GR 229338; (April, 2024) (Digest)
G.R. No. 229338 , April 17, 2024
MANILA PENINSULA HOTEL, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
FACTS
Petitioner Manila Peninsula Hotel, Inc. (Manila Peninsula) is a domestic corporation operating a hotel. During taxable year 2010, it provided hotel room accommodations and food and beverage services to Delta Air Lines, Inc. (Delta Air), a foreign corporation licensed to engage in international air transport services in the Philippines. These services were provided to Delta Air’s pilots and cabin crew during their flight layovers in the Philippines under an agreement where the costs were directly charged to and paid by Delta Air as a business expense. For 2010, Manila Peninsula paid VAT on these sales. On June 19, 2012, it filed an administrative claim for a refund of allegedly erroneously paid VAT amounting to PHP 3,807,771.77, asserting that its sales to Delta Air were zero-rated. Due to the Commissioner of Internal Revenue’s (CIR) inaction, it filed a judicial claim with the Court of Tax Appeals (CTA) on July 24, 2012. The CTA Third Division denied the claim, ruling the services were not subject to VAT zero-rating. The CTA En Banc affirmed this denial. Manila Peninsula elevated the case to the Supreme Court via a Petition for Review on Certiorari.
ISSUE
Whether the sale of hotel accommodation and food and beverage services by Manila Peninsula to Delta Air for the latter’s flight crew during layovers qualifies for zero-rated VAT under Section 108(B)(4) of the National Internal Revenue Code.
RULING
No. The Supreme Court denied the petition and affirmed the rulings of the CTA En Banc and CTA Division. The Court held that the services provided do not qualify for zero-rated VAT. For a sale of services to a common carrier engaged in international transport to be zero-rated under Section 108(B)(4) of the Tax Code, the services must be “directly and exclusively” for the transport of passengers or goods from the Philippines to a foreign country. The hotel and catering services rendered to the crew during their rest periods, while necessary for the airline’s operations, are merely ancillary or supportive. They are not an integral, direct, and exclusive part of the actual transport of passengers by air. The crew’s stay at the hotel is for their personal rest and recuperation, constituting a distinct service separate from the act of transportation itself. Furthermore, the services were rendered within the hotel’s premises in the Philippines, not during the flight or at the point of transport. Therefore, the transaction is subject to the regular 12% VAT, and Manila Peninsula is not entitled to a refund.