The Philippine High Court recently rendered a decision holding that the accommodation and lodging services by a Philippine hotel to the pilots and crew of Delta Air Lines during flight layovers in the Philippines are not subject to value added tax.

The High Court held that, in accordance with the Philippine tax code, services performed in the Philippines to persons engaged in international shipping or international air transport operations shall be subject to zero percent (0%) value added tax rate (rather than the usual 12% rate). In doing so, it voided a regulation issued by the Philippine tax authority that required the following additional conditions to qualify for the 0% rate which were not found in the tax code:

“(1) the services pertain to or must be attributable to the transport of goods and passengers; (2) the transport of goods and passengers must emanate from a port in the Philippines; (3) the transport of goods and passengers must be directly to a foreign port; and (4) the common international air transport carrier must not dock or stop at any port in the Philippines.”

and holding that, while the tax authority is granted under the law the power to issue rulings interpreting the provisions of the tax code, such administrative rulings cannot be inconsistent with the law sought to be enforced nor must not override, supplant or modify the tax code.

This is a major win for consumers as this will help in reducing the cost of air travel to and from the Philippines.

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