REVENUE MEMORANDUM CIRCULAR NO. 122-2021 issued on December 14, 2021 clarifies the tax treatment of integrating the Domestic Passenger Service Charge (DPSC) and International Passenger Service Charge (lPSC), commonly referred to as terminal fees, into airline tickets at the point of sale.
          The provisions of Revenue Memorandum Circular (RMC) No. 34-2012 shall also govern the invoicing and recording of integrated IPSC in the books of airline companies and airport authorities. Applying the guidelines laid down in the said RMC, the following are the rules for IPSC collected by Airline Company for Airport Authority:
             a. Collection of IPSC from passengers
                  The Domestic Airline Companies shall collect the IPSC from passengers and shallinclude                  the IPSC in the official receipt to be issued by the Airline Company to thepassenger. The                      VATable and VAT exempt components of IPSC shall be separatelyreflected in the official                       receipt. The share of the Airport Authority in the IPSC shouldbe shown in the Airline                            Company’s official receipt as part of receipts subject to VATwhile the Aviation Security Fee                  and other fees (PD 1957) should be reflected as VATexempt. Lastly, the VAT component of                   the IPSC should be included in the total VAT.However, for International Airline Companies,                     the collected IPSC from the passengers shall likewise be reflected in its official receipts. The                 share of the Airport Authority, Aviation Fee and other fees (PD 1957) should be reflected as                VAT exempt. The accounts to record the IPSC (Share of Airport Authority, Aviation Security                  Fee and fees under PD 1957) may be shown in the financial statements as other                                     income/expense.
             b. Remittance of lPSC by Airline Company to Airport Authority
                   The lPSC collected by the Airline Company shall be paid to the Airport Authority,
             which in turn, shall issue an official receipt to the Airline Company. The official receipt shall                    indicate the full amount of the IPSC.
            c. Payment of Service Fees by Airport Authority to Airline Company
                      Payment of service fees by Airport Authority to Airline Company shall be governed by                 the rules on government money payments and be subject to Creditable Withholding VAT                      (CVAT) at the rate of 5% and Creditable Withholding Tax (CWT) of 2% of gross payments.                    The Airline Company shall issue a VAT Official Receipt to acknowledge receipt of the service               fees from the Airport Authority. However, payment of service fees by Airport Authority to                    international Airline Company shall be treated as other income subject to Corporate Income                Tax.The Airport Authority shall remit the five percent (5%) CVAT and the two percent
               (2%) CWT on payment for service fees and issue the corresponding Certificate of
               Creditable Tax Withheld at Source (BlR Form 2307) in the name of the domestic airline
               company or the international airline company that is a resident foreign corporation, as
               the income recipient.

                  Considering that the IPSC is a service charge for services performed within the Philippines, then justifiably, it should be treated independently from the taxes imposed on the mentioned revenue from carriage of persons, excess baggage, cargo, and mail originating from the Philippines Should the airline company opt to remit the IPSC to the Airport Authority net of the Service Fees charged, the same rules as above shall apply. The Airport Authority shall still issue a VAT Official Receipt to the airline company for the full amount of lPSC and, at the same time, the airline company shall likewise issue a VAT Official Receipt to the airport authority for the service fees. However, to comply with the withholding requirements, the tax to be withheld on the service fees, whether CVAT, CWT, or Final Withholding Tax (FWT), shall be paid back to the Airport Authority for remittance to the BlR.
                      The recording of collection of IPSC from passengers; remittance of IPSC by Airline Company to Airport Authority; and payment of service fees by Airport Authority to Airline Company are illustrated in the Circular.