Thunderbird Pilipinas Hotels and Resorts v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: Thunderbird Pilipinas Hotels and Resorts, Inc. (Thunderbird Pilipinas), a domestic corporation registered as a Poro Point Special Economic and Freeport Zone enterprise, operated a casino and resort complex under a Memorandum of Agreement and License from PAGCOR. For taxable year 2006, Thunderbird Pilipinas filed its income tax return, reporting a deferred rent expense. The Bureau of Internal Revenue (BIR) issued assessment notices for deficiency income tax and expanded withholding tax, totaling P15,331,711.00, inclusive of interest and penalties. Thunderbird Pilipinas protested the assessments, which were denied. It then filed a Petition for Review before the Court of Tax Appeals (CTA) seeking to cancel the assessments. Procedural History: The CTA First Division found Thunderbird Pilipinas liable for deficiency income and expanded withholding taxes, ordering it to pay P17,929,817.09, inclusive of surcharges and interest, plus delinquency interest. The CTA First Division denied Thunderbird Pilipinas's motion for reconsideration. The CTA En Banc affirmed the First Division's decision. Thunderbird Pilipinas then filed a Petition for Review on Certiorari before the Supreme Court. The Petition: Thunderbird Pilipinas assailed the CTA En Banc's decision, arguing that the tax exemptions of PAGCOR under Presidential Decree No. 1869 were not repealed by Republic Act No. 9337. It also contended that the rulings in Abakada Guro Party List v. Ermita and PAGCOR v. Bureau of Internal Revenue were either obiter dictum or should be applied prospectively. Furthermore, it argued that it was not liable for deficiency expanded withholding taxes and that the imposition of a 25% surcharge was invalid.
Issue(s)
Whether the Decision in the 2011 case of PAGCOR v. Bureau of Internal Revenue should be applied prospectively and whether the 2011 PAGCOR case, if applied retroactively, is binding on petitioner Thunderbird Pilipinas Hotels and Resorts, Inc., a licensee of PAGCOR. Whether petitioner Thunderbird Pilipinas Hotels and Resorts, Inc. is liable for deficiency income tax for taxable year 2006. Whether petitioner Thunderbird Pilipinas Hotels and Resorts, Inc., if subject to income tax, is liable to pay only 3% of its gross income to the national government instead of 5% pursuant to its registration as a Poro Point Special Economic and Freeport Zone enterprise, and whether its payment to PAGCOR of 25% of its gross gaming revenue can be applied against its deficiency income tax. Whether petitioner Thunderbird Pilipinas Hotels and Resorts, Inc. is liable for deficiency expanded withholding tax on legal fees, rental payments, and management fees. Whether the 25% surcharge imposed by the Court of Tax Appeals on alleged deficiency taxes is valid.
Ruling
The Petition is denied. The assailed Decision of the Court of Tax Appeals En Banc is affirmed.
Ratio Decidendi
On the prospective application of the 2011 PAGCOR case and its binding effect on petitioner: The Court reiterated that PAGCOR's income from gaming operations is subject only to a 5% franchise tax, while its income from other related services is subject to corporate income tax. The Court clarified that Section 13(2)(b) of Presidential Decree No. 1869, which extends tax exemptions to entities with contractual relationships with PAGCOR in connection with casino operations, applies only to PAGCOR's own casino operations, not to private entities licensed to operate their own casinos. Therefore, Thunderbird Pilipinas, as a licensee operating its own casino, is not covered by this exemption. The ruling in Acesite was found more applicable, emphasizing that the exemption was primarily meant to favor PAGCOR and prevent indirect taxes from being shifted to it, not to exempt independent licensees. On petitioner's liability for deficiency income tax: The Court affirmed the CTA's finding that Thunderbird Pilipinas is not within the purview of Section 13(2)(b) of Presidential Decree No. 1869. Consequently, its revenues derived from its casino operations are not exempt from income tax. The Court distinguished this case from Bloomberry Resorts and Hotels, Inc. v. Bureau of Internal Revenue, noting that Bloomberry involved facts occurring after amendments to Presidential Decree No. 1869 by Republic Act No. 9487, which extended PAGCOR's franchise and licensing authority. However, the Court found no clear legislative intent to extend tax exemptions to PAGCOR licensees in the amendatory law, emphasizing that tax exemptions must be clearly and distinctly stated. On the applicable tax rate for Poro Point Special Economic and Freeport Zone enterprises and the application of the 25% license fee: The Court agreed with the CTA that Thunderbird Pilipinas is liable to pay 5% of its gross income to the national government for taxable year 2006, as the implementing rules for the 3% rate under Republic Act No. 9400 were not yet applicable. The Court also rejected the argument that the 25% license fee paid to PAGCOR was inclusive of the 5% income tax, stating that these are distinct obligations based on different agreements and purposes. On liability for deficiency expanded withholding tax: The Court held that factual findings of the CTA are binding on the Supreme Court unless unsupported by substantial evidence. The Court affirmed the CTA's findings regarding the insufficiency of evidence presented by Thunderbird Pilipinas to prove its claims for deductions or exemptions related to rental payments, professional fees, and management fees. The burden of proof rests on the taxpayer to establish entitlement to claimed deductions or exemptions. On the imposition of the 25% surcharge: The Court found the imposition of the 25% surcharge to be proper, citing Section 248(A)(3) of the 1997 National Internal Revenue Code. This provision mandates the surcharge for failure to pay deficiency tax within the time prescribed in the notice of assessment. The Court emphasized that the penalties are compensatory for the delay in payment and are not subject to condonation for flimsy reasons, and that the law is clear and unambiguous in its requirement.
Main Doctrine
A PAGCOR licensee authorized to operate its own casino does not fall within the purview of Section 13(2)(b) of Presidential Decree No. 1869, and its income from casino operations is therefore not tax-exempt. The tax exemption under Section 13(2)(b) of Presidential Decree No. 1869 extends only to those in a contractual relationship with PAGCOR in connection with PAGCOR's casino operations, not to private entities licensed to operate their own casinos.