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The rise of POGOs: A new landscape in e-casinos and sports betting

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Let's Talk Tax -- By Richard R. Ibarra

Let’s Talk Tax

With the increasing popularity of e-gaming, foreign online casino operators have expressed keen interest in expanding their business in the Philippines. In fact, the Philippine Amusement and Gaming Corporation (PAGCOR) expects Philippine Offshore Gaming Operators (POGOs) to account for additional revenue of P6 billion this year.

Considering the huge foreign interest in the country’s online gambling business, PAGCOR must ensure that the industry is strictly regulated: revenue must be monitored, taxes should be paid, facilities should not be used to commit crime or engage in money laundering, and employees treated well. Offshore gaming implies that only foreigners, excluding Filipinos working abroad, can access online casinos. This limitation somehow assures us that our fellow Filipinos will not be dragged into gambling through these facilities.

WHAT IS POGO?
PAGCOR conceptualized POGO to enable the Philippine government to capture a greater share of the growing, yet previously unregulated, online gaming pie.

In 2016, PAGCOR issued rules and regulations covering the operations of POGOs. A POGO refers to an entity that offers and participates in offshore gaming services by providing games to players, taking bets, and paying the winning players. The gaming activity refers to online games of chance through the internet, using a network and software, exclusively for offshore-authorized players who have registered and established an online gaming account with the PAGCOR-licensed POGO. Filipino citizens, even while overseas, are not allowed to play.

PAGCOR can issue a POGO license to qualified operators, which could be Filipino-based operators or foreign-based operators.

The POGO framework also covers service providers that provide the various components of gaming operations, such as the gaming software provider, business outsourcing provider, and content streaming provider. These providers also need to secure a PAGCOR license.

TAXATION OF POGO
Under Revenue Memorandum Circular (RMC) No. 102-2017, POGO operators and accredited service providers are subject to three types of taxes. First income from gaming operations are subject to a 5% franchise tax in lieu of all kinds of taxes, levies, fees or assessment. This is the same tax regime enjoyed by PAGCOR. Second, income from other related services or non-gaming operations is subject to normal income tax, value-added tax, and other applicable taxes. Third, POGO operators are not relieved of their liabilities as tax withholding agents. Hence, compensation, fees, commissions, or any other remuneration for services rendered to a POGO by its employees and service providers (e.g., consultants, contractors) are subject to withholding tax on compensation or to the expanded withholding taxes.

COMPLIANCE REQUIREMENTS
The Bureau of Internal Revenue recently issued RMC No. 78-2018 to clarify the taxability of POGOs and their registration requirements with local tax authorities.

RMC No. 78-2018 further clarified that online gaming activity is sufficient to constitute doing business in the Philippines for a foreign corporation. Thus, a foreign POGO is considered a resident foreign corporation engaged in business in the Philippines, and is not considered a non-resident foreign corporation.

As of Q2 2018, there are 55 accredited POGOs, of which 45 are e-casinos and 10 taking sports bets. The number of POGOs is expected to grow, considering that the original cap of 50 licensees was waived by PAGCOR. The POGO and licensed service providers should comply with the following requirements:

REGISTRATION
All foreign-based and Philippine-based operators, including those that have already been issued a license to operate, are required to register with the Revenue District Office (RDO) having jurisdiction over the principal place of business on or before the commencement of business.

The “commencement of business” shall be reckoned from the day when the first sale transaction occurred, or within 30 calendar days from the issuance of the Mayor’s Permit or Professional Tax Receipt (PTR) by the local government unit or the Certificate of Registration issued by the Securities of Exchange Commission (SEC), whichever comes first.

The minimum documentary requirements to prepare and submit are BIR Form No. 1903, SEC Certificate of Incorporation or License to Do Business in the Philippines, Articles of Incorporation, Mayor’s Business Permit, Payment of Registration Fee, BIR Form No.1906, a final and clear sample of principal receipts or invoices, and the appointment letter of the Local Gaming Agent.

If a POGO transfers its registered address to a new location, it is the duty of the operator or its Local Gaming Agent to file a BIR registration update (BIR Form No. 1905) on the transfer to the new business address.

TAX FILING AND PAYMENT
POGOs must file the applicable tax returns on or before the due date, pay the correct internal revenue taxes, and submit information returns and other required tax compliance reports. The Certificate of Registration (BIR Form No. 2303) is a good reference for tax returns to be filed and paid.

BOOKS OF ACCOUNT
All POGOs must keep books of account and other business or accounting records, which shall be made available anytime for inspection and verification by a duly authorized Revenue Officer for the purpose of ascertaining compliance with tax rules and regulations. The registration of the books of account should be done within 30 days from the date of registration.

The rise of offshore gaming will definitely bring additional revenue that will help fund the government’s nation-building programs. However, the BIR acknowledges that the challenge with such operations is how we can implement a fair and equitable taxation of online gaming businesses and how we can monitor the revenues and revenue-generating activities of POGOs to lessen or, if not, to mitigate the potential tax revenues loss.

I hope that the generated revenue would really translate to concrete projects and let us not allow that our welfare not to be sacrificed in exchange for the perceived economic gains from gambling revenues.

 

Richard R. Ibarra is a senior manager of the Tax Advisory and Compliance of P&A Grant Thornton.

Richard.Ibarra@ph.gt.com

+63(2) 988-2288