Whether the Tax Exemption Enjoyed by PAGCOR under P.D. 1869 may be Extended to Its Contractors

September 25, 1998 BIR RULING NO. 138-98 P.D. 1869-000-00-138-98 Atty. Ariel R. Arriola Lower Ground Floor Benguet Center ADB Ave. Cor. Julia Vargas Ave., Mandaluyong City S i r : This refers to your undated letter received by this office on August 4, 1998 requesting for a ruling as to whether or not the tax exemption enjoyed by the Philippine Amusement and Gaming Corporation (PAGCOR) under P.D. 1869 may be extended to its contractors. prLL It is represented that your client, AB Leisure Exponent, Inc. (ABLE), is a domestic corporation organized and existing under the laws of the Republic of the Philippines doing business under the name and style of Bingo Bonanza; that on September 8, 1995, PAGCOR gave ABLE, under a Grant of Authority, the authority to hold and operate bingo games. The basis of authority of PAGCOR to issue the grant to ABLE are sections 8 and 9 of 1869 which reads as follows: "SEC. 8. Registration . All persons primarily engaged in gambling, together with their allied business, with contract or franchise from the Corporation, shall register and affiliate their business with the Corporation. The Corporation shall issue the corresponding certificate of affiliation upon their compliance by the registering entity with the promulgated rules and regulations thereon. "SEC. 9. Regulatory Power . The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliate entities mentioned under the preceding section, including but not limited to amendments of Articles of Incorporation and By-Laws, change in corporate term, structure, capitalization and other matters concerning the operation of the affiliating entities, the provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original incorporation." In reply, please be informed of the following pertinent provisions of Section 13(2)(a) and (b) of P.D. 1869, which states: "SEC. 13. Exemptions . "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. "(b) Others : The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically 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 individuals, with whom the Corporation or operator has any contractual relationship in connection with the operations 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." Since ABLE is under contractual relationship with PAGCOR by virtue of an Authority to operate bingo games, this Office is of the opinion as is hereby holds that the exemption from taxes, fees and charges enjoyed by PAGCOR is effectively extended to Bingo Bonanza. 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. prLL Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue