G.R. No. 210689-90 - Philippine Amusement and Gaming Corp. vs. Commissioner of Internal Revenue

The Philippine Amusement and Gaming Corporation (PAGCOR) was created under Presidential Decree (PD) No. 1869 dated July 11, 1983.
PAGCOR’s franchise includes the operation and maintenance of gambling casinos, clubs, sports gaming pools, and related activities within the Philippines.
It is also authorized to perform acts related to the efficient conduct of games of chance and to regulate persons engaged primarily in gambling and allied businesses.
Section 13(2) of PD No. 1869 exempts PAGCOR from all kinds of taxes except a 5% franchise tax on gross revenue from its operations.
Section 14(5) of the same decree allows PAGCOR to operate related services and entertainment, with any income realized therefrom subject to income tax and excluded from the franchise tax base.

Republic Act (RA) No. 8424 (1997 NIRC) initially included PAGCOR among GOCCs exempt from income tax under Section 27(C).
RA No. 9337 (2005) amended Section 27(C) by removing PAGCOR from the income tax exemption list.
RA No. 9487 (2007) extended PAGCOR’s franchise for an additional 25 years with the provision that inconsistent laws are repealed or modified accordingly.

In 2008, the Bureau of Internal Revenue (BIR), through the Commissioner of Internal Revenue (CIR), issued notices of alleged deficiency tax liabilities for taxable years 2005 and 2006, covering income tax, Value-Added Tax (VAT), Fringe Benefit Tax (FBT), and documentary stamp tax.
The total assessed deficiency tax liabilities amounted to over ₱5.9 billion, inclusive of surcharges, interests, and compromise penalties.
PAGCOR filed a letter-protest and subsequently a Petition for Review before the Court of Tax Appeals (CTA) alleging inaction of the CIR.
CIR contested PAGCOR’s claims, arguing that PAGCOR is subject to ordinary corporate income tax, VAT, and FBT, and that the assessments were valid.
Parties agreed there were no factual disputes, only legal issues remained.

CTA First Division (September 5, 2011) partially granted PAGCOR’s petition—canceling deficiency VAT assessments but affirming income tax and FBT liabilities with modifications.
CTA En Banc (July 23, 2013) dismissed both CIR and PAGCOR appeals and affirmed the CTA First Division ruling.
Both parties filed motions for reconsideration, denied by the CTA En Banc (December 18, 2013).
PAGCOR and CIR elevated the case to the Supreme Court in consolidated petitions for review.

PAGCOR alleged it is only liable for the 5% franchise tax, which is in lieu of all other national and local taxes.
Claimed the income tax and FBT exemptions under its Charter were not repealed or amended by RA No. 8424 or RA No. 9337.
Contended that RA No. 9487 restored PAGCOR’s tax privileges and franchise rights.
Argued against FBT liability as withholding agent, claiming violations of due process.
Claimed car plan benefits granted to officers were necessary and beneficial to PAGCOR’s business, thus not subject to FBT.
Asserted that even if liable, it should only pay the basic tax without surcharges, interests, and penalties due to good faith reliance on its tax-exempt status.

CIR maintained that PAGCOR lost its income tax exemption under RA No. 9337 and thus is liable for corporate income tax.
Contended that PAGCOR is liable for VAT as it is not exempted by the 1997 NIRC or its amendments.
Emphasized the legality and validity of tax assessments issued for taxable years 2005 and 2006.

Whether PAGCOR, under its Charter and as amended, is liable only for the 5% franchise tax in lieu of all other kinds of taxes.
Whether PAGCOR’s exemption from income tax and FBT under its Charter was amended or repealed by RA No. 8424 and RA No. 9337.
Whether RA No. 9487 restored PAGCOR’s original tax privileges and franchise rights.
Whether PAGCOR can be held liable for FBT as a withholding agent, and if such imposition violates due process.
Whether the car plan benefits granted to PAGCOR’s officers were necessary for its business and therefore exempt from FBT.
Whether PAGCOR should be liable for surcharges, interests, and penalties given its good faith belief in its tax-exempt status.
Whether PAGCOR is liable for VAT under the amended tax laws.