Month: March 2022

CLARIFYING THE TAXABILITY OF ELECTRONIC SABONG (e-SABONG) OPERATIONS AS REGULATED BY THE PHILIPPINES AMUSEMENT AND GAMING CORPORATION (PAGCOR) (Revenue Memorandum Circular No. 25-2022, March 11, 2022)

• Electronic Sabong or  e-Sabong is the online and/or remote or offsite wagering/betting  on live cockfighting matches, events and/or activities streamed or broadcasted live from cockpit arena/s licensed or authorized by the LGU.
• The Supreme Court held that like PAGCOR, its contractors and licensees remain exempted from payment of corporate income tax and other taxes except from 5% franchise tax on their income from gaming operations. However, the ruling is in CIR v. Acesite (Philippines) Hotel Corporation and CIR v. Thunderbird Pilipinas Hotel & Resorts Inc., which held that PAGCOR is also exempted from indirect tax like VAT. However, the tax exemption on VAT only extends to those individuals or entities who have contracted with PAGCOR (PAGCOR contractees not licensees)

Taxability of e-Sabong Operations

• E-Sabong Operator's lncome
  • lncome from e-Sabong Operation refers to the Gaming income and/or Service income generated from activities authorized under the e-sabong license issued by PAGCOR, including but not limited to those derived from the plasada.
    • Gaming Income from e-Sabong Operation by the e-Sabong Operator shall be subject to 5% franchise tax in lieu of all internal revenue taxes except for VAT and Percentage Tax, depending on the threshold, and shall be directly remitted to BIR. Also, the franchise tax is separate and distinct from the licensing and regulatory fees payable to PAGCOR.
    • In the event that the e-Sabong Operator has contracted PAGCOR for the provisions of goods and services in connection with PAGCOR’s gaming operation, then such shall be subject to VAT at zero rate.
    • Service Income from e-Sabong by an e-Sabong Operator shall be subject to regular income tax, VAT or percentage tax, withholding tax and other taxes, as may be deemed appropriate. The 5% franchise tax in lieu of all internal revenue taxes shall not apply.
  • Other Income from e-Sabong Operation refers to all income or earnings realized by the e-Sabong Operator from all other activities (i.e., advertisements, promotions, etc.) whose authorization does not derive from the e-Sabong license issued by PAGCOR.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate. The 5% franchise tax in lieu of all internal revenue taxes shall not apply.
  • Agent's Commission - the Commission income received by an authorized Third-Party Master Agent/Agent, which is usually computed as a percentage of the bets from e-sabong players registered under his/her account.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual) for the account of Agent/Master Agent
  • Promoter/Coordinator's Commission - the Commission income received by a Third-Party e-sabong Promoter/Coordinator for services rendered to the e-Sabong Operator.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual) for the account of the Promoter/Coordinator
  • Cockpit Owner/Operator's income from e-sabong Operation - the revenue accruing to the Third-Party Cockpit Owner/Operator for the use of the cockpit arenas/venues in holding cockfights for e-sabong duly licensed by the Local Government Units (LGUs) and registered with PAGCOR.
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual)
  • GameCock Owner's income from e-Sabong Operation the revenue accruing to a Third-Party Gamefowl breeder who supplies the gamecocks utilized in the cockfights under the e-Sabong platform/system
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit the corresponding creditable withholding taxes due (5%/10% for Individual, 5%/10% for non-individual)
  • Duly Licensed Third-Party Betting Station Host income from e-sabong Operation the revenue accruing to the Third-Party OCBS Host duly licensed by PAGCOR for setting up a betting station who shall source live stream of cockfights from an e-sabong Operator
    • This shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit 2% creditable withholding taxes for the account of the Third Party OCBS Host.
  • lncomereceived by a Third-Party Gamecock Owner from the e-sabong Operator in relation to the e-Sabong operation shall be subject to regular income tax, VAT or percentage tax depending on the threshold, withholding tax and other taxes, as may be deemed appropriate.
    • The e-Sabong Operator shall withhold and remit 2% creditable withholding taxes for the account of the Third Party Game Cock Owner
  • Other income derived or received by any person/s or entity/ies in relation to the operation/s of e-sabong not included in the above-mentioned enumeration shall be subject to appropriate taxes, including but not limited to final withholding taxes and the like.

SUSPENSION OF INCOME TAX INCENTIVES GRANTED TO REGISTERED BUSINESS ENTERPRISES (RBEs)  FOR VIOLATING THE WORK-FROM-HOME(WFH) THRESHOLD PRESCRIBED BY THE FISCAL INCENTIVES REVIEW BOARD (Revenue Memorandum Circular No. 23-2022, March 9, 2022)

• Fiscal Incentives Review Board (FIRB) is a government agency that oversees the administration and grant of tax incentives by Investment Promotion Agencies (IPA) pursuant to CREATE.
• FIRB has issued Resolution Nos. 19-21 and 23-21 which allows RBEs of the Information Technology – Business Process Management (IT-BPM) sector to continue implementing work-from-home arrangements amidst COVID-19 pandemic without adversely affecting their fiscal incentives until March 31, 2022 subject to all of the following conditions:
  1. The number of employees under a WFH arrangement shall not exceed ninety percent (90%) of the total workforce of the RBE; Provided, that beginning January 1, 2022, the ceiling shall be reduced to seventy-five percent (75%) for the remainder of the period; Provided further, that if the State of Calamity due to COVID-19 is extended to any date beyond January 1, 2022, the ceiling shall be maintained at ninety percent (90%) until March 31, 2022;
     • Total workforce includes those who are directly or indirectly engaged in the registeredproject or activity. However, those under third-party contractors are not included.
  2. The number of computer laptops/other equipment of the RBE outside the ecozone should not exceed the number of its employees who are under WFH arrangement;
  3. Bonds shall be posted for all equipment (e.g. computer desktops and laptops) deployed by the RBE to their employees' homes, to ensure payment of taxes and duties if any such equipment is not returned to the site of the RBE after the WFH arrangement;
  4. Revenues from export as required shall be maintained regardless of the allowed ratio of employees who will work from home. Provided that the current number of employees shall not be reduced regardless if the majority of their employees are working from home; and
  5. The RBE shall comply with the reportorial requirements and site inspection, as may be required by the FIRB or lPA.
• Non-compliance with all conditions shall be meted with the suspension of the income tax incentive on the revenue corresponding to the months of non-compliance
• RBE shall pay the regular income tax of 20% or 25% based on the net taxable income for the corresponding months with violation
  1. For RBEs with no existing transactions subject to regular income tax rate;
  2. BIR Form 1702-MX shall be used for the voluntary payment of the income tax due. RBEs with existing transactions subject to regular income tax rate, payment shall be made through BIR Form 0605 and bank-validated copy shall be attached to AITR;

In the absence of voluntary payment or insufficiency, RBE shall be subjected to an audit pursuant to Letter of Authority (LOA).

Voluntary Dissolution where no Creditors are Affected (Sec. 134)

• Initiated by filing a verified request with the Company Registration and Monitoring Department (“CRMD”) or SEC Extension Office, signed by the corporation’s duly authorized representative, stating:
  1. Corporate Name, SEC Registration Number, Principal Office and Email Address;
  2. Complete Name, Designation and Mailing Address of Authorized Representative;
  3. Request for Dissolution and the fact that dissolution does not prejudice the rights of any creditor;
  4. Reason for the Dissolution;
  5. Form, Manner, and Time when Stockholder/Member Notices were given;
  6. Names of Stockholders and Directors or Members and Trustees who approved the Dissolution; Provided: Majority of the Directors or Trustees, and Stockholders owning or controlling at least a majority of the Outstanding Capital Stock including the holders of non-voting shares or majority of the Members voted for the Dissolution;
  7. That the above-mentioned Stockholders and Directors, or Members and Trustees are the duly elected Directors or Trustees, and the Stockholders or Members of Record as of the date of the meeting;
  8. Details of Publication (i.e. name of newspaper, complete name of publisher, principal office of publisher, are of circulation, date when notice was published, and contents of notice as published); and
  9. That the Corporation has no pending case involving intra-corporate dispute.
• Verification and Certification Against Forum Shopping– the Verified Request for Dissolution shall contain an affidavit and certification duly signed by the authorized representative of the corporation.
• Supporting Documents:
  1. A notarized copy of the Board Resolution or Director’s/Trustee’s Certificate authorizing the dissolution and designating an authorized representative, signed by a majority of the board of directors or trustees and countersigned by the corporate secretary;
  2. Publisher’s Affidavit of Publication of the Notice of the Meeting;
  3. Latest General Information Sheet;
  4. Audited Financial Statements, except:
     • Where the applicant has ceased operations for at least one (1) year;
     • Where the applicant has no operation since incorporation;
     • Where the applicant is with total assets or liabilities of less than PhP600,000.00.
  5. Affidavit executed under oath by the President and Treasurer that:
     • That the dissolution is not prejudicial to the interest of creditors; and
     • There is no opposition from any creditors from the time of publication of the notice of dissolution up to the filing of the dissolution with the Commission.
  6. Bureau of Internal Revenue (“BIR”) Tax Clearance;
  7. Notarized Secretary’s Certificate of no pending case involving intra-corporate dispute;
  8. Clearance/favorable recommendation from other Departments of the Commission or from appropriate regulatory agencies, when necessary.
• Withdrawal of Request for Dissolution– within fifteen (15) days from receipt by the Commission of the Verified Request for Dissolution, made in writing and duly verified by any incorporator, director, trustee, shareholder, or member and signed by majority of the directors or trustees, and stockholders owning or controlling at least majority of the outstanding capital stock or majority of the members who voted for the dissolution.
• Verification of Withdrawal– the verified withdrawal of request for dissolution shall contain an affidavit duly signed by any incorporator, director, trustee, shareholder, or member, which shall allege:
  1. The allegations in the Verified Withdrawal of Request for Dissolution are true and correct based on his or her personal knowledge, or based on authentic documents;
  2. The Verified Withdrawal of Request for Dissolution is not filed to harass, cause unnecessary delay, or needlessly increase the cost of regulation and/or litigation;
  3. The factual allegations therein have evidentiary support, or if specifically identified, will likewise have evidentiary support after reasonable opportunity for discovery.
• Approval and Issuance of Certificate– fifteen days from receipt of the Verified Withdrawal of Request for Dissolution the Commission shall issue the Certificate of Dissolution. The Dissolution shall take effect only upon the issuance by the Commission of the Certificate of Dissolution.

• Dissolution by Shortening Corporate Term (Sec. 136)
  • Documentary Requirements where Proposed Expiration of the Corporate Term is 1 Year or Morefrom approval of application submitted to the Corporate and Partnership Registration Division (“CPRD”) of CRMD or SEC Extension Offices:
    1. Cover Sheet;
    2. Notarized Directors’ Certificate signed by majority of the directors or trustees and the corporate secretary, attesting that: a) the dissolution by shortening of corporate term was approved by majority of the board of directors/trustees and ratified by at least 2/3 vote of the stockholders representing the outstanding capital stock, including holders of non-voting shares/members; b) date and place of the stockholders’ or members’ meeting; and c) the tax identification number of the signatories which shall be placed below their names.
    3. Amended Articles of Incorporation;
    4. Compliance Monitoring Division (“CMD”) Monitoring Clearance;
    5. Notarized Secretary’s Certificate of no pending case involving intra corporate dispute;
    6. Clearance/favorable recommendation from other Departments of the Commission or from the appropriate regulatory agency, when needed.
  • Documentary Requirements where Proposed Expiration of the Corporate Term is Less than 1 yearfrom approval of application submitted to the Corporate and Partnership Registration Division (“CPRD”) of CRMD or SEC Extension Offices:
    1. Cover Sheet;
    2. Notarized Directors’ Certificate signed by majority of the directors or trustees and the corporate secretary, attesting that: a) the dissolution by shortening of corporate term was approved by majority of the board of directors/trustees and ratified by at least 2/3 vote of the stockholders representing the outstanding capital stock, including holders of non-voting shares/members; b) date and place of the stockholders’ or members’ meeting; and c) the tax identification number of the signatories which shall be placed below their names.
    3. Amended Articles of Incorporation;
    4. Audited Financial Statements as of last fiscal year, except:
       • Where the applicant has ceased operations for at least 1 year;
       • Where the applicant has no operation since incorporation; and
       • Where the applicant corporation (stock or nonstock) with total assets or liabilities of less than PhP600,000.00.
    5. Affidavit executed under oath by the President and Treasurer that:
       • The dissolution is not prejudicial to the interest of the creditors; and
       • There is no opposition from any creditors from the time of publication of the notice of dissolution up to the filing of the dissolution with the Commission;
    6. BIR Tax Clearance;
    7. Publisher’s Affidavit of Publication of the Notice of Meeting;
    8. Notarized Secretary’s Certificate of no pending case involving intra corporate dispute; and
    9. Clearance/favorable recommendation from other Departments of the Commission or from the appropriate regulatory agency, when needed.
  • The proposed expiration of the corporate term for all applications for amendment filed under Sec. 136 of the RCC must contemplate a future date.
  • Effectivity of Dissolution– upon expiration of the shortened term as stated in the approved amended articles of incorporation, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this Code on Liquidation. Dissolution shall automatically take effect on the day following the last day of the corporate term stated in the amended articles of incorporation, without need of issuance of certificate of dissolution.
• Involuntary Dissolution (Sec. 138 and Sec. 6i of PD 902-A)
  • Grounds under Section 138 of the RCC – Commission may, motu proprio, or upon filing of a verified complaint by any interested party, dissolve a corporation based on the following:
    1. Non-use of corporate charter;
    2. Continuous inoperation;
    3. Receipt of a lawful order dissolving the corporation;
    4. Upon finding by final judgment that the corporation procured its incorporation through fraud; and
    5. Upon finding by final judgment that the corporation:
       • Was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices;
       • Committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices, and its stockholders knew; and
       • Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers, or employees.

*when another agency or tribunal has been identified by law as the primary regulator, investigative or administrative body for specific cases such as smuggling, tax evasion, money laundering, or graft and corrupt practices, all complaints or petitions for revocation shall be endorsed to said primary regulator, investigative or administrative body, for their appropriate action.

• Grounds under Section 6i of PD 902-A
  1. Fraud in the procurement of certificate of registration;
  2. Failure to file or register any of the following for a period of at least 5 years of a) Financial Statements; b) General Information Sheet; and c) Stock and Transfer Book or Membership Book.
• Documentary Requirements for verified complaint filed by interested parties submitted to the CRMD and SEC Extension Office:
  1. Verified Complaint/Petition;
  2. Certificate against Forum Shopping;
  3. Secretary’s Certificate authorizing the filing of the complaint, if filed by a corporation; and
  4. Affidavits and other documentary evidence to support the claim.

Forfeiture of Assets – If a corporation is ordered dissolved by final judgment its assets, after payment of liabilities, shall, upon petition of the Commission with the appropriate court, be forfeited in favor of the national government. Such forfeiture shall be without prejudice to the rights of innocent stockholders and employees for services rendered, and to the application of other penalties or sanctions under the RCC or other laws.

DISQUALIFICATION OF DIRECTORS, TRUSTEES AND OFFICERS OF CORPORATIONS; AND THE GUIDELINES ON THE PROCEDURE FOR THEIR REMOVAL. (SEC Memorandum Circular No. 04 s. 2022)

• Under Section 26 of Republic Act No. 11232, or the Revised Corporation Code of the Philippines (“RCC”), a person shall be disqualified from being a director, trustee, or officer of any corporation if, within five (5) years prior to the election or appointment as such, the person was:
  • Convicted by final judgment;
    • Of an offense punishable by imprisonment for a period exceeding six (6) years;
    • For violating this Code; and
    • For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code.
  • Found administratively liable for any offense involving fraudulent acts; and
  • By a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) above;
• The same section provides that the SEC or the Philippine Competition Commission (“PCC”) may impose qualifications or other disqualifications in its promotion of good corporate governance or as a sanction in its administrative proceedings.
• Section 27 of the RCC authorizes SEC to motu proprio, or upon a verified complaint, and after due notice and hearing, order the removal of a director or trustee elected despite the disqualification, or whose disqualification arose or is discovered subsequent to the election, and the removal of such shall be without prejudice to other sanctions that the SEC may impose on the board of directors/trustees who, with knowledge of the disqualification, failed to remove such director/trustee.
• Administrative Sanctions – In addition to the removal as a director, trustee and/or officer, SEC may issue a permanent cease and desist order, and/or impose a fine ranging from PhP10,000.00 – PhP400,000.00 for each violation of the SEC’s orders, or any of the provisions of the RCC on the disqualifications and removal of directors, trustees and/or officers.
• One Person Corporations – In case of removal of the sole director under these rules, the nominee shall take the place of the single stockholder as director and shall manage the corporation’s affairs.
• Disqualifications of Directors, Trustees and Officers – In addition to the above, the following are additional grounds for the disqualification of directors, trustees and officers:
  • Within the tenure, the director, trustee or officer was convicted by final judgment of an offense punishable by imprisonment for a period exceeding 6 years;
  • Within the tenure, the director, trustee or officer was convicted by final judgment for violating the RCC;
  • Within the tenure, the director, trustee or officer was convicted by final judgment for violating the SRC;
  • Within 5 years prior to the election or appointment, the director, trustee or officer was found administratively liable, by final judgment, for any offense involving fraudulent acts punishable under the RCC, SRC, and other laws, rules and regulations enforced or implemented by the SEC;
  • Within the tenure, the director, trustee or officer was found administratively liable, by final judgment, for any offense involving fraudulent acts punishable under the RCC, SRC, and other laws, rules and regulations enforced or implemented by the SEC;
  • Within 5 years prior to the election or appointment, the director, trustee or officer was convicted or found administratively liable by a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) of Section 26 of the RCC;
  • Within the tenure, the director, trustee or officer was convicted or found administratively liable by a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct similar to those enumerated in paragraphs (a) and (b) of Section 26 of the RCC; or

Within 5 years prior to the election or appointment, or within the tenure, the director, trustee or officer was found administratively liable, by final judgment, for refusal to allow the inspection and/or reproduction of corporate records.