Title
Supreme Court
Philippine Amusement and Gaming Corp. vs. Commissioner of Internal Revenue
Case
G.R. No. 210689-90
Decision Date
Nov 22, 2017
PAGCOR contested BIR tax assessments, arguing its charter exempts it from income tax, VAT, and FBT. Courts ruled it is liable for income tax on related services and FBT but exempt from VAT and income tax on gaming operations under its 5% franchise tax. RA 9337 and 9487 clarified exemptions.

Case Summary (G.R. No. 210689-90)

Relevant Dates and Legal Framework

  • PD No. 1869, promulgated on July 11, 1983, established PAGCOR’s franchise, powers, and tax exemptions, including a 5% franchise tax on gross revenues from its operations, in lieu of all other taxes, fees, levies, or assessments.
  • Republic Act No. 8424 (National Internal Revenue Code of 1997) took effect January 1, 1998 and originally included PAGCOR in the list of GOCCs exempt from income tax under Section 27(C).
  • RA No. 9337, effective July 1, 2005, amended the 1997 NIRC by removing PAGCOR from the list of income tax-exempt GOCCs.
  • RA No. 9487, enacted June 20, 2007, extended PAGCOR’s franchise for 25 years, renewable for another 25 years, without expressly amending or repealing its tax privileges under PD No. 1869.
  • The assessments at issue were issued in 2008, with formal demand notices in 2009 for substantial tax deficiencies, surcharges, interests, and penalties.

PAGCOR’s Charter and Tax Exemption Under PD No. 1869

Under Section 13(2) of PD No. 1869, PAGCOR is granted a blanket exemption from all taxes, whether national or local, income or otherwise, except for a 5% franchise tax on gross revenues from its operations under the franchise. The Charter expressly exempts PAGCOR from other forms of taxes and provides that income from “other related services” is to be treated as separate income, subject to income tax.

Conflicting Tax Laws and Amendments

The CIR argued PAGCOR is liable for regular corporate income tax, VAT, and FBT, asserting that RA No. 9337 repealed PAGCOR’s income tax exemption. PAGCOR maintained that its exemption from income tax and other taxes under its Charter was not repealed or amended by RA Nos. 8424 and 9337, and that the extension of its franchise under RA No. 9487 effectively restored or reiterated those privileges.

Court of Tax Appeals (CTA) Decisions

The CTA First Division initially ruled:

  • PAGCOR was exempt from VAT pursuant to Section 7(k) of RA No. 9337 and PD No. 1869’s blanket tax exemption.
  • PAGCOR’s income tax exemption was withdrawn by RA No. 9337, making it liable for corporate income tax on all income.
  • PAGCOR was liable for FBT as a withholding agent under Section 33 of the 1997 NIRC, considering PAGCOR failed to prove that the fringe benefits granted were necessary or for its convenience.
  • Compromise penalties were canceled due to lack of mutual agreement.

The CTA En Banc affirmed the CTA Division’s decision and denied motions for partial reconsideration, forming the basis of the consolidated petitions before the Supreme Court.

Supreme Court’s Analysis on Income Tax Exemption

The Supreme Court partially granted PAGCOR’s petition, holding:

  • PAGCOR’s income from gaming operations remains subject only to the 5% franchise tax under PD No. 1869, as amended, which constitutes a blanket exemption from all other taxes, including income tax.
  • Income derived from “other related services,” such as necessary and related services, shows, and entertainment, is subject to regular corporate income tax as provided under the Charter and RA No. 9337.
  • RA No. 9337 did not repeal or amend PAGCOR’s special privilege on income from gaming operations; rather, it withdrew the income tax exemption only on “other related services.”
  • The Supreme Court emphasized the principle that a special law (PD No. 1869) prevails over a general law (RA No. 9337) in case of conflict unless the special law is expressly amended or repealed.
  • The extension of PAGCOR’s franchise under RA No. 9487 implicitly reaffirmed its existing rights and privileges, including its tax exemptions.
  • The CIR’s issuance of Revenue Memorandum Circular (RMC) No. 33-2013, which imposed both franchise tax and corporate income tax on PAGCOR’s gaming income, was declared an overreach and ordered to cease implementation accordingly.

Supreme Court’s Ruling on Fringe Benefit Tax (FBT)

  • PAGCOR is liable as a withholding agent for the FBT imposed on fringe benefits granted to its employees, specifically the car plan extended to officers.
  • The Court reaffirmed prior rulings that FBT is not exempt under PAGCOR’s charter exemptions and that the tax is a final withholding tax imposed on employees but collected from employers withholding the tax.
  • PAGCOR failed to present evidence that the fringe benefits were necessary for its business or for its convenience or advantage, which could have exempted such benefits from FBT.
  • As such, the deficiency FBT assessments for taxable years 2005 and 2006 were upheld along with applicable surcharges and interests.

Supreme Court’s Decision on VAT Liability

  • PAGCOR is exempt from VAT on its income from operations and related services pursuant to PD No. 1869’s blanket tax exemption from all kinds of taxes and penalties.
  • RMC No. 9337 retained provisions retaining PAGCOR’s exemption from VAT in the amended NIRC, consistent with prior Supreme Court decisions including Commissioner of Internal Revenue v. Acesite (Phils.) Hotel Corporation.
  • The exemption extends to persons and entities contracting with PAGCOR in casino operations, protecting PAGCOR from indirect taxes such as VAT.
  • The Court rejected the CIR’s argument that amendments to the 1997 NIRC displaced PAGCOR’s VAT exemption, confirming the legislative intent to maintain such exemption despite the general tax reform.
  • Consequently, the assessments for deficiency VAT were canceled and set aside by the Court for lack of legal basis.

On Payment of Surcharges and Interests

  • PAGCOR’s claim for exemption from surcharges and interests due to good faith reliance on tax exemptions and opinions from government agencies was denied.
  • The Court clarified that excusing surcharges and interests requires reliance on official and authoritative rulings or clear BIR issuances, which PAGCOR failed to produce.
  • Opinions from the Office of the Government Corporate Counsel and the Office of the Solicit

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