BIR to Pagcor: Offshore Pogos must pay 5 percent franchise tax

The Bureau of Internal Revenue (BIR) is bent on collecting 5 percent franchise taxes owed by Philippine offshore gaming operators (Pogos) based overseas despite opposition from the Philippine Amusement and Gaming Corp. (Pagcor).

In a statement on Monday (July 27), the Department of Finance (DOF) quoted Internal Revenue Commissioner Caesar R. Dulay as saying that the franchise tax on all licensed Pogos was “not a new imposition nor is it being imposed retroactively.”

“From the beginning, our bureau has maintained the position that the said tax applies to all Pogo licensees and operators and there was no change of rules midstream,” Dulay said.

It was in response to Pagcor’s memorandum to the Office of the President contesting the payment of franchise tax by foreign-based Pogos.

Pagcor’s website showed there were 58 licensed Pogos, but it did not say how many were operating from abroad.

Licensees employ Philippine-based service providers whose workers directly deal with their clients—online gamblers abroad, mainly from China, where gambling is illegal.

In its memo to President Rodrigo Duterte, Pagcor claimed that franchise tax was not previously  being collected by the BIR from foreign-based Pogos, citing a 2018 legal opinion by the Office of the Solicitor General (OSG)—which Dulay disproved.

Dulay pointed out that as early as 2017, the BIR’s Revenue Memorandum Circular (RMC) No. 102-2017 already slapped franchise tax on all Pogos, whether here or abroad.

“The entire gross gaming receipts/earnings or the agreed or pre-determined minimum monthly revenues/income from gaming operations under existing rules, whichever is higher, shall be subject to a franchise tax of 5 percent, in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description,” RMC 102 2017 read.

“This income is therefore exempt from any kind of tax, income or otherwise, as well as fees, charges or levies of whatever nature, whether national or local,” it stated.

Dulay in 2019 moved to correct the OSG’s opinion and reiterated the BIR’s basis for imposing franchise tax on offshore Pogos.

Also, Dulay noted that the OSG’s opinion was “not binding” because under the Tax Code, “the power to interpret [its] provisions and other tax laws shall be under the exclusive and original jurisdiction of the BIR Commissioner subject to review by the Secretary of Finance.”

The BIR chief also “corrected the erroneous claim that Pogo operators are being assessed and paying their corporate income taxes and value-added tax (VAT),” the DOF said.

“Pogo licensees or operators are not being assessed nor paying income tax and other taxes because the BIR’s RMC 102-2017 clearly states that in lieu of such taxes, they are only subject to the franchise tax,” Dulay said.

“Only Pogo service providers are subject to the regular taxes, such as income and VAT. However, both Pogo operators and service providers whose employees earn compensation income need to withhold and remit the taxes due from them,” Dulay added.

“Revenue rules provide that the foreign nationals compensation income shall be withheld 25-percent final withholding tax,” the BIR chief said.

“However, instead of remitting the 25 percent final withholding tax, majority are only remitting the withholding tax on compensation, which is based on lower rates depending on each employee’s total amount of income,” Dulay explained.

Finance Secretary Carlos G. Dominnguez III was furnished a copy of Dulay’s reply to Pagcor’s memo.

TSB