OSG position on taxing POGOs differs from DOF

Solicitor General Jose Calida said over the weekend that Philippine Offshore Gaming Operations (POGOs) should not pay the 5% franchise tax based on provisions of the National Internal Revenue Code.

His position or legal opinion is contrary to that of Finance Secretary Carlos Dominguez III who supports the 5% franchise tax on POGOs and their service providers.

Calida cited Sections 23.E and 23.F, Chapter 2 of the National Internal Revenue Code which states that a foreign corporation, whether engaged in trade or doing business in the Philippine, is taxable only based on income derived from within the Philippines. As such, an offshore-based operator is subject to Philippine taxes only on its income derived from sources within the Philippines.

Calida’s position was prompted by a query from the Philippine Amusement and Gaming Corporation’s  (PAGCOR) Legal Group Vice President Roderick Consolation in December 2018.

According to the OSG, taxes cannot be imposed on Philippine POGOs as they do not derive their income within the Philippine territory. Memorandum Circulars 102-2017 and 78-2018 provide for imposition of 5% franchise tax.

Calida argued that offshore based operators such as POGOs derive their income from bets placed by registered foreign subscribers. Consequently, the income is solely derived from the chance to win games produced and provided by an independent service provider in the offshore-based operator’s online betting facility.

Offshore-based operators pay a fee to the independent service providers.

“Ultimately, an offshore-based operator’s source of income is the placement of bets on its online betting facility—which are derived from sources without the Philippines. For POGO betting transactions, the situs of the taxation is the place where the actual betting took place and where winnings are paid out,” Calida noted.

“In view of the foregoing, an offshore-based operator strictly and exclusively deriving income from sources without the Philippines is not subject to tax based from the Source Principle which should construed together with 102-2017 and 78-2018,” the solicitor general added.

The Bureau of Internal Revenue’s (BIR) Memorandum 102-2017 only states that gaming operations refers to income or earning derived from operating of gambling casinos, gaming clubs and other similar recreation or amusement places and gaming pools.

“An off-shore based operator does not operate any gambling casinos, gaming clubs and other similar recreation or amusement places and gaming pools,” Calida noted.

The solicitor general, however, made it clear that such opinion is rendered based solely on the facts and circumstances stated in PAGCOR’s query.

“Our opinion may vary when other facts are changed or elaborated,” Calida said. —VDS, GMA News