Bloomberry ordered to pay P49M in deficiency documentary stamp tax

The Court of Tax Appeals has ordered Bloomberry Resorts Corporation, operator of Solaire Resort Entertainment City, to pay P49 million worth of deficiency documentary stamp tax (DST), including surcharges and interest, over the loans and advances it gave its non-resident foreign affiliate companies.

In a 37-page decision via a split 2-1 vote, the court said the loans and advances Bloomberry granted to its non-resident foreign corporation affiliates Solaire Korea Co., Ltd. and Golden & Luxury Co. Ltd. were subject to DST as provided under Sections 173 and 180 of the Tax Code, among other provisions of the same law.

“Based on the foregoing, all loan agreements, whether made or signed in the Philippines or abroad, when the obligation or right arises from Philippine sources or the property or object of the contract is located in the Philippines, shall be subject to the payment of DST," the CTA said.

"In cases where no formal agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities,” it added.

“Moreover, all parties to the transaction are primarily liable for the DST, not only the person making, signing, issuing, accepting, or transferring the document or facility evidencing the transaction," the CTA said.

"Any of the parties thereto shall be liable for the full amount of the tax due. However, when one party is exempted from paying tax, the other party who is not exempt would be liable,” it CTA added.

GMA News Online sought comment from Bloomberry but it has yet to reply as of posting time. Its comment will be posted as soon as it is available.

Bloomberry argued before the court  that such loans and  advances were not covered by Sections 173 and 179 of the Tax Code because the obligors, Solaire Korea Co., Ltd., and Golden & Luxury Co. Ltd., were not residents of the Philippines and hence, the said loans and advances are not "obligation or right arising from Philippine sources.”

Likewise, Bloomberry asserted that the "object" in this case which are the loan proceeds of the loan and advances being subjected by the Bureau of Internal Revenue to DST, were used for the gaming operations of Solaire Korea Co., Ltd., and Golden & Luxury Co. Ltd., in the Republic of Korea, both of which are non-resident foreign corporations operating outside the Philippines.

“The 'object' of each of these contracts is not located or not used in the Philippines.  Thus, even assuming that the loans and advances represent borrowing and lending transactions between the petitioner and its non-resident foreign affiliates, the same cannot be subject to DST under Section 179 of the Tax Code because the "object" of each such loan and advance is located or used outside the  Philippines,” Bloomberry said in its court arguments.

The court, however, was not persuaded and cited that Bloomberry’s disclosures in Notes 4, 8, and 12 of the Notes to Parent Company Financial Statements attached to its  Audited Financial Statements as of December 31, 2015, which showed that loans were extended to Solaire Korea Co., Ltd. and Golden & Luxury Co. Ltd. and that Bloomberry is the principal party to the loan transaction being the lender, creditor or obligee.

“This contention fails to persuade. Its (Bloomberry) involvement as an obligee made the transaction one that arises from Philippine sources under Section 173.  Thus, even if the obligors are non-resident foreign corporations, since the petitioner, the obligee, is a domestic corporation organized under Philippine laws, the said loans and advances clearly involve "obligation or right arising from Philippine sources”,” the CTA pointed out.

“DST is, by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law.  It is an excise tax because it is imposed on the transaction rather than the document. In the instant case, petitioner [Bloomberry] does not dispute nor deny that it extended loans to its non-resident foreign affiliates. It admitted the existence of its borrowing and lending transactions with Solaire Korea Co., Ltd., and Golden & Luxury Co. Ltd. by declaring the loan amount extended to them as "Receivables” and as "Due from a related party in its 2015 Annual Financial Statement,” the CTA added.

Moreover, the CTA said there is nothing in Sections 173 and 179 of the Tax Code which requires that the loan proceeds,  referred to by petitioner Bloomberry as the "object" of the loans and advances, be located or used in the Philippines.

“In Section 179, the term "debt instrument" shall mean debt instrument representing borrowing and lending transactions, including but not limited to ... loan agreements,  including those signed abroad wherein the object of the contract is located or used in the Philippines. Indeed, the phrase "including those signed abroad wherein the object of the contract is located or used in the  Philippines" applies to loan agreements signed abroad, which is not the situation in the instant case. Hence, the petitioner's reliance on the said phrase is erroneous,” the tax court said.

“Accordingly, petitioner [Bloomberry] is ordered to pay respondent [Bureau of Internal Revenue] the aggregate amount of P49,149,426.14, inclusive of the  25% surcharge and deficiency interest imposed under Sections  248(A)(3) and 249(B) of the NIRC of 1997, as amended by  Republic Act No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN),” the CTA added.

The 37-page decision was penned by CTA Special Second Division Associate Justice Lanee Cui-David, and concurred by Associate Justice Corazon Ferrer-Flores.

Associate Justice Jean Marie Villena dissented. —NB, GMA Integrated News