BIR Employees' Association, Inc.

July 5, 2007 BIR RULING [DA-363-07] BIR Ruling No. DA-077-04 & DA-016-01 BIR Employees' Association, Inc. Ground Floor, DPC Building, BIR Complex Diliman, Quezon City Attention: Atty. Sulpicio M. Adapon President Gentlemen : This refers to your letter dated June 20, 2007 requesting for a ruling exempting from taxes the cash prizes on the raffle to be held to raise funds to finance the Mutual Aid Program of BIR Employees' Association, Inc. ("BIREA"). As represented, BIREA is a non-stock, non-profit association of all BIR officers and employees duly-registered with the Securities and Exchange Commission. To coincide with the 45th BIREA Anniversary and the 105th Anniversary Celebration of the Bureau of Internal Revenue on August 1, 2007, BIREA is holding a raffle to raise funds to finance its Mutual Aid Program which will benefit the entire membership in the form of financial assistance and health services. The major cash prizes include PhP1,000,000.00 and PhP500,000.00 for the first and second prize, respectively. In reply, please be informed that Section 2.57-1 of Revenue Regulations No. 2-98, as amended, implementing Section 24 (A) of the Tax Code of 1997 provides that: CAIHaE "Sec. 2.57-1. Income Payments Subject to Final Withholding Tax . The following forms of income shall be subject to final withholding tax at the rates herein specified; (A) Income payments to a citizen or to a resident alien individual; HSATIC (1) . . . prizes (except prizes amounting to ten thousand pesos (P10,000) or less which shall be subject to tax under Section 24(A) of the Code) and other winnings (except Philippine Charity Sweepstakes winnings and Lotto winnings), derived from sources within the Philippines Twenty percent (20%)." In view of the foregoing, the prizes for BIREA's raffle draw amounting to more than P10,000.00 are subject to the 20% final withholding tax whereas the prizes amounting to P10,000.00 or less shall be subject to tax under Section 24 (A) of the Tax Code of 1997. STECDc Moreover, Section 105 of the Tax Code of 1997, provides that "any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code." The proceeds of the raffle are not one derived from the sale of goods or services made in the course of business but rather in connection with the non-profit activity of BIREA. In VAT Ruling No. 013-89 dated January 1, 1989, this Office held that payments not resulting from the engaging of a taxable activity are not subject to VAT (BIR Ruling No. 238-90 dated December 19, 1990). Based on the foregoing representations, BIREA's raffle activity is therefore not subject to VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. ACDIcS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service