Tax Implications of Sponsorship of the World Boxing Council Featherweight Championship Fight

December 3, 1997 BIR RULING NO. 126-97 22 (b), 26 (e), 123, 29, 94 (a)-000-00-126-97 War in Mindanao (WBC Featherweight Championship) Koronadal South Cotabato Attention: Gov . Hilario L . de Pedro III Gentlemen : This refers to your letter dated October 29, 1997 requesting for opinion as to whether the Province of South Cotabato and the Nazario-Mondejar Promotions of Vintage Sports, who will sponsor the World Boxing Council Featherweight Championship Fight between Luisito Espinosa (Philippines) and Carlos Rios (Argentina) on December 6, 1997 at Koronadal, South Cotabato (1) Are tax exempt from the income they will derive from such; (2) They can claim deductions for tax purposes; and (3) They are entitled to tax incentives for sponsoring the same. It is represented that the Province of South Cotabato, in cooperation with the Nazario-Mondejar Promotions of Vintage Sports, is sponsoring the World Boxing Council Featherweight Championship Fight between Luisito Espinosa (Philippines) and Carlos Rios (Argentina) on December 6, 1997 at Koronadal, South Cotabato; that this championship fight is the first world title event in the boxing history to be held in Mindanao; that part of the proceeds will be given as seed money to the South Cotabato Sports Foundation; that the South Cotabato Sports Foundation aims to promote and develop sports programs for the youth and other beneficiaries in the province; that the said Foundation will be your partner in making South Cotabato as the sports hub in Mindanao considering the available facilities that you have in the province which were established during the 1996 Palarong Pambansa; that in order to defray the expenses for the said event, you have solicited sponsoring companies for the purpose; that in exchange for the amount paid, the sponsoring corporations/entities can advertise its name, business or product in the souvenir program and during the primer show and live televised/broadcast of the boxing bout. LLphil In reply, please be informed as follows: 1. Whether or not the sponsors of the boxing championship are tax exempt . a. Income tax . Section 28(b)(8)(B) of the Tax Code, as amended, provides among others, that income derived from the exercise of any essential governmental function accruing to the Government of the Philippines or to any of its political subdivision shall be excluded from gross income. Accordingly, the income of the Province of South Cotabato from the subject boxing championship, not being derived from the exercise of its essential governmental function, is subject to income tax under Section 24(c) of the Tax Code, in relation to Section 24(a) of the same Code. Moreover, the income of the Nazario-Mondejar Promotions of Vintage Sports derived for sponsoring the said boxing championship fight shall also be subject to income tax under Section 24(a) of the Tax Code, as amended, in the absence of a showing that it is a tax exempt corporation under Section 26 of the same Code. b. Amusement tax . Section 123 of the Tax Code, as amended, provides, among others, that boxing exhibitions wherein World or Oriental Championship in any division is at stake shall be exempt from amusement tax, provided that at least one of the contenders for World or Oriental Championship is a citizen of the Philippines, and said exhibitions are promoted by citizens of the Philippines or by a corporation or association at least sixty percent (60%) of the capital of which is owned by Filipino citizens. Accordingly, the Province of South Cotabato shall be exempt from the payment of amusement tax. On the other hand, if the Nazario-Mondejar Promotions of Vintage Sports meets the aforequoted requirements as provided for under Sec. 123 of the Tax Code, then it shall likewise be exempt from the payment of the amusement tax. (BIR Ruling No. 419-88) 2. What deductions can they claim for tax purposes . Considering that the Province of South Cotabato and the Nazario-Mondejar Promotions of Vintage Sports are both taxable entities for income tax purposes, then they shall be entitled to all the applicable deductions under Section 29 of the Tax Code, as amended. 3. What tax incentives are they entitled to for sponsoring the same? The foregoing tax exemptions are the only tax incentives that the subject sponsors may be entitled to. However, it would be worthwhile to mention the tax consequences and/or the other tax incentives that may be enjoyed by the other parties/participants to this world boxing competition, viz: a. Insofar as the donations and/or contributions received by the subject sponsors are concerned, the same shall be deductible from the gross income of the corporate-donor but only in an amount not in excess of three percent (3%) of the corporate-donor's gross income derived from its business pursuant to Sec. 29(h)(l) of the Tax Code, as amended. b. Furthermore, if in consideration of the said boxing championship fight, donations and/or contributions are made to the Province of South Cotabato, the same shall be exempt from the donor's tax pursuant to the provision of Section 94(a)(2) of the Tax Code, as amended. c. Finally, it should likewise be emphasized that under Section 1 of Republic Act No. 7549, all prizes and awards granted to athletes in local and international sports tournaments and competitions held in the Philippines or abroad and sanctioned by their respective national sports associations shall be exempt from income tax: Provided, That such prizes and awards given to said athletes shall be deductible in full from the gross income of the donor: Provided, further, That the donors of said prizes and awards shall be exempt from the payment of donor's tax. In view thereof, the prize that would be received by Luisito Espinosa, who is a resident Filipino citizen, shall be exempt from income tax. However, the prize of any of the non-resident alien participants in the said championship boxing fight, they being non-resident aliens not engaged in trade or business in the Philippines if they will stay in the Philippines for 180 days or less, shall be subject to the final tax at the rate of thirty percent (30%) pursuant to Section 22(b) of the Tax Code, as amended, in relation to Sec. 50(a) of the same Code, to be withheld by the promoter before paying the money prizes to persons entitled thereto. This is true even if their prizes are not paid in the Philippines but elsewhere. On the other hand, the contributions and/or donations made by the corporate donors of the said prizes and awards given to the said athletes shall be deductible in full from their gross income and shall also be exempt from the payment of the donor's tax, if the said competition is sanctioned by the respective national sports associations in the Philippines and in Argentina, pursuant to Sec. 1 of R.A. No. 7549. dctai Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue