebu – Hongkong
Q-6 Can on-line international air carriers opt to be under the VAT system and be subject to VAT at zero rate on their outbound international operations similar to domestic air carriers registered as domestic corporations? • A-6: No. The business of an international air carriers is exempt from VAT because it is a sale of services subject to percentage tax. Is the main business is exempt from VAT, the VAT exempt person can not elec electt that that the the said said exem exempt pt busi busine ness ss/e /ess be plac placed ed unde underr the the VAT VAT
system. The option to be subject to VAT on its exempt transactions is available only to a VAT registered person pursuant to Section 109(2) of the Code, as amended by R.A. 9337. Q-7: Q-7: Are Are dome domest stic ic air air carr carrie iers rs with with inte intern rnat atio iona nall oper operat atio ions ns cons consid ider ered ed an “interna “internation tional al carriers carriers” ” and be subject subject to the 3% percenta percentage ge tax under Sec. 118 instead of zero rate VAT?
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A-7: No. As defined, international air carrier refers to foreign airline companies only and does not include domestic airline corporations with international operation.
Q-8: Will air carriers operating under a government franchise still be required to pay the franchise tax in addition to the VAT?
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A-8: No. The VAT is in lieu of the franchise tax.
Q-15: Who among the air transport operators are required to register as VAT taxpayer effective November 1, 2005?
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A-15 A-15:: Dome Domest stiic air air car carrier rierss wit with resp respec ectt to their heir air air tran transp spor ortt operat operation ions, s, whose whose gross gross receip receipts ts from from the transp transport ort of passen passenger gers, s, goods and cargoes for any 12-month period exceed P1,500,000.00 P1,500,000.00 are required to register as VAT taxpayers.
Q-16: Q-16: Can passenge passengerr or cargo cargo tickets tickets issued issued (whethe (whetherr manual manual or automate automated) d) for domestic or international flight/voyage substitute as VAT official receipts?
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No. VAT-registered domestic air carriers are required to issue VAT official receipt on their sale of passenger or cargo tickets for both domestic and international flight/voyage. Airline Airline/Ves /Vessel sel tickets tickets are conside considered red contrac contracts ts of carriag carriagee and cannot serve as official receipts. VAT official receipts shall be issued by the domestic air carrier upon receipt, actual or constructive, of payments from the p urchasers.
Q-16: Q-16: Can passenge passengerr or cargo cargo tickets tickets issued issued (whethe (whetherr manual manual or automate automated) d) for domestic or international flight/voyage substitute as VAT official receipts?
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In the case of tickets sold through through agents agents (general sales sales agents or travel agents) of domestic air carriers the agents shall issue the VAT official receipts of the domestic air carriers ( not the agent’s own since the the sell seller er of tick ticket etss are are the the dome domest stic ic air air official receipts receipts ), since carriers and not their agents. The agents merely collect the proceeds of sale from the buyers on behalf of the of the domestic air carriers. In order to comply with
this procedure, the domestic carriers shall maintain an adequate supply of VAT official receipts with their agents. Q-16: Q-16: Can passenge passengerr or cargo cargo tickets tickets issued issued (whethe (whetherr manual manual or automate automated) d) for domestic or international flight/voyage substitute as VAT official receipts?
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The agen agentts shal shall, l, in tur turn, bil bill the the dom domest estic air air car carrier iers for for thei heir commissions and the 12% VAT on said commission, if the agents are VAT regist registere ered d or VAT regist registrab rable le taxpaye taxpayers. rs. The VAT offici official al receipts issued by the agents to the domestic air carriers shall be the bases of the latter in claiming input taxes on commission paid to agents.
Q-16: Q-16: Can passenge passengerr or cargo cargo tickets tickets issued issued (whethe (whetherr manual manual or automate automated) d) for domestic or international flight/voyage substitute as VAT official receipts?
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On the the other other hand, hand, if the the agent agent is a qualif qualifie ied d non-VA non-VAT T taxpay taxpayer ers, s, he shall issue non-VAT official receipt to the domestic carriers. However, said non-VAT receipt issued by the agent to the domestic common carrier cannot generate input tax to the latter. On the the other other hand, hand, if the the interme intermedia diaryry-ent entity ity betwe between en the carr carrier ier and and the customer purchases in bulk passenger spaces or cargo spaces and resells the same to the said customer at a price dictated by said intermediary intermediary as evidenced evidenced by the issuance of the intermediary’s intermediary’s official receipt and sales invoice/billing statement, a wholesalerdistributor/retailer relationship is created between the carrier and the intermediary and they shall be taxed accordingly.
Q-17: If the purchaser of the domestic air tickets refuses to voluntarily disclose the information information that he is a VAT-registered VAT-registered person, will the seller of the domestic ticket be liable for non-indication non-indication in the official receipt receipt of the required information information prescribed under Sec 113(a) an Sec. 237 of the Code?
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If the purchaser is a regular customer, the seller has no valid excuse for not knowing knowing whether the purchaser purchaser is VAT-regist VAT-registered ered or not. As such such,, it shal shalll be liab liable le for for any any comm commis issi sion on of the the pres prescr crib ibed ed information in the receipt to be issued. • However, for non-regular customers, the seller will not be held liable for such such commis commissio sions. ns. Offici Official al receip receiptt issue issued d to VAT-re VAT-regis gister tered ed purchasers that do not reflect the information prescribed under Sections 237 and 113 of the Code will not be allowed as sources of input tax credits on the part of the VAT registered purchasers. Q-18: How about domestic air tickets sold through electronic ticketing where no paper value documents are issued, what will serve as VAT receipt?
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The domes domestic tic air air carri carrier er shoul should d provide provide for for a facil facility ity to to allow allow the the buyer buyer to down downlo load ad the the info inform rmat atio ion n cont contai aine ned d in the the airl airlin inee tick ticket et electronically stored in its computer system and to generate / print an offici official al receip receiptt which which shall shall reflec reflectt the inform informati ation on requir required ed under under Section 113 and Section 237 of the Code. This This parti particu cula larr situ situat atio ion n pres presupp uppos oses es that that the the air air carrie carrierr has a BIRBIRapproved computerized accounting system or components thereof that includes the system that allows the issuance of computer-genera computer-generated ted VAT official receipt. In the the abse absenc ncee of suc such h faci facili lity ty,, a manual VAT official receipt that complies with the requirements under Sections237 an 113 of the Code shall be issued by the domestic air carrier which shall be the basis of the VAT-registered buyer in claiming input tax on his purchase of carriage service.
Q-19: What is the basis of the 12% Vat on the commission of general sales agents (GSA) with respect to their sales of domestic air tickets?
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Proceeds on the sale of domestic air tickets do not form part of the gross receipts of the general sales agent. The same forms part of the gross receipts of the domestic airline company. The gross receipts of agents shall pertain to their commission commission only which is included in the price of airline tickets. The price of the airline ticket (inclusive of Civil Aeronautics Board (CAB) approved airfar airfare, e, fuel fuel surcha surcharge rge,, insura insurance nce surchar surcharge, ge, aviati aviation on securi security ty fee, fee, terminal fee, etc.) plus the 12% VAT passed on by the domestic air carrier (seller) to the buyer shall be collected by the agent on behalf of the domestic air carriers. The agent shall remit to the carrier the following: The price of the airline tickets (less the agent’s commission) o The The 12% 12% VAT (les (lesss the VAT VAT accr accrui uing ng on the agen agent’ t’ss o commission); and The 10% credit creditabl ablee withhol withholdin ding g of income income tax on agent’ agent’ss o commission. o o o
The price of the airline tickets (less the agent’s commission) The 12% VAT The 10% credit creditabl ablee withhol withholdin ding g of income income tax on agent’ agent’ss commission
Example: PAL sold domestic airline ticket at P1,000.00 through its general sales agent (agent’s commission is 3.5%). Shown herein below is the computation
Top 10,000 Corporation
Buyer Others
Price of airline ticket Add: 12% VAT Sub-Total Less: 2% withholding tax Total amount collected from buyer Less: Agent’s commission 12% VAT on commission Sub Total Add: 10% Withholding of income tax on Agent’s commission Amount to be remitted by the agent to PAL • •
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P1,000.00 120.00 P1,120.00 (20.00) P1,100.00 (35.00) (4.20) P1,060.80
P1,000.00 120.00 P1,120.00
3.50 P1,064.30
3.50 P1,084.30
P1,120.00 (35.00) (4.20) P1,080.80
The agen agentt shall hall rem remit to the BIR BIR the 12% 12% VAT VAT accr accrui uing ng on its commission, net of input taxes incurred by the agent. For For buye buyers rs clas classi sifi fied ed as belon belongi ging ng to the the Top Top Twen Twenty ty Thous Thousan and d (10,00 (10,000) 0) privat privatee corpor corporati ations ons// Top 5,000 5,000 Indivi Individua duals, ls, they they have to deduct and withhol withhold d 2% on their payments payments for domestic domestic air tickets tickets and issue a Certificate of Creditable Tax Withheld at Source (BIR Form 2307) in the name of the domestic air carrier as the income recipient. The latt latter er shall shall in in turn turn issue issue BIR BIR Form Form 2307 2307 to the the agent agent for for the the 10% creditable withholding tax withheld from the agent’s commission in the name of the agent as the income recipient of the commission.
If the domestic airline ticket was sold by a sub-agent of the general sales agent (GSA) of a domestic air carrier, the amount to be remitted by the sub-agent to the GSA will depend on whether the sub-agent is VAT registered or not as illustrated below:
Total amount collected from buyer (inclusive of 12% VAT) Less: Sub Agent’s commission (2%) 12% VAT on commission Sub Total Add: 10% w/ Tax on Sub Agent’s Commission Amount to be remitted to GSA
VAT registered Sub Agent
Non-VAT registered Sub Agent
P1,120.00 (20.00) (2.40) P1,097.60
P1,120.00 (20.00) P1,100.00
2.00 P1,099.60
2.0 0 P1,102.00
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The GSA shall issue BIR Form 2307 to the sub agent for the 10% creditable withholding tax on the sub agents commission.
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shall presen presentt proofs proofs of their their BIR regist registrat ration ion Sub agents agents of GS GSA A shall (whether VAT or non-VAT) to the GSA for verification purposes.
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For the the commis commissio sion n and the the corres correspon pondin ding g output output VAT VAT on commis commissio sion n withheld by the GSA/sub-agents from remittances to the domestic air carriers/GSA, the GSA/sub-agents shall issue a receipt (be it a NonVAT receipt, if the agent is non-VAT registered or a VAT-receipt, if the agent is VAT-registered ) to the domestic air carriers/ GSA.
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The amount deducted from the remittable amount to the domestic air carr carrier iers/G s/GSA SA shall shall be net net of the cred credita itable ble withh withhold oldin ing g of income tax on the agent/ sub agent’s commission which should be remitted by the domestic air carrier/GSA to the BIR.
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The The VAT offic officia iall recei receipt pt issu issued ed by the GSA/ GSA/Su Sub b Agents Agents shal shalll be the basis for the domestic air carriers/GSA in claiming input taxes on the commission.
Q-20: Will a non-VAT registered agent be liable for VAT as a result of the 12% VAT passed on to to buyers of domestic airline airline ticket? ticket?
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No. No. The 12% 12% VAT on the the sale sale of domes domesti ticc airli airline ne ticke tickett is passe passed d on to the buyer by the seller which is the domestic air carriers. The agent collects the payment for the domestic airline ticket plus the 12% VAT on behalf of the domestic air carrier. The non-VAT registered ticket agent shall be liable for three percent (3%) tax on his gross receipts of commission pursuant to Sec 116 of the Code, provided his gross annual receipts do not exceed P1,500,000. The non-VAT registered agent shall issue non-VAT receipt to the domestic air carrier which is the agent’s real customer, which nonVAT receipt, of course, cannot generate input tax to the domestic air carrier.
Q-21 In case of refund of domestic air ticket fare including the 12% VAT to the purcha ser for unused carriage or service, can the domestic air carrier-seller deduct the VAT previously previously remitted to the BIR against its VAT liability for the succeeding succeeding return period? • The The domest domestic ic air carri carrier er-s -sel elle ler, r, makin making g a refu refund nd to the purcha purchase serr of surrender unused domestic air ticket shall require the latter letter to surrender flight coupon which shall be the basis for the seller to record “Sales Return” and deduct the12% VAT previously remitted to the BIR on the refunded ticket against its output tax liability during the month/quarter when the refund was made. • A summary list of tickets refunded containing the name, TIN, address of the purchasers, domestic airline, ticket number, and the shalll be prep prepar ared ed by the the amount amount refu refunde nded d includin including g the VAT shal domestic air carrier-seller on a monthly basis but submission thereof shall be done quarterly, together the the quarterly VAT return.
Q-22 Q-22:: How How mu much ch shou should ld be the the pass passed ed-o -on n VA VAT T for for serv servic ices es rend render ered ed to the the GOVERNMENT, GOVERNMENT, its politica politicall subdivis subdivisions ions,, instrume instrumental ntalitie itiess or agencie agenciess includi including ng government-owned government-owned or controlle controlled d corporations corporations (GOCCs)?
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The pass passed-o ed-on n VAT for the serv service icess render rendered ed to the the GOVER GOVERNME NMENT NT its its politi political cal subdiv subdivisi isions ons,, instru instrumen mental taliti ities, es, or agencie agenciess includ including ing GOCCs shall be 12%. However, the government or any of its political subdivisions, instrumentalities, or agencies, including GOCCs shall, before making payment on account acc ount of each purchase of o f goods and/or services tax at 12% VAT pursuant to Sections 106 & 108 of the Code, deduct and withhold a final VAT at 5% of the gross payment thereof. • The 5% final VAT withholding rates shall represent the net VAT payable of the seller. • The rema remaini ining ng 7% effec effectiv tively ely accou accounts nts for for the the stand standard ard input input VAT for for sale saless of goods goods or serv servic ices es to gover governm nment ent or any any of its its poli politi tical cal subdivisions, instrumentalities or agencies including GOCCs, in lieu of the actual input but directly attributable or ratably apportioned to such sales to the government. • Should Should actu actual al input input but excee exceed d the stan standar dard d input input VAT VAT of 7% 7% of gros grosss payments, the excess may form part of the seller’s expense or cost. Convertly, if actual input VAT is less than the standard input VAT of 7% of gross payment, the difference must be close to expense or cost. Q-23 Are sale of tickets to the government, its political subdivisions, instrumentalities or agencies including GOCCs, by a Domestic Airline with international operations to cover transport of passengers and/or cargoes cargoes from the Philippines to a foreign country and vice versa, subject to the 5% final VAT withholding?
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No. The final withholding VAT in only a procedure for collecting the VAT from government money payments and will be imposed only if the service to be rendered is subject to the 12% VAT. • The tran transp spor ortt ser servi vice cess from the Philippines to a foreign country is subject to VAT at 0% while the transport services from any foreign country to the Philippines is exempt from VAT due to lack of tax jurisdiction. • Acco Accord rdin ingl gly, y, the the sale sale of tick ticket etss to the the gove govern rnme ment nt repr repres esen enti ting ng services which are either zero rated or exempt are not subject to the final VAT withholding. Q-25: What is the basis in the computation of output VAT on sale of services of the airline company?
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The basi basiss in the the comput computati ation on of outpu outputt VAT of of an airli airline ne company company is is its gross receipts as defined in this Circular.
Q-26: When a Philippine Airline company whose carrier carries cargo from a foreign port to the Philippines Philippines and transships it on a domestic registered registered air carrier bound for another Philippine port, is the income derived therefrom subject to VAT?
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Only Only the the portio portion n where where the cargo cargo is carri carried ed by a dome domest stic ic air carr carrie ier r from one Philippine port to another Philippine port is subject to VAT which is assessed on and payable by the Philippine company/domestic airline company.
Q-28: Are other income of domestic airline companies earned on cancelled tickets subject to VAT? • All related income ome such as pena enalty or charges ges earned on the cancellation of tickets by the clients of domestic airline companies are subject to VAT. Q-29: Can a taxpayer whose main/principal line of business is subject to VAT and therefo therefore re VAT-regist VAT-registered ered,, likewise likewise register register under under the VAT its seconda secondary ry lines lines of business which are exempt from VAT under Section 109 of the Code?
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Section 109(2) of the Tax Code provides provides – “A VAT-register VAT-registered ed Yes. Section person may elect that Subsection Su bsection (1) [referring to exempt transaction] not apply to its sale of goods or properties or services”. Perforce, if the main/principal line of business is subject to VAT and the taxpayer engaged thereon is VAT registered, said taxpayer may elect that all his exempt transactions will be placed within the VAT system.
Q-30: Can an international airline company who is engaged in other activities subject to VAT, i.e. leasing of properties, etc., elect that all its business activities be subject to VAT? • No. The The main main or prin princi cipal pal busine business ss of an inte intern rnat atio ional nal airlin airlinee company is VAT exempt because the same is subject to the percentage tax under Title V of the Tax Code. Therefore, the international airline can not elect that its exempt principal business be subject to VAT even is its secondary business are subject to VAT. Q-31: How do we determine the main or principal business of a taxpayer who is engaged in mixed business activities?
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In deter determin mining ing the the main main or prin princip cipal al busine business ss of a taxpaye taxpayer, r, we appl apply y the pre-dominance test. Under this test, if more than 50% of its gross comes from from its busine business/ ss/es es subjec subjectt to sales sales and/or and/or gross gross rec receip eipts ts comes VAT, its main/principal business falls within the VAT system making its status as a VAT person. Otherwise, he cannot be considered as VAT person eligible for the election provided for under Section 109(2) of the Tax Code.
Thank you Marivic Acosta-Galban Chief, Withholding Tax Division BIR, National Office 926-9328/926-9347/926-9351 www.bir.gov.ph BIR Contact center: 981-8888
