G.R. No. 252965 - Dissenting Opinion

G.R. No. 252965/G.R. No. 254102, December 7, 2021,
♦ Decision, Gaerlan, [J]
♦ Concurring and Dissenting Opinion, Perlas-Bernabe, [J]
♦ Dissenting Opinion, Leonen, [J]
♦ Dissenting Opinion, Lazaro-Javier, [J]

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.

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.

The consolidated cases must be dismissed, as the issues they raise were rendered moot by the passage of Republic Act No. 11590 which amended the National Internal Revenue Code, codified the 5% franchise tax on gaming operations of Philippine Offshore Gaming Operators (POGOs), and considered the operations of offshore gaming licensees as doing business in the Philippines, among others.

The assailed statute, Republic Act No. 11494, or the "Bayanihan to Recover As One Act" (Bayanihan 2), is an emergency measure enacted by the legislature which the President deemed necessary and urgent to address the pandemic. It enjoys a presumption of constitutionality which petitioners did not overcome.

The Bayanihan 2 does not violate the "one subject, one title" rule in Article VI, Section 26(1) of the Constitution.1

The title of the law is clear, "An Act Providing for COVID-19 Response and Recovery Interventions and Providing Mechanisms to Accelerate the Recovery and Bolster the Resiliency of the Philippine Economy, Providing Funds Therefor, and for Other Purposes." It sought to "[e]nhance the financial stability of the country to support government programs in combatting the COVID-19 pandemic."2

Sections 11(f) and (g) which outlined the taxes imposed on POGOs cannot be deemed riders when they are undoubtedly germane to the subject matter of the Bayanihan 2. Dismissing the provisions as tax measures irrelevant to the statute's purpose—to provide the sources of funds for the various government projects to meet the pandemic—is grasping at straws.

Further, the imposition of a 5% franchise tax, in lieu of other taxes, on the gaming operations of offshore gaming licensees, whether they be Philippine- or foreign-based, was not introduced by Bayanihan 2. It is not a new tax measure.

Presidential Decree No. 1869 created the Philippine Amusement and Gaming Corporation (PAGCOR) to "centralize and integrate the right and authority to operate and conduct games of chance"3 and conferred it with broad powers.4 PAGCOR was granted "the rights, privileges and authority to operate and license gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools, i.e. basketball, football, bingo, etc. except jai-alai, whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines: Provided, That the corporation shall obtain the consent of the local government unit that has territorial jurisdiction over the area chosen as the site for any of its operations."5

Under Presidential Decree No. 1869, PAGCOR franchise holders are assessed and held liable for a franchise tax of 5% of the gross revenue or earnings derived from operations under the franchise, in lieu of all taxes.6

In line with its aim to "[e]nsure that online games are properly regulated and monitored,"7 PAGCOR issued the Rules and Regulations for Philippine Offshore Gaming Operations on September 1, 2016. It provided the requirements for an offshore gaming license and the grounds for its suspension and cancellation.

On February 2, 2017, Executive Order No. 13, series of 2017 was issued, titled "Strengthening the Fight against Illegal Gambling and Clarifying the Jurisdiction and Authority of Concerned Agencies in the Regulation and Licensing of Gambling and Online Gaming Facilities, and for Other Purposes." It reiterated the jurisdiction of concerned agencies, among which is PAGCOR, in regulating online gaming operations. It stated that "nothing shall prohibit the duly licensed online gambling operator from allowing the participation of persons physically located outside Philippine territory."

On December 27, 2017, the Bureau of Internal Revenue issued Revenue Memorandum Circular No. 102-17 on the "Taxation of Taxpayers Engaged in Philippine Offshore Gaming Operations." This was later followed by Revenue Memorandum Circular No. 78-2018 which outlined the registration process for offshore gaming operations.1a⍵⍴h!1

The Commissioner of Internal Revenue who has the exclusive and original jurisdiction "to interpret provisions of the Tax Code and other tax laws,"8 was well within its rights when it issued the revenue circulars. The 5% franchise tax, in lieu of other taxes on PAGCOR licensees, was not newly imposed by the agency, but was provided for in Presidential Decree No. 1869. Thus, in its interpretation of existing tax laws on PAGCOR licensees and its issuance of Revenue Memorandum Circular Nos. 102-17 and 78-2018, the Commissioner of Internal Revenue did not encroach upon the legislative power to impose taxes. It merely issued guidelines to clarify existing tax measures.

The ponencia harps on territoriality issues. However, there is merit in respondents' argument that "what is being collected is a tax not based on income, but rather, on the exercise of a privilege."9 We have allowed POGOs to operate under licenses that the PAGCOR issued. We cannot, on one hand, issue offshore gaming licenses to POGOs, and on the same breath, reject their taxability. When we let licensees operate in the Philippines, pass through our borders, and set up game servers in the country,10 it is not unreasonable nor unconstitutional to impose the same 5% franchise tax which is collected from other PAGCOR franchise holders.

It was error for petitioners to argue that Philippine-based and offshore POGO licensees must be treated differently, considering that PAGCOR, the agency that regulates their operations, issues the same gaming license to both. The 5% franchise tax was imposed by virtue of their license to operate. Petitioner Saint Wealth's argument that it should not be subjected to any Philippine tax since all of its operations are located abroad11 and offshore-based POGO licensees must be similarly treated with foreign corporations not engaged in trade or business in the Philippines12 is untenable. Precisely, its game servers are here because they could not operate in their home country. Thus, offshore-based POGO licensees granted franchises by PAGCOR are naturally engaged in business in the Philippines.

I join Justice Amy C. Lazaro-Javier in concluding that offshore-based POGO licensees are doing business in the Philippines, and adopt the findings in a Security and Exchange Commission Opinion with similar facts:

SCEH averred that it was not doing business in the Philippines since the activities of SCEH were carried outside of the Philippines, its employees were in Hong Kong, its property was outside the Philippines, and that the SEN servers were located in the United States (U.S.). Offshore-based POGO licensees raised the same arguments save for the fact that they conducted their offshore gaming operations through the services of PAGCOR-accredited local gaming agents and service providers for its gaming operations.

Despite the averments of SCEH, the SEC still opined that the activities SCEH proposed to undertake would deem it as "doing business" in the Philippines since the twin characterization test was satisfied. First, the enumerated activities to be undertaken by SCEH indicated that it would be continuing in the Philippines the substance of the business for which it was organized. Second, the SCEH enumerated activities which were considered consummated within the Philippines, albeit done in a virtual plane. I see no reason not to apply the same ruling to offshore-based POGO licensees whose footprints are all over the Philippines; they entered into contracts with PAGCOR-accredited local gaming agents and service providers in furtherance of their main line of business, i.e. gaming operations.

Verily, the gaming operations conducted by offshore-based POGO licensees within the Philippines through the services of PAGCOR-accredited local gaming agents and service providers for its offshore gaming operations implies the continuity of commercial dealings and arrangements, and contemplates the performance of acts incident to, and in the progressive prosecution of their business. These services will not be provided intermittently but for a long period of time in the Philippines. Accordingly, petitioners are considered resident foreign corporations doing business in the Philippines.13 (Emphasis in the original)

I likewise agree that petitioners' activities are consummated here which subject them to government regulations—among which is taxation:

For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines, e.g., sale of tickets in the Philippines is the activity that produces the income as the tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

Here, I respectfully submit that the services of offshore-based POGO [licensees] "offering by a licensee of PAGCOR authorized online games of chance via the Internet using a network and software or program, exclusively to offshore authorized players excluding Filipinos abroad, who have registered and established an online gaming account with the licensee"- are being rendered here. These enumerated activities are transactions deemed to have been consummated within the Philippines, albeit done on the virtual plane. From placing the bet to winning a bet, the commercial transaction, e-commerce or any sort of virtual transactions find themselves within the Philippines through the services of PAGCOR-accredited local gaming agents and service providers for its offshore gaming operations.14 (Emphasis in the original)

The transnational nature of POGOs blur borderlines and facilitate the possibility of non-taxation in any of the jurisdiction where they operate. The revenue from gambling operations may not be worth the kind of values they instill, the politics they infect, the health they risk, and the lives they destroy. Thus, allowing gambling operations and issuing licenses for them entail the corresponding duty to strictly regulate them, and efficiently collect their enforced contributions.1a⍵⍴h!1

Bayanihan 2 was an urgent piece of legislation passed by Congress and signed by the President.15 The statute and the revenue regulations were acts of the legislature and the concerned administrative agency that has expertise over the matter. These bodies are presumed to have acted meticulously, aware of their constitutional and statutory bounds. Absent any showing of grave abuse of discretion, judicial restraint must be exercised in reviewing the technical details of their issuances.