BIR Ruling

January 25, 1968 Mrs. Imelda Romualdez Marcos Chairman, Board of Trustees Cultural Center of the Philippines Manila M a d a m : This refers to your letter dated December 19, 1967 requesting a ruling as to the tax status of the Cultural Center of the Philippines (hereinafter referred to as the Center). As represented, the Center was organized and created by virtue of Executive Order No. 30, Series of 1966, issued by His Excellency, the President of the Philippines for the following objectives, viz.: to construct, establish and maintain in a single site a national theater, a national music hall, an art and such other buildings and facilities as are necessary or desirable for the holding of conferences, seminars, concerts and the like; to awaken the consciousness of our people to our cultural heritage, and to encourage them to assist in its preservation, promotion, enhancement and development; to cultivate and enhance public interest in and appreciation of, distinctive Philippine arts in various fields; to discover, assist and develop talents connected with Philippine cultural pursuits and create greater opportunities for individual and national self-expression in cultural affairs; and to encourage the organization of cultural groups, associations or societies and the holding of staging of cultural exhibitions, performances and similar activities; that for the accomplishment and in furtherance of the aforementioned objectives, the Center, acting through its Board of Trustees, shall have the power to acquire and hold property of whatever nature and description, and to dispose of such property; to enter into such contract or contracts as are deemed necessary by its Board of Trustees to carry out or accomplish the purposes and objectives of the Center; to solicit donations and funds in the form of contributions, whether in cash or in property, from both the public and private sectors; to open such accounts in and with banks and other financial institutions, and to disburse such funds or invest the same as the Board may direct to accomplish or advance the purposes of the Center; to invite foreign artists and concert and cultural troupes to perform or hold exhibits in the Philippines; to sponsor or assist in the sponsorship of foreign performances by local artists and cultural groups; to adopt rules and regulations consistent with law and the provisions of the Executive Order, to govern the administration and operation of the affairs of the Center; to call upon any department, bureau, office, agency or instrumentality of the government, including government-owned or controlled corporation, for such assistance it may need in pursuing its purposes and objectives; and to do all such other acts and things as are or may be necessary for the accomplishment of the purposes and objectives of the Center; that in addition to donations and contributions from private benefactors, the Center, by virtue of an "Exchange of Notes" and a formal agreement between the Philippines and the United States governments, has been awarded the sum of $3,500,000, U.S. currency, from the Special Fund for Education authorized by U.S. Public Law 88-94; that the said amount has been made available to the Center for the purpose of providing it with a capital fund for investment, the earnings of which are to be applied solely to financing the operations and programs of the Center; that the Center has to maintain and is maintaining now an investible capital fund which it has denominated as the "Cultural Development Fund" (hereinafter referred to as the Fund); that with the assistance of investment advisers from both the government and private sectors, the Center is programming an investment plan by which it expects to generate earnings from the Fund adequate to service the financial requirements of the Center's current and long term projects; that the Center is structured to operate under the supervision of the Office of the President and shall be administered by a Board of seven (7) Trustees appointed by the President to serve without compensation for four year terms, headed by a chairman elected by the Trustees from among their number. The chairman shall discharge chief executive functions; that the Center shall render to the President of the Philippines an annual report of its activities and recommendations; that its books and accounts will be subject to periodical audit by the Auditor General or his authorized representative; and that if for any reason whatsoever the Center should be dissolved or discontinued, its assets shall revert to the government for distribution in accordance with applicable law. lexlib You now ask the following question, viz: whether or not the Center is subject to income tax on income from its invested capital fund. In reply thereto, I have the honor to inform you that as a general rule the Government or any of its political subdivisions, instrumentalities or agencies is not subject to tax. Such being the case, any income accruing to and/or derived by it to finance and subsidize its projects designed to promote public welfare or interest, either from contributions or donations or from investment of said donations and/or its funds is exempt from income tax. In view of all the foregoing, and it appearing that the Center is a government instrumentality or agency, this Office believes and so holds that the Center is exempt from the payment of income tax on its earnings derived from investment of its capital fund. Moreover, pursuant to Section 30(h) of the Tax Code, donations or contributions made by an individual or corporation to the Center for the aforementioned purposes are deductible from their gross income to an amount not in excess of 6% in the case of the individual, and 3% in the case of a corporation, of the donor's taxable net income as computed without the benefit of this deduction. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue