By Dane Angelo M. Enerio
THE COURT of Tax Appeals (CTA) has granted a tax petition filed by Makati City-based Hard Rock Café in Feb. 29, 2016, canceling and setting aside a P28-million tax assessment made by the Bureau of Internal Revenue (BIR) over alleged deficiency amusement tax.
According to a 22-page July 12 decision penned by CTA Third Division Associate Justice Esperanza R. Fabon-Victorino, the BIR in May 6, 2015 sent a Formal Assessment Notice (FAN) to Hard Rock Café that claimed the business had deficiency percentage tax of P27,799,898.28 representing 18% amusement tax from its P100,835,374.21 gross sales and receipts for taxable year 2013.
The tax agency said the establishment was allegedly an “amusement place” that was within the definition of night and day club and cabaret under the Revenue Memorandum Circular (RMC) No. 18-2010, which amended the National Internal Revenue Code (NIRC) of 1997, because “it serves liquor and food to its customers, with stage performances by musicians and dancers.” The RMC added an 18% amusement tax to the gross sales and receipts of cabarets and day and night clubs.
The BIR added: “[I]t is also a venue for dancing which encourages prolonged stay resulting in more revenue from sales of food and drinks to its customers”
Section 2 of Revenue Regulations (RR) No. 14-67 defined cabarets as establishments where “patrons are entertained by performers who dance and sing and/or where the patrons are allowed to dance with said performers or entertainers who are ordinarily professional hostesses while night and day clubs were defined as establishment where “foods and wines and drinks are served and music furnished and the patrons allowed to dance whether with their own partners or professional hostesses furnished by (the club.)”
The appelate court, however, found “that the business activities of [Hard Rock Café] do not fall within the scope or coverage of cabarets and/or night 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 café].”
“The evidence presented show that the actual business activities of petitioner are those of a 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 in view of promoting sales of food and drinks served in the restaurant,” the CTA said.
The CTA noted the testimony of Hard Rock Café Treasurer and Finance Controller Joseph Y. Yang, who admitted to the court the café “has no dance floor, nor does it encourage its customers to dance.”
“[F]or petitioner 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 CTA ruled.
The CTA pointed out: “[A]dmittedly, petitioner provides entertainment to its customers through live bands and singer, but these are incidental to the main restaurant business of providing food and drinks to its diners and are merely for the purpose of advertisement and promotion of petitioner’s restaurant.”
Aside from that, the CTA also pointed out Hard Rock Café was given by the city government of Makati a license to operate as a restaurant and that its menu “indicates that petitioner operates as a restaurant whose main line of business is to serve food and drinks to its customers.”
“Not being expressly covered by the terms ‘cabaret’ and ‘night or day club,’ pursuant to RR No. 14-67 . . . petitioner thus cannot be held liable for the payment of percentage tax (amusement tax) under Section 125(b) of the NIRC of 1997, as amended,” the CTA ruled.
Those who concurred with Ms. Fabon-Victorino’s decision were Associate Justices Lovell R. Bautista and Ma. Belen M. Ringpis-Liban.

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