CASE DIGEST : SAINT WEALTH LTD. v. BIR GR No. 252965 GAERLAN

FACTS : The consolidated petitions for certiorari and prohibition challenge Section 11(f) and (g) of the Bayanihan 2 Law, as well as related BIR and DOF issuances (RR No. 30-2020, RMC Nos. 64-2020, 102-2017, and 78-2018), seeking to annul them and enjoin their enforcement via TRO or preliminary injunction. These provisions imposed a five percent (5%) franchise tax on Philippine Offshore Gaming Operators (POGOs) and other taxes on non-gaming income. The petitioners, including Saint Wealth and the Marco Polo group of offshore POGO licensees, argued that the taxes violate constitutional principles, including due process, equal protection, territoriality, uniformity of taxation, and the prohibition against riders, as offshore POGOs earn income abroad and are differently situated from Philippine-based casinos. They also contended that RMCs issued by the BIR lack statutory basis.

Respondents (DOF and BIR) countered that the taxes are constitutional, based on existing laws and the PAGCOR Charter, which allows collection of a five percent franchise tax, and that the RMCs merely implement valid statutory provisions. They argued there is a reasonable classification between POGO licensees and other entities, the taxes comply with situs and uniformity principles, and the issuance of a TRO was unwarranted.

During the case’s pendency, R.A. No. 11590 was enacted, formally taxing all POGOs as entities “engaged in doing business in the Philippines,” imposing a five percent gaming tax on gross gaming revenues, a 25% income tax on non-gaming income within the Philippines for offshore POGOs, and zero-rated VAT on goods and services supplied to POGOs.

ISSUE : WON offshore-based POGO licensees are liable to pay a five percent (5%) franchise tax for income derived from their gaming operations; and 

(2) WON offshore-based POGO licensees are liable to pay income tax, VAT, and other applicable taxes for income derived from their non-gaming operations.

HELD : The Court found the Consolidated Petitions meritorious, declaring Section 11(f) and (g) of the Bayanihan 2 Law, along with RR No. 30-2020, RMC Nos. 64-2020, 102-2017, and 78-2018, unconstitutional and void for imposing taxes on offshore-based POGO licensees without statutory basis. Although R.A. No. 11590 later clarified the taxation of POGOs, including a 5% gaming tax and 25% income tax on Philippine-sourced income, it cannot be applied retroactively. The Court held that prior to Bayanihan 2, no law imposed franchise, income, or VAT taxes on POGOs, and the PAGCOR Charter’s 5% franchise tax applies only to casino licensees, not POGOs. RMC No. 102-2017 and related issuances were invalid for exceeding BIR authority and encroaching on Congress’s exclusive power to tax. Offshore-based POGOs were found not to engage in business in the Philippines, as their income-generating activities occur abroad, and taxation requires source within the Philippines. Section 11(f) and (g) were also ruled unconstitutional as riders, introducing new taxes unrelated to the law’s COVID-19 relief purpose, violating the “one subject, one title” constitutional rule. Consequently, all related tax impositions on offshore POGOs prior to R.A. No. 11590 are null and void.