The Philippines is becoming a major player in the offshore gaming industry worldwide.
Owing to our regulatory framework, offshore gaming operations can be granted licenses and be regulated, thereby, be legalized in the country. The main licensor is the Philippine Amusement and Gaming Corp. (Pagcor), but other special bodies like the Cagayan Economic Zone Authority (CEZA), are also authorized to grant licenses within their territorial jurisdictions.
This makes the Philippines the first and only Association of Southeast Asian Nation member-country to legalize offshore gaming operations. For this reason, among others, operators of Philippine offshore gaming operations (POGO) flock to and proliferate in the Philippines.
Pagcor defines offshore gaming as online games of chance via the internet using a network and software exclusively for authorized offshore players, excluding Filipinos, who have registered and established online gaming account with the licensee. This type of gaming is of course a great departure from the usual land-based betting and gaming activities in the country.
The taxation of POGOs has been a challenge. It is reported that not all operators are registered with the Bureau of Internal Revenue (BIR). Also, a number of them have not been reporting their taxes correctly, forcing the BIR to padlock several of such operators or establishments.
This prompted our legislators to file House Bill (HB) 5267 to clarify the taxation of POGOs.
The bill, authored by Albay Rep. Joey Salceda, seeks to amend provisions of our National Internal Revenue Code (Tax Code) to settle the taxation of POGOs. It proposes a tax of 5 percent franchise tax on all gross receipts of POGOs derived from gaming operations. It also imposes a 15 -percent income tax on salaries or compensation of alien employees of POGO operators. Such alien employees are those who are permanent residents of a foreign country but are employed and assigned to the Philippines by a POGO licensee.
HB 5267 reiterates similar rules set out in Revenue Memorandum Circular (RMC) 102-2017 issued by the BIR. Said RMC provides that the entire gross gaming receipts/earnings or the agreed or pre-agreed minimum monthly revenues from gaming operations under existing rules, whichever is higher, shall be subject to a 5- percent franchise tax. Such tax is in lieu of all kinds of taxes, levies, fees or assessments of any kind or description. Income from non-gaming operations, however, shall be subject to the regular income tax, value added tax, and other applicable taxes.
Clarifying and even codifying into our Tax Code the taxation rules of POGOs would be helpful. However, it may not settle all taxation issues involving such entities.
There is always the issue of whether POGOs (and their alien employees) are indeed declaring their correct income or revenues for tax purposes. Another issue is whether or not the BIR could track those income or revenues.
A POGO licensee may be a Philippine-based operator, one duly constituted business enterprise organized in the Philippines, or an offshore-based operator, a duly constituted business enterprise organized in any foreign country, who will engage the services of a Pagcor-accredited service or support provider for its online gaming activity.
If the POGO licensees are entities organized in a foreign country, and thus be considered resident foreign corporations for tax purposes, they are taxable only on Philippine-sourced income. What constitutes Philippine-sourced income is thus the key especially that bets are made offshore.
Whether or not the BIR can track such income is another. The customers of POGOs are offshore players who have registered and established online gaming accounts with the licensees. Bets and fees are probably paid using credit cards and other online facilities abroad, without cash being inwardly remitted to the Philippines. Thus, tracking such income payments will definitely be a challenge.
The same is true with their alien employees. Salaries or compensation of the alien employees for services rendered here in the Philippines should be subject to the normal tax rules and be subject to withholding tax on wages. However, the BIR will have no way of tracking if a portion of such salaries are paid by the foreign POGO licensees to their employees abroad. If so paid abroad, they may escape Philippine taxation or the Philippine withholding tax system.
The nuances of POGO operations, as well as the support services provided to them, should also be clearly understood too. There are ’other entities’ that are involved in the POGO operations. Such entities may be a POGO licensee or any other business entity duly licensed and authorized by Pagcor to provide a particular or specific component of the offshore gaming activities to the POGO. They could be POGO-gaming agents (representatives in the Philippines of an offshore- based Operator) or service providers or entities which provide components of offshore online gaming operations, like software platform providers, business process outsource providers, or gaming support providers.
No doubt, the BIR should be knowledgeable of POGO operations, as well as of their internet or online platform. In addition, it may have to resort to other means to track income of such operators, like invoking international agreements on exchange of information, among others.
What is apparent now though is that, while the POGO industry is seen to be a promising sector of the Philippine economy, the country may not yet have fully benefited from the industry’s revenue and tax potential.
Euney Marie J. Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. She is the President of the Asia-Oceana Tax Consultants’ Association. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at firstname.lastname@example.org or visit MTF Counsel’s website at www.mtfcounsel.com