A.     COURT OF TAX APPEALS (CTA) DIGEST FOR THIS WEEK

TO BE LIABLE TO 18% AMUSEMENT PERCENTAGE TAX, DANCING MUST BE THE MAIN BUSINESS OF A CABARET, NIGHT OR DAY CLUB

The Petitioner Hard Rock Café, Inc. filed a Petition for Review praying for the cancellation of the Percentage Tax Assessment issued by the Respondent Commissioner of Internal Revenue on the ground that the Petitioner falls under the category of “cabarets, night or day clubs” and therefore liable to Amusement Tax of 18%, a kind of Percentage Tax under the Tax Code. Likewise, the Respondent premised its assessment on the provisions of Revenue Memorandum Circular No. 18-2010 which clarifies the coverage and taxability of amusement places. Based on the investigation conducted, the Respondent found that the Petitioner’s business premise is considered an “amusement place” mainly because it serves liquor and food to its customers, with stage performances by musicians and dancers. In one case, the Supreme Court defined cabarets as place of amusement where customers go because of their desire to dance and where the bailarinas are the main attraction. On the other hand, it defines Night Clubs as a place or establishment selling to the public food or drinks, where the customers are allowed to dance. In final conclusion, the CTA said that it appears from the definitions that the primary and common activity to cabarets, night and day clubs is dancing. In the said places, the customers are allowed to dance either with their own partners or with professional hostesses provided by the cabarets or clubs. Thus, to be deemed a cabaret, or night and day club, it must be established that its operations involve dancing as the main business and customers patronize the place in order to dance either with their own partners or with professional hostesses engaged by Petitioner for that purpose. The evidence however shows that the business activities of the Petitioner do not fall within the scope or coverage of the cabarets and/or day clubs, since there is no indication that its customers frequent its establishment to dance, either with their own partners, or with professional hostesses provided by the Petitioner. More importantly, the evidence presented show that the actual business activities of the Petitioner are those of restaurant, with the entertainment usually by the performances of live bands, which is merely incidental to its main business to encourage or attract customers with the end view of promoting sales of foods and drinks served in the restaurant. The Petition for Review is GRANTED and the Percentage Tax Assessment is CANCELLED. [HARD ROCK CAFÉ, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9279, JULY 12, 2018]