BIR Ruling [DA-468-03]

December 9, 2003 BIR RULING [DA-468-03] P.D. 1869; BIR Ruling 109-98; DA-227-2000 dtd. 5/10/2000 6 In ONE Amusement & Entertainment Corporation 15/F G.E. Antonio Bldg., T.M. Kalaw cor. Bocobo Sts., Ermita, Manila Attention: Cesar R . Marcelo President S i r : This refers to your letter dated October 24, 2003, requesting for a confirmatory ruling on the tax exemption privileges of ASSET FORTUNE LIMITED (AFL) and SIX-IN-ONE AMUSEMENT AND ENTERTAINMENT CORP. (SIX-IN-ONE) as resident agent, on the basis of the following: 1. Entities which have contractual relations with the Philippine Amusement and Gaming Corporation (PAGCOR), AFL being an "operator" of a slot machine arcade with whom PAGCOR entered into an operating and/or management contract, and 2. Entities which have contractual relationship with PAGCOR's contracted "operator" in connection with the operation of casino(s) authorized to be conducted under PAGCOR's Franchise, SIX-IN-ONE being the resident agent of AFL which provides technical and managerial assistance to the latter. It is represented that AFL is an existing foreign corporation duly organized in Hongkong desiring to do business in the Philippines and registered with the Securities and Exchange Commission (SEC); that likewise SIX-IN-ONE is an existing domestic corporation registered with the SEC; that it has been duly appointed as resident agent of AFL by the execution of a Special Power of Attorney on August 6, 2002, which was duly notarized in Hongkong; that on March 21, 2003, AFL represented by its resident agent SIX-IN-ONE entered into an agreement with PAGCOR in connection with the operations of Slot Machine VIP Club; that in accordance with the said agreement, AFL and PAGCOR entered into a contract of lease for the operation of top of the line slot machines and network/link system; that as a result of the said contract, AFL will be paid rentals which will be equivalent to a percentage of the slot machines' gross revenues after deducting the players' winning/prizes and all applicable taxes; that SIX-IN-ONE on the other hand, being the resident agent of AFL that will be responsible for all the technical and management services enumerated in the undertakings of AFL will be given commission from the percentage rentals AFL will receive; that to support your stand, you cited the following decisions, opinions and rulings, to wit: Phil. Casino Operators Corp. vs. CIR (CTA #4341 dtd April 22, 1995); Provident International Resources Corp. vs. CIR (CTA 4342 dtd. April 22, 1995); Phil. Casino Operators Corp. vs. Commissioner of Customs (CTA #4597, May 28, 1997); Acesite (Phils) Hotel Corp. vs. CIR (CTA 5449 Jan. 28, 1999); DOJ Opinion No. 50, s. 1996; BIR Ruling No. 109-98, July 6, 1998, BIR Ruling 138-98, Sept. 25, 1998; BIR Ruling DA-353-99, June 16, 1999; BIR Ruling DA-184-2000, March 28, 2000; and BIR Ruling DA-227-2000, May 10, 2000. In reply, please be informed of the following pertinent provisions of Section 13(2)(a) and (b) of P.D. 1869, which states: "Section 13. Exemption xxx xxx xxx "(2) Income and other taxes . (a) Franchise Holder : No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority. cASEDC "(b) Others : The exemption herein granted for earnings derived from the operations conducted under the franchise specially from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporations or operator has any contractual relationship in connection with the operation of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator . " (emphasis provided) Since AFL and SIX-IN-ONE are under contractual relationship with PAGCOR for the operation of top of the line slot machines and network/link system and the resident agent of AFL responsible for all the technical and management services, respectively, this Office is of the opinion as it hereby holds that the exemption from taxes, fees and charges enjoyed by PAGCOR is effectively extended to AFL and SIX-IN-ONE. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group