The Philippine national election to elect the president, vice-president and senators is barely a year away. Very soon, we will be bombarded with television commercials, radio jingles and print advertisements extolling the achievements and virtues of candidates in the hopes of securing our coveted votes. The streets and billboards in the metropolis will soon be plastered with campaign posters and tarpaulins. Once campaign season officially begins, an avalanche of T-shirts, bumper stickers, caps, pins and other campaign giveaways will be handed out. During political rallies, food and drink will flow, resembling distribution of relief goods during natural disasters.
Amidst all these is the curious phrase “Paid for by Friends of” this or that politician, which follows every campaign commercial, poster and paraphernalia. One then wonders: Who are these so-called “friends” of said politician? Are these individuals? Or perhaps big corporations which certainly can afford to sponsor the election campaign of a politician (or two)? All the big spending involved certainly gives the impression that making political contributions on the part of corporations is allowed and that there must be some tax benefit to doing so.
On the contrary, under Section 36, paragraph 9 of the Philippine Corporation Code, there is an absolute prohibition on corporations, both foreign and domestic, donating to any political party or candidate, or for the purpose of any partisan political activity. Said provision enumerates the powers and capacities of a corporation registered under the Corporation Code. These corporate powers include “[T]o make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes, provided, that no corporation, domestic or foreign, shall give donations in aid or any political party or candidate or for purposes of partisan political activity.”
The above prohibition is absolute and total. In terms of the corporate entities covered, it includes domestic corporations as well as foreign corporations licensed to do business in the Philippines as a representative office, branch, regional operating headquarters or any other entity. The nationality of a corporation is of no moment as all corporations, regardless of percentage of foreign ownership, are forbidden to make any kind of donation for partisan political activity. In terms of prohibited activities, the wording is broad and general enough to include any form of donation or contribution to any political party or candidate in relation to an election campaign or any other partisan political activity.
In a July 2015 opinion, the Securities and Exchange Commission (SEC) emphatically pronounced that there is an absolute prohibition for corporations, both foreign and domestic, from giving donations to any political party, candidate or for the purpose of partisan political activity. In said opinion, the SEC was asked to clarify whether Section 95 of B.P. Blg. 881 or “The Omnibus Election Code of the Philippines”, which enumerates certain juridical entities that are prohibited from making political contributions, amends or repeals the more general prohibition provided in Section 36, paragraph 9 of the Philippine Corporation Code.
Section 95 of the Omnibus Election Code provides an enumeration of natural and juridical persons, including corporations, who, because of benefits, privileges, license or franchise received from government are prohibited from making contributions, directly or indirectly, for purposes of partisan political activity. Apparently, the enumeration gives the impression that the prohibition applies only to the entities listed therein, and, conversely, all other entities not specifically included are permitted to give contributions for the purpose of partisan political activities.
The SEC categorically stated that Section 95 of the Omnibus Election Code did not amend or repeal, whether expressly or impliedly, Section 36, paragraph 9 of the Corporation Code. The SEC explained that since the repealing clause of the Omnibus Election Code does not include the Corporation Code or any part thereof, the former did not expressly repeal the latter.
Neither was there an implied amendment or repeal because the two provisions are not inconsistent or repugnant to each other as to render either one ineffective. The SEC held that there is no conflict between the two provisions and both can be harmonized and given effect insofar as “the Corporation Code provides a prohibition specifically applicable to corporations making political contributions while the Omnibus Election Code imposes the same prohibition on all natural and juridical persons falling under the specific categories enumerated”.
Section 95 of the Omnibus Election Code can be considered an amplification of the absolute prohibition contained in the Corporation Code and illustrates some specific circumstances of the evil sough to be avoided in both provisions of law. The SEC opinion even added that if anything, the presence of these two laws, especially as they affect corporations, serve as a more effective deterrent for corporations planning to make contributions for partisan political activities.
Thus the prohibition on corporate political donations cannot be any clearer. To complement this ban, political donations or contributions cannot be claimed as tax deductions as these are not ordinary business expenses. Under Section 34 (H) of the Tax Code, donations for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for rehabilitation of veterans or social welfare or donations to non-government organizations are allowed as deductible expenses. Donations to a political party or candidate or any contribution for partisan political activities are not included as part of the allowable deductible expenses. In effect, there is no tax benefit in the form of a deductible expense against income, for corporations making political contributions.
While a corporation is expressly prohibited from making political donations, there is no similar ban on individuals contributing to a political party or candidate. However, such donations likewise cannot be claimed by said individual as a deductible expense as the same cannot be considered ordinary and necessary business expenses. Similarly, under the above-mentioned provision of the Tax Code, political donations by individuals are not among the allowable deductible expenses.
When the Philippine national elections take place in May, it is individuals who will make the contributions. Their motivation to allocate personal resources to support the campaigns of their chosen political party and candidates will be anchored on their strong belief in the capabilities, achievements and platform of government of these politicians regardless of any tax benefit that may be realized therefrom.
Let’s Talk Tax
Punongbayan and Araullo