BIR Ruling [DA-300-05]

July 1, 2005 BIR RULING [DA-300-05] Sec. Roberto M. Pagdanganan Chairman and CEO Philippine SEA Games Organizing Committee Foundation, Inc. 9th Floor NDC Building, 116 Tordesillas St. Salcedo Village, Makati City S i r : This refers to your request for a legal opinion on the tax consequence of donations made to the Philippine Southeast Asian Games Organizing Committee Foundation, Inc. (PhilSOC) by the private sector to help fund the hosting of the 23rd Southeast Asian (SEA) Games to be held in the Philippines in 2005. It is represented that the Council of the Southeast Asian Games Federation has awarded the Philippines the right to host, and the Philippines has accepted the privilege of hosting, the 23rd SEA Games in 2005; that the Philippine Olympic Committee (POC),being the member organization of the Southeast Asian Games Federation, was granted the right to organize the 23rd SEA Games in 2005 in the Philippines; that to efficiently prepare for the said SEA Games, POC entrusted the responsibility for the preparation and organization of the 23rd SEA Games in 2005 to the PhilSOC, a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission, the primary purpose of which is to undertake the necessary preparations for the hosting of the 23rd SEA Games to be held in the Philippines in the year 2005, as well as other future games as may be hosted in the Philippines ;that PhilSOC acts as a special alter ego of POC for the purpose of organizing the 23rd SEA Games. In reply, please be informed that Republic Act No. 6847, An Act Creating and Establishing the Philippine Sports Commission, Defining its Powers, Functions and Responsibilities, Appropriating Funds Therefor, and for Other Purposes ,provides: "Section 20. Tax Deduction or Exemption of Donations and Contributions . ... Donations and contributions to the Philippine Olympic Committee ...shall likewise be exempt from the payment of the donor's and estate taxes and shall be deductible in full in computing the taxable net income of the donor ." HITAEC Since the POC delegated the responsibility and granted the authority to PhilSOC to prepare for and organize the 2005 SEA Games (Executive Order No. 126, POC Executive Board Resolution), PhilSOC acts as an agent of POC insofar as the organization of and preparation for the SEA Games in 2005 are concerned. As such, PhilSOC enjoys the tax exemption granted to the principal POC but only on transactions falling within the scope of authority granted by the POC. In an agent principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do (G.R. No. 76931, May 29, 1991, Orient Air Services & Hotel Representatives vs. Court of Appeals ). The most usual form of the authority to acquire possession for another is that of agency. Where there is such authorization, the principal acquires the possession from the moment the agent holds the thing for the former (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. II 1992 ed., p. 263). In view thereof, it is the opinion of this Office that donations and contributions made for funding support to the 2005 SEA Games received by the PhilSOC for and in behalf of the POC shall likewise be exempt from the payment of the donor's and estate taxes and shall be deductible in full in computing the taxable net income of the donor in accordance with the aforequoted Section 20 of R.A. 6847. The exemption enjoyed by PhilSOC as an alter ego of POC under the said provision of law is effective only prior to and during the holding of the 2005 SEA Games in accordance with the authority granted by the latter. The tax implications of donations and contributions made to the PhilSOC after the 2005 SEA Games or for purposes outside the scope of authority given to it by POC shall be covered by Section 34(H)(2)(c) of the Tax Code of 1997 and its implementing regulations. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group