RMC No. 122-2021: Clarifies the tax treatment of integrating the International Passenger Service Charge at the point of sale of airline tickets

Summary

RMC No. 122-2021 clarifies the tax treatment of integrating the Domestic Passenger Service Charge (DPSC) and International Passenger Service Charge (IPSC), commonly called terminal fees, into airline tickets at the point of sale.

Key points

1. Collection from passengers. Under RMC No. 34-2012 rules, domestic airline companies include the IPSC in their official receipt, showing VATable and VAT exempt components separately. The Airport Authority share is part of receipts subject to VAT, and the Aviation Security Fee and other fees (PD 1957) are VAT exempt.
2. International airlines. For international airline companies, the collected IPSC is also shown in the official receipt, and the Airport Authority share, Aviation Fee and other fees (PD 1957) are VAT exempt. These accounts may appear in the financial statements as other income or expense.
3. Remittance and service fees. The airline pays the IPSC to the Airport Authority, which issues an official receipt for the full amount. Service fees paid by the Airport Authority to an airline are subject to Creditable Withholding VAT of 5% and Creditable Withholding Tax of 2% of gross payments, but service fees paid to an international airline are other income subject to Corporate Income Tax.
4. Withholding certificate. The Airport Authority remits the 5% and 2% and issues BIR Form 2307 in the name of the domestic airline or the international airline that is a resident foreign corporation.
5. International carriers and other taxes. International Carriers exempt under Section 109 may register for VAT in relation to IPSC, despite Section 6 of RR No. 15-2013. IPSC collection is treated apart from the Gross Philippines Billings Tax under Section 28(A)(3) and the 3% Common Carrier’s Tax under Section 118.
6. Net remittance. If the airline remits the IPSC net of service fees, the same rules apply. Both parties issue VAT Official Receipts, and the tax to be withheld on service fees is paid back to the Airport Authority for remittance to the BIR.

Who is affected

• Domestic and international airline companies
• Airport Authority

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.