G.R. No. 212530 - Bloomberry Resorts and Hotels, Inc. vs. Bureau of Internal Revenue

On April 8, 2009, the Philippine Amusement and Gaming Corporation (PAGCOR) granted petitioner Bloomberry Resorts and Hotels, Inc. a provisional license to establish and operate an integrated resort and casino complex at PAGCOR’s Entertainment City project.
Petitioner, along with its parent company Sureste Properties, Inc., owns and operates Solaire Resort & Casino. As one of PAGCOR’s licensees, petitioner pays license fees to PAGCOR in lieu of all taxes, pursuant to its provisional license and consistent with the PAGCOR Charter (Presidential Decree No. 1869) as amended by Republic Act No. 9487. This Charter provides tax exemption for persons or entities contracting with PAGCOR for casino operations.

Republic Act No. 9337 (effective November 1, 2005) amended Section 27(C) of the National Internal Revenue Code (NIRC) to exclude PAGCOR from the list of government-owned or controlled corporations (GOCCs) exempt from corporate income tax.
Subsequently, PAGCOR questioned the constitutionality of RA No. 9337 before the Supreme Court in PAGCOR v. Bureau of Internal Revenue (660 Phil. 636 [2011]), arguing that removal of its tax exemption violated equal protection and non-impairment clauses of the 1987 Constitution.

Following the Supreme Court’s validation of RA No. 9337, the Commissioner of Internal Revenue (CIR) issued RMC No. 33-2013 on April 17, 2013.
The RMC declared that PAGCOR shall be subject to both the 5% franchise tax on its gross revenue, under PD No. 1869, and corporate income tax under the NIRC as amended.
Importantly, the RMC also extended corporate income tax liability to PAGCOR’s contractees and licensees, i.e., entities authorized and licensed by PAGCOR to operate gambling casinos, gaming clubs, and related establishments.

Petitioner contested the imposition of corporate income tax on PAGCOR’s licensees, citing:

PD No. 1869, as amended by RA No. 9487, expressly exempts contractees and licensees from all taxes except the 5% franchise tax;
The tax exemption in PD No. 1869 was not repealed or amended by RA No. 9337’s deletion of PAGCOR’s exemption from the NIRC;
The CIR’s issuance of RMC No. 33-2013 constituted grave abuse of discretion, in excess of jurisdiction, effectively repealing or modifying PD No. 1869 without legislative sanction; and
Implementation of the RMC adversely affects industry growth, investment, tourism, and employment.

Petitioner filed a Petition for Certiorari and Prohibition directly before the Supreme Court to annul the RMC provision and enjoin its enforcement.

The CIR argued that the RMC merely clarified the taxability of PAGCOR and its licensees under existing laws, did not amend or repeal PD No. 1869, and that tax exemptions must be strictly construed against the taxpayer.
Also, prohibition is not a proper remedy to restrain administrative acts or acts already executed.

PAGCOR v. Bureau of Internal Revenue (2011) affirmed validity of RA No. 9337 amending the NIRC and removing PAGCOR tax exemption;
PAGCOR v. BIR, et al. (En Banc, December 10, 2014), held PAGCOR’s gaming income is subject only to a 5% franchise tax under PD No. 1869, while income from other related services is subject to corporate income tax;
The En Banc Court intentionally did not decide on tax exemptions relative to PAGCOR’s contractees and licensees, deeming the issue premature;
CIR’s power to issue administrative issuances like revenue memorandum circulars is subject to review and judicial remedies should follow the exhaustion of administrative remedies and respect the hierarchy of courts, as previously clarified in Asia International Auctioneers, Inc. v. Parayno, Jr.

Whether the assailed provision in RMC No. 33-2013 subjecting the contractees and licensees of PAGCOR to corporate income tax under the NIRC was issued with grave abuse of discretion amounting to lack or excess of jurisdiction by the CIR.

Whether the provision is valid and constitutional considering Section 13(2)(b) of PD No. 1869, as amended (PAGCOR Charter), grants tax exemptions to PAGCOR’s contractees and licensees.