Venturanza, Hostalero and Company, CPAs Auditing and Consultancy Services

July 16, 2019 BIR RULING NO. 383-19 PD 1869; Secs. 109 & 27 of NIRC; BIR Ruling No. 1090-18 Venturanza, Hostalero and Company, CPAs Auditing and Consultancy Services Unit 2704-C West Tower PSE Centre, Exchange Road Pasig City Attention: AAA Gentlemen : This refers to your letter dated December 12, 2018 requesting on behalf of your client, B7 Amusements Corporation ("B7" for brevity), for a ruling on the preferential tax rate (which includes income tax and value added tax [VAT]) extended to grantees and licensees of the Philippine Amusement and Gaming Corporation (PAGCOR) pursuant to Presidential Decree (PD) No. 1869, as amended by Republic Act (RA) No. 9487. ATICcS Background: B7 with Taxpayer's Identification Number (TIN) 000-000-000 and principal office address at Level 3, Robinsons Place, Quirino Hi-way, Novaliches, Quezon City is a corporation duly organized under the laws of the Republic of the Philippines, the primary purpose of which is to establish and conduct general amusement enterprise and provide amusement to the general public; acquire, establish, own, hold, sell, lease, conduct and manage amusement enterprises of every kind; purchase, acquire, develop, sell, lease, let, own and manage places of exhibitions, bingo games, contest and amusements of every kind; erect amusement enterprises in all the branches pertaining to said amusement places; to buy, lease, option or otherwise acquire, hold, exchange, sell or otherwise dispose of and deal in real estate of buildings for the erection of and establishment of such amusement places; purchase, lease, or otherwise acquire, own, control, book, manage, promote, operate and conduct any and all manner of amusement activities; manufacture, buy, lease or otherwise acquire, own, and operate computers, machines, equipment, vehicles and all appliances and accessories necessary for the said purposes; and generally to engage in, produce, operate, manage, control and conduct any and all manner of indoor and outdoor sports and/or games. B7 is a holder of a Gaming License for its Bingo Games operations which was issued on September 4, 2017 and shall be valid until June 24, 2019, by PAGCOR pursuant to PD No. 1869, as amended by RA No. 9487. In reply, please be informed that Section 13 (2) (b) of PD No. 1869, as amended by RA No. 9487, provides, viz. : "SEC. 13. Exemptions. (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. xxx xxx xxx (b) Others: The exemption 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 individual(s) 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 ." (Emphasis and underscoring supplied) In the case of Bloomberry Resorts and Hotels, Inc. vs. Bureau of Internal Revenue (G.R. No. 212530 dated August 10, 2016) , the Supreme Court affirmed the applicability of the tax exemption provisions of PD No. 1869, as amended by RA No. 9487, to PAGCOR's licensees. Thus, the Supreme Court ruled that: "As the PAGCOR Charter states in unequivocal terms that exemptions 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 individual(s) with whom the PAGCOR or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise, so it must be that all contractees and licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos. For the same reasons that made us conclude in the December 10, 2014 Decision of the Court sitting En Banc in G.R. No. 215427 that PAGCOR is subject to corporate income tax for "other related services," we find it logical that its contractees and licensees shall likewise pay corporate income tax for income derived from such "related services ." TIADCc xxx xxx xxx Plainly, too, upon payment of the 5% franchise tax, petitioner's income from its gaming operations of gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools, defined within the purview of the aforesaid section, is not subject to corporate income tax." (Italics and underscoring supplied) With regard to the VAT exemption of GLDC, Section 109 (1) (K) of the National Internal Revenue Code of 1997, as amended, provides: "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws ,except those under Presidential Decree No. 529";(Emphasis supplied) Thus, PAGCOR and its licensees are exempt from the payment of VAT because PAGCOR's charter, PD 1869, is a special law that grants the latter exemption from taxes and such exemptions extend or inure to the benefit of its licensees. (Philippine Amusement and Gaming Corporation v. Bureau of Internal Revenue, G.R. No. 172087 dated March 15, 2011) Premises considered, this Office hereby rules that since B7 is a holder of a Gaming License for its Bingo Games operations issued by PAGCOR, the exemption from taxes, fees and charges enjoyed by PAGCOR is extended to B7 pursuant to Section 13 (2) (b) of PD 1869, as amended by RA No. 9487. Therefore, the income derived by B7 solely from its Bingo Games operations, during the validity of its Gaming License, is subject only to the 5% franchise tax, and shall be exempted from corporate income tax and VAT. (BIR Ruling No. 1090-18 dated July 16, 2018) However, for the purpose of applying the 5% franchise tax, any income that may be realized by B7 from related services or such services not falling under gaming operations, shall be subject to corporate income tax and VAT. (Section 14 (5) of PD No. 1869, as amended by RA No. 9487) 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.) CAESAR R. DULAY Commissioner of Internal Revenue