Friday, January 13, 2006
Airline declared tax-exempt
THE Department of Justice (DOJ) on Thursday said Cebu Pacific, the airline owned by business tycoon John Gokongwei, is entitled to tax exemptions and other privileges awarded to Philippine Airlines, the country's premier flag carrier.
In a legal opinion, Justice Secretary Raul Gonzalez Sr. said the same terms and conditions for PAL is applicable to Cebu Air, which had also asked for exemption for registration fee for its four Airbus it will acquire.
Gonzalez relied on Section 11 of Republic Act (RA) 7151 (Cebu Pacific's charter), which states that "in the event that any competing individual, partnership or corporation receives and enjoys tax privileges and other favorable terms which tend to place the herein grantee at any disadvantage, then such provisions shall be deemed ipso facto part hereof and shall operate equally in favor of the grantee."
He said PAL continues to enjoy exemption from payment of registration fees and other privileges despite its privatization, in the absence of a law amending or withdrawing the privileges contained in PAL's charter (Presidential Decreee No. 1590).
On the other hand, Gonzalez said RA 7151 is clearly intended to provide "fair play such that a rival firm will not gain an undue or unfair advantage over the other in the pursuit of their respective competing business".
"Based on the foregoing premises, this department confirms that the 'most favored treatment' clause found in Section 11 of RA No. 7151 expressly provides that tax privileges or favorable term/s received or enjoyed by any competing individual, partnership or corporation in this case, PAL, shall automatically be deemed incorporated in the franchise of Cebu Pacific," he said.
The request for the DOJ's opinion was made by Land Transportation Authority Administrator Benedicto Ulep for confirmation of his stance that the grant of privileges and other favorable terms to PAL shall "ipso facto operate equally in favor of Cebu Pacific only upon showing by the airline of clear proof that PAL's enjoyment of the privileges and favorable terms accorded to it will place Cebu Pacific at a disadvantage."
Ulep's request for a legal opinion stemmed from the letter sent by lawyer Perry Pe, corporate secretary of Cebu Air Inc, asking whether the chattel mortgage over four Airbus A319-100 to be acquired by the airline is exempt from registration fees imposed under Presidential Decree 1529, otherwise known as the Property Registration Decree, and the Revised Administrative Code.
Cebu Pacific earlier executed an Aircraft Purchase Agreement with Airbus S.A.S over twelve A319-100 aircrafts for use in domestic and international operations as part of its long-term refleeting and modernization programs.
Under the agreement, various French, German and British financial institutions will provide the financing for the transaction with corresponding guaranty or insurance by Coface, Euler Hermes and Export Credits Guarantee Department (ECDG).
In compliance with one of the lender's conditions for the extension of the loan package, Cebu Pacific assigned the Aircraft Purchase Agreement to a Special Purpose Corporation (SPC) based outside of the Philippines.
Under the agreement, the SPC shall hold title to the aircraft and shall act as the borrower under relevant loan agreements while Cebu Pacific enters into a financial lease agreement with the SPC.
"It likewise appears that Cebu Pacific, being the ultimate borrower, shall actually bear all the costs relating to the registration and payment of any applicable taxes of the chattel mortgage and other security documents to be constituted over the subject aircrafts," Ulep said in his letter to Gonzalez.
Ulep added that Cebu made the request for confirmation of its exemption from payment of chattel mortgage registration fees over the four air carriers. (ECV/Sunnex)
(January 13, 2006 issue)
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