Of travel and taxes

Whether for business or for leisure, travel is inevitable in every man’s life. With it, costs and taxes follow not far behind. Hence, a cheaper means of travel is always a plus in a traveler’s book.

To encourage lower fares for international carriers and to boost the Philippine tourism industry, Republic Act No. 10378 (RA No. 10378) entitled “An Act Recognizing the Principle of Reciprocity as Basis for the Grant of Income Tax Exemptions to International Carriers and Rationalizing other Taxes Imposed thereon by Amending Sections 28(A)(3)(A), 109,118 and 236 of the National Internal Revenue Code, as amended and for other purposes” was signed on March 7, 2013.

RA No. 10378, in sum, subjects international carriers doing business in the Philippines to a 2 ½ percent tax on Gross Philippine Billings. However, RA No. 10378 grants international carriers with preferential tax 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 applicable tax treaty or international agreement where the Philippines is a signatory. It likewise provides international carriers with exemption from value-added tax (VAT) and common carrier’s tax on carriage of passengers while limiting the imposition of common carrier’s tax on the transport of cargo from the Philippines to another country.

On Sept. 20, 2013, Revenue Regulations No. 15-2013 (RR No. 15-2013) was issued by the Secretary of Finance and which provides for the implementing rules of RA No. 10378.

RR No. 15-2013 reiterates that international carriers having flights or voyages originating from any port or point in the Philippines, irrespective of the place where passage documents are sold or issued, are subject to 2 ½ percent Gross Philippine Billings Tax.

Likewise, RR No. 15-2013 defines items included in or excluded from the Gross Philippine Billings.

RR No. 15-2013 also provides that for international carriers doing business in the Philippines to avail of the preferential tax rate or exemption on their gross revenue derived from the carriage of person and their excess baggage, tax treaty relief application (TTRA) should be filed with the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue (BIR) and duly approved by the commissioner of Internal Revenue or his/her authorized representative before an international carrier may be entitled to the preferential tax rate. If a TTRA has been filed by and/or granted to an international carrier prior to the effectivity date of RR No. 15-2013, the TTRA shall remain valid and binding, thus dispensing with the need to file a new TTRA by such international carrier.

On the other hand, for an international carrier to be entitled to an income tax exemption on the basis of reciprocity where the home country of the international carrier grants income tax exemption to Philippine carriers, an application for a confirmatory ruling should be filed with the ITAD.  RR No. 15-2013 provides the procedures for the application for a confirmatory ruling.

RR No. 15-2013 also reiterates that both transport of passengers and cargoes by international carriers are exempt from VAT. It also provides that while transport of cargoes is exempt from VAT, the transport of cargoes is subject to common carrier’s tax as provided by RA No. 10378.

However, as with every privilege, there is always a caveat. RR No. 15-2013 provides for the Philippine tax consequences of off-line international carriers having a branch/office or a sales agent in the Philippines which sells passage documents for compensation or commission to cover off-line flights/voyages of its principal or head office or for other airlines/sea carriers covering flights/voyages from Philippine ports or off-line flights/voyages. 

The same regulations also provide for the tax liabilities on items of income derived by international carriers that do not form part of Gross Philippine Billings. These items include demurrage fees, detention fees and other charges which are considered as Philippine-sourced income.

With various promos on fares and accommodations, a budget-conscious tourist will always consider the unavoidable cost involved. But to a seasoned traveler, what is priceless is the thrill of adventure, unforgettable memories and timeless experiences on every journey he embarks.

Valerie Jill S. Reyes is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email [email protected] or [email protected].

For more information on KPMG in the Philippines, you may visit www.kpmg.com.ph.