VAT Ruling No. 009-01

March 6, 2001 VAT RULING NO. 009-01 Sec. 13 (2) (a) & (b) P.D. 1869 VAT Ruling 004-96 R . B . Ancheta & Associates Suite 702 ILAC Building 167 Legaspi St., Legaspi Village Makati City Attention: Atty . Ruben B . Ancheta Gentlemen : This refers to your letter dated 03 August 2000 concerning your request for a confirmation of your opinion that the tax exemption privilege of the Philippine Amusement and Gaming Corporation (PAGCOR, for short) is extended to your client, the SPORTS AND GAMES ENTERTAINMENT CORPORATION (SAGE, for short), pursuant to the VAT law, in relation to the provisions of Presidential Decree No. 1869, the legislative franchise of PAGCOR. It is represented that SAGE is a domestic corporation organized and existing under the laws of the Philippines; that, it is engaged in the business of gaming; that, on 01 September 1998, pursuant to its Charter, PAGCOR granted authority to SAGE "to operate Sports Betting and Internet Gaming Activities;" and that, the terms and conditions of the operating agreement between PAGCOR and SAGE are embodied in an agreement entitled "Grant of Authority and Agreement for the Operation of Sports Betting and Internet Gaming." In reply, please be informed that Section 13 (2) (a) and (b) of P.D. No. 1869 provides: "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%)(now 10% VAT) 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 . " In VAT RULING No. 004-96 dated 14 May 1996, it has been ruled that the PAGCOR, being a legislative franchise grantee, became subject to the 10% VAT in lieu of the 5% franchise tax prescribed under its Charter, pursuant to the provisions of Section 102 (a), 1 old NIRC, as amended by R.A. No. 7716, otherwise known as the Expanded VAT law, as follows: "In reply, please be informed that PAGCOR, which falls under 'other franchise grantees' under Section 117(c) 2 of the TaxCode, as amended, is now subject to the 10% VAT under Section 102(a) 3 of the sameCode, as amended by Republic ActNo.7716, otherwise known as the ExpandedVATLaw, effective January 1, 1996 . " This ruling has been reiterated in VAT RULING No. 030-99 dated 18 March 1999, as follows: " .. . it is clear that all legislative franchise grantees, except only 'electric, gas and water utilities' have been expressly subjected to the 10% VAT pursuant to Section 102, old N I RC, as amended by R . A . N o . 7716 (now Sec . 108, Tax Co de of 1997) . . . . Therefore, upon effectivity of Section 102 (now Sec . 108) of the NI RC, as amended by R . A . No . 77 16, PAGCOR ceased to be embraced by the franchise tax . Instead, it became subject to the 10% VAT, in lieu of all other taxes, pursuant to Sec . 13 of P . D . N o . 1869 (i . e . , PAGCOR's Charter), as amended by Sections 3 and 12 of R . A . No . 7 716 . " However, the provision of Section 13 (2) (b) of P.D. No. 1869, as now amended by R.A. 7716 remains applicable insofar as the contractors of PAGCOR are concerned. Hence, in BIR RULING No. 138-98 dated 25 September 1998, it has been ruled in the case of AB Leisure Exponent, Inc. (ABLE), as follows: "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 . " In view of the foregoing, your aforementioned opinion that the tax exemption privilege of PAGCOR under Section 13 (2) of its Charter (P.D. No. 1869), as amended by R.A. 7716, is effectively extended to its contractor (i.e., to SAGE), is hereby confirmed . HEcIDa This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group Footnotes 1. Now Sec. 108 (a), NIRC, as renumbered by R.A. 8424. 2. Now Sec. 119, NIRC, as amended by R.A. 7716 and R.A. 8241, and as renumbered by R.A. 8424. 3. Now Sec. 108 (A), NIRC, as renumbered by R.A. 8424, otherwise known as the NIRC of 1997.