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POGOs-SC Entitled to Refund from Government for Franchise Tax

May 9, 2023 Philippines Industry Updates

The government’s imposition of a 5-percent franchise tax on gross bets from gaming operations run by Philippine offshore gaming operators (POGOs) was ruled to be unconstitutional by the Supreme Court (SC), which has now definitively upheld that ruling.

The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) asked the court to review its decision, but it was denied in an 8-page decision.

Additionally, it instructed the government to reimburse POGO license holders for the 5% franchise tax that was levied on them in accordance with Bayanihan 2 Law.

It is obvious that the POGO licensees will suffer injustice and inequality if a reimbursement is not ordered. Therefore, the SC ruled that any money taken from POGO licensees in accordance with the Bayanihan 2 Law before Republic Act 11590 (An Act Taxing Philippine Offshore Gaming Operations) was passed shall be reimbursed.

“After taking everything into account, the Court does not see a strong reason to overturn and annul the contested decision. The Court said, “Therefore, the application for reconsideration must be dismissed with finality.

The SC further mandated that a judgment entry be issued right away in the matter.

In its petition for reconsideration, the government, represented by respondents DOF and the BIR, claimed that the contested tax issuances were lawful because they were made possible by Pagcor’s (Pagcor’s) enhanced licensing and regulating jurisdiction.

The aforementioned responses insisted that franchise tax and income taxes apply to POGOS with offshore headquarters. Additionally, the DOF and BIR claimed that the Bayanihan 2 Law’s Sections 11(f) and (g) are not riders.

“After a judicious review of the allegations raised in the motion for reconsideration, the Court finds the same bereft of merit,” the SC said.

On September 29, 2022, the Court ruled that Sections 11(f) and (g) of the Bayanihan 2 Law—An Act Providing for Covid-19 Response and Recovery Intervention and Providing Mechanism to Accelerate the Recover and Bolster the Resiliency of the Philippine Economy—were unconstitutional because they were “riders.”

The decision came about as a result of a petition for prohibition submitted by the offshore gaming companies Saint Wealth Ltd., Marco Polo Enterprises Ltd., MG Universal Link Ltd., OG Global Access Ltd., Pride Fortune Ltd., VIP Global Solutions Ltd., AG Interpacific Resources Ltd., Wanfang Technology Management Ltd., Imperial Choice Ltd., Bestbetinnet Ltd., Riesling Capital Ltd., Golden Dragon Empire Ltd., Oriental Game Ltd., Most Success International Group Ltd., and High Zone

A list of funding sources for the Covid-19 pandemic is provided in Sections 11(f) and (g) of the Bayanihan 2 Law. These sources include money from the 5 percent franchise tax on gross bets from POGOs and income tax, value-added tax, and other applicable taxes on money earned by POGO operators, agents, service providers, and support providers from non-gaming operations.

The Court noted in its ruling that the aforementioned clauses are in violation of Section 26 of Article VI of the Constitution, which states that “every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.”

According to the SC, the ban on riders “is to prevent hodge-podge or log-rolling legislation, and to ensure that all provisions of a statute have some reasonable relation to the subject matter as expressed in the title thereof.”

The SC cited the respondents’ admissions that the Bayanihan 2 Law is not a tax measure—former BIR Commissioner Caesar Dulay and former Finance Secretary Carlos Dominguez III.

As a result, the Court determined that the imposition of additional taxes, which would be “camouflaged as part of a long list of existing taxes, cannot be contemplated as an integral part of a temporary Covid-19 relief measure.”

Because they impose franchise tax, income tax, and other applicable taxes on off-shore based POGOs, the SC declared that BIR Revenue Regulation No. 30-2020, Revenue Memorandum Circular No. 64-2020, Revenue Memorandum Circular No. 102-2017, and Revenue Memorandum Circular 78-2018 are “null and void for being contrary to the Constitution and other relevant laws.”

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