By: Atty. Gregorio B. Austral, CPA
Domestic hotel services provided to international flight crew during layovers are directly related to international air transport operations
Manila Peninsula Hotel, Inc. (Manila Peninsula), a domestic corporation, provided hotel accommodations and food and beverage services to Delta Air Lines, Inc. (Delta Air), a foreign corporation engaged in international air transport services. For the taxable year 2010, Manila Peninsula paid the Commissioner of Internal Revenue (CIR) PHP74,764,313.49, net of VAT, including a 12% VAT payment on its sales to Delta Air. Manila Peninsula then filed a claim for tax refund or tax credit certificate (TCC) for PHP3,807,771.77, arguing that its services to Delta Air should be subject to VAT zero-rating. The CIR denied the claim, asserting that the services were not directly attributable to the transport of goods and passengers from a Philippine port directly to a foreign port, as required by existing regulations. The Court of Tax Appeals (CTA) Division and En Banc also denied Manila Peninsula’s claim.
The central issue in this case is whether the hotel room accommodations and food and beverage services provided by Manila Peninsula to Delta Air’s pilots and crew members during flight layovers qualify for VAT zero-rating under Section 108 (B) (4) of the National Internal Revenue Code (NIRC), as amended.
This issue involves determining if the services are directly related to international air transport operations and whether Revenue Memorandum Circular (RMC) No. 46-2008 and RMC No. 31-2011, which impose additional requirements for zero-rating, are valid. Additionally, the court must determine if the refund claim for the first quarter of 2010 has prescribed.
The Supreme Court ruled that RMC No. 46-2008 and RMC No. 31-2011 are invalid because they expanded the statutory requirements in Section 108 (B) (4) of the NIRC, as amended by Republic Act No. 9337.
The Court held that the law only requires that the service must be performed in the Philippines by a VAT-registered person, rendered to persons engaged in international air transport operations, and exclusively for international air transport operations. The additional requirements imposed by the BIR, such as the transport of goods and passengers must come directly from a port in the Philippines to a foreign port and the carrier must not stop at any other port in the Philippines, were not found in the law.
The Supreme Court concluded that the hotel services provided by Manila Peninsula to Delta Air’s flight crew during layovers are directly related to international air transport operations.
The Court emphasized that these services were necessary to ensure that the pilots and crew members are adequately rested and ready for subsequent flights, which is a mandatory requirement for international air transport operations. The Court noted that the services must be exclusively for international operations to qualify for zero-rating, clarifying that services provided to non-crew members of Delta Air do not qualify.
The Court partially granted the petition, reversing the CTA En Banc’s decision. It affirmed the denial of the refund claim for the first quarter of 2010 based on the original return due to prescription but granted the claim for the first quarter of 2010 based on the amended return, as well as for the second, third, and fourth quarters.
The case was remanded to the CTA Third Division to properly determine the exact refundable amount to Manila Peninsula, specifically for services provided to Delta Air’s flight crew during layovers. (Manila Peninsula Hotel, Inc. v. Commissioner of Internal Revenue, G.R. No. 229338, (17 April 2024), digested using NotebookLM by Google)