Saint Wealth Ltd. v. Bureau of Internal Revenue
NEW DOCTRINEFacts
The Antecedents: In 2016, the Philippine Amusement and Gaming Corporation (PAGCOR) began regulating Philippine Offshore Gaming Operators (POGOs). Subsequently, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 102-2017 and RMC No. 78-2018, which imposed a five percent (5%) franchise tax on POGOs' gross gaming revenues and other applicable taxes on non-gaming income, based on the BIR's interpretation of the PAGCOR Charter. During the COVID-19 pandemic, Republic Act No. 11494 (Bayanihan 2 Law) was enacted. Its Section 11(f) and (g) identified the 5% franchise tax on POGOs' gross bets or turnovers as a source of funding for pandemic response, with the provision that collection would continue even after the pandemic. The Department of Finance (DOF) and the BIR then issued Revenue Regulation (RR) No. 30-2020 to implement these sections. Procedural History: These are consolidated petitions for certiorari and prohibition filed directly with the Supreme Court, challenging the constitutionality of the aforementioned law and revenue issuances. There were no proceedings in lower courts. The Petition: Petitioners, a group of offshore-based POGO licensees, argued that: (1) Sections 11(f) and (g) of the Bayanihan 2 Law are unconstitutional riders because they are new, permanent tax measures not germane to the law's subject as a temporary COVID-19 relief act; (2) The tax impositions violate the principle of territoriality (situs of taxation) and substantive due process, as their income is generated from activities conducted entirely outside the Philippines; (3) The BIR issuances (RMC 102-2017, etc.) are void for having no statutory basis, as the PAGCOR Charter's franchise tax does not apply to POGOs; and (4) The tax scheme violates the equal protection clause by treating them differently from other foreign corporations not doing business in the Philippines.
Issue(s)
Whether Sections 11(f) and (g) of the Bayanihan 2 Law are unconstitutional for violating the 'one subject, one title' rule. Whether the BIR's revenue issuances (RMC No. 102-2017, RMC No. 78-2018, RMC No. 64-2020, and RR No. 30-2020) imposing taxes on offshore-based POGO licensees are valid; and whether offshore-based POGO licensees are liable to pay franchise tax, income tax, and other applicable taxes for their operations prior to the enactment of R.A. No. 11590.
Ruling
The petitions are GRANTED. Section 11(f) and (g) of Republic Act No. 11494, Revenue Regulation No. 30-2020, Revenue Memorandum Circular No. 64-2020, Revenue Memorandum Circular No. 102-2017, and Revenue Memorandum Circular No. 78-2018, in so far as they impose franchise tax, income tax, and other applicable taxes upon offshore-based POGO licensees are declared NULL and VOID for being contrary to the Constitution and other relevant laws.
Ratio Decidendi
On the constitutionality of the Bayanihan 2 Law provisions: The Court ruled that Section 11(f) and (g) of the Bayanihan 2 Law are unconstitutional riders. The primary purpose of the law was to provide temporary socioeconomic relief and response to the COVID-19 pandemic. The assailed provisions, however, introduced new tax impositions that were intended to be permanent, as indicated by the clause that collection 'shall continue to be collected' even after the pandemic. The Court found that a new, permanent tax measure is not germane to the subject matter of a temporary emergency relief law. Therefore, these provisions violated the 'one subject, one title' rule under Article VI, Section 26(1) of the Constitution. On the validity of the BIR issuances and the tax liability of POGOs: The Court held that the assailed BIR issuances were invalid for having no statutory basis. RMC No. 102-2017, which first imposed the 5% franchise tax on POGOs, erroneously relied on the PAGCOR Charter (P.D. 1869). The Court clarified that the franchise tax under the PAGCOR Charter applies only to licensees connected to the 'operations of casinos and other related amusement places,' which does not encompass the virtual nature of POGO operations. By imposing a tax not found in any existing law, the BIR encroached upon the exclusive power of Congress to legislate taxes, rendering RMC 102-2017 and its implementing circulars void. Applying the principle of territoriality and the doctrines in CIR v. BOAC and CIR v. Baier-Nickel, the Court determined that offshore-based POGOs derive no income from sources within the Philippines. Their income-generating activity—the placing of bets by foreign players located abroad—transpires outside the Philippines. Consequently, they are not subject to Philippine income tax. As both the Bayanihan 2 provisions and the BIR issuances were void, there was no valid law taxing POGOs before the enactment of R.A. No. 11590.
Main Doctrine
Prior to the enactment of Republic Act No. 11590, there was no valid statutory basis to impose franchise tax, income tax, or other taxes on offshore-based Philippine Offshore Gaming Operators (POGOs). The franchise tax under the PAGCOR Charter applies only to licensees operating casinos and other related physical amusement places, not to online gaming. Furthermore, based on the principle of territoriality or situs of taxation, income of offshore-based POGOs is not taxable in the Philippines because their income-generating activity—the placing of bets by foreign players—occurs outside Philippine territory. Any administrative issuance by the BIR imposing such taxes without a clear legislative grant is an invalid encroachment on the legislative power to tax.