Imposition and Assessment of a Deficiency Donor's Tax on Political Contributions

July 20, 1988 BIR RULING NO. 344-88 91 000-00 344-88 S i r : This refers to your letter dated June 30, 1988 requesting, in effect, reconsideration of the decision of this Office to impose and assess a deficiency donor's tax on political contributions. cdti The Memorandum dated May 31, 1988 of former Justice Efren Plana for Senator Edgardo J. Angara avers that the National Internal Revenue Code does not define transfer of property "by gift", nor has the BIR and/or the Department of Finance issued regulations or circulars clarifying the matter; that as far as Philippine jurisprudence is concerned, the area is utterly unexplored, there being no judicial decision involving the taxability of political contributions; that under the circumstances, reference was made on American law and jurisprudence, including U.S. Treasury Regulations on gift tax, inasmuch as the Philippine gift tax law was bodily lifted from the Federal gift tax law of the United States; that the Federal gift tax law simply imposes a tax "on the transfer of property by gift"; that initially, it was not settled whether the above law covered political contribution that in 1974, the Federal gift tax law was amended expressly exempting political contributions from gift tax after May 7, 1974; and that in the case of Carson v. Commissioner [641 F. 2d 864 (1981)], involving the taxability of political contributions made in 1971 and prior years, but which was decided only in 1981, the Federal Circuit Court ruled that campaign contributions when considered in the light of the history and purpose of the gift tax" are simply not 'gifts' within the meaning of the gift tax law." In reply, please be informed that "it is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored in law, and the party claiming exemption must justify his claim by a clear, positive, or express grant of such privilege by law ." In other words, an exemption from the payment of taxes, like donor's tax in the instant case, cannot be claimed unless it is expressly provided for in/by the law. (Collector vs. Manila Jockey Club, Inc. G.R. No. L-8755, March 23, 1956; 53 O.G. 3762, 98 Phil. 670) Thus, the rule of statutory construction is that "tax exemptions are held strictly against the taxpayer, and if not expressly mentioned in the law must be within its purview by clear legislative intent." (Commissioner of Customs vs. Philippine Acetylene Co., Inc. L-22443, May 29, 1971, 39 SCRA 70) The burden of proof is always upon him who claims a tax exemption in his favor to point out some provisions of law granting the exempting provision. In this case, however, those who are claiming donor's tax exemption on political contributions in the Philippines failed to point to any statutory provision explicitly granting such exemption . Contrariwise, pursuant to Section 91 of the Tax Code, there shall be levied, assessed, collected, and paid upon the transfer by any person, resident or non-resident, of the property by gift, a donor's gift tax, computed in accordance with Section 92 of the same Code. As used in the gift tax statute (Chapter 2, Title III, Tax Code as amended), gift means a direct or indirect transfer, in trust or otherwise, of real or personal, tangible or intangible property for anything other than adequate and full consideration in money or money's worth. A gift is generally defined as a voluntary transfer of property by one to another without any consideration or compensation therefor. (28 C.J. 620) Congress intended to use the term gifts in its broadest and most comprehensive sense (Robinitte vs. Helvering, 318 U.S. 635, CT. 540, cited in Angela Perez y Tuazon, et al. vs. Commissioner of Internal Revenue and Court of Tax Appeals , G.R. No. L-30403, July 3, 1969). The gift tax is not a property tax, but an excise tax imposed on the gratuitous transfer of property from one person, known as donor, to another, known as donee who accepts it. For internal revenue tax purposes, political contributions in the Philippines are considered taxable gifts rather than taxable income. (See also Commentaries and Jurisprudence on National Internal Revenue Code of the Philippines by Jose N. Nolledo, p. 646) This is so, because a political contribution is indubitably not intended by the giver or contributor as a return of value or made because of any intent to repay another what is his due, but bestowed only because of personal affection or regard, or from general motives of philanthropy or charity. His purpose is to give and to bolster the morals, the winning chance of the candidate and/or his party, and not to employ or buy. On the other hand, the recipient-donee does not regard himself, as exchanging his services or his product for the money contributed. But, more importantly, he receives financial advantages gratuitously. Finally, while as a general rule, in interpreting a statute adopted from another jurisdiction, it is proper to consider the interpretation of the statute by the courts of the state or country from which it was adopted, nevertheless, the courts of the adopting state are not bound to accept the construction placed in the statute by the courts of the state from which it was adopted, if there is any sound reason why it should not be followed, such as where the judicial construction of the statute in the state where enacted was not known at the time of its adoption in the other state. (82 C.J.S. p. 866 cited in Martin's Statutory Construction, 6th ed.) It is to be noted that at the time of the enactment of our Gift Tax Law which was "bodily lifted from the Federal Gift Tax Law of the United States." (Angela Perez Y Tuazon, et al. supra ), no such judicial construction of the statute, i.e., that political contributions are not subject to gift tax, has as yet been made in the United States. In fact, as stated in former Justice Plana's Memorandum, in the United States before the said 1974 amendment of the Federal Gift Tax Law, political contributions are considered as taxable gifts and courts vary in their interpretation on the matter. In other words, when the U.S. gift tax was adopted in the Philippines (before May 7, 1974), the taxability of political contributions was, admittedly, an unsettled issue; hence, it cannot be presumed that the Philippine Congress then had intended to consider or treat political contributions as non-taxable gifts when it adopted the said gift tax law. Moreover, well-settled is the rule that the Philippines need not necessarily adopt the present rule or construction in the United States on the matter. Generally, statutes of different states relating to the same class of persons or thing or having the same purposes are not considered to be in pari materia because it cannot be justifiably presumed that the legislature had them in mind when enacting the provision being construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in the absence of an express exempting provision of law, political contributions in the Philippines are subject to the donor's gift tax . In view of the foregoing considerations, your request has to be, as it is, hereby denied for lack of legal basis. cdti Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner