Bloomberry Resorts and Hotels Inc, the subsidiary of Bloomberry Resorts Corp operating the casino in Manila’s Solaire Resort & Casino, has filed a court case that could potentially end a truce between the country’s gaming industry and the country’s taxman.
The lawsuit, lodged on Wednesday with the Philippines’ Supreme Court, questions the validity of an April 2013 memo issued by the Bureau of Internal Revenue (BIR). It imposed corporate income tax at a rate of 30 percent on the private sector casino operators licensed by the country’s gaming regulator-cum-operator, the Philippine Amusement and Gaming Corp.
Bloomberry said in a filing on Thursday to the Philippine Stock Exchange it would argue that the tax office’s memo was contrary to a presidential decree issued in 1983. That states that because of Pagcor’s proven ability to contribute to the country’s tax base, any private sector partners it recruited as casino operators should face “governmental audit only to the determination of the 5 percent franchise tax [levied on casino licensees] and the government’s share of 50 percent of the gross earnings”.
The BIR’s April 2013 announcement was followed by behind-the-scenes negotiations to arrive at a compromise. One of the few public comments was from Melco Crown Entertainment Ltd’s co-chairman Lawrence Ho Yau Lung, in response to analysts’ questions. He said in June that year he was “hopeful” that the Philippine government “will do the right thing” – a clear signal that the industry expected the taxman to relent on the corporate tax. Melco Crown is an equity owner in the US$1.26-billion City of Dreams Manila, due to open in October, in partnership with Belle Corp, the local side of the joint venture.
Pagcor announced last month that it was cutting taxes on VIP and mass gambling by 10 percentage points for its private sector franchisees. That was in lieu of the BIR’s corporate tax decision. Pagcor didn’t say however how long the gaming tax break would last.
The fact that Bloomberry is now challenging the right of the original BIR decision to stand might reflect the fact that Solaire is now in the black. It posted a net profit of 1.46 billion pesos (US$32.78 million) following the US$1.2-billion venue’s first-phase opening in March 2013.
Industry sources told GGRAsia the legal move might also indicate that the Filipino personalities behind the new wave of casino investments in Manila – including Enrique Razon (pictured), chairman of Bloomberry, and the family of Henry Sy, which controls Belle Corp –, who are some of the country’s wealthiest and most influential families, are still not happy with the compromise reached.
One industry source told us: “These guys are not going to let their investments suffer. They are not afraid to push back against the BIR.”
A second industry source told us: “It’s likely that Bloomberry has had legal advice that it needs to establish the lawfulness or otherwise of the BIR memo on corporate income tax for the private sector casinos. Otherwise, it could be squeezed in the middle if for any reason the tax cuts on gross gaming revenue introduced by Pagcor were to end.”
Separately, Bloomberry’s chief executive Mr Razon said on Thursday at the firm’s annual stockholder’s meeting that it was in talks with a potential Japanese partner for a casino resort investment there if such facilities are legalised.
At the Japan Gaming Congress in Tokyo last month, Tom Arasi, president and chief operating officer of Solaire – who previously worked in Japan – gave an entire presentation on Bloomberry and Solaire in Japanese.
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