BIR Ruling No. 632-2017

REPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMENT OF FINANCE

tTat Quezon City

P.D. 1869: 109: 27 BIR Ruling No. 359-17 1632-2017 -10-T

SVS Suite. 6SE. Scout Borromeo St., South I'riangle. Quezon City SANTOS VERDE SAN JUAN AND ASSOCIATES

Attention : Florita B. Santos

Certified Public Accountant

Gentlemen:

client, Millennium Pan-Asia Hotel and Resort, Inc. ("MPAHR" for brevity), for confirmation of your opinion that: This refers to your letter dated September 8, 2017, requesting on behalf of your

1. The income that will be derived by MPAHR, a Licensee of the Philippine Amusement and Gaming Corporation (PAGCOR). is subject to 5% franchise tax, in lieu of all taxes, in accordancc with Section"13(2)(b) of Presidential Decree (PD) No. 1869, as amended;

2 All domestic purchases of goods and services directly related to the design. operation; and construction. installation, operations and maintenance covered by the license grant shall not be subject to 12% VAT on the ground of the exemption from ail taxes pursuant to Section 13 (2)(b) of PD No. 1869, as amended. Stated otherwise, no VAT shall be passed on to the Company with respect to its domestic purchase of goods and services that is directly related to its gaming

fees. levies or charges of any kind of nature.'whether National or Locai pursuant to Section 13 (1) of PD No. 1869, as amended. exclusivc usc of the casino operation and for the proper and cfficicnt all kinds of customs duties. taxes and other imports, including all kinds of Ali importation of goods and services by MPAHR of equipment. paraphernalia, construction materials. professional services for thc sole and management and administration thereof shali be exempt from the payment of

Background

management and operation of hotels, resorts, and recrcational activities. organized under the laws of the Philippines. registered with the Securities and Exchange Commission (SEC) under Registration No. MPAHR, with Tax Identification Number and is primarily engaged in thc is a corporation duly

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On August 9, 2017. PAGCOR issued a Provisional License in favor of MPAHR for the development and construction of a resort-casino within C. Seno St. corner Quano Avenue. North Reclamation Area, Mandaue City, Cebu, which covers a total of approximately 4.5 hectares. and to establish and operate the Casino in thc said site: the entire developmcnt of the resort-casino shali have a total gross floor area of at least seventy five thousand square meters (75,000 sq.m.); the key concept of the Master Development Plan for the'Project approved by PAGCOR comprises the following:

[ 4-star Hotel, 5-star Hotel Project Components:

A Casino

A1 Indoor Water Park Retail/Shopping Mall

Performance Art Theater/Cinema Entertainment Outlets/Restaurants/Nightclub

that PAGCOR through the Provisional License issued and in the exercise of its regulatory and iicensing authority under the PAGCOR Charter granted to MPAHR the License to establish and operate the Casino for both iocal and foreign patrons who arc at least 21 years of age: and that PAGCOR shall issue the Regular Casino Gaming License upon compietion of the Project and upon approval by PAGCOR of the report detailing the actual total project cost to ensure MPAHR's compliance with the approved project cost based on the Project Implementation Plan.

In reply. please be informed that Section 13(2)(b) of P.D. No. 1869, as amended by RA 9487. provides, viz:

"SEC. 13. Exemptions.

(2) Income and other taxes - (a) Franchise Hoider: No tax of any kind or

form. incomc or otherwise, as well as fees, charges or ievies 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.

established or collected by any municipal, provincial, or national levies, fees or assessments of any kind, nature or description. levied. government authority.

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(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 relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those whom the Corporation or operator has.any. contractual

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Corporation or operator as a result of essential facilities furnished receiving .compensationor. other remuneration from the

and/or.technicalservices rendered to the Corporation or operator."(Emphasis supplied)

Furthermore, in the case of Bloomherry Resorts und Hotels. Inc. vs. Bureut of Internal Revenue. (G.R. No. 212530 dated August 10. 2016). the Supreme Court unequivocally affirmed the applicability of the tax exemption provisions of PD 1869. as amended, to PAGCOR's licensees and the contractees. Thus. the Supreme Court ruled that.

or operator has any contractual relationship in connection with the 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 exemptions "As the PAGCOR Charter states in unequivocal terms that granted for earnings derived from the operations

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 ali other taxes, including corporate income tax realized from the operation of casinos.

that PAGCOR is subject to corporate income tax for "other related "related services" services", we_find it logical that its contractees_and licensees shall 10, 2014 Decision of the Court sitting En Banc in G.R. No. 215427 likewise pay corporate income tax for income derived from such For the same reasons that made us conclude in the December

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income from its gaming operations of gambling casinos. gaming clubs defined within the purview of the aforesaid section, is not subject to and other similar recreation or amusement places, and gaming pools. corporate income tax." (Emphasis supplied) Plainly, too, upon payment of the 5% franchise tax, petitioner's

Code of 1997, as amended, provides: With regard to the VAT exemption ot MPAHR, Section 109 (l)(K) of the Tax

of Subsection (2) hereof. the following transactions shall be exempt from the value-added tax: "SEC. 109. Exempt Transactions. - (t) Subject to the provisions

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those under Presidential Decree No. 529;" (Emphasis supplied) which the Philippines is a signatory or under special laws. except (K) Transactions which are excmpt under international agrcements to

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and contractees. (Philippine Amusement and Gaming Corporation v. Bureau of Internal Revenue, G.R. No. 172087 dated March 15, 2011) VAT because PAGCOR's charter, PD "1869,"is a special" Iaw that grants the latter exemption from taxes and such exemptions extend or inure to the benefit of its ficensees Thus, PAGCOR and its licensees and contractees are exempt from the payment of

Office hereby rules, as fotlows: Premises being considered, on the items requested for confirmatory opinion, this

1. Since MPAHR is a Licensee of PAGCOR to undertake the development and consequently, to the withhoiding tax. However. for the purpose of applying amended.) (BIR Ruling No. 359-17 dated August 9, 2017) the 5% franchise tax, any income that may be realized from related services or such services not falling under gaming operations, shali be subject to the 30% corporate income tax. the income derived by MPAHR from its operation of the Casino. is subject only to the 5% franchise tax. and shall be exempted from 'the 30% corporate income tax under Section 27 of the Tax Code of 1997. as amended. and construction of a casino-resort and to establish and operate the Casino. the MPAHR pursuant to Section 13(2)(b) of PD 1869, as amended. "Therefore. exemption from taxes, fees and charges enjoyed by PAGCOR is extended to (Section 14(5) of Presidential Decree No. 1869. as

2 as described"in the first paragraph. (Section 109(1)(K) of the Tax Code o) Ruling No. 359-17 dated August 9, 2017) All domestic purchases of goods and services and importations made by Hence, no VAT shall be passed on to MPAHR with respect to its domestic paragraph. shall not be subject to i2%VAT on the ground of its exemption from all taxes pursuant to" Section 13(2)(b) of PD No."1869, as amended. purchase of goods and services that is directly related to its gaming operation Bureau of Internal Revenue, G.R. No. 172087 dated March 15. 2011) (BIR MPAHR directly related to its gaming operation as described in the first 1997. as amended and (Philippine Amusement and Guming Corporation v)

ruling shall be considered null and void. However, if upon investigation, it shalf be disclosed that the facts are different, then this This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours.

Oov

Commissioner of Internat Revenue CAESAR R. DULAY

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