Tax treatment on POGOs clarified

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    Setting them apart. Government differentiates foreign-based POGOs whose incomes are derived from bets made outside the Philippines from those whose incomes are derived from sources within the country.
    Setting them apart. Government differentiates foreign-based POGOs whose incomes are derived from bets made outside the Philippines from those whose incomes are derived from sources within the country.

    Foreign-based online gaming operators whose source of income is the placement of bets on its online betting facility, which are all derived from outside the Philippines, are not subject to local taxes, the Office of the Solicitor General (OSG) and the Department of Finance (DOF) said.

    Carlos Dominguez, DOF secretary, shared with finance reporters last Tuesday evening a copy of a letter sent by solicitor general Jose Calida, clarifying recent reports on the OSG’s opinion on the taxation of Philippine offshore gaming operators (POGOs).

    Calida stressed that Philippine service providers and local-based POGOs are subject to Philippine taxes.

    “It is a common misconception that POGOs are all Philippine service providers. Contrary to this notion, we clearly defined in our legal opinion that based on the rules and regulations for Philippine Offshore Gaming Operations promulgated by Pagcor (Philippine Amusement and Gaming Corp.), the POGOs we referred to as not subject to income tax are the foreign-based POGOs,” Calida said.

    “There is nothing in the legal opinion that states or even infers that all POGOs and their employees cannot be taxed,” he added.

    Calida said the gaming operations conducted by the Philippine service providers and subscribed to by the foreign-based POGOs are merely cost centers as far as the latter are concerned.

    “Ultimately, a foreign-based POGO’s source of income is the placement of bets on its online betting facility – which are all derived from sources outside the Philippines. This was expressly stated in the legal opinion,” Calida said.

    “In view of the foregoing, an offshore based operator strictly and exclusively deriving income from sources outside the Philippines is not subject to tax based from the source principle, which should be construed together with RMCs (revenue memorandum circulars) No. lO2 2Ol7 and 78-2018,” he added.

    Calida said the OSG’s legal conclusion is consistent with section 23 (F), chapter II of the National Internal Revenue Code, which states that a foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines.

    Asked to comment on this, Dominguez said: “If the POGO (gaming operator) located outside the country caters to foreign gamblers, then it is not subject to tax in the Philippines.”

    “However, the service provider of the POGO located in the Philippines through workers/employees here, is subject to income tax and VAT (value-added tax) on its fees charged to the non-resident POGO,” he added.

    Dominguez said if the POGO is located in the Philippines as licensed by Pagcor, the Bureau of Internal Revenue (BIR) has stated that its revenues are subject to five percent franchise tax.

    Calida mentioned in his letter that POGOs are either Philippine-based or offshore-based companies which engage the services of Pagcor-accredited local gaming agents and service providers for their offshore gaming operations.

    “Notably, all betting and payout systems of POGOs are conducted outside the Philippines.

    On the other hand, Philippine service providers are local companies that perform support services for offshore betting activities,” Calida said.

    “These Philippine service providers are the companies that employ foreigners here in the Philippines, handle the recording and live streaming of such games, and perform IT support services. These companies then sell these live-streamed games to foreign-based POGOs. In turn, the foreign-based POGOs collect bets from its pre-registered clients through its online platform and earn from such activity,” he added.

    Calida said in rendering the legal opinion, the OSG is performing its mandate under the administrative code as the statutory counsel of government and all its departments, bureaus, agencies and instrumentalities.

    “Thus, when requested by our client agencies for legal opinion on matters requiring clarification, we are bound under the law to perform our mandate,” Calida said.

    Nonetheless, Calida recognizes that the BIR is the agency vested with the power to interpret tax laws.

    “The OSG affirms its full support to the efforts of the BIR and DOF to tax POGOs and their employees in the country,” Calida said.

    “Moreover, the OSG supports the legislative efforts of Congress to streamline the efficient collection of taxes from these entities,” he added.