Taxability of Cinematographic Film Owners/Producers and Lessors for the Use or Lease of Cinematographic Film

August 2, 1994 BIR RULING NO. 121-94 R.A. 7715 102-00 000-00 121-94 Philippine Motion Picture Industry 3/F Gonzaga Building Sta. Cruz, Metro Manila Attention: Mr . Joey P . Pineda Chairman, Ad Hoc Committee on Institutional Advancement Gentlemen : This refers to your letter dated May 27, 1994, submitting your position paper stating the lopsided tax burden of the cinematographic film owners viz-a-viz the theater operators who, under a loose partnership sharing scheme, are exempted from VAT on their net share of the gross receipts derived from admission tickets, while subjecting your net share to VAT under the same arrangement. It is represented that Congress, in passing R.A. 7716, made an effort to address the above problem by deleting from Section 102 of the Tax Code the words "film owners" and "use and right to use", indicating a legislative intent to exempt film owners from VAT. In reply, please be informed that under the original provision of Section 102, as amended by Executive Order No. 273, as well as in the new text of the same section as amended by R.A. 7716, the words "film owners" and "use and right to use" did not appear. It is observed that the pertinent text of Section 102 of the Tax Code before and after its amendment by R.A. 7716 contains exactly the same provision: that "lessors or distributors of cinematographic films" are subject to 10% VAT on their sale or exchange of service; hence, contrary to your understanding of the legislative intent, the film owners/lessors or distributor's net share in the gross proceeds of the admission fee which undoubtedly represents its rental income for the theater operator's use of its films, no change in the current law subjecting its net share to 10% VAT is intended. Contrary to your contention, it is the proprietor or operator of its moviehouses who actually exhibits the images of people, places and events utilizing for this purpose the cinematographic films, rented or leased to him by the film owners/producers either on a flat rental or sharing in the gross sales or receipts on the percentage basis. Accordingly, your request that cinematographic film owners/producers and lessors be exempted from the 10% VAT on their share in the gross sales or receipts representing their rental income for the use or lease of cinematographic film is hereby denied for lack of legal basis. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue