BIR Ruling [DA-038-05]

January 28, 2005 BIR RULING [DA-038-05] Section 32 (B) (7) (d) Philippine Chess Society 2/F, Amoranto Stadium Quezon City Attention: Mr. Rod Suaco President Gentlemen : This refers to your letter dated May 7, 2003 requesting for reconsideration of the denial of the request for exemption from income tax as contained in BIR Ruling No. 26-2000 dated June 13, 2000. The facts are as follows: 1) International Chess Grandmaster Rogelio (Joey) M. Antonio, Jr. ("GM Antonio") won the 1st Pambansa Millennium Chess Grand Prix sanctioned by the Philippine Chess Federation ("PCF"), a sports association recognized by the Philippine Sports Commission ("PSC"); 2) During the awarding ceremonies, PCF withheld twenty percent (20%) of GM Antonio's One Million Pesos (PhP1,000,000.00) champion's prize in accordance with Revenue Regulations No. 2-98; and 3) GM Antonio refused to accept the reduced prize not only because the PCF announced during the start of the sports competition that the champion's purse would be tax-free, but also because of the existence of R.A. 7549, which exempts all prizes and awards granted to athletes in local and international sports competitions and tournaments from the payment of income tax. DIcTEC On April 27, 2000, Atty. Samuel D. Estimo, in behalf of his client, GM Antonio, requested for a ruling exempting GM Antonio's cash prize amounting to One Million Pesos (PhP1,000,000.00) from income tax. In reply to said request, the Bureau through BIR Ruling No. 026-2000 dated June 13, 2000, denied his request for exemption in the following manner: "In reply, please be informed that Section 32(B)(7)(d) of the Tax Code of 1997 provides that 'All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their respective national sports associations, shall not be included in gross income and shall be exempt from income tax. This section, however, should be read in relation to the provisions of R.A. 7549, dated May 22, 1992, which was integrated in the aforecited section of the Tax Code. Section 2 of the said Act provides that the national sports association shall refer only to those sports associations duly accredited by the Philippine Olympic Committee (POC). The documents submitted by you, however, disclosed that the sports association that organized and sanctioned the aforementioned chess event is not duly accredited by the Philippine Olympic Committee, Thus, the exemption granted under the aforequoted section of the Tax Code of 1997 does not apply to your client. Moreover, tax exemptions are not presumed ( Floro Cement Corp . v . Gorospe , 200 SCRA 480) because it is a cardinal rule in taxation that tax exemption should be construed 'in strictissimi juris' against the taxpayer and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has granted in express terms certain exemptions, those are the exemptions to be considered and no more. ( Esso vs . Acting Commissioner of Customs , 18 SCRA 489) Furthermore, the exemption contained in the tax statutes must be strictly construed against the one claiming the exemption, because the law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. ( Commissioner of Internal Revenue v . P . J . Kiener Company, Ltd ., 65 SCRA 143) In view thereof the prize money won by your client, GM Rogelio (Joey) M. Antonio, Jr., is subject to 20% final withholding tax under Section 24(B)(1) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98." By virtue of this pronouncement, you now request for reconsideration thereby reiterating your request for an exemption from income tax of GM Antonio's cash prize amounting to One Million Pesos (PhP1,000,000.00) on the following grounds: 1) The premise that since the PCF which sanctioned the Millennium Chess Tournament is not accredited by the POC, the prizes won in the said tournament is not exempt from income tax, is misplaced. This is supported by the letter sent to this Office, dated May 8, 2000, by former Congressman Leonardo B. Fugoso, the author of House Bill No. 22232, which later became R.A. 7549, viz : "The center of controversy, lies in Section 2, both in House Bill #22232 and Republic Act No. 7549 which reads: 'Sec. 2 as used in this Act, the term: (2) National sports association shall mean those duly accredited by the Philippine Olympic Committee.' There should only be one (1) National Sports Association for every sport. SAcCIH To be sure that a sports organization is truly the National Sports Association, a reliable body has been designated to act on this job. At that time, only the Philippine Olympic Committee was in a position to discharge this duty, hence it was chosen to accredit the different sports association, accreditation includes identification and determination of the legitimate national association. So that if the Philippine Chess Federation is the only national association for chess, then Grand Master Antonio is qualified to the exemption." 2) The Philippine Sports Commission certified that the Philippine Chess Federation is the recognized national sports association for chess in the Philippines. On the basis of the foregoing, we proceed to rule on the new grounds raised for our consideration. In reply, please be informed that it is a rule of statutory construction that where one statute deals with a subject in general terms and another in a more detailed way, they should be harmonized if possible. However, if there is any conflict, the latter shall prevail regardless of whether it was passed prior to the general statute. Section 32(B)(7)(d) of the Tax Code of 1997 did not repeal R.A. 7549. Accordingly, Section 32(B)(7)(d) of the Tax Code of 1997 and R.A. 7549 must be construed as harmonious parts of one law; the former being of a general character, the latter being of a special nature. R.A. 7549 must be treated as a special qualification of Section 32(B)(7)(d) of the Tax Code of 1997. Moreover, Section 2 of R.A. 7549 limits the application of the law only to prizes and awards granted to athletes in sports tournaments and competitions sanctioned by their respective national sports associations accredited by POC. Thus, excluding from the scope of the statute that which otherwise would be within its terms (50 Am . Jur ., 457) and excluding some possible ground of misinterpretation of it, as by extending it to cases not intended by the legislature to be brought within its purview ( Hague vs. Jefferson County , 32 So. 2d., p. 810). Granting, for the sake of argument that the Philippine Chess Federation is the only national sports association for chess in the Philippines and recognized by the Philippine Sports Commission as such, nevertheless, it is not accredited by the Philippine Olympic Committee. Since accreditation of the respective national sports association which sanctioned the tournament is a sine qua non requirement under the law, it follows that GM Antonio's cash prize amounting to One Million Pesos (PhP1,000,000.00) is not exempt from income tax, hence, subject to the 20% final withholding tax under Section 24(B)(1) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98. HAIaEc In view of all the foregoing, this Office regrets to deny your request for reconsideration for lack of legal basis. This constitutes our final stand on the matter. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group