Commissioner of Internal Revenue vs. Philippine Amusement and Gaming Corporation (PAGCOR)

DECISION

CTA EB No. 868 & 869

CASANOVA, L.:

This is a consolidation of the respective appeals of both parties filed by way of verified Petitions for Review¹, assailing the Decision² (Assailed Decision) dated September 5, 2011 and the Resolution³ (Assailed Resolution) dated January 24, 2012, both promulgated by the Court of Tax Appeals First Division. The facts of the case, as found by the CT A First Division, are as follows:

"Petitioner alleges that it is a duly created government instrumentality by virtue of Presidential Decree (P.D.) No. 1869, as amended, with business address at 6th Floor, Hyatt Hotel and Casino, Pedro Gil cor. M.H. Del Pilar Sts., Malate, Manila.

Respondent Commissioner of Internal Revenue

(CIR) is the government official empowered, among others, to assess and collect internal revenue taxes, and to decide disputed assessments. She holds office at the 5th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City.

The other respondent is the Head Revenue

Executive Assistant (HREA) of the Large Taxpayers

Service who is impleaded as such and as authorized representative of his co-respondent CIR. Under P.D. No. 1869, specifically in Section 10, Title IV thereof, petitioner's franchise includes the 'rights, privilege and authority to operate and maintain gambling casinos, clubs, and othe~

CTA EB No. 868 & 869 recreation or amusement places, sports, gaming\ pools, i.e .. basketball, football, lotteries, etc. whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines'. Likewise it is legally empowered to 'do and perform such other acts directly related to the efficient and successful operation and conduct of games of chance in accordance with existing laws and decrees.' It also has regulatory powers over 'all persons primarily engaged in gambling, together with their allied business'.

The franchise mandates petitioner to remit to the Bureau of Internal Revenue (BIR) five percent (5%) franchise tax of its gross revenue or earnings derived from its operations. It shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority.

On July 14, 2008, petitioner received a letter dated July 2, 2008 from respondent HREA, requesting for an informal conference on the results of an investigation regarding all its internal revenue tax liabilities for the taxable years 2005 and 2006.

On August 11, 2008, petitioner received from respondent CIR a Preliminary Assessment Notice (PAN) dated July 29, 2008, on its alleged deficiency income tax, VAT, FBT, and documentary stamp tax (DST) for taxable years 2005-2006. On February 3, 2009, petitioner received from CIR a Formal Letter of Demand (FLD), with attached Assessment Notices all dated December 9, 2008, but this time only for deficiency income tax, VAT, and FBT, inclusive of charges, interest and compromise penalties for taxable years 2005 and 2006, in the aggregate amount of P5,927,542,547.76, broken down as follows:

Taxable Year 2005

Particulars

Basic Tax

Surcharge

Interest

Compromise

Income Tax

p 98,856,851.52 p 24,714,212.88 p 53,680,624.58 p 25,000.00

VAT

837,606,020.73 209,401,505.18 491,548,519.56 25,000.00

FBT

32,297,128.28 8,074,282.07 18,953,547.61 25,000.00

Total

p 177,276,688.98 1,538,581,045.48 59,349,957.96

Totals

DECISION

CfA EB No. 868 & 869 (CfA Case No. 7976) Page4 o£31 p 968,760,000.53 (sic) p 242,190,000.13 (sic) p 564,182,691.75

Taxable Year 2006

p 75,000.00 P1,775,207,692.42

Particulars

Basic Tax

Surcharge

Interest

Compromise

Total

Income Tax

VAT

FBT

Totals

p 889,270,123.21 p 222,317,530.80 p 305,031,834.04 p 25,000.00 p 1,416,644,488.06 1,665,267,061.23 416,316,765.31 644,207,422.04 25,000.00 2,725,816,248.58 6,017,119.97 1,504,279.99 2,327,718.74 25,000.00 9,874,118.70 P2,560,554,304.41 P640,138,576.10 p 951,566,974.82 p 75,000.00 P4,152,334,855.34 (sic) On March 3, 2009, petitioner filed a letter-protest dated February 16, 2009, addressed to respondent CIR.

On September 29, 2009, petitioner filed the instant Petition for Review alleging inaction on the part of respondent CIR.

On December 10, 2009, respondent filed her Answer and anchored her defense on the following

Special and Affirmative Defenses:

'Special and Mfirmative Defenses

4. Respondent hereby repleads the above admissions and denials as part of his Special and Affirmative Defenses.

5. Petitioner is subject to ordinary corporate income tax.

5.1

Philippine

Amusement

and

Gaming

Corporation (P AGCOR) was one of the five government-owned or controlled corporation

(GOCCs)

exempted from payment of corporate income tax under Section 27(C) of Republic Act No. 8424 otherwise known as 'An Act Amending the National Internal Revenue Code, as amended and for other purposes'. Under Section 1(C) of RA 9337 (effective November 1, 2005), PAGCOR was deleted from the list of exempted GOCCs.~

CTA EB No. 868 & 869

5.2 Before RA 9337 became effective, various groups already lodged petitions for certiorari with the Supreme Court (SC) questioning the validity and constitutionality of RA 9337. On September 1, 2005 the SC dismissed all the petitions and declared

RA

9337 as constitutional.

5.3 P AGCOR is no longer exempt from corporate income tax in view of its exclusion from the list of government-owned or controlled corporations (GOCCs) exempt from income tax under Section 27 (C) of the RA 8424. This is evident from the enactment of RA 9337. When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation. Where the law speaks in clear and categorical language, there is no occasion for interpretation; there is only room for application.

5.4 In the case of Abakada Guro Party List vs. Honourable Secretary Ermita et al.

the SC

succinctly stated:

'The

Philippine

Amusement and Gaming Corporation is not exempt from income tax anymore.' Both in law and jurisprudence the ultimate truth is announced of the relegation of petitioner into the status of an ordinary corporate taxpayer.

6. As an ordinary corporate taxpayer, petitioner is liable for payment of VAT on its income from casino operations and related services pursuant to the provisions of RA No. 7716 otherwise known as the Expanded VAT Law.

6.1 After the apparent relegation of petitioner into the status of an ordinary taxpayer, respondent issued Revenue Regulations No. 16-2005, an existing and valid regulation imposing VAT on corporate taxpayers. 6.2 The issuance of RR 16-2005 has the presumption of validity.

With the proliferation of specialized activities and its attendant peculiar problems, the nationalA-

CTA EB No. 868 & 869

Page 6 o£31 legislature has found it more and more necessary to entrust to administrative agencies the authority to issue rules to carry out the general provisions of the statute. By virtue of the power of the subordinate legislation, administrative bodies such as the BIR may implement the broad policies laid down in the statute by the filling in details which

Congress

may not have the opportunity or competence to provide. 6.3 In fact, even before the issuance of RR 16- 2005, the BIR maintains that PAGCOR is subject to 10% VAT. This stand is reflected in several BIR rulings. All legislative franchisees, except only electric gas and water utilities have been expressly subjected to the 10% VAT pursuant to Section 102 of the old NIRC as amended by RA 7716 (now Sec. 108 of the NIRC of 1997). Upon effectivity of Section 102 of the old NIRC as amended by RA 7716, P AGCOR ceased to be embraced by the franchise tax. Instead it became subject to 10% VAT, in lieu of all other taxes, pursuant to Section 13 of PD No. 1869 as amended by Sections 3 and 12 of RA 7716. The 5% franchise tax had already been replaced by VAT. Section 108 of the NIRC of 1997 (then Section 106 of old NIRC as amended) provides that all franchise grantees which are not subject to the franchise tax under Section 119 NIRC of 1997 shall be considered as other franchise grantees subject to the 10% VAT.

7. Petitioner is liable for Fringe Benefits Tax (FBT) under Section 33 of the NIRC of 1997 in relation to RRNo. 3-98.

7.1

Pursuant to Section 33(A) of the NIRC of

1997 in relation to RR No. 3-98, employers are required to withhold at the rate of 32% effective 01 January 2000 on the grossed up monetary value of fringe benefits furnished or granted to the employee, except rank and file employees.$-

CfA EB No. 868 & 869 (CfA Case No. 7976)

7.2 Based on the investigation conducted by respondent's examiners, petitioner provided automobiles for all its officers. Pursuant to the car expense plan, petitioner would shoulder sixty percent (60%) of the price tag of the automobile and forty percent (40%) will be paid by the officer thru a five year interest free loan. Petitioner, however, did not subject the aforementioned fringe benefits as part of compensation.

7.3 Section 2.78.1 of RR No. 2-98(A) defines compensation as follows:

'(A) Compensation Income Defined- In general, the term 'compensation' means all remuneration for services performed by an employee for his employer under an employer- employee relationship, unless specifically excluded by the Code.

The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including director's fees, if the director is at the same time, an employee of the employer/ corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Sec. 33 of the Code.' (Emphasis supplied) 7.4 Section 2.33 (B)(3)(a) of RR No. 3-98 also states:

'If the employer purchases the motor vehicle in the name of the employee, the value of the benefit is the acquisition cost thereof. The monetary value of the fringe benefit shall be the entire value of the benefit, regardless of whether the motor vehicle is used by the employee partly fo~ CTA EB No. 868 & 869 Page 8 o£31 his personal purpose and partly for the benefit of his employer.' 7.5 Undoubtedly, such failure on the part of petitioner to perform the sacred duty of a government withholding agent will result in FBT liability. Hence, assessment will ensue as a matter of course.

8. Petitioner was duly assessed and informed of its deficiency income tax, VAT and FBT liabilities for taxable years 2005 and 2006.

8.1 After petitioner ceased to be one of the listed GOCCs exempt from the corporate income tax under the NIRC of 1997, respondent issued Letter of Authority No. 2007 32676 dated 19 March 2008 to authorize the revenue examiners named therein for the purpose of examining petitioner's books of accounts and other accounting records for all internal revenue taxes for the period 01 January 2005 to 31 December 2006.

8.2

A Preliminary Assessment Notice (PAN)

dated 29 July 2008 was issued to petitioner for deficiency Income Tax, VAT, FBT and Documentary Stamp Tax (DST) for taxable years 2005 and 2006.

8.3

A Formal Letter of Demand (FLOD) with

annexed

Details

of

Discrepancies

and attached Assessment Notices dated 09 December 2008 was issued to petitioner for deficiency Income Tax, VAT and FBT for taxable year 2005 and 2006.

8.4 Along with the FLOD, were Assessment Notice Nos. IT-05-000234; VT-05-000279; FBT -05-000070; IT -06-000235; VT -06-000280 and IT -06-000071 all dated 09 December 2008 attached thereto.

9. All told, petitioner is therefore liable for deficiency taxes broken down as follows: r

CTA EB No. 868 & 869

Taxable Year 2005

Assessment Notice No. IT-05-000234 (Income Tax)

Winnings

20,27 4,893,157.40

Bingo-In-House

105,778,364.69

Bingo-Franchisee

1,37 4,675,920.88

Other Business Income

1,455,655,844.89

Total Income

23,211,003,287.86

Less:

Expenses

Personal Services

5,224,572,117.12

Maintenance

and

Other

Operating Expenses

4,338,108,146.88

Contributions to the

Government

11,953,634,140.64

Total Expenses

21,516,314,404.64

Net Income

1,694,688,883.22

Tax Due (For November and

December Only)

98,856,851.52

Tax Paid

0.00

Deficiency Income Tax

98,856,851.52

Add:

Surcharge

24,714,212.88

Interest

53,680,624.58

Compromise

25,000.00

Total Tax Due

177,276,688.98 Assessment Notice No. VT-05-000279 (VAT)

Winnings

18,431,721,052.18

Bingo-In-House

96,162,149.72

Bingo-Franchisee

1,249,705,382.62

Other Business Income

1,327,602,290.42

Total Gross Receipts

21,105,190,874.94

Less:

Creditable Input Tax

Total Maintenance and Other

4,454,027,737.93

Operating Expenses

Less: Expenses not subject to

VAT

1,603,175,240.33 Total possible sources of Input

VAT

2,850,852,497.60

Divided by VAT Rate

1.10

Total Allowable Input Tax

259,168,408.87

CTA EB No. 868 & 869

Value Added Tax Due

Tax Paid (Franchise Tax Paid)

Deficiency Value Added Tax

Add:

Surcharge

Interest

Compromise

Total Tax Due

Assessment Notice No. FBT-05-000070 (FBT) P AGCOR 60% share on Car Plan Officer 40% share (Interest Free Loan)

Total Fringe Benefit

Divide by Percentage for CY 2000 above

Grossed Up Monetary Value

Multiply by: Fringe Benefit Tax Rate

Total Fringe Benefit Tax Due

Less: Fringe Benefit Tax Paid

Basic Fringe Benefit Tax Deficiency

Add: Surcharge

Interest

Compromise

Total Tax Due

Taxable Year 2006

1,851,350,678.62 1,013,7 44,657.89 837,606,020.73 209,401,505.18 491,548,519.56 25,000.00 1,538,581,045.48 65,250,539.17 3,380,858.41 68,631,397.58 68% 100,928,525.86 32% 32,297,128.28 0.00 32,297,128.28 8,074,282.07 18,953,547.61 25,000.00 59,349,957.95 Assessment Notice No. IT-06-000235 (Income Tax)

Winnings

20,461,208,552.70

Bingo-In-House

107,749,320.50

Bingo-Franchisee

1,433,044,821.20

Other Business Income

3,275,860,681.62

Total Income

25,277,863,376.02

Less:

Expenses

Personal Services

5,778,832,235.84

Maintenance

and

Other

Operating Expenses

4,979,751,269.44

Contributions to the

Government

11,978,529,718.03

Total Expenses

22,737,113,223.31

Net Income

2,540,771,780.61

Tax Due (For November and

December Only)

889,270,123.21

Tax Paid

0.00

Deficiency Income Tax

889,270,123.21 "' ~ CT A EB No. 868 & 869

Add:

Surcharge

Interest

Compromise

Total Tax Due

Assessment Notice No. VT-06-000080 (VAT)

Winnings

Bingo-In-House

Bingo-Franchisee

Other Business Income

Total Gross Receipts

Less:

Creditable Input Tax

Total Maintenance and Other

Operating Expenses

Less: Expenses not subject to

VAT

Total possible sources of Input

VAT

Divided by VAT Rate

Total Allowable Input Tax

Value Added Tax Due

Tax Paid (Franchise Tax Paid)

Deficiency Value Added Tax

Add:

Surcharge

Interest

Compromise

Total Tax Due

Assessment Notice No. FBT-06-000071 (FBT) PAGCOR 60% share on Car Plan Officer 40% share (Interest Free Loan)

Total Fringe Benefit

Divide by Percentage for CY 2000 above

Grossed Up Monetary Value

Multiply by: Fringe Benefit Tax Rate

Total Fringe Benefit Tax Due

Less: Fringe Benefit Tax Paid

Basic Fringe Benefit Tax Deficiency

Add: Surcharge

Interest

Compromise

Total Tax Due

222,317,530.80 305,031,834.04 25,000.00 1,416,644,488.05 18,601,098,684.27 97,953,927.73 1,302,768,019.27 2,991,769,817.64 22,993,590,448.91 4,979,751,269.44 4,193,029,614.48 786' 721,654.96 1.12 84,291,605.89 2,636,616,597.23 971,349,536.00 1,665,267,061.23 416,316,765.31 644,207,422.04 25,000.00 2,725,816,248.58 8,725,566.45 4,060,813.50 12,786,379.95 68% 18,803,499.92 32% 6,017,119.97 0.00 6,017,119.97 1,504,279. 99 2,327,718. 7 4 25,000.00 9,874,118.71

CTA EB No. 868 & 869

10. In the case of Commissioner of Internal Revenue vs. Bank of Philippine Islands the Supreme Court held: 'Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments."

During the pre-trial conference on April 30, 2010, the parties submitted the instant Petition for Review for decision without presentation of evidence on agreement that there are no factual issues involved and only the legal issues are left for the determination of the Court. In view thereof and as prayed for, the parties were granted a period of thirty (30) days from receipt of the Pre-trial Order dated July 21, 2010, within which to file their respective memoranda. On September 9, 2010, the instant case was submitted for decision, after CIR filed her Memorandum on July 20, 2010 and P AGCOR, on September 2, 2010.

On September 5, 2011, the First Division of this Honorable Court promulgated the Assailed Decision, the dispositive portion of which, reads as follows:

"WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the assessments representing deficiency VAT, as well as the surcharges, interests, and compromise penalties imposed thereon, in the aggregate amount of P4,264,397,294.06 for taxable years 2005 and 2006, are hereby CANCELLED and SET ASIDE.

However, the assessments for deficiency income tax and Fringe Benefit Tax (FBT) for taxable years 2005 and 2006 are hereby

AFFIRMED

with MODIFICATIONS. The compromise penalties wer~

CTA EB No. 868 & 869

Page 13 o£31

INCOME TAX

Basic

Surcharge

cancelled in the absence of mutual agreement between the parties. Accordingly, petitioner is hereby ORDERED to PAY respondent the following basic deficiency income tax and FBT for taxable years 2005 and 2006, inclusive of the 25% surcharge imposed under Section 248 (A)(3) of the NIRC of 1997, as amended:

CY 2005

CY 2006

p 98,856.851.52 p 889,270,123.21 p 24,714,212.88 222,317,530.80

TOTAL

988,126,974.73 247,031,7 43.68

Subtotal

p 123,571,064.40 p 1,111,587,654.01 p 1,235,158,718.41

FBT

Basic

p 32,297,128.28 p 6,017,119.97 p 38,314,248.25

Surcharge

8,074,282.07 1,504,279.99 9,578,562.06

Subtotal

p 40,371,410.35 p 7,521,399.96 p 47,892,810.31

TOTAL DEFICIENCY TAX

p 163,942,474.75 Pl,119,109,053.97 p 1,283,051,528.72 In addition, petitioner shall pay deficiency interest at the rate of twenty percent (20%) per annum on the following basic deficiency income taxes and FBT computed from the dates indicated herein until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as amended:

CY 2005

CY 2006

Income Tax

p 98,856,851.52 p 889,270,123.21 Computed from April15, 2006 April15, 2007

FBT

p 32,297,128.28 p 6,017,119.97

Computed

January 25, 2006 January 25,2007 from Petitioner is also liable to pay delinquency interest at the rate of twenty percent (20%) per annum on the accrued deficiency interest which was due for payment on December 31, 2008 and on the following deficiency taxes, computed from December 31, 2008 until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended:~

CTA EB No. 868 & 869

Page 14 o£31

CY 2005

CY 2006

TOTAL

INCOME TAX

p 123,571,064.40 p 1,111,587,654.01 p 1,235,158,718.41

FBT

p 40,371,410.35 p 7,521,399.96 p 47,892,810.31

TOTAL DEFICIENCY TAX

p 163,942,474.75 P1,119,109,053.97 p 1,283,051,528.72

Comment

To

Respondent's

Motion

For

Partial

Reconsideration9 on October 17, 2011. On November 18, 2011, CIR filed her

Comment

(Re:

Petitioner's

Motion

for

Partial

Reconsideration of the Decision promulgated 05 September 2011)10. In a Resolution11 dated January 24, 2012, the CTA First Division denied the Motions filed by the parties. It states: "WHEREFORE, the

Motions

for

Partial

Reconsideration dated September 22, 2011 AND October 4, 2011, filed by Commissioner of Internal

Revenue and Philippine Amusement and Gaming

Corporation, respectively, are hereby DENIED, for lack of merit. -4- 4 Division Docket, pp. 000419-000421. 5 Ibid. pp. 000327-000343.

6 Id., pp. 000365-000378.

7 Id., pp. 000422-000429.

s Id. pp. 000435-000460.

9 Id. pp. 000479-000489.

1o Id. pp. 000529-000543.

n Id. pp. 000545-000563.

CT A EB No. 868 & 869

The Motion for Reconsideration dated October 7, 2011, filed by petitioner Philippine Amusement and Gaming Corporation is also DENIED, for lack of merit.

(ALSO

KNOWN

AS

P AGCOR CHARTER),

SPECIFICALLY ON P AGCOR'S EXEMPTION

FROM

ALL

FORMS/KINDS

OF

TAXES

PROVIDED

IN

SEC.

13,

HAS

BEEN

AMENDED/REPEALED BY R.A. 8424 AND 9337

WHICH WILL NOW EFFECTIVELY SUBJECT

P AGCOR'S

INCOME

FROM

CASINO

OPERATIONS AND RELATED SERVICES TO

INCOME TAX.

B. THE

CTA

FIRST

DIVISION,

FAILED

TO

CONSIDER

THAT

P AGCOR

UNDER

ITS

CHARTER IS LIABLE ONLY FOR

THE 5%

FRANCHISE TAX WHICH IS IN LIEU OF ALL

KINDS

OF

TAXES, LEVIES,

FEES

OR

ASSESSMENTS OF ANY KIND, NATURE OR DESCRIPTION, LEVIED,

ESTABLISHED

OR

COLLECTED

BY

ANY

MUNICIPAL, PROVINCIAL, OR NATIONAL GOVERNMENT AUTHORITY.

C. THE CT A FIRST DIVISION, SERIOUSLY ERRED

WHEN IT FAILED TO CONSIDER THE FULL

IMPORT OF P AGCOR'S TAX EXEMPTION

UNDER ITS CHARTER WHICH NECESSARILY

INCLUDES

ITS

EXEMPTION

FROM

THE

FRINGE BENEFITS TAX (FBT)~

CTA EB No. 868 & 869

D. THE CTA FIRST DIVISION, SERIOUSLY ERRED

WHEN IT DECLARED THAT PAGCOR IS

LIABLE FOR THE FBT AS A WITHHOLDING

AGENT. THIS IS VIOLATES (sic) PAGCOR'S

RIGHT

TO

DUE

PROCESS

AS

IT

WAS

ORIGINALLY ASSESSED FOR THE FBT AS

FINAL DIRECT TAX.

E. ASSUMING THAT P AGCOR IS NOT EXEMPT FROM THE FBT, THE CAR PLAN EXTENDED

TO ITS OFFICERS INURED TO ITS BENEFIT

AND IT IS REQUIRED OR NECESSARY IN THE

CONDUCT OF ITS BUSINESS, HENCE, SUCH

BENEFIT SHOULD NOT BE COVERED BY THE

FBT.

F. ASSUMING THAT PAGCOR IS SUBJECT TO

THE ALLEGED DEFICIENCY INCOME TAX

AND FBT, IT IS ONLY LIABLE FOR BASIC TAX, I.E.,

EXCLUDING

SURCHARGE

AND

INTEREST.

PAGCOR argues that P.D.1869 was not amended or repealed by R.A.s 8424 and 9337, such that its income from casino operations and related services remains tax-exempt except for the 5% franchise tax. P AGCOR expresses reservation on CTA First Division's reliance on the ruling in the case of Abakada Guro Party List vs. Honorable Executive Secretary Ermita, et. al.13 (Abakada case) declaring it as not exempt from income taxes anymore is but an obiter dictum, thus not binding as precedent. P AGCOR further argues that the ruling in the case of Philippine Amusement and Gaming Corporation vs. The Bureau of Internal Revenue (BIR), et al. 14 removed its tax exemption under R.A. 9337 but not under P.D. 1869, as amended by R.A. 9487, thus PAGCOR retains its income tax exemption under its Charter. Anent the assessed alleged deficiency Fringe Benefits Tax (FBT), petitioner alleges that the full import of P AGCOR' s tax exemption under its Charter necessarily includes exemption from FBT and that assuming that PAGCOR is not FBT exempt, the car plan~

CTA EB No. 868 & 869 extended to its officers inured to its benefit and is necessary in the conduct of its business, hence, such benefit should not be subject to FBT.

Moreover, P AGCOR reiterates its Motion to Suspend Tax Collection, citing Section 11 of R.A. 112515 and Sections 2 and 3 of Rule 1016 of the Revised Rules of the Court of Tax Appeals, as its legal bases. P AGCOR also submitted that its tax exemption as provided in Section 13(2) of P.D. 186917, as amended and its claim that the pending collection of deficiency taxes against it is prejudicial to the interest of the national government and the taxpayer are grounds to support its Motion. It further emphasized that its funds partake the nature and character of government or public funds because they are earmarked or allocated by special laws for special public purposes, hence these funds cannot be garnished or levied upon. Finally, PAGCOR posits that it is exempt from the bond requirement on the ground that being a government agency or instrumentality, it is exempt from posting judicial bonds.~ 15 Section 11. Who may appeal; effect of appeal. - Any person association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. No appeal taken by the Court of Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs shall suspend the payment, levy, distraint, and or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law; Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/ or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. 16 Sec. 2. Who may file. - Where the collection of the amount of taxpayer's liability, sought by means of a demand for payment, by levy, distraint or sale of any property of the taxpayer, or by whatever means, as provided under existing laws, may jeopardize the interest of the Government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability.

Sec. 3. When to file. - The motion for suspension of the collection of tax may be filed together with petition for review or with the answer, or in a separate motion filed by the interested party at any stage of the proceedings.

17 (2) Income and other Taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority.

CT A EB No. 868 & 869

On February 24, 2012, CIR filed its Petition for Review18, stating the following assigned error:

THE FIRST DIVISION OF THE HONORABLE

COURT ERRED WHEN IT RULED THAT THE

CASINO

OPERATIONS

AND

RELATED

OPERATIONS OF PETITIONER IS NOT SUBJECT

TO VAT.

CIR, on the other hand, submits that the Commissioner of Internal Revenue vs. Acesite (Philippines) Hotel Corporation19 (Acesite) case is not on all fours with the facts of the instant case as Acesite is based on the NIRC of 1977 while the instant case is based on the NIRC of 1997 as amended by R.A. No. 9337. Moreover, CIR posits that as an ordinary corporate taxpayer, P AGCOR is liable for payment of VAT on its income from casino operations and related services pursuant to the provisions of R.A. No. 7716. In support of its position, CIR cited the case of Renata V. Diaz and Aurora Ma. F. Timbol vs. The Secretary of Finance and the Commissioner of Internal Revenue20 (Toll Operators Case) where the Supreme Court discussed the imposition of VAT on franchise grantees pursuant to the provisions of Section 108 of the NIRC of 1997.

On May 14, 2012, PAGCOR filed its Comment21, arguing that CIR' s Petition for Review should be denied on the following grounds:

(1) Both the cases of Acesite22 and Philippine Amusement and Gaming Corporation vs. The Bureau of Internal Revenue (BIR), represented herein by Han. Jose Mario Bufiag, in his official capacity as Commissioner of Internal Revenue and John Doe and Jane Doe, who are persons acting for, in behalf, or under the authority of Respondent23, settled the issue as to P AGCOR' s VAT exemption; (2) The Supreme Court's ruling in the Toll Operators case finds no application in the present petition as PAGCOR's VAT exemption is based on P.D. 1869, which was never repealed, amended or modified by R.A. 7716, R.A 8424 and R.A. 9337;.-.._ 18 Rollo, (CTA EB No. 868), pp. 7-25. 19 G.R. No. 147295, February 16, 2007. 2o G.R. No. 193007, July 19, 2011. 21 Rollo, (CIA EB Case No. 868), pp. 98-120. 22 See Note 19.

CTA EB No. 868 & 869 and (3) that RR 16-2005, the CIR's basis for the VAT assessment imposed on it, has already been nullified by the Supreme Court. CIR filed her Motion to Admit Attached Comment24 and Comment (Re: Petition for Review under CTA EB No. 869)25 on June 20, 2012. In a Resolution26 dated July 12, 2012, this Honorable Court granted CIR' s Motion and resolved to give due course to the respective Petitions for Review of the parties. On September 7, 2012, PAGCOR filed its Memorandum.27 CIR, on September 28, 2012, filed her Motion to Admit Attached Memorandum2B and Memorandum29.

On December 3, 2012, this Honorable Court issued a Resolution3o granting CIR' s Motion to Admit and admitting the attached Memorandum. In the same Resolution, the instant case was submitted for decision.

As the parties raised dissimilar issues and arguments in their respective petitions, this Court will discuss the two petitions separately.

In her petition, CIR raised the argument that P AGCOR, as an ordinary taxpayer, is liable for the payment of VAT for its income from casino operations and related services pursuant to RA 7716, RR 16-2005 and the Supreme Court's ruling in the Toll Operators case regarding the imposition of VAT on franchise grantees under Section 108 of the 1997 NIRC.

This Court is not persuaded. -#1-

CTA EB No. 868 & 869

The issue on the imposition of VAT on the casino operations and related services of P AGCOR has long been settled by no less than the Supreme Court, the final arbiter of judicial controversies, in the cases of Acesite31 and P AGCOR vs. BIR32. In the said decisions, the Supreme Court clearly and categorically ruled that PAGCOR is exempted from VAT under RA 9337 and that RR 16-2005 is invalid for being contrary to law.

The Supreme Court, in the Acesite case thoroughly discussed the matter of P AGCOR' s exemption from indirect taxes like VAT. It stated:

31 See Note 19.

32 See Note 23.

"P AGCOR is exempt from payment of indirect taxes.

It is undisputed that P.D. 1869, the charter creating P AGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides:

Sec. 13. Exemptions. - xxxx (2) Income and other taxes. -

(a) Franchise

Holder:

No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority.~ xxxx

CTA EB No. 868 & 869

A close scrutiny of the above provisos clearly gives P AGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect.

We are one with the CA ruling that P AGCOR is also exempt from indirect taxes, like VAT, as follows:

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term 'Corporation' or operator refers to P AGCOR. Although the law does not specifically mention P AGCOR' s exemption from indirect taxes, P AGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with P AGCOR in casino operations.

Although, differently worded, the provision clearly exempts P AGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with P AGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)

Indeed, by extending the exemption to entities or individuals dealing with P AGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with P AGCOR in casino operations, it is exempting P AGCOR from being liable to indirect taxes." (Emphasis supplied).

Moreover, the issue on the validity of RR 16-2005 imposing VAT on P AGCOR was settled in the recent case of P AGCOR vs. BIR33, where the Supreme Court held that: 33 See Note 23.

Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting P AGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided tha~

DECISION

CfA EB No. 868 & 869 (CfA Case No. 7976) Page 22 o£31 petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate income tax, which was already addressed above by this Court. As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7

(k) thereof, which reads: Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows: Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax:

xxxx (k)

Transactions

which are exempt under international agreements to which the Philippines is a signatory or under special laws, except Presidential Decree No. 529.

Petitioner is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes.

Moreover, the exemption of P AGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus: [R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby further amended to read as follows:

SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. - (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: x x x ~ xxxx

CTA EB No. 868 & 869

(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT -registered persons shall be subject to zero percent (0%) rate; xxxx

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; xxxx Hence, we reiterate our ruling in the Assailed Decision and Assailed Resolution that the deficiency VAT assessments for the taxable years 2005 and 2006, in the aggregate amount of P4,264,397,294.06 should be cancelled/withdrawn on the ground that P AGCOR is exempt from VAT pursuant to the provisions of RA 9337, as confirmed in recent Supreme Court decisions. PAGCOR's Petition, on the other hand, is hinged on its claim that under its charter, PD 1869, as amended by RA 9487, it is exempt from all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority and that it is liable only for the 5% franchise tax in lieu of all forms and kinds of taxes. P AGCOR prays for the cancellation of income tax deficiency assessments imposed against it on the ground that RA 8424, as amended by RA 9337, did not repeal its tax exemption granted to it under Section 13 of its Charter.

This Court finds no merit in PAGCOR's claim. While it is true that under Section 13 of PD 1869, as amended by RA 9487, P AGCOR is exempted from any and all forms and kinds of taxes, a perusal of the provisions of RA Nos. 8424 and 9337 reveals that such exemption has already been repealed. RA 9337 amended Section 27 of the 1997 NIRC and deleted P AGCOR from the list of ~

CTA EB No. 868 & 869 government-owned and controlled corporations (GOCCs) which are exempted from paying income tax, it states: "Section 1. Section 27 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows:

"SEC. 27. Rates of Income Tax on Domestic Corporations. -

XXX

XXX

XXX

"(C)

Government-owned

or

-Controlled

Corporations, Agencies or Instrumentalities. - The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service and Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity.

XXX

XXX

XXX.

II

Under the statutory construction rule of expressw unzus est exclusio alterius, the express mention of one person, thing, or consequence implies the exclusion of all others.34 This rule is more clearly explained by the Supreme Court in the case of Benjamin (" Kokoy") T. Romualdez vs. Han. Simeon V. Marcelo, In His Official Capacity as The Ombudsman, and Presidential Commission on Good Government35, to wit:

"Indeed, it is an elementary rule of statutory construction that the express mention of one person, .rpt., 34 Victorias Milling Co. vs. Court of Appeals and International Pharmaceuticals, Inc., G.R. No. 168062, June 29, 2010.

35G.R. Nos. 165510-33, July 28, 2006 citing Centeno v. Villalon-Pornillos, G.R. No. 113092, September 1, 1994.

CT A EB No. 868 & 869

Page 25 o£31 thing, act, or consequence excludes all others. This rule is expressed in the familiar maxim 'expressio unius est exclusio alterius.' Where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to others. The rule proceeds from the premise that the legislature would not have made specified enumerations in a statute had the intention been not to restrict its meaning and to confine its terms to those expressly mentioned."

Applying the rule to the case at bench, the express mention of the GOCCs in Section 27 of the 1997 NIRC limits the application of exemption from income tax among those listed, and as P AGCOR is not included in the list, the inevitable conclusion is that it is now liable for income tax.

The withdrawal of P AGCOR' s income tax exemption had likewise, been pronounced in the case of Abakada case36 where the Supreme Court explicitly ruled that "(t)he Philippine Amusement and Gaming Corporation is not exempt from income taxes anymore." In the case of P AGCOR vs. CIR37, the Supreme Court held that PAGCOR is no longer exempt from corporate income tax as it has been effectively removed from the list of exempted corporations pursuant to Section 1 of RA 9337 amending Section 27 of the 1997 NIRC, to wit:

36 See Note 13.

37 See Note 23.

"Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. xxx

XXX

XXX

XXX

With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, P AGCOR has been excluded from the enumeration of GOCCs that are exempt_a...-

CTA EB No. 868 & 869

Page 26 o£31 from paying corporate income tax. The records of the Bicameral Conference Meeting dated April 18, 2005,

of the Committee on the Disagreeing Provisions of

Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that P AGCOR be subject to the payment of corporate income tax, thus:

XXX

XXX

XXX

Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed. As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provision.

In this case, P AGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting P AGCOR from the exemption. The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to require P AGCOR to pay corporate income tax; hence, the omission or removal of P AGCOR from exemption from the payment of corporate income tax. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. Thus, the express mention of the GOCCs exempted from payment of corporate income tax excludes all others. Not being excepted, petitioner P AGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim: exceptio firmat regulam in casibus non exceptis.

Thus, it is perfectly clear that PAGCOR' s income tax exemption has been effectively withdrawn by the amendments to the 1997 NIRC introduced by RA 9337. The recent Supreme Court decisions on the issue likewise confirmed that P AGCOR is now liable for income tax. Hence, this Court upholds the deficiency income tax assessment for the taxable years 2005 and 2006 imposed against P AGCOR~

CfA EB No. 868 & 869 (CfA Case No. 7976)

P AGCOR, likewise, prays for the cancellation of its deficiency assessment for FBT, arguing that the assessment violated its right to due process. It further argues that assuming that it is liable for FBT, the assessment should be set aside on the following grounds: its tax exemption under its Charter and the fact that the car plan is required or necessary in the conduct of its business. P AGCOR' s contentions lack merit. This Honorable Court notes that the abovementioned issues on the assessment of deficiency FBT issued against P AGCOR in relation to the car plan benefit extended to its officers have been thoroughly discussed and ruled upon in the Assailed Decision and Assailed Resolution. We affirm in toto the CTA First Division ruling that petitioner is liable for deficiency FBT. We, thus, quote with approval, the pertinent portions of the Assailed Decision: "Therefore, the government's cause of action against petitioner is not for the collection of income tax but for the enforcement of the withholding tax provisions of the NIRC of 1997, and compliance is imposed on petitioner as the withholding agent. Petitioner admitted that it provided car plan benefits to its executives during the taxable years 2005 and 2006, for which respondent assessed it with FBT. However, it did not present any evidence to prove that the said car plan benefits were required by the nature of or necessary to its business. During the pre-trial conference on April 30, 2010, petitioner insists that no factual issues are involved in this case and agreed to submit it for decision based on the stipulated legal issues. Hence, the Court is constrained to consider that the said car plan benefit is in the nature of fringe benefits subject to FBT. In fine, the liability for payment of the tax rests primarily on petitioner, as a withholding agent. Therefore, petitioner's non-compliance with said~ CTA EB No. 868 & 869 obligation to withhold renders it personally liable for the tax arising from the breach of a legal duty. Consequently, the assessments pertaining to petitioner deficiency FBT covering the years 2005 and 2006 should be sustained albeit with modification." Anent P AGCOR' s claim that assuming it is subject to deficiency income tax and FBT, it shall only be liable for the basic tax and not for surcharge and interest in view of the provisions of its Charter on tax exemption. We reiterate our ruling in the Assailed Resolution that the penalty and interest imposed are not penal but compensatory for the concommitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the government.38 Finally, resolving PAGCOR' s Motion for Suspension of Collection of Tax, this Court finds no merit in P AGCOR' s Motion. Under the Revised Rules of the Court of Tax Appeals, a Motion for Suspension of Collection of Tax may be filed by an interested party when collection of taxpayer's liability may jeopardize the interest of the Government or the taxpayer39. PAGCOR failed to show how the collection of its deficiency income tax and FBT liability would in any way jeopardize its interest. It failed to adequately prove how the subject amount of the instant Petition will affect its responsibilities in remitting its income for various government agencies, instrumentalities and projects. On the contrary, facilitating the expedient collection of these deficiency taxes will enable the Government to build up its tax collection and fund various operations of the Government with dispatch. Upon thoroughly considering the matters brought forward by both parties in their respective petitions, this Honorable Court affirms the ruling in the Assailed Decision and Assailed Resolution of D- 38 Phil. Refining Co. (now known as Unilever Philippines [PRC], Inc.) vs. CA, CTA and the Commissioner of Internal Revenue, G.R. No. 118794, May 8, 1996. 39

RULE 10

SUSPENSION OF COLLECTION OFT AX

XXX

XXX

XXX

SEC. 2. Who may file. -Where the collection of the amount of the taxpayer's liability, sought by means of a demand for payment, by levy, distraint or sale of any property of the taxpayer, or by whatever means, as provided under existing laws, may jeopardize the interest of the Government or the taxpayer, an interested party may file a motion for the suspension of the collection of tax liability.

CTA EB No. 868 & 869

Page 29 o£31 the CT A First Division finding P AGCOR liable for deficiency income tax and FBTwhile upholding its exemption from VAT liability.

WHEREFORE, both Petitions for

Review

are hereby DISMISSED for lack of merit. Accordingly, the September 5, 2011 Decision and the January 24, 2012 Resolution of the CTA First Division in CTA Case No. 7976 entitled "Philippine Amusement and Gaming Corporation vs. Commissioner of Internal Revenue and the Head Revenue Executive Assistant, Large Taxpayer Service, in their official capacities as Officers of the Bureau of Internal Revenue", are hereby AFFIRMED.

Associate Justice

WE CONCUR:

Presiding Justice

CfA EB No. 868 & 869 (CfA Case No. 7976)

~ft, C r~~ ,\2.

JtJANITO C. CASTANEIY'£ JR.

Associate Justice

' ER~.UY A~~~~stice

UTISTA

(On Leave)

~ I"! ::?/J_...-/~ CIELITO N. MINDARO-GRULLA AMELIA R. COTANGCO-MANALASTAS

Associate Justice

Associate Justice

~'~~~~ MA. BELEN M. RINGPIS-LIBAN

Associate Justice

CfA EB No. 868 & 869 (CfA Case No. 7976)

CE R TIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

Presiding Justice