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TOPIC: Tax Exemptions


GR. No. 215530 Aug 10, 2016 [PEREZ, J.]

Petition for Certiorari and Prohibition to annul Revenue Memo Circular No. 33-2013 subjecting contractees
and licensees of PAGCOR to income tax.
PAGCOR granted to Bloomberry Resorts and Hotels a provisional license to operate a resort-casino complex at the
Entertainment City project site of PAGCOR (particularly, Solaire Resort and Casino). Pursuant to such license and to
PAGCOR’s Charter (PD 1869), Bloomberry Resorts and Hotels only paid license fees in lieu of taxes. PAGCOR’s
charter provided for exemptions in favour of entities contracting with it.

RA 9337 amended Sec. 27(c) of the NIRC, which excluded PAGCOR from the GOCCs exempt from paying
corporate income tax. In the case of PAGCOR v. BIR, PAGCOR assailed the constitutionality of the amendment, but
the Court upheld its validity. Hence, PAGCOR’s exemption was removed. BIR then issued the said RMC to
implement RA 9337, which provided that in addition to the 5%franchise tax on its gross revenue; PAGCOR will now
have to pay corporate income tax. The said law also provides that PAGCOR’s contractees and licensees, including
entities involving gambling/recreation, are also subject to income tax.

Bloomberry Resorts and Hotels contends that the CIR cannot issue RMCs that are inconsistent with law;
and that since the RMC would affect the exemption granted, it was issued by the CIR with grave abuse of discretion.
CIR said that there was no grave abuse of discretion as the RMC did not alter, modify, or amend the intent of the
Charter. It merely clarified the taxability of PAGCOR and its contractees and licensees for income tax purposes


Whether or not the provision in RMC 33-2013 is valid or constitutional considering that Section 13(2)(b) of
PD No. 1869, as amended (PAGCOR Charter), grants tax exemptions to such contractees and licensee.


No. Under Section 13 of PD No. 1869 evidently states that payment of the 5% franchise tax by PAGCOR
and its contractees and licensees exempts them from payment of any other taxes, including corporate income tax.
The exemptions granted for earnings derived from operations conducted under the franchise shall inure to
the benefit of and extend to corporations, associations, agencies, or individuals with PAGCOR or operator
has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under
this Franchise, so it must be that all contractees and licensees of PAGCOR, upon payment of the 5% franchise tax,
shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of

Here, upon payment of the 5% franchise tax, petitioner's income from its gaming operations of gambling
casinos, gaming clubs and other similar recreation or amusement places, and gaming pools, defined within the
purview of the aforesaid section, is not subject to corporate income tax.

Thus, the RMC No. 33-2013 is not valid insofar as it imposes corporate income tax on Bloomberry Resorts
and Hotels, Inc. income derived from its gaming operations.
TOPIC: Corporate Income Taxation (Joint Venture)


G.R. No. 112675. January 25, 1999 [PANGANIBAN, J]


The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance policies for machines.
The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with
the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance
corporation. The reinsurance treaties required petitioners to form a pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an “Information Return of
Organization Exempt from Income Tax” for 1975. On the basis of this, the CIR assessed a deficiency.

Petitioners contend that they cannot be taxed as a corporation, because (a) the reinsurance policies were written by
them individually and separately, (b) their liability was limited to the extent of their allocated share in the original risks
insured and not solidary, (c) there was no common fund, (d) the executive board of the pool did not exercise control
and management of its funds, unlike the board of a corporation, (e) the pool or clearing house was not and could not
possibly have engaged in the business of reinsurance from which it could have derived income for itself.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their appeal.

The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation, and that the latter’s
collection of premiums on behalf of its members, the ceding companies, was taxable income.


Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions,
and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a


YES. Section 24 of the NIRC covered these unregistered partnerships and even associations or joint accounts,
which had no legal personalities apart from their individual members.

“SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is
hereby imposed upon the taxable net income received during each taxable year from all
sources by every corporation organized in, or existing under the laws of the Philippines, no matter
how created or organized, but not including duly registered general co-partnership (compaias
colectivas), general professional partnerships, private educational institutions, and building and
loan associations xxx”
Here, companies entered into a Pool Agreement or an association that would handle all the insurance
businesses covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich. The
following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables that are deposited in the name
and credit of the pool. This common fund pays for the administration and operation expenses of the
(2) The pool functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies.
(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is
indispensable, beneficial and economically useful to the business of the ceding companies and
Munich, because without it they would not have received their premiums. The ceding companies share
in the business ceded to the pool and in the expenses according to a Rules of Distribution annexed to
the Pool Agreement. Profit motive or business is, therefore, the primordial reason for the pools
The fact that the pool does not retain any profit or income does not obliterate an antecedent fact that of
the pool being used in the transaction of business for profit. It is apparent, and petitioners admit, that their
association or coaction was indispensable to the transaction of the business. Hence, there is a partnership or
association or partnership subject to tax as a corporation.