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By Buena Rilyne C. Bernal

Solaire operator exempt from income tax on gaming income -- Supreme Court

Posted on September 07, 2016

IN A LEGAL VICTORY that could eventually benefit the country’s casino industry, the operator of Solaire Resort & Casino in Parañaque City has won a Supreme Court (SC) ruling that barred the Bureau of Internal Revenue (BIR) from imposing corporate income tax on the company’s gaming revenues on top of a 5% franchise tax.

A senior court official, who asked not to be identified, clarified, however, that the decision cannot be interpreted as applying to the entire industry, explaining in a mobile phone message: “It’s a division decision involving only one party.”

“It binds that party -- but is not doctrine -- so, it does not bind others.”

In a 15-page Aug. 10 decision released publicly on Tuesday, the court’s Third Division granted the June 3, 2014 petition for certiorari of Bloomberry Resorts and Hotels, Inc. (BRHI) against a 2013 BIR regulation subjecting contractees and licensees of state firm Philippine Amusement and Gaming Corp. (PAGCOR) to the 30% corporate income tax.

“[U]pon payment of the 5% franchise tax, petitioner’s income from its gaming operations of gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools... is not subject to corporate income tax,” the decision reads.

Decisions of SC divisions bind petitioners and respondents but are not considered legal doctrine with wide application, unlike decisions by the court sitting en banc.

The BIR was ordered to “cease and desist” from implementing Revenue Memorandum Circular (RMC) No 33-2013 that it issued on April 17, 2013 “insofar as it imposes corporate income tax on petitioner Bloomberry Resorts and Hotels, Inc.’s income derived from its gaming operations.”

In its petition, the BHRI had argued that imposing the income tax on profit it derives from contracted operations with PAGCOR is “contrary to law” and is against national interest.

It also argued that the 30% income tax would cripple local gaming and leisure industries that are “core components of the country’s tourism blueprint.”

It said tax exemption of gaming operations is what attracts investors, enabling the local industry to compete with foreign counterparts.

The SC found merit in BRHI’s argument that the assailed RMC 33-2013 requiring income tax from gaming operations contracted with PAGCOR violates Section 13 of Presidential Decree (PD) 1869 that exempted PAGCOR as well as its contractees and licensees from taxes except a 5% franchise tax.

Republic Act (RA) No. 9487, a 2007 law considered PAGCOR’s charter, gave the state firm another 25 years to operate and adopted PD 1869. Hence, BRHI argued, the tax exemption provided under the decree stands to this day.

The casino operator further argued that administrative issuance like that of BIR neither supplant nor override legislation like RA 9487.

The High Court highlighted the clarity of the wording in the law. “Simply then, in this case, we adhere to the principle that since the statute is clear and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation,” it said.

Under its PAGCOR license to operate Solaire within Entertainment City, BRHI only pays the government agency license fees “in lieu of all taxes.” These fees already include the mandated 5% franchise tax under PAGCOR’s charter.

Solaire is the first of four casino and gaming projects provisionally licensed by PAGCOR in Entertainment City.

BRHI had said that “the gaming business funded by private investors under license by PAGCOR is a new industry which is attracting substantial investor and tourist interest.” BRHI argued before the Court that the gaming industry helps propel the economy, citing the examples of Las Vegas and Macau.

BRHI listed parent Bloomberry Resports Corp. -- whose shares yesterday joined a bourse-wide retreat to fall 17 centavos or 3.05% to end P5.41 apiece -- saw its bottom line turn around to a P174-million net profit last semester from a P1.32-billion net loss in 2015’s comparable six months, partly on record revenues across gaming segments in the second quarter.