Case Summary (G.R. No. 252965)
Tax Memoranda Circulars on POGOs
RMC No. 102-2017 (December 2017) classified POGOs as doing business in the Philippines, imposed a 5% franchise tax on gross gaming revenues in lieu of all other taxes, and subjected non-gaming income to regular income tax, VAT, and applicable taxes. RMC No. 78-2018 (September 2018) required all POGOs to register with the BIR. During the COVID-19 pandemic, RMC Nos. 46-2020 and 64-2020 imposed conditions and documentary requirements for POGO clearance to resume operations.
Emergency Funding under Bayanihan 2 Law
Section 11 of RA 11494 identified sources of funding for COVID-19 measures, including
– (f) 5% franchise tax on POGO gross bets or turnovers
– (g) income tax, VAT, and other taxes on non-gaming income
These provisions directed that collections under (f) and (g) continue accruing to the General Fund beyond the law’s expiration. RR No. 30-2020 (September 30, 2020) implemented Section 11(f) and (g).
Petitioners’ Constitutional Challenges
Saint Wealth and Marco Polo petitioners filed consolidated certiorari and prohibition petitions, seeking to annul Section 11(f),(g) of RA 11494 and all implementing issuances. They argued:
– Lack of statutory basis: no law taxed foreign-sourced gaming revenues or non-gaming income.
– Violation of due process: BIR usurped legislative power in RMC 102-2017 and 64-2020.
– Equal protection: offshore-based POGOs are differently situated from Philippine-based operators and other foreign corporations.
– Principled situs of taxation: foreign income should not be taxed in the Philippines.
– Uniformity rule: disparate treatment of offshore-based POGOs.
– Riders prohibition: Section 11(f),(g) imposed new taxes unrelated to a temporary pandemic relief law.
TRO and Respondents’ Defense
On January 5, 2021, a TRO enjoined enforcement of Section 11(f),(g), RR 30-2020, RMC 102-2017, and RMC 78-2018. In their consolidated comment, respondents asserted:
– Valid “one subject, one title”: funding provisions are germane to the relief measure.
– No new tax: revenues had been subject to 5% franchise tax since RMC 102-2017.
– Due process: franchise tax is an excise on the privilege of operation, irrespective of situs.
– Classification: foreign gaming operators are resident businesses under Philippine tax law.
– Situs and uniformity: franchise tax is not an income tax; income tax and VAT apply only to non-gaming services performed in the Philippines.
They also moved for reconsideration of the TRO.
Enactment of RA 11590
RA 11590 amended the NIRC to codify POGO taxation:
– Section 125-A: 5% gaming tax on gross gaming revenues (in lieu of all other taxes) for all offshore gaming licensees.
– Section 28(A)(7): 25% income tax on non-gaming income of foreign-based POGOs from Philippine sources.
– Zero-rating of VAT on sales and services to POGOs.
Its repealing clause abolished inconsistent laws and issuances, including the Bayanihan 2 provisions and challenged BIR issuances.
Issues Presented
(1) Whether offshore-based POGO licensees are liable for the 5% franchise tax on gaming operations.
(2) Whether offshore-based POGOs are liable for income tax, VAT, and other taxes on non-gaming income.
Analysis on Statutory Basis
The PAGCOR Charter’s 5% franchise tax applied solely to casinos and similar amusement venues; it did not contemplate online offshore gaming. RMC 102-2017 and RMC 78-2018 lacked a statutory basis for taxing offshore-based POGOs, effectively creating new taxes without congressional authority and violating the rule that tax laws require clear legislative enactment. Accordingly, RMC 102-2017 and RMC 78-2018 are invalid to the extent they imposed franchise tax, income tax, VAT, and other taxes on offshore-based POGOs.
Analysis on Riders and Constitutionality
Section 11(f),(g) of the Bayanihan 2 Law introduced new, perpetual tax measures disguised among existing taxes, rather than realigning pre-existing revenue sources. They were neither germane to a t
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Antecedents
- PAGCOR Charter (Presidential Decree No. 1869, 1983) consolidated all franchise laws for PAGCOR, granting it exclusive authority to operate and license gambling casinos, gaming clubs and similar places.
- Section 10 of the Charter conferred rights to operate and license offshore gaming.
- In 2016, PAGCOR promulgated the “Rules and Regulations for Philippine Offshore Gaming Operations,” defining offshore gaming, its three components (prize, non-Filipino players abroad using electronic communication, and chance‐determined winning), and the requirement that operators register and secure an Offshore Gaming License (OGL).
- Offshore‐based and Philippine‐based POGO licensees were distinguished by corporate domicile and engagement of PAGCOR-accredited service providers.
- PAGCOR licensees paid monthly regulatory fees, generating substantial revenue for the government.
Regulation and Tax Guidance Pre-COVID
- December 27, 2017: BIR issued RMC 102-2017 (“Taxation of Taxpayers Engaged in Philippine Offshore Gaming Operations”), recognizing online activity as doing business in the Philippines and prescribing:
• 5% franchise tax on gross gaming receipts (in lieu of all taxes) for gaming operations;
• normal income tax, VAT, and other taxes on non-gaming related services;
• allocation of combined activities subject to both tax regimes;
• withholding tax on payments for goods, services, compensation, fees and commissions;
• general applicability of existing tax laws to purchases and sales. - September 7, 2018: BIR issued RMC 78-2018 (“Registration Requirements of Philippine Offshore Gaming Operators and Its Accredited Service Providers”), reiterating that POGOs were “resident foreign corporations engaged in business in the Philippines” and mandating BIR registration.
COVID-19 Interventions and Issuances
- May 7, 2020: BIR issued RMC 46-2020 (“Guidelines & Requirements for POGO Licensees and Service Providers in the Application of a BIR Clearance for the Resumption of Operations”), imposing conditions (RDO registration, tax return submissions, undertakings to pay arrears) and documentary requirements for resumption amid quarantine.
- June 24, 2020: BIR revised the clearance rules via RMC 64-2020, streamlining conditions and documentary requirements.
- September 11, 2020: Republic Act No. 11494 (Bayanihan 2 Law) enacted as emergency relief, Section 11 specifying funding sources for COVID-19 measures, including:
• (f) 5% franchise tax on gross bets or turnovers (or agreed minimum revenues) of offshore gaming licensees;
• (g) income tax, VAT, and other taxes on non-gaming operations of offshore gaming licensees;
• computation based on peso equivalent of foreign currency;
• continuation of these collections to the General Fund beyond the emergency period;
• authority to implement closure orders on non-compliant entities. - September 30, 2020: DOF and BIR issued RR 30-2020 to implement Sections 11(f) and (g), mirroring Bayanihan 2 language on the 5% franchise tax and taxes on non-gaming operations.
Saint Wealth Petition (G.R. No. 252965)
- August 24, 2020: Saint Wealth Ltd., an offshore-based POGO licensee, filed Petition for Certiorari and Prohibition with urgent prayer for TRO and/or preliminary injunction, assailing RMC 64-2020 and related issuances.
- Arguments raised by Saint Wealth:
• Violatio