PARIS Olympics double medalist Carlos Yulo's performance was so impressive, the Olympic Committee hailed it on social media as “a dazzling display of power and grace.”
But the Filipino gymnast was not an overnight success story. He spent many years of practice and hard work. He suffered losses before ending up a winner. Rightly so, he has been showered with rewards in cash and other valuable gifts by the government and private institutions.
These rewards are exempt from income tax.
Republic Act (RA) 7549, a law passed in 1992, provides that 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.
Also, Section 32(B)(7)(d) of the National Internal Revenue Code of 1997 (Tax Code) provides that “all prizes and awards granted to athletes in local and international sports competitions, whether held in the Philippines or abroad and sanctioned by their national sports associations,” are excluded from the gross income of the athlete.
On the part of the donor, RA 7549 says that such prizes and awards given to winning athletes shall be deductible in full from the gross income of the donor and shall be exempt from the payment of donor's tax.
However, the Tax Code does not expressly state the exemption of the donors from donor's tax. Thus, in prior statements regarding the prizes received by Tokyo Olympics gold medalist weightlifter Hidilyn Diaz, the Bureau of Internal Revenue said it “presupposes that the generous donors have already paid the donor's tax on these items.”
It should be noted, though, that RA 7549 was promulgated in 1992 before the Tax Code in 1997. In Antonio Jr. v. Commissioner of Internal Revenue (Court of Tax Appeals [CTA] Case 6157, July 9, 2001), the CTA clarified that RA 7549 “remains to be the governing special law on the matter of granting tax-free prizes and awards to athletes in local and international sports competitions,” and thus, Tax Code did not repeal or supersede it. In this case, the CTA clarified that the tax exemption under RA 7549 applies only if such prizes and awards were granted in local and international sports competitions that are duly sanctioned by their respective national sports associations, and that the latter term shall mean only those that are accredited by the Philippine Olympic Committee, otherwise the exemption does not apply.
Unfortunately, while Yulo's rewards are clearly income tax-exempt, such exemption does not extend to incentives or emoluments granted to competing athletes prior to their winning any competition. The language of RA 7549 and the Tax Code speaks of “prizes and awards” of athletes, showing that these were granted to winning athletes.
Amendment
In this regard, it is good to know that House Bill (HB) 10723 seeks to amend RA 10966, the National Athletes and Coaches Benefits and Incentives Act, to clearly exempt from any local or national taxes, fees or charges any and all incentives, rewards, bonuses and other forms of emoluments received by competing or winning national athletes and coaches, whether from public or private persons or entities.
HB 10723 was approved on second reading on August 14. Its proposed amendments to RA 10966 will certainly encourage support for national athletes even during their training stage, since the tax incentives and privileges will no longer be limited to awards received after a win. It will also clearly extend the tax benefits to both public and private donors, and to the amounts granted during pre-competition activities.
We look forward to its final approval.
Euney Marie J. Mata-Perez is a CPA lawyer and managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer, and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal. She is the incoming chairman of the Tax Committee of the Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. For questions or comments, email the author, info@mtfcounsel.com, or visit MTF website at www.mtfcounsel.com.
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