The Supreme Court has affirmed Bloomberry Resorts and Hotels, Inc.’s (Bloomberry) exemption from paying corporate income tax as a franchisee of the Philippine Amusement and Gaming Corporation (Pagcor).
The decision restrained the Bureau of Internal Revenue (BIR) from implementing a memorandum circular that imposed corporate income taxes on Pagcor’s and its franchisees’ earnings.
Bloomberry operates Solaire Resort & Casinos.
The High Court held that Presidential Decree (PD) No. 1869 or the Pagcor Charter clearly states that Pagcor is liable only to pay the five percent franchise tax on its gross revenues “in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature, which necessarily include corporate income tax.”
“There was no need for Congress to grant tax exemption to [Pagcor] with respect to its income from gaming operations as the same is already exempted from all taxes of any kind or form, income or otherwise, whether national or local, under its Charter, save only for the five percent franchise tax,” it added.
The exemption, the SC said, extended to Pagcor’s licensees, such as Bloomberry and its parent company, Sureste Properties, Inc.
“Bloomberry and its parent company, Sureste Properties, Inc., own and operate Solaire Resort & Casirto. Thus, being one of its licensees, petitioner only pays Pagcor license fees, in lieu of all taxes, as contained in its provisional license and consistent with the PAGCOR Charter or Presidential Decree (PD) No. 1869, which provides the exemption from taxes of persons or entities contracting with PAGCOR in casino operations,” the SC said.
The case stemmed from BIR’s issuance of revenue memorandum circular (RMC) No. 33-2013 which declared that Pagcor, in addition to the five percent franchise tax imposed on its gross revenue under Section 13(2) of PD No. 1869, is likewise subject to corporate income tax under the National Internal Revenue Code (NIRC).
RMC No. 33-2013 was issued pursuant to Republic Act (RA) 9337 which amended Section 27(C) of the NIRC, thus, removing PAGCOR from the enumeration of government-owned and controlled corporations exempt from paying corporate income tax.
The said circular also provided that Pagcor’s licensees, being entities duly authorized and licensed by it to perform gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools, are likewise subject to income tax under the NIRC, as amended.
Prior to the passage of RA 9337, Pagcor and its licensees were only liable to pay a five percent franchise tax on its gross revenue pursuant to PD No. 1869 or the Pagcor Charter.
Owing to the conundrum posed by the passage of RA 9337 and the subsequent issuance of RMC No. 33-2013, Pagcor filed the petition before the SC which sought the nullification of RMC No. 33-2013. It argued that the circular violated the equal protection and non-impairment of contracts clauses of the constitution.