GR 211327; (November, 2020) (Digest)
G.R. No. 211327, November 11, 2020
Thunderbird Pilipinas Hotels and Resorts, Inc. vs. Commissioner of Internal Revenue
FACTS
Thunderbird Pilipinas Hotels and Resorts, Inc. (Thunderbird) operates a casino and resort complex within the Poro Point Special Economic and Freeport Zone under a License Agreement with the Philippine Amusement and Gaming Corporation (PAGCOR). For taxable year 2006, the Bureau of Internal Revenue (BIR) issued deficiency tax assessments against Thunderbird for income and expanded withholding taxes, totaling over Fifteen Million Pesos. The BIR based the deficiency income tax on disallowed expenses and adjustments to Thunderbird’s reported income.
Thunderbird protested the assessments, arguing its casino income was tax-exempt under Section 13(2)(b) of P.D. No. 1869, the PAGCOR Charter, which exempts PAGCOR’s “licensees and/or agents” from taxes. The protest was denied. Thunderbird elevated the case to the Court of Tax Appeals (CTA), which affirmed the assessments, holding that Thunderbird, as a PAGCOR licensee operating its own casino, was not covered by the tax exemption. The CTA En Banc sustained this decision.
ISSUE
Whether Thunderbird Pilipinas Hotels and Resorts, Inc., as a PAGCOR licensee authorized to operate a casino, is exempt from paying income tax on its casino revenues under Section 13(2)(b) of P.D. No. 1869.
RULING
No. The Supreme Court denied the petition and affirmed the CTA En Banc decision. The Court held that Thunderbird’s income from its own casino operations is not tax-exempt. The legal logic rests on a strict construction of the exemption under Section 13(2)(b) of P.D. No. 1869. The provision states that PAGCOR’s licensees and agents are exempt from any tax, but this must be read in the context of the entire law.
The exemption is intended to apply only to entities or individuals in a direct contractual relationship with PAGCOR where they act on behalf of PAGCOR in connection with PAGCOR’s own casino operations. It covers those who assist PAGCOR in conducting its games. Conversely, a licensee like Thunderbird, which is authorized to independently establish and run its own casino establishment, is not an agent of PAGCOR but an operator in its own right. Its income is derived from its proprietary business, not from services rendered for PAGCOR’s operations. Therefore, it does not fall within the purview of the tax exemption clause. The privilege of exemption, being in derogation of the State’s taxing power, is construed strictly against the taxpayer. Any doubt is resolved in favor of the government. Consequently, Thunderbird is liable for the assessed deficiency income and expanded withholding taxes.