G.R. No. 252965 /G.R. No. 254102, December 7, 2021
Saint Wealth Ltd., as represented by David Buenaventura & Ang Law Offices, Petitioner, vs. Bureau of Internal Revenue, herein represented by Hon. Caesar R. Dulay, in his capacity as Commissioner of the Bureau of Internal Revenue, and John Does and Jane Does, as persons acting for, in behalf, or under the authority of respondents, Respondents. [G.R. No. 254102] Marco Polo Enterprises Limited, MG Universal Link Limited, OG Global Access Limited, Pride Fortune Limited, VIP Global Solutions Limited, AG Interpacific Resources Limited, Wanfang Technology Management Ltd., Imperial Choice Limited, Bestbetinnet Limited, Riesling Capital Limited, Golden Dragon Empire Ltd., Oriental Game Limited, Most Success International Group Limited, and High Zone Capital Investment Group Limited, Petitioners, vs. The Secretary of Finance, in the person of Carlos G. Dominguez III and the Commissioner of Internal Revenue in the person of Caesar R. Dulay, Respondents.

FACTS

These are consolidated petitions for certiorari and prohibition seeking to annul and set aside Section 11(f) and (g) of Republic Act No. 11494 (Bayanihan 2 Law), Revenue Regulation No. 30-2020, Revenue Memorandum Circular No. 64-2020, RMC No. 102-2017, and RMC No. 78-2018 (the Assailed Tax Issuances). The Philippine Amusement and Gaming Corporation (PAGCOR) regulates Philippine Offshore Gaming Operators (POGOs) under its 2016 Rules and Regulations. POGOs are entities offering online games of chance via the internet exclusively to non-Filipino players located outside the Philippines. They are classified as either Philippine-based or offshore-based operators and are required to pay regulatory fees to PAGCOR.
The Bureau of Internal Revenue (BIR) issued RMC No. 102-2017, clarifying the tax treatment of POGOs. It classified entities as Licensees (Philippine-based or offshore-based) or Other Entities (like service providers). Licensees were subject to a 5% franchise tax on gross gaming receipts from gaming operations, in lieu of all other taxes, while income from non-gaming operations was subject to normal income tax, VAT, and other applicable taxes. RMC No. 78-2018 required POGOs to register with the BIR as resident foreign corporations engaged in business in the Philippines.
During the COVID-19 pandemic, the government enacted the Bayanihan 2 Law. Section 11(f) imposed a 5% franchise tax on offshore gaming licensees, and Section 11(g) imposed a 15% withholding tax on the gross income of nonresident aliens employed by offshore gaming licensees and service providers. To implement this, the Department of Finance and BIR issued RR No. 30-2020 and RMC No. 64-2020. The petitioners, POGO licensees and service providers, challenged these provisions and issuances, arguing they constitute an unconstitutional expansion of the Bayanihan 2 Law’s declared policy, violate the equal protection clause, and impose taxes without proper classification and distinction.

ISSUE

The primary issue is whether Section 11(f) and (g) of the Bayanihan 2 Law, and the related revenue regulations and memoranda (RR No. 30-2020, RMC No. 64-2020, RMC No. 102-2017, and RMC No. 78-2018), are unconstitutional.

RULING

The Supreme Court DISMISSED the petitions. The Court upheld the constitutionality of the assailed provisions and issuances.
1. On the Constitutionality of Section 11(f) and (g) of the Bayanihan 2 Law: The Court ruled that these sections are constitutional. The Bayanihan 2 Law is a valid exercise of the police power to address the national emergency caused by the COVID-19 pandemic. Section 11(f) and (g) are germane to the law’s purpose of raising funds for recovery measures. The imposition of a 5% franchise tax on POGO licensees and a 15% withholding tax on nonresident alien employees is a legitimate revenue-raising measure. The Court found that the classification of POGOs and their employees for tax purposes is based on substantial distinctions (their unique regulatory and operational framework under PAGCOR), is germane to the purpose of raising revenue, applies only to POGOs, and is consistent with the exigencies of the pandemic situation. This does not violate the equal protection clause.
2. On the Validity of the Assailed Tax Issuances (RR No. 30-2020, RMC No. 64-2020, RMC No. 102-2017, and RMC No. 78-2018): The Court ruled that these administrative issuances are valid. RMC No. 102-2017 and RMC No. 78-2018, which require POGO registration and clarify their taxability, were issued pursuant to the BIR’s rule-making authority under the National Internal Revenue Code. RR No. 30-2020 and RMC No. 64-2020, which implemented the specific tax rates under the Bayanihan 2 Law, were issued in accordance with the law’s mandate and the DOF’s authority. The Court found that these issuances did not amend or expand the law but merely provided the necessary administrative details for its implementation.
3. On the Tax Treatment of POGOs as Doing Business in the Philippines: The Court affirmed that offshore-based POGOs, despite catering to players outside the Philippines, are “doing business” in the Philippines. Their operations require a physical presence (servers, equipment, offices, and employees) within the country, which is licensed and regulated by PAGCOR. This physical presence and the generation of income from activities within Philippine jurisdiction provide a sufficient basis for the Philippine government to impose taxes on them. The franchise tax is levied on their gross gaming receipts derived from operations within the Philippines.
The petitions were dismissed for lack of merit. The assailed provisions and issuances were declared constitutional and valid.