Tax rules for “e-sabong” companies

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At the height of the Covid-19 pandemic, when mobility was severely restricted, companies resorted to alternative modes of operation, often involving modern technologies and the use of online platforms. This gave rise to the company “e-sabong”.

E-sabong is online and/or remote or off-site betting/betting on live cockfighting matches, events and/or activities streamed or broadcast live from cockpits licensed or authorized by the local government units that have jurisdiction over them. E-sabong fights are streamed live online and bettors can place bets through different agents who use different platforms.

In response to the need for increased national funds amid soaring prices and government spending, the Bureau of Internal Revenue (BIR) has released several guidelines that cover online businesses. These include Circular Revenue Memorandum (RMC) 25-2022 issued on March 11, 2022, which clarifies the taxation of the controversial e-sabong activity.

In accordance with tax laws, the RMC requires e-sabong entities to comply with requirements applicable to business establishments, such as business registration, filing of applicable tax returns and payment of correct internal income taxes, maintenance of books of accounts and other registers, and withholding tax and remitting the required withholding tax and issuing to the beneficiaries concerned the necessary withholding tax certificate. The RMC also authorizes the BIR to inspect wagering devices used in the collection, consolidation and recording of wagers made when betting online on locally licensed games.

Taxation of e-sabong

The taxation of gambling operations in the Philippines originates from Presidential Executive Order 1869, as amended, or the charter of the Philippine Amusement and Gaming Corporation (Pagcor). The charter grants Pagcor the power to operate and license gaming casinos, gaming clubs and other similar places of recreation or amusement, and gaming pools – i.e. basketball, football, bingo, etc. with the exception of jai-alai – whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines, and levies a franchise tax of five percent on the gross revenue or profits that franchisees derive from transactions covered by their franchises.

In the RMC, BIR specifically mentions Bloomberry Resorts and Hotels, Inc. v. BIR, in which the Supreme Court, referring to previous decisions, held that Bloomberry, as a contractor and licensee of Pagcor, was subject to a five percent deductible. tax in lieu of all other taxes except Value Added Tax (VAT) or percentage tax on one’s gambling earnings and normal corporate income tax on d other related activities.

Consistent with the Bloombery case, the RMC discussed the appropriate tax treatment of income generated from e-sabong operations or activities, as follows:

* Gaming revenue from e-sabong operations by an e-sabong operator is subject to a 5% franchise tax instead of all internal revenue taxes except VAT or percentage tax, with the exception of the supply of goods and services to Pagcor, which is subject to zero percent VAT.

* Service income from e-sabong operations by an e-sabong operator will be subject to ordinary income tax, VAT or percentage tax, withholding tax and other taxes deemed appropriate.

* Other e-sabong income by an e-sabong operator from all other activities other than income from the e-sabong license issued by Pagcor will be subject to ordinary income tax, VAT or percentage tax, withholding tax and other taxes.

*Commission income earned by a third party e-sabong agent/main agent will be subject to income tax, VAT or percentage tax, withholding tax and other taxes deemed appropriate.

*Commission income earned by a third party e-sabong promoter/coordinator will be subject to ordinary income tax, value added tax or percentage tax, withholding tax and tax. other taxes deemed appropriate.

* Income earned by the cockpit owner/operator for using the e-sabong operator arenas/sites will be subject to ordinary income tax, VAT or percentage tax, withholding tax and other taxes deemed appropriate.

* Income received by a Third Party Host of the Out-of-Cockpit Betting Station (OCBS) from the OCBS will be subject to ordinary income tax, VAT or percentage tax, withholding at source and other taxes deemed appropriate.

* Income received by a third party gamecock owner from the e-sabong operator in connection with the e-sabong operation will be subject to ordinary income tax, VAT or percentage tax, subject to threshold, withholding and other taxes as may be deemed appropriate.

* Other income derived or received by any person or entity in connection with e-sabong operations not included in the enumerations above will be subject to appropriate taxes, including but not limited to withholding taxes. final sources and others.

* In addition to penalties and sanctions imposed by appropriate government regulatory bodies, income generated by unauthorized e-sabong operators and entities providing ancillary services to unauthorized e-sabong operations will not be covered by the tax regime provided for in the Pagcor charter. but rather subject to the appropriate taxes and penalties provided for by the Tax Code, as amended.

With proper implementation and cooperation from business entities, there is hope that the e-sabong industry can be part of the engine of recovery as the Philippine economy moves forward from this pandemic.

The author is a senior partner in the Tax and Corporate Services division of Deloitte Philippines (Navarro Amper & Co.), a member of the Deloitte Asia Pacific Network. For comments or questions, email [email protected] Deloitte Asia Pacific Ltd. is a company limited by guarantee and a member firm of Deloitte Touche Tohmatsu Ltd. Members of Deloitte Asia Pacific Ltd. and their related entities, each separate and independent legal entities, provide services from more than 100 cities across the region, including Auckland, Bangkok, Beijing, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Manila, Melbourne, Osaka, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo and Yangon.

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