Requisites for Exemption under Section 261 of the Tax Code

December 3, 1964 REVENUE MEMORANDUM CIRCULAR NO. 54-64 SUBJECT : Requisites for Exemption under Section 261 of the Tax Code TO : All Internal Revenue Officers and Others Concerned It has been observed that motion picture shows, musical and dramatic exhibitions, sports and boxing contests and other shows or exhibitions are being granted partial exemption from the amusement tax prescribed by Section 260 of the National Internal Revenue Code on the representations of charitable institutions or organizations entitled to exemption under Section 261 of the same Code that said shows or exhibitions are being held for their benefit. However, investigations conducted by this Office resulted in the discovery that such shows or exhibitions are not actually held by or for and in their behalf; that they merely act as the "sponsors" thereof; and that as such "sponsors", they are given the equivalent of the amusement taxes saved by those who would be liable therefor but for the representation that said shows or exhibits are being held by or for and in their behalf. Sometimes, the amount given them are even less than said tax and sometimes, they are not even given any amount on the excuse that the show or exhibit resulted in a less. The above-described arrangement between charitable institutions or associations and promoters of shows and exhibitions or owners of amusement places do not come within the purview of the exemption provided for in Section 261 of the Tax Code which reads as follows "SEC. 361 Amusement tax payable by charitable institutions . Where the admission fees or charges are collected by or for and in behalf of a duly registered charitable institution or association , the tax on such admission fees or charges shall be fifty per centum of the rates provided in Section two hundred and sixty of this Code." (Emphasis supplied) The law is too clear to need further elucidation. It expressly provides that exemption shall be granted " where the admission fees or charges are collected by or for and in behalf of a duly registered institution or association ." This means that the show or exhibit sought to be exempted must be actually held by or, for the exclusive benefit of the said institution or association and not merely partly for its benefit. To prevent the granting of tax exemption to those not entitled thereto, officials and employees concerned should see to it that the following conditions or requirements first complied with before exemption is granted. 1. The show or exhibition is actually undertaken by the beneficiary organization, or by another, for and in its behalf and exclusively for its benefit; 2. The beneficiary must be a duly registered charitable institution or organization; and 3. The beneficiary shall file with the Regional Director concerned a report in triplicate within twenty days from the date the show or exhibition is held, stating (a) The number of tickets sold, classified according to the prices thereof and showing the serial numbers thereof; the form used in connection with the payment of the amusement tax shall be used for this purpose; and (b) The gross receipts or income derived from the show or exhibit, the expenses incurred in connection therewith, and the resulting net income. llcd The said report should contain a certification by the President or responsible official of the charitable institution or association that the income from the show or exhibit sought to be exempted has inured or will inure exclusively to its benefit. 4. In the case of a boxing exhibition, the sponsoring organization must necessarily qualify as a boxing promoter or get a permit from the Games and Amusement Board. Organizations which are considered government agencies, such as the Philippine Red Cross or the Boy Scouts of the Philippines, and consequently, entitled to exemption from the amusement tax should also be made to comply with the foregoing conditions or requirements before exemption is granted them. Enforcement All internal revenue officers and others charged with the enforcement of the internal revenue laws are enjoined to adhere strictly to the provisions of this circular, and give this circular as wide a publicity as possible. (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue APPROVED: (SGD.) RUFINO G. HECHANOVA Secretary of Finance