Commissioner of Internal Revenue v. Perception Gaming Corp.

FIRST DIVISION

[G.R. No. 237713. June 25, 2018.]

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs. PERCEPTION GAMING CORPORATION, respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution datedJune 25, 2018which reads as follows:

"G.R. No. 237713 — Commissioner of Internal Revenue v. Perception Gaming Corporation

Acting on petitioner's Motion for Extension of Time, the Court resolves to GRANT petitioner a period of thirty (30) days from the expiration of the reglementary period within which to file a Petition for Review on Certiorari.

After a careful review of the allegations, issues, and arguments adduced in the instant Petition for Review on Certiorari filed under Rule 45 of the Rules of Court, the Court resolves to DENY the same for: 1) lack of payment of P1,000.00 for Sheriffs Trust Fund per A.M. No. 17-12-09-SC; and 2) failure of petitioner to show that the Court of Tax Appeals (CTA) committed any reversible error in finding respondent entitled to its claim for refund or tax credit of erroneously paid output Value-Added Tax (VAT) in the reduced amount of P353,961.50 for the 1st quarter of calendar year 2010. cDTACE

Petitioner insists that the CTA erred in holding that respondent's lease of gaming equipment to PAGCOR-authorized Bingo Operators was not subject to twelve percent (12%) VAT. Petitioner argues that the tax exemption in favor of PAGCOR and PAGCOR-authorized Bingo Operators did not extend to those entities dealing with PAGCOR-authorized Bingo Operators.

The Court is not persuaded.

In Philippine Amusement and Gaming Corp. v. Bureau of Internal Revenue, 1 the Court ruled that the tax exemption of PAGCOR extends to those entities or individuals dealing with PAGCOR in casino operations. The Court explained that:

As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend the portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate.

Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation. Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a portion of the hotel's premises to PAGCOR. It incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR from January 1996 to April 1997. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. However, PAGCOR refused to pay the taxes because of its tax-exempt status. PAGCOR paid only the amount due to Acesite minus VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the Commissioner of Internal Revenue, fearing the legal consequences of its non-payment. In May 1998, Acesite sought the refund of the amount it paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR and Acesite were both exempt from paying VAT, thus:

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PAGCOR is exempt from payment of indirect taxes

It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides: cCHITA

Sec. 13. Exemptions. —

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(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 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.

Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not to indirect taxes, like the VAT.

We disagree.

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT, as follows: CScaDH

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424.

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.

The manner of charging VAT does not make PAGCOR liable to said tax.

It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides: aHSTID

Section 102. Value-added tax on sale of services. — (a) Rate and base of tax — There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by VAT registered persons shall be subject to 0%.

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(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.

Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424, 41 it is still applicable to this case, since the provision relied upon has been retained in R.A. No. 9337. 2

Corollarily, PAGCOR-authorized Bingo Operators are exempt from VAT. Thus, services rendered to them are subject to zero percent (0%) VAT in accordance with Section 108 (B) (3) of the 1997 NIRC, as amended, which states:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

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(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: CDHaET

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(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

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The CTA, therefore, correctly ruled that, under the 1997 NIRC, as amended, respondent's lease of gaming equipment to PAGCOR-authorized Bingo Operators, a tax-exempt entity under the PAGCOR Charter, is subject to zero percent (0%), not twelve percent (12%) VAT. Consequently, respondent is entitled to a refund or tax credit of its erroneously paid output VAT for the 1st quarter of calendar year 2010 in the reduced amount of P353,961.50.

ACCORDINGLY, the September 28, 2017 Decision and the February 21, 2018 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 1431 are hereby AFFIRMED. ISCDEA

SO ORDERED." Leonardo-De Castro, J., on official leave; Del Castillo, J.,designated as Acting Chairperson of the First Division per Special Order No. 2562 dated June 20, 2018; Gesmundo, J., designated as Acting Member per Special Order No. 2560 dated May 11, 2018.

Very truly yours,

 

(SGD.) LIBRADA C. BUENAActing Division Clerk of Court

 

Footnotes

1. 660 Phil. 636 (2011).

2.Id. at 659-663.