Tax Exemption for PAGCOR Licensees: Understanding the Scope of PD 1869

The Supreme Court has settled a significant question on the tax treatment of Philippine Amusement and Gaming Corporation (PAGCOR) licensees. In Bloomberry Resorts and Hotels, Inc. v. Bureau of Internal Revenue (G.R. No. 212530, August 10, 2016), the Court ruled that PAGCOR's contractees and licensees remain exempt from corporate income tax on income derived from gaming operations, so long as they pay the five percent (5%) franchise tax. The ruling provides clarity for the gaming industry, which had been uncertain about its tax liabilities following the issuance of Revenue Memorandum Circular (RMC) No. 33-2013.

Background of the Case

Bloomberry Resorts and Hotels, Inc., the operator of Solaire Resort & Casino, held a provisional license from PAGCOR to operate an integrated resort and casino at Entertainment City. Under its license, Bloomberry paid only PAGCOR license fees, in lieu of all taxes, consistent with the PAGCOR Charter (Presidential Decree No. 1869).

In 2013, the Commissioner of Internal Revenue issued RMC No. 33-2013, which declared that PAGCOR's contractees and licensees were subject to corporate income tax under the National Internal Revenue Code (NIRC) of 1997, as amended. This directive stemmed from R.A. No. 9337, which removed PAGCOR from the list of government-owned or controlled corporations exempt from corporate income tax.

Aggrieved, Bloomberry filed a petition for certiorari and prohibition before the Supreme Court, arguing that the CIR acted with grave abuse of discretion in issuing the assailed provision.

The Core Legal Question

The central issue was whether Section 13(2)(b) of PD No. 1869, which extends tax exemptions to PAGCOR's contractees and licensees, remained in effect despite the amendments introduced by R.A. No. 9337 to the NIRC.

The Court first addressed procedural concerns. It acknowledged that revenue memorandum circulars are administrative rulings appealable to the Court of Tax Appeals (CTA), not directly to the Supreme Court. However, the Court exercised its prerogative to resolve the case on the merits, citing the pure question of law involved, the national interest at stake, and the need to prevent multiplicity of suits.

The Ruling: Exemption Stands

The Supreme Court ruled in favor of Bloomberry. The Court held that the tax exemption granted to PAGCOR's contractees and licensees under Section 13(2)(b) of PD No. 1869 was neither amended nor repealed by R.A. No. 9337.

Section 13(2)(b) of PD No. 1869 provides that the exemptions granted for earnings derived from operations conducted under the franchise "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)."

Applying the plain meaning rule, the Court found the language of the PAGCOR Charter clear and unambiguous. Since the exemption explicitly extends to those with contractual relationships with PAGCOR, licensees like Bloomberry are covered. Upon payment of the 5% franchise tax, their income from gaming operations is not subject to corporate income tax.

The Court distinguished between gaming operations and related services. Consistent with the earlier ruling in PAGCOR v. BIR (G.R. No. 215427), the Court held that while income from gaming operations is subject only to the franchise tax, income derived from "other related services" remains subject to corporate income tax.

Practical Takeaways

• Gaming income protected: PAGCOR licensees pay only the 5% franchise tax on income from gaming operations, in lieu of all other taxes, including corporate income tax.
• Related services taxed separately: Income from non-gaming or related services, such as entertainment or other business activities, is subject to corporate income tax.
• RMC No. 33-2013 limited: The CIR cannot impose corporate income tax on licensees' gaming income; the assailed provision of RMC No. 33-2013 was ordered stopped.
• Special law prevails: PD No. 1869, as a special law, prevails over the general provisions of the NIRC, absent an express repeal.
• Compliance still required: Licensees must continue to pay the 5% franchise tax to enjoy the exemption from other taxes.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.