Philippine Amusement and Gaming Corporation v. Commissioner of Internal Revenue
REITERATIONFacts
1. The Antecedents: The Philippine Amusement and Gaming Corporation (PAGCOR), a government instrumentality established by Presidential Decree No. 1869, operates and maintains gambling casinos and other gaming activities. Its charter grants it broad powers, including regulatory authority over gambling entities, and stipulates that it shall pay a franchise tax of five percent (5%) on its gross revenue, which is in lieu of all other national and local taxes, levies, fees, or assessments. However, subsequent legislation, specifically Republic Act No. 8424 (the National Internal Revenue Code of 1997), initially listed PAGCOR among government-owned or controlled corporations (GOCCs) exempt from income tax. This exemption was later removed by Republic Act No. 9337, which amended Section 27(C) of the 1997 NIRC, making PAGCOR subject to income tax. 2. Procedural History: The Bureau of Internal Revenue (BIR), through the Commissioner of Internal Revenue (CIR), issued assessments against PAGCOR for deficiency income tax, Value-Added Tax (VAT), and Fringe Benefit Tax (FBT) for the taxable years 2005 and 2006. PAGCOR protested these assessments, and upon the CIR's alleged inaction, filed a petition for review with the Court of Tax Appeals (CTA). The CIR filed an Answer, asserting PAGCOR's liability for ordinary corporate income tax, VAT, and FBT. The CTA First Division partially granted PAGCOR's petition, cancelling the VAT assessments but affirming the deficiency income tax and FBT assessments, with modifications. Both PAGCOR and the CIR appealed to the CTA En Banc. The CTA En Banc dismissed both appeals, affirming the CTA First Division's decision. These consolidated petitions for review under Rule 45 of the Rules of Court followed. 3. The Petition: Both PAGCOR and the CIR filed petitions for review with the Supreme Court. PAGCOR's petition (G.R. Nos. 210689-90) argues that its charter subjects it only to a 5% franchise tax in lieu of all other taxes, and that this exemption was not repealed by subsequent laws, or if it was, it was restored by the extension of its franchise under RA 9487. PAGCOR also contends it is not liable for FBT as a withholding agent and that the car plan benefits were necessary for its business. The CIR's petition (G.R. Nos. 210704 & 210725) questions whether PAGCOR is exempt from VAT, arguing that the 1997 NIRC, as amended, makes all franchise holders liable for VAT unless specifically exempted, and PAGCOR is not listed as such.
Issue(s)
Whether PAGCOR's income from gaming operations is subject to corporate income tax after the enactment of RA No. 9337. Whether PAGCOR is exempt from the payment of Value-Added Tax (VAT). Whether PAGCOR is liable for deficiency Fringe Benefit Tax (FBT) as a withholding agent for its executives' car plan benefits.
Ruling
The Supreme Court partly granted PAGCOR's petition and denied the CIR's petition. The CTA En Banc decision was affirmed with modification. The assessments for deficiency income tax on PAGCOR's income derived from gaming operations for taxable years 2005 and 2006 were cancelled and set aside. PAGCOR is liable for deficiency income tax, including surcharges and interests, only on its income derived from other related activities for the said taxable years. PAGCOR is also liable for the assessed deficiency fringe benefit taxes, including surcharges and interests, for the same taxable years. The CIR is ordered to cease and desist from implementing RMC No. 33-2013 insofar as it imposes corporate income tax on PAGCOR's income from gaming operations and franchise tax on its income from other related services. The case is remanded to the CTA for the determination of the final amount to be paid by PAGCOR.
Ratio Decidendi
On Issue 1: The Court ruled that PAGCOR's income from gaming operations remains subject only to the 5% franchise tax. Applying Philippine Amusement and Gaming Corporation v. Bureau of Internal Revenue, the Court clarified that RA No. 9337 only withdrew PAGCOR's exemption from corporate income tax regarding its 'other related services,' which was previously granted under the National Internal Revenue Code (NIRC). The legislative intent was not to repeal the specific tax privilege in Presidential Decree (PD) No. 1869 for gaming operations. Since a special law (PAGCOR's Charter) prevails over a general law (RA No. 9337), the 'in lieu of all taxes' provision for gaming income remains valid. Therefore, the assessment for deficiency income tax on gaming operations must be cancelled, while the assessment on related services stands. On Issue 2: The Court held that PAGCOR is exempt from Value-Added Tax (VAT) because its charter grants a blanket exemption from all forms of taxes. Following the doctrine in The Commissioner of Internal Revenue v. Acesite (Phils.) Hotel Corporation, the Court emphasized that the phrase 'no tax of any kind or form' in Section 13 of PD No. 1869 includes indirect taxes like VAT. Even though RA No. 9337 introduced changes to the VAT system, it did not expressly repeal the VAT exemption found in PAGCOR's special charter. Furthermore, Section 108(B)(3) of the NIRC still subjects services rendered to entities exempt under special laws to a zero percent (0%) rate. Consequently, the CIR's insistence that PAGCOR is an ordinary VAT taxpayer is without legal merit. On Issue 3: The Court affirmed PAGCOR's liability for deficiency Fringe Benefit Tax (FBT). In Commissioner of Internal Revenue v. Secretary of Justice, it was established that FBT is a final tax on the employee's income, and the employer merely acts as a withholding agent. PAGCOR's charter exemptions do not cover its legal duty to withhold and remit taxes due from its employees. Because PAGCOR failed to provide evidence that the car plans were required by the nature of the business or for the convenience of the employer, the benefits were taxable. The Court also rejected PAGCOR's plea for exemption from interests and surcharges, noting that it relied on opinions from the Office of the Government Corporate Counsel (OGCC) and Department of Justice (DOJ), which lack the authority to interpret tax laws compared to the Bureau of Internal Revenue (BIR).
Main Doctrine
PAGCOR's income from gaming operations is subject only to the 5% franchise tax in lieu of all other taxes, while its income from other related services is subject to corporate income tax. PAGCOR is exempt from VAT. PAGCOR is liable for Fringe Benefit Tax (FBT) as a withholding agent.