Buying and Selling TV Airtime are Not Subject to 4% Contractor's Tax, 7% Commercial Broker's Tax and 3% Tax as Cinematographic Film Owner

December 15, 1987 BIR RULING NO. 397-87 170 174 188-83 397-87 Gentlemen : This refers to your letter dated November 19, 1987 requesting confirmation of your opinion that the gross sales derived by Network Marketing Corporation (NMC) from the sale of TV airtime are not subject to the 4% contractor's tax imposed under Section 170 of the Tax Code not to the 7% commercial broker's tax and 3% tax as cinematographic film owner under Section 174 of the same Code. It is represented that NMC is a domestic corporation primarily engaged in all forms of marketing activities such as buying and selling, by retail or wholesale, goods, wares and merchandise including audiovisual recording; that NMC likewise engages in the buying of blocked TV time and reselling the same to third parties such as advertising agents and advertisers, that in pursuance of the objectives of NMC, it entered with media establishments specifically, ABS-CBN Channel 2 for the purchase of TV airtime and/or facilities; that under the terms of the contract, the TV station sells, for a specified sum to NMC, TV airtime with the right to telecast any program such as canned films, tape or live programs; that NMC in turn sells commercial spots within the airtime to third parties such as advertising agencies or advertisers; that under the rules of the Broadcast Media Council, NMC as buyer and seller of TV airtime, is prohibited from acting as an advertising agency or from conducting any advertising; and that under the Code of Ethics Rules and Regulations for Advertising and Sales promulgated by the Philippine Board of Advertising, advertising agencies are prohibited from engaging in the wholesaling of media by outright purchase of block of space or time from the media establishments to be paid to advertisers or other space/time users. In reply, please be informed that under the foregoing facts and circumstances, NMC is not subject to the fixed annual tax of P200.00 imposed by Section 161(1) of the Tax Code, and to the 4% contractor's tax imposed by Section 170 of the same Code. This is so because, by buying and selling TV airtime, your client is not rendering any service. The theory of the 4% contractor's tax is that, it is a tax on the sale of services or labor. Furthermore, NMC is not subject to the 7% broker's tax imposed under Section 174 of the Tax Code since it does not sell or bring about sales or purchases of merchandise for other persons. And since NMC is not a cinematographic film owner, its gross receipts are not subject to 3% tax imposed by said Section 174. However, NMC is subject to income tax on income derived from said sale of TV airtime. iatdc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner