Bloomberry Resorts and Hotels, Inc. vs. Bureau of Internal Revenue

The tax exemption granted under Section 13(2)(b) of PD No. 1869, as amended, expressly inures to the benefit of and extends to corporations, associations, agencies, or individuals with whom PAGCOR has any contractual relationship in connection with the operation of casinos, such that PAGCOR's contractees and licensees, upon payment of the 5% franchise tax, are exempt from all other taxes, including corporate income tax on income derived from gaming operations.

Petitioner Bloomberry Resorts and Hotels, Inc. is a private corporation that, together with its parent company Sureste Properties, Inc., owns and operates Solaire Resort & Casino. On 8 April 2009, PAGCOR granted petitioner a provisional license to establish and operate an integrated resort and casino complex at the Entertainment City project site. As a PAGCOR licensee, petitioner paid PAGCOR license fees in lieu of all taxes, consistent with the PAGCOR Charter (PD No. 1869, as amended by R.A. No. 9487), which provides tax exemptions to persons or entities contracting with PAGCOR in casino operations. The enactment of R.A. No. 9337, which took effect on 1 November 2005, amended Section 27(C) of the NIRC of 1997, excluding PAGCOR from the enumeration of GOCCs exempt from corporate income tax, leading to prior litigation in PAGCOR vs. The Bureau of Internal Revenue, et al. where the Court upheld the constitutionality of the amendment but clarified the scope of PAGCOR's tax liabilities.

On 8 April 2009, PAGCOR granted petitioner Bloomberry Resorts and Hotels, Inc. a provisional license to establish and operate an integrated resort and casino complex at the Entertainment City project site of PAGCOR. Petitioner and its parent company, Sureste Properties, Inc., own and operate Solaire Resort & Casino. As one of PAGCOR's licensees, petitioner paid only PAGCOR license fees, in lieu of all taxes, as contained in its provisional license and consistent with the PAGCOR Charter or PD No. 1869, which provides the exemption from taxes of persons or entities contracting with PAGCOR in casino operations.

When R.A. No. 9337 took effect on 1 November 2005, it amended Section 27(C) of the NIRC of 1997, which excluded PAGCOR from the enumeration of GOCCs exempt from paying corporate income tax. The enactment of the law led to the case of PAGCOR vs. The Bureau of Internal Revenue, et al., where PAGCOR questioned the validity or constitutionality of R.A. No. 9337. The Court articulated that Section 1 of R.A. No. 9337, amending Section 27(C) of the NIRC of 1997, which removed PAGCOR's exemption from corporate income tax, was indeed valid and constitutional.

Consequently, in implementing the amendments made by R.A. No. 9337, respondent issued RMC No. 33-2013 dated 17 April 2013, declaring that PAGCOR, in addition to the 5% franchise tax of its gross revenue under Section 13(2)(a) of PD No. 1869, is now subject to corporate income tax under the NIRC of 1997, as amended. A provision therein also stated that PAGCOR's contractees and licensees, being entities duly authorized and licensed by it to perform gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools, are likewise subject to income tax under the NIRC of 1997, as amended.

Aggrieved, as it was now being considered liable to pay corporate income tax in addition to the 5% franchise tax, petitioner immediately elevated the matter through a petition for certiorari and prohibition before the Court. Petitioner asserted that PD No. 1869, as amended by R.A. No. 9487, is an existing valid law that expressly and clearly exempts the contractees and licensees of PAGCOR from the payment of all kinds of taxes except the 5% franchise tax on gross gaming revenue; that this clear exemption was not repealed by the deletion of PAGCOR in the list of tax-exempt entities under the NIRC; that respondent CIR acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, when she issued the assailed provision in RMC No. 33-2013 which, in effect, repealed or amended PD No. 1869; and that the assailed provision would adversely affect an industry which seeks to create income for the government, promote tourism, and generate jobs for the Filipino people.

Petitioner justified its direct recourse before the Court on the following grounds: (a) what is involved is a pure question of law, whether petitioner is exempted from payment of all taxes, national or local, except the 5% franchise tax by virtue of Section 13(2)(b) of PD No. 1869, as amended; (b) the rule on exhaustion of administrative remedies is disregarded when the administrative action is patently illegal amounting to lack or excess of jurisdiction, when to require exhaustion of administrative remedies would be unreasonable, and when it would amount to nullification of a claim; (c) the gaming business funded by private investors under license by PAGCOR is a new industry which involves national interest; and (d) the assailed provision affects not only petitioner or other locators and PAGCOR licensees in Entertainment City, Parañaque City, but also the rest of private casinos licensed by PAGCOR operating in economic zones, thus, to prevent multiplicity of suits and to avoid differing opinions on one question of law, direct recourse was sought.

Respondent, in her Comment filed on 18 December 2014, countered that there was no grave abuse of discretion on her part when she issued the subject revenue memorandum circular since it did not alter, modify or amend the intent and meaning of Section 13(2)(b) of PD No. 1869, as amended, insofar as the imposition is concerned, considering that it merely clarified the taxability of PAGCOR and its contractees and licensees for income tax purposes as well as other franchise grantees similarly situated under prevailing laws; that prohibition will not lie to restrain a purely administrative act, nor enjoin acts already done, being a preventive remedy; and that tax exemptions are strictly construed against the taxpayer.

• Validity of PD No. 1869 Exemption: Petitioner argued that PD No. 1869, as amended by R.A. No. 9487, is an existing valid law that expressly and clearly exempts the contractees and licensees of PAGCOR from the payment of all kinds of taxes except the 5% franchise tax on its gross gaming revenue.
• No Repeal by R.A. No. 9337: Petitioner maintained that the clear exemption from taxes of PAGCOR's contracting parties under Section 13(2)(b) of PD No. 1869, as amended by R.A. No. 9487, was not repealed by the deletion of PAGCOR in the list of tax-exempt entities under the NIRC.
• Grave Abuse of Discretion: Petitioner argued that respondent CIR acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, when she issued the assailed provision in RMC No. 33-2013 which, in effect, repealed or amended PD No. 1869.
• Administrative Issuances Cannot Override Law: Petitioner contended that although Section 4 of the NIRC of 1997, as amended, gives respondent CIR the power to interpret the provisions of tax laws through administrative issuances, she cannot issue administrative rulings or circulars not consistent with the law sought to be applied, since administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out.
• National Interest: Petitioner argued that the assailed provision in RMC No. 33-2013 will adversely affect an industry which seeks to create income for the government, promote tourism, and generate jobs for the Filipino people.

• No Grave Abuse of Discretion: Respondent countered that there was no grave abuse of discretion on her part when she issued the subject revenue memorandum circular since it did not alter, modify or amend the intent and meaning of Section 13(2)(b) of PD No. 1869, as amended, insofar as the imposition is concerned, considering that it merely clarified the taxability of PAGCOR and its contractees and licensees for income tax purposes as well as other franchise grantees similarly situated under prevailing laws.
• Prohibition Not the Proper Remedy: Respondent argued that prohibition will not lie to restrain a purely administrative act, nor enjoin acts already done, being a preventive remedy.
• Strict Construction of Tax Exemptions: Respondent maintained that tax exemptions are strictly construed against the taxpayer.

• Jurisdictional Prerogative: Whether the Court should take cognizance of the petition despite petitioner's failure to comply with the doctrine of exhaustion of administrative remedies and the rule on hierarchy of courts.
• Grave Abuse of Discretion: Whether the assailed provision of RMC No. 33-2013 subjecting the contractees and licensees of PAGCOR to income tax under the NIRC of 1997, as amended, was issued by respondent CIR with grave abuse of discretion amounting to lack or excess of jurisdiction.
• Validity of the Assailed Provision: Whether said provision is valid or constitutional considering that Section 13(2)(b) of PD No. 1869, as amended (PAGCOR Charter), grants tax exemptions to such contractees and licensees.

• Jurisdictional Prerogative: Yes. The Court availed of its jurisdictional prerogative in order not to further delay the disposition of the issues at hand, and also to promote the vital interest of substantial justice, noting that in recent years, the Court has consistently acted on direct actions assailing the validity of various revenue regulations, revenue memorandum circulars, and the likes, issued by the CIR.
• Grave Abuse of Discretion: Yes. The assailed provision of RMC No. 33-2013 subjecting the contractees and licensees of PAGCOR to income tax under the NIRC of 1997, as amended, contravenes the provision of the PAGCOR Charter granting tax exemptions to corporations, associations, agencies, or individuals with whom PAGCOR has any contractual relationship in connection with the operations of the casinos authorized to be conducted under the PAGCOR Charter.
• Validity of the Assailed Provision: No. Section 13(2)(b) of PD No. 1869, as amended, is clear and unambiguous in providing that the exemptions granted for earnings derived from the operations conducted under the franchise shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise; thus, all contractees and licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos.

• Jurisdictional Prerogative: The Court acknowledged that although direct recourse before it is occasionally allowed in exceptional cases without strict observance of the rules on hierarchy of courts and on exhaustion of administrative remedies, it found the imperious need to first determine whether the case falls within the said exceptions. The Court looked back at the dispositions rendered in Asia International Auctioneers, Inc., et al. vs. Parayno, Jr., wherein it ruled that revenue memorandum circulars are considered administrative rulings issued from time to time by the CIR pursuant to her power under Section 4 of the NIRC of 1997, as amended, and that under R.A. No. 1125, as amended by R.A. No. 9282, such rulings are appealable to the CTA, and not to any other courts. The Court also cited The Philippine American Life and General Insurance Company vs. Secretary of Finance, which held that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases, and can rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based. However, in addition to the justifiable grounds relied upon by petitioner for its immediate recourse (pure question of law, patently illegal act by the BIR, national interest, and prevention of multiplicity of suits), the Court intended to avail of its jurisdictional prerogative in order not to further delay the disposition of the issues at hand, and also to promote the vital interest of substantial justice, noting that in recent years, the Court has consistently acted on direct actions assailing the validity of various revenue regulations, revenue memorandum circulars, and the likes, issued by the CIR.

• Grave Abuse of Discretion: The Court followed the pilot case of PAGCOR vs. The Bureau of Internal Revenue, et al. (G.R. No. 215427), where the Court En Banc clarified its earlier ruling in G.R. No. 172087 and expressed that: (i) Section 1 of R.A. No. 9337, amending Section 27(C) of the NIRC of 1997, as amended, which excluded PAGCOR from the enumeration of GOCCs exempted from corporate income tax, is valid and constitutional; (ii) PAGCOR's tax privilege of paying five percent (5%) franchise tax in lieu of all other taxes with respect to its income from gaming operations is not repealed or amended by Section 1(c) of R.A. No. 9337; (iii) PAGCOR's income from gaming operations is subject to the 5% franchise tax only; and (iv) PAGCOR's income from other related services is subject to corporate income tax only. The Court noted that the High Court in the abovementioned case intentionally did not rule on the issue of whether or not PAGCOR's tax privilege of paying only the 5% franchise tax in lieu of all other taxes inures to the benefit of third parties with contractual relationship with it in connection with the operation of casinos, such as petitioner herein. The Court then resolved the confusion caused by the amendments introduced by R.A. No. 9337 to the NIRC of 1997, and the subsequent issuance of RMC No. 33-2013, affecting the tax regime not only of PAGCOR but also its contractees and licensees under the existing laws and prevailing jurisprudence.

• Validity of the Assailed Provision: The Court quoted Section 13 of PD No. 1869, which states that payment of the 5% franchise tax by PAGCOR and its contractees and licensees exempts them from payment of any other taxes, including corporate income tax. Section 13(2)(b) provides that the exemptions granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. The Court recognized that the above-quoted provision providing for the said exemption was neither amended nor repealed by any subsequent laws (i.e., Section 1 of R.A. No. 9337 which amended Section 27(C) of the NIRC of 1997); thus, it is still in effect. The Court adhered to the cardinal rule in statutory construction that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation, citing Amores vs. House of Representatives Electoral Tribunal and Padua vs. People. As the PAGCOR Charter states in unequivocal terms that exemptions granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the PAGCOR or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise, so it must be that all contractees and licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos. For the same reasons that made the Court conclude in the 10 December 2014 Decision of the Court sitting En Banc in G.R. No. 215427 that PAGCOR is subject to corporate income tax for "other related services," the Court found it logical that its contractees and licensees shall likewise pay corporate income tax for income derived from such "related services." The Court applied the plain meaning rule or verba legis, as expressed in the maxim index animi sermo or speech is the index of intention. Plainly, upon payment of the 5% franchise tax, petitioner's income from its gaming operations of gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools, defined within the purview of the aforesaid section, is not subject to corporate income tax.

• Verba legis (plain meaning rule) — When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation; only application. The Court applied this doctrine in holding that Section 13(2)(b) of PD No. 1869, as amended, is clear and unambiguous in extending the tax exemption to PAGCOR's contractees and licensees, and thus must be given its literal meaning.
• Index animi sermo (speech is the index of intention) — The language of the statute is the best indicator of legislative intent. The Court invoked this maxim in concluding that the unequivocal terms of the PAGCOR Charter must be applied without attempted interpretation.
• Special law prevails over general law — A special law prevails over a general law, regardless of their dates of passage, and the special is to be considered as remaining an exception to the general. The Court, citing the En Banc decision in PAGCOR vs. The Bureau of Internal Revenue, recognized that PD No. 1869, as amended, which expressly provides the tax treatment of PAGCOR's income, prevails over R.A. No. 9337, which is a general law.
• Repeal by implication is not favored — Repeal of laws by implication is not favored; if the lawmakers had intended to withdraw PAGCOR's tax exemption of its gaming income, then Section 13(2)(a) of PD No. 1869 should have been amended expressly in R.A. No. 9487, or the same, at the very least, should have been mentioned in the repealing clause of R.A. No. 9337. The Court applied this principle in finding that the exemption under Section 13(2)(b) of PD No. 1869 was neither amended nor repealed by subsequent laws.

• "The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator." — This is the controlling provision of Section 13(2)(b) of PD No. 1869, as amended, which the Court found to be clear and unambiguous in extending the tax exemption to PAGCOR's contractees and licensees.
• "As the PAGCOR Charter states in unequivocal terms that exemptions granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the PAGCOR or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise, so it must be that all contractees and licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos." — This passage states the ratio decidendi of the case, applying the plain meaning rule to the PAGCOR Charter.
• "We adhere to the cardinal rule in statutory construction that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation. As has been our consistent ruling, where the law speaks in clear and categorical language, there is no occasion for interpretation; there is only room for application." — This passage articulates the verba legis doctrine applied by the Court in resolving the case.

• PAGCOR vs. The Bureau of Internal Revenue, et al., 660 Phil. 636 (2011) — Controlling precedent; the Court upheld the constitutionality of Section 1 of R.A. No. 9337, amending Section 27(C) of the NIRC of 1997, which removed PAGCOR's exemption from corporate income tax.
• PAGCOR vs. The Bureau of Internal Revenue, et al., G.R. No. 215427, 10 December 2014, 744 SCRA 712 — Controlling precedent; the Court En Banc clarified that PAGCOR's income from gaming operations is subject only to the 5% franchise tax, while its income from other related services is subject to corporate income tax; the Court intentionally did not rule on whether the tax privilege inures to the benefit of PAGCOR's contractees and licensees.
• Asia International Auctioneers, Inc., et al. vs. Parayno, Jr., 565 Phil. 255, 269-270 (2007) — Followed; the Court cited this case for the proposition that revenue memorandum circulars are administrative rulings appealable to the CTA, and that failure to exhaust administrative remedies is fatal to a cause of action.
• The Philippine American Life and General Insurance Company vs. Secretary of Finance, G.R. No. 210987, 24 November 2014, 741 SCRA 578 — Followed; the Court cited this case for the proposition that the CTA has jurisdiction to issue writs of certiorari and can rule on the validity of revenue regulations or revenue memorandum circulars.
• Amores vs. House of Representatives Electoral Tribunal, et al., 636 Phil. 600, 608 (2010) — Cited; the Court relied on this case for the cardinal rule in statutory construction that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation.
• Padua vs. People, 581 Phil. 488, 501 (2008) — Cited; the Court relied on this case for the plain meaning rule or verba legis, as expressed in the maxim index animi sermo.

• Section 13(2)(a) and (b), PD No. 1869, as amended (PAGCOR Charter) — The Court applied these provisions in holding that the 5% franchise tax paid by PAGCOR and its contractees and licensees is in lieu of all other taxes, and that the exemption inures to the benefit of entities with contractual relationships with PAGCOR in connection with casino operations.
• Section 27(C), NIRC of 1997, as amended by Section 1 of R.A. No. 9337 — The Court recognized that this provision excluded PAGCOR from the enumeration of GOCCs exempt from corporate income tax, but held that it did not repeal or amend the exemption granted to PAGCOR's contractees and licensees under Section 13(2)(b) of PD No. 1869.
• Section 4, NIRC of 1997, as amended — The Court cited this provision as the source of the CIR's power to interpret tax laws and to decide tax cases, subject to review by the Secretary of Finance and the exclusive appellate jurisdiction of the CTA.
• Section 2, R.A. No. 9487 — The Court cited the repealing clause of R.A. No. 9487, which provides that all laws, decrees, executive orders, proclamations, rules and regulations and other issuances, or parts thereof, which are inconsistent with the provisions of this Act, are hereby repealed, amended and modified, in concluding that the PAGCOR Charter remains in effect.
• R.A. No. 1125, as amended by R.A. No. 9282 — The Court cited these laws in discussing the jurisdiction of the CTA over appeals from rulings of the CIR, including revenue memorandum circulars.

Velasco, Jr., J. (Chairperson), Peralta, Reyes, and Jardeleza, JJ., concurred.