PAGCOR IS SUBJECT ONLY TO FIVE PERCENT (5%) FRANCHISE TAX UNDER P.D. NO.

1869 WHILE
ITS INCOME FROM OTHER RELATED SERVICES IS SUBJECT TO CORPORATE INCOME TAX

BLOOMBERRY RESORTS AND HOTELS, INC., vs. BUREAU OF INTERNAL REVENUE,

REPRESENTED BY COMMISSIONER KIM S. JACINTO-HENARES
G.R. No. 212530, August 10, 2016

Facts: PAGCOR granted to petitioner 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. Thus, being
one of its licensees, petitioner only pays PAGCOR license fees, in lieu of all taxes, as contained
in its provisional license and consistent with the PAGCOR Charter or Presidential Decree (PD)
No. 1869, which provides the exemption from taxes of persons or entities contracting with
PAGCOR in casino operations. However, when Republic Act (R.A.) No. 9337 took effect, it
amended Section 27(C) of the NIRC of 1997, which excluded PAGCOR from the enumeration of
government-owned or controlled corporations (GOCCs) exempt from paying corporate income
tax. In addition to the five percent (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.

Petitioner immediately elevated the matter through a petition for certiorari and prohibition before
this Court. Petitioner contends that PD 1869 (PAGCOR Charter) as amended by RA 9487, is a
valid existing law, expressly exempting PAGCOR’s contractees and licensees from all taxes
except the 5% franchise tax; that such was not repealed by the deletion of PAGCOR from the list
of tax-exempt entities.
Issue: Whether Petitioner is liable for corporate income tax.
Held: No. PAGCOR’s income from gaming operations is subject only to five percent (5%)
franchise tax under P.D. No. 1869, as amended, while its income from other related services is
subject to corporate income tax pursuant to P.D. No. 1869, as amended, as well as R.A. No.
9337. Under P.D. No. 1869, as amended, [PAGCOR] is subject to income tax only with respect
to its operation of related services. Accordingly, the income tax exemption ordained under Section
27(c) of R.A. No. 8424 clearly pertains only to [PAGCOR's] income from operation of related
services. Such income tax exemption could not have been applicable to [PAGCOR's] income from
gaming operations as it is already exempt therefrom under P.D. No. 1869
Indeed, the grant of tax exemption or the withdrawal thereof assumes that the person or entity
involved is subject to tax. This is the most sound and logical interpretation because [PAGCOR]
could not have been exempted from paying taxes which it was not liable to pay in the first
place. This is clear from the wordings of P.D. No. 1869, as amended, imposing a franchise tax of
five percent (5%) on its gross revenue or earnings derived by [PAGCOR] from its operation under
the Franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever
nature, which necessarily include corporate income tax.

In other words, there was no need for Congress to grant tax exemption to [PAGCOR] with respect
to its income from gaming operations as the same is already exempted from all taxes of any kind
or form, income or otherwise, whether national or local, under its Charter, save only for the five
percent (5%) franchise tax. The exemption attached to the income from gaming operations exists
independently from the enactment of R.A. No. 8424.
"IN LIEU OF ALL TAXES" CLAUSE EXEMPTS NGCP FROM PAYMENT OF LOCAL TAXES
AS SPECIFICALLY PROVIDED FOR IN ITS FRANCHISE.
NATIONAL GRID CORPORATION OF THE PHILIPPINES, vs. OFELIA M. OLIVA, IN HER
OFFICIAL CAPACITY AS THE CITY TREASURER OF CEBU CITY
G.R. No. 213157, August 10, 2016
Facts: NGCP received from the Office of the City Treasurer of Cebu City, three (3) Final Notices
of Demand. Notices of Delinquency were served to Transco/NPC (NGCP’s predecessor) for the
properties in 2008 and that failure to pay the amount demanded would result in the Public Auction
of the properties. Pursuant to Sec. 252 of the Local Government Code, petitioner NGCP paid the
total amount demanded under protest on November 11, 2009 for P2,792,862.41. The written
protest was filed on the same day.
The City Treasurer of Cebu did not act on the written protest. Petitioner NGCP sent its appeal, by
way of registered mail on March 11, 2010, to the LBAA of Cebu City. On October 12, 2010, the
LBAA ruled in favor of the City Assessor and dismissed NGCP's petition for being filed out of
time. Meanwhile, the CBAA found NGCP liable for real property taxes on the subject properties
for the year 2009. The CTA-EB found NGCP liable for real property taxes stated that even though
Section 9 of RA 9511 contains an "in lieu of all taxes" clause in its first paragraph, the succeeding
paragraph states NGCP's liability to pay taxes on its "real estate, buildings, and personal property,
as other corporations are now or hereby may be required by law to pay." Moreover, the Local
Government Code withdrew the exemption from real property tax of NGCP's predecessors (NPC
and TRANSCO).
Issue: Whether NGCP is liable for real property taxes.
Held: Yes. The subject properties were under the control of NPC/TRANSCO from 2001 to 2008.
NPC/TRANSCO was not exempt from real property tax during this period. The applicable laws on
real property taxes on the subject properties from 2001 to 2008 are Sections 216 and 218(d) of
the Local Government Code. Thus, NGCP is only liable for taxes during this period due from its
predecessor.
NGCP took control of the subject properties in 2009. It is very clear that NGCP's payment of
franchise tax exempts it from payment of real property taxes on properties used in connection
with its franchise. However, NGCP's tax exempt status on real property due to the "in lieu of
all taxes" clause is qualified: NGCP shall be liable to pay the same tax as other corporations on
real estate, buildings and personal property exclusive of their franchise. The phrase "exclusive of
this franchise" means that real estate, buildings, and personal property used in the exercise of
the franchise are not subject to the same tax as other corporations.
Section 9 of RA 9511 states that NGCP's payment of franchise tax is in lieu of payment of
"income tax and any and all taxes, duties, fees and charges of any kind, nature or description
levied, established or collected by any authority whatsoever, local or national, on its franchise,
rights, privileges, receipts, revenues and profits, and on properties used in connection with 'its
franchise." Thus, in contrast to the case of PLDT vs. City of Davao, Section 9 of RA 9511 clearly
stated that the NGCP's "in lieu of all taxes" clause includes taxes imposed by the local government
on properties used in connection with NGCP's franchise.
DEPOSIT SUBSTITUTES IN SECTION 22(Y) SPECIFICALLY DEFINED "PUBLIC" TO MEAN
"TWENTY (20) OR MORE INDIVIDUAL OR CORPORATE LENDERS AT ANY ONE TIME. THE
SUCCESSFUL GSED-BIDDER, AS AGENT OF THE BUREAU OF TREASURY, HAS THE
PRIMARY RESPONSIBILITY TO WITHHOLD THE 20% FINAL WITHHOLDING TAX
BDO, ET AL. VS. REPUBLIC OF THE PHILIPPINES
G.R. No. 198756, August 16, 2016
Facts: This case resolves separate motions for reconsideration and clarification filed by the Office
of the Solicitor General and petitioners-intervenors Rizal Commercial Banking Corporation and
RCBC Capital Corporation of the SC’s Decision dated January 13, 2015. The SC has previously
held that the number of lenders/investors at every transaction is determinative of whether a debt
instrument is a deposit substitute subject to 20% final withholding tax. When at any transaction,
funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be a
public borrowing and the bonds at that point in time are deemed deposit substitutes.
Consequently, the seller is required to withhold the 20% final withholding tax on the imputed
interest income from the bonds. Further, the court held void BIR Rulings Nos. 370-2011 and DA
378-2011 for having disregarded the 20-lender rule provided in Section 22(Y).
Issues: 1. What is the proper interpretation and application of the 20-lender rule under Section
22(Y) of the National Internal Revenue Code, particularly in relation to issuances of government
debt instruments;
2. Whether the seller in the secondary market can be the proper withholding agent of the final
withholding tax due on the yield or interest income derived from government debt instruments
considered as deposit substitutes;
Held: 1. The definition of deposit substitutes in Section 22(Y) specifically defined "public" to mean
"twenty (20) or more individual or corporate lenders at any one time." The qualifying phrase for
public introduced by the National Internal Revenue Code shows that a change in the meaning of
the provision was intended, and this Court should construe the provision as to give effect to the
amendment. Hence, in light of Section 22(Y), the reckoning of whether there are 20 or more
individuals or corporate lenders is crucial in determining the tax treatment of the yield from the
debt instrument. In other words, if there are 20 or more lenders, the debt instrument is considered
a deposit substitute and subject to 20% final withholding tax.
2. The successful GSED-bidder, as agent of the Bureau of Treasury, has the primary
responsibility to withhold the 20% final withholding tax on the interest valued at present value,
when its sale and distribution of the government securities constitutes a deposit substitute
transaction. The 20% final tax is deducted by the buyer from the discount of the bonds and
included in the remittance of the purchase price. The final tax withheld by the withholding agent
is considered as a "full and final payment of the income tax due from the payee on the said income
[and the] payee is not required to file an income tax return for the particular income."
The reckoning of the phrase "20 or more lenders" should be at the time when petitioner-intervenor
RCBC Capital sold the PEACe bonds to investors. Should the number of investors to whom
petitioner-intervenor RCBC Capital distributed the PEACe bonds, therefore, be found to be 20 or
more, the PEACe Bonds are considered deposit substitutes subject to the 20% final withholding
tax. Petitioner-intervenors RCBC/CODE-NGO and RCBC Capital, as well as the final bondholders
who have recourse to government upon maturity, are liable to pay the 20% final withholding tax.