Philippine Charity Sweepstakes Office

December 4, 2009 BIR RULING [DA-(VAT-104) 730-09] Section 27 (C), 101 (A) (2); Republic Act No. 1169; [DA-(VAT-015) 097-08] Philippine Charity Sweepstakes Office PCSO Complex, E. Rodriguez Sr., Ave., Quezon City, Philippines Attention: Rosario C. Uriarte Vice Chairman and General Manager Gentlemen : This refers to your letter dated October 14, 2009 requesting tax exemption on certain programs launched by the Philippine Charity Sweepstakes Office. It is represented that the Philippine Charity Sweepstakes Office ("PCSO") is the only self-sufficient government-owned or controlled corporation which gets its revenues from the proceeds of the various lottery products to provide for the health and charity needs of the Filipino people. It is further represented that, being a charitable institution, PCSO launched various projects to uplift the health services of the government. First of which is the Ambulance Procurement Program which is aimed at providing an ambulance unit to all government hospitals and LGUs either through 100% donation or through a cost sharing scheme, as follows: (1) 60-40 cost sharing scheme with the Union of Local Authorities of the Philippines; and (2) 50-50 cost sharing scheme with the House of Representatives. The other project consists of television programs, produced in partnership with a private individual, aimed at raising public support and awareness of its anti-crime and pro-poor projects. At the same time, said television programs are intended to promote PCSO products with the intent of increasing its revenues. EHTIDA In reply, please be informed that Section 101 (A) (2) of the National Internal Revenue Code, as amended, provides: "SEC. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this chapter: (A) In the case of Gifts Made by a Resident. xxx xxx xxx (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and . . ." According to the above, any donations made for the use of the National Government or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of the said government shall be exempted from the donor's tax. Considering that the House of Representatives is part of the National Government and that the Union of Local Authorities of the Philippines is an entity created by an agency of the National Government which is not conducted for profit, donations made by PCSO to the said entities shall be exempt from donor's tax regardless if the same is made through a cost sharing agreement. In relation to the television programs co-produced by the PCSO, any incremental revenue derived from an increase in the sale of PCSO products i.e., sale of sweepstakes tickets as a consequence of such programs shall be exempt from income tax pursuant to Section 27 (C) of the 1997 Tax Code, as amended. Moreover, any increase in the sale of such tickets shall not be subject to value-added tax pursuant to Section 4 of Republic Act No. 1169, as amended. "SECTION 4. Holding of sweepstakes. The Office shall hold charity horse race sweepstakes under such regulations as shall be promulgated by the Board in accordance with Republic Act No. 309: . . . The horse races and the sale of tickets in the said sweepstakes shall be exempted from all taxes , except that each ticket shall bear a twelve-centavo internal revenue stamp and that from the total prize fund as provided herein from the proceeds of the sale of tickets there shall be deducted an amount equivalent to five per centum of such total prize fund, which shall be paid to the Bureau of Internal Revenue not later than ten days after each sweepstakes in lieu of the income tax heretofore collected from sweepstakes prize winners: Provided, however, That any prizes that may be paid out from the resulting prize fund, after said five per centum has been deducted, shall be exempted from income tax. The tickets shall be printed by the Government and shall be considered government securities for the purposes of penalizing forgery or alteration. [As amended by Presidential Decree No. 1157 dated 3 June 1977]. CIAcSa In BIR Ruling No. [DA-(VAT-015) 097-08] dated July 31, 2008, this Office had the occasion to rule that sales by the PCSO of sweepstakes tickets are exempt from all taxes, as follows: "Based on the foregoing circumstances, PCSO, as principal, is exempt from the regular corporate income tax and VAT, and its agent is likewise exempt from said taxes. The sale of tickets and other PCSO products by LCC constitute the gross receipts of PCSO and LCC is bound to account to PCSO whatever amount collected less the commission earned by LCC. IN VIEW OF THE FOREGOING, since the sale of tickets by PCSO is exempt from all taxes, the sale of the tickets and other PCSO products by LCC is likewise exempt from all taxes. Necessarily, the sale of said tickets and PCSO products by LCC, as the authorized agent of PCSO, is not subject to value-added tax imposed under the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337." Furthermore, any income received as distributive share derived by PCSO from the television programs shall likewise be exempt from income tax pursuant to the Section 27 (C) of the 1997 Tax Code, as amended. However, income received by the private individual producer as distributive share in the television program shall be subject to income tax and consequently, to withholding tax. Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. (PLDT vs. City of Davao , G.R. No. 143867, March 25, 2003) 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service