BIR-NEDA Regulations to Implement Paragraph (h), Section 30, National Internal Revenue Code, as Amended by Batas Pambansa Blg. 45, Concerning Charitable and Other Contributions

1981 BIR-NEDA REGULATIONS NO. 001-81 SUBJECT : , BIR-NEDA Regulations to Implement Paragraph (h), Section 30, National Internal Rev enue Code, as Amended by Batas Pambansa Bl g. 45, Concerning Charitable and Other Contributions TO : All BIR and NEDA Officers, Donors, Donees and Others Concerned SECTION 1. Scope . Pursuant to the provisions of Section 2 of Batas Pambansa Blg. 45, in relation to Sections 4 and 326 of the National Internal Revenue Code, these regulations are promulgated to provide the procedure to be followed by: A. The Bureau of Internal Revenue (BIR) in determining the qualifications of donee institutions and the requirements for the deductibility or the non-deductibility of donations in general; B. The National Economic and Development Authority (NEDA) in the formulation and implementation of the NEDA national priority plan. SECTION 2. Definitions . In these REGULATIONS unless the contrary intention appears, the following terms: A. "Government" means the Government of the Philippines or any of its agency or political subdivision and includes: (a) ministries, agencies, bureaus, commissions and authorities, including state colleges and universities; (b) autonomous regional, provincial, city and municipal governments; cAEaSC (c) fully-owned government corporations. B. "Government Corporation" means a fully-owned government corporation which is a body corporate created by special law the capital of which is owned wholly by the Government or another Government Corporation. C. "National Priority Plan" shall refer to the annual list prepared by the NEDA, containing priority programs, projects and activities of the Government and those of Government Corporations in the following sectors: education, health, youth and sports development, human settlements, science and culture and economic development. D. "Domestic Corporation or Association" means a public or private corporation or association, created or organized under Philippine law exclusively for one or more of the following purposes: (a) religious; (b) charitable; (c) scientific; (d) youth and sports development; (e) cultural or educational; (f) rehabilitation of veterans; and (g) social welfare. E. "Foreign institution or international organization",means an institution or organization which is not domestic, donations to which are fully deductible pursuant to special laws or agreements, or treaties concluded or commitments made by the Government of the Philippines. F. "Private foundation" means a non-profit Domestic Corporation or Association organized and operated exclusively for scientific research, education, character building and youth and sports development, health, social welfare, cultural or charitable purpose or a combination thereof, no part of the net income of which inures to the benefit of any private individual. HEcIDa G. "Religious purpose" means the promotion, propagation and accomplishment of any form of religion, creed or belief recognized by the Government of the Philippines. H. "Charitable activity" includes: (a) extending relief to the poor, distressed and under-privileged; (b) fighting against juvenile delinquency and community deterioration. I. "Scientific purpose" means undertaking or assisting in pure or basic and applied scientific research in the field of agriculture, forestry, fisheries, industry, engineering, energy development, food and nutrition, medicine, environment, and biological, physical and natural sciences, for the public interest. (a) Basic research means an experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts without any particular application or use in view. It analyzes properties, structures or relationships with a view to formulating and testing hypothesis, theories or laws. The results of basic research are not generally sold but are usually published in scientific journals or circulars to interested colleagues. (b) Applied research means an original investigation undertaken in order to acquire new knowledge. It is directed primarily towards a specific practical aim or objective. It is undertaken either to determine possible uses for the findings of basic research or to determine new methods or ways of achieving some specific and predetermined objectives. It involves the consideration of the available knowledge and its extension in order to solve particular problems. Applied research develops ideas into operational form. Scientific research will be regarded as carried on for public interest: (i) if the results of such research are made available to the public on a non-discriminatory basis; or (ii) if such research is performed for the Government of the Philippines or any of its agencies or political subdivisions; or IDaEHC (iii) if such research is directed to benefit the public. J. "Character building and youth and sports development purposes" includes: (a) conducting basic and applied research on youth development; (b) initiating and establishing youth organizations to promote and develop youth activities including establishment of summer camps or centers for leadership training and youth activities; (c) conducting a program of physical fitness and amateur sports development for the country; (d) developing or maintaining recreational facilities, playgrounds and sports centers; and (e) conducting training programs for the development of youth and athletes for national and international competition. K. "Cultural activity" includes: (a) undertaking and/or assisting in research activities on all aspects of history, social system, customs, and traditions; (b) developing, enriching and preserving Filipino arts and culture; (c) developing and promoting the visual and performing arts; and (d) participating in the vigorous implementation of bilingual policy through translation and wider use of technical, scientific and creative publications, development of an adaptive technical dictionary and the use of Filipino as the medium of instruction. L. "Educational activity" includes: (a) instructing or training of individuals either through formal, informal and non-formal methods: (i) formal method of instruction refers to the institutionalized, chronologically graded and hierarchically structured educational system at all levels of education; (ii) informal method of instruction refers to learning which is not deliberately planned or organized but growing out of experience, parental guidance, peer learning, observations, etc.; SHacCD (iii) non-formal method of instruction refers to any deliberately organized, systematic educational activity carried on outside the framework of the formal system to provide selected types of learning to particular subgroups of the population, particularly out-of-school youths and adults for the purposes of communicating ideas, developing skills, changing attitudes or modifying behavior related to the realization of development goals and the achievement of higher standard of living and welfare for the people. (b) granting scholarship to deserving students and professorial chairs for the enhancement of professional courses; (c) upgrading of existing facilities to support the conduct of the above activities. M. "Rehabilitation of veterans" includes: (a) services extended to Philippine veterans and members of their families because of financial difficulties and attendant problems; (b) services extended to disabled veterans towards productive life. N. "Social welfare purpose" includes: (a) undertaking and/or assisting in the amelioration of the living conditions of distressed citizens particularly those who are handicapped by reasons of poverty, youth, physical and mental disability, illness, old age and natural disasters, including assistance to cultural minorities; (b) pursuing a program for the protection and development of children and youth, such as providing services for dropped-outs, pre-school children of low-income working mothers, and physically handicapped children; IEAaST (c) providing for the rehabilitation of the youth and disabled adults, released prisoners, drug addicts, alcoholics, mental retardness, hansenites and similar cases; and (d) providing for services to squatter families and to displaced workers caused by rapid industrialization. O. "Health purpose" includes the pursuit of any of the following: (a) control, prevention and treatment of communicable and degenerative diseases, accidents and other health disabilities; (b) family planning program designed to inculcate knowledge and understanding of population, human growth and development, family life and responsible parenthood methods; (c) environmental sanitation such as public sewerage system and sanitary toilets; and (d) nutrition, which aims to reduce the prevalence of malnutrition and increase the energy and protein intake among households. P. "Human settlements activity" includes those which promote a wholesome relationship between human beings and their civic and physical environment thru: (a) the management, protection, conservation and regeneration of natural resources including all life supporting elements in land, water and air; (b) the provision and design of all kinds of shelters and structures for human activities within various community patterns, including transportation, communication and related infrastructure requirements; (c) the invention, innovation and harnessing of products and processes that fit the needs of Philippine industry and other users of technology; DaScHC (d) the productive use of all lands, according to purposes assigned to them in local land use plans all of which would enhance habitability and efficiency from the viewpoints of quality of life and economic and social opportunity. Q. "Economic development purpose" of paragraph h (2) (A),shall include those which promote the capacity of the economy to increase the supply of goods and services, raise the level of real national income and improve the quality of life and standard of living of the population, as contained in the Five-Year Philippine Economic Development Plan. R. "Utilization" means (a) any amount in cash or in kind (including administrative expenses) paid or utilized by the qualified donee to accomplish one or more purposes for which it was created or organized; (b) any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which the qualified donee was created or organized. SECTION 3. Conditions for Deductibility . A. Limited Deductibility Contributions or gifts made to the Government or to a Domestic Corporation or Association shall be allowed as deductions for income tax purposes to an amount not exceeding 6% in the case of an individual and 3% in the case of a corporation of the taxpayer's taxable net income as computed without the benefit of this deduction. B. Full Deductibility All donations given to the following institutions or entities shall be deductible in full for income tax purposes: (a) The Government when used exclusively to finance or to provide for undertaking priority activities in education, health, youth and sports development, human settlements, science, culture and economic development as described in the national priority plan prepared by NEDA; EScAHT (b) Foreign Institution or International Organization; (c) Private Foundation which: (i) is duly registered with the SEC and governed by trustees who receive no compensation nor any type of remuneration in cash or in kind; (ii) not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, unless an extended period is granted by the Minister of Finance not exceeding thirty (30) days in accordance with these rules and regulations; (iii) the level of administrative expenses on an annual basis does not exceed 30% of its total utilization during the taxable year; (iv) the assets, in the event of dissolution, would be distributed to another Domestic Corporation or Association or to the Government for a public purpose or as a competent court of justice would distribute to accomplish the general purpose for which the dissolved organization was organized. SECTION 4. The National Priority Plan of the National Economic and Development Authority . A. Structure of the Plan. (a) The NEDA Priority Plan shall be a cumulative list of priority programs, projects and activities consisting of both new inclusions and carry-overs from previous Plans. It shall specify the activities as appropriate for each project to guide both the donee and the donor in the allocation of donations. It shall also specify the authorized donee institutions for each project as determined by NEDA. STADIH (b) The National Priority Plan shall be approved by the Director-General of the National Economic and Development Authority not later than the 31st of January of each taxable year, provided that any additional project(s) may be certified to by the Director-General as priority projects at any time during said taxable year. B. Guidelines in Determining the National Priority Plan. (a) In general, priority shall be accorded to projects which rely largely on donations for maintenance and survival and where Government cannot advance funding due to resource constraints; or those which are necessary for emergency, relief and rehabilitation purposes. (b) Such supplementary guidelines which from time to time may be issued by the NEDA Director-General for the prioritization of projects mentioned in Section 4, in relation to paragraphs (a and b) of Section 2, hereof. C. Preparation of the National Priority Plan . (a) All concerned agencies of the national and local government shall submit to the NEDA projects proposed for inclusion in the National Priority Plan not later than the 15th day of October of the year immediately preceding the taxable year when deductions for donations made are to be claimed. For this purpose, proponent agencies shall accomplish NEDA Form 1. (b) NEDA Form 1, shall be evaluated by the NEDA provided that said Form shall have been accomplished to the satisfaction of the evaluators. In case where said Form is not properly accomplished, NEDA shall inform the concerned agency in writing about the revisions which have to be made not later than five (5) days from the receipt thereof. EaCSTc (c) Projects to be included in the National Priority Plan shall be determined on the basis of their conformity with the established guidelines. Consultations with the proponent agency, as well as other public or private institutions, may be undertaken when deemed necessary by NEDA. D. Revisions and Deletions to the National Priority Plan . (a) The National Priority Plan shall be reviewed and revised annually by NEDA to reflect changes on the projects included in the current Plan as well as new developments. (i) the concerned agency shall reflect these changes in NEDA Form 1-A on the basis of which, NEDA shall determine whether or not the project shall be carried-over for the following year; (ii) Form 1-A shall be submitted together with Form 1 for proposed new inclusions if any, i.e. ,not later than the 15th day of October immediately preceding the taxable year when deductions for donations are to be claimed. (b) Projects or activities are to be deleted from the list under any of the following conditions: (i) when they can no longer be considered a priority in relation to the established guidelines; (ii) when they have been completed. (c) Whenever a project or any of its activities is to be deleted, NEDA shall inform the concerned agency in writing about the reason(s) and the date of effectivity for the deletion. E. Eligible and Qualified Donee Institutions in the National Priority Plan . (a) In general, the Government and fully-owned government corporations as defined under paragraph (a and b) of Section 2 hereof respectively, are eligible donee institutions. ECTIcS (b) Donee institutions shall be determined by NEDA as qualified for each project, based on the projects listed in the National Priority Plan. (c) The NEDA shall furnish the BIR with the list of qualified institutions not later than January 31 of each year. Registration Requirements and Procedures . In order to avail of the benefit set forth under Batas Pambansa Blg. 45, all donee institutions except the Government, must register with the "Government and Tax Exempt Corporation Division" of the BIR, within ninety (90) days from issuance of their corporate charter by the Securities and Exchange Commission. A. New Donee Institutions .Newly-created donee institutions applying for registration must file with the Government and Tax Exempt Corporation Division of the BIR the following statements/documents: (a) A sworn statement or affidavit showing: (i) the character of the organization; (ii) the purpose for which it is organized; (iii) its actual activities; (iv) lists of proposed projects; (v) the sources of income and its disposition; and (vi) other facts relating to their operations which are relevant to their qualification as donee institutions. (b) A copy of the charter or articles of incorporation, by-laws; and (c) A financial statement showing the assets, liabilities, receipts and disbursements of the organization. HACaSc B. Existing Donee Institutions . Existing donee institutions must, within ninety (90) days from the effectivity of these Regulations, apply for registration by filing with the Government and Exempt Corporation Division of the BIR in addition to statements/documents required under paragraph A above, a certificate of previous registration issued allowing a limited or full deductibility of donations granted under PD 507, RA 2067, as amended (NSDB-accredited foundations) or other special laws which had provided said deductibility. C. Certificate of Registration . If the Commissioner of Internal Revenue finds the application in order, he shall issue the Certificate of Registration under these Regulations. Donations to the organizations subsequent to the date of its Certificate of Registration shall qualify for the benefits prescribed in Batas Pambansa Blg. 45. SECTION 6. Certificate of Donations . All qualified donee institutions are required to issue a certificate of donation in such form as prescribed by the BIR, on every donation or gift they receive. Such certificate shall be accomplished by donee in three or four copies and distributed within 30 days after the receipt of donation, as follows: A. Original Copy Donor B. Duplicate Copy BIR C. Triplicate Copy Donee D. In the case of qualified donees under the National Priority Plan, a quadruplicate copy shall be furnished to NEDA. SECTION 7. Notice of Donations . Donors should give a notice for every donation worth over P1,000 to the Commissioner of Internal Revenue within 30 days after receipt of the Certificate of Donation attaching thereto copy of the Certificate of Donation issued to him by the qualified donee institution. CSIDTc SECTION 8. Date and Place of Filing Returns . A. Time of Filing .The claims for limited or full deductibility of donations shall be filed by donor at the time of filing the income tax returns for individuals and corporations. Qualified donee institutions in order to maintain their status as qualified donee should file not later than the 15th day of the fourth month after the close of the donee institution's taxable year, an annual information return (BIR Form No. 17.02-A, as revised). B. Place of Filing .The income tax returns with respect to individuals and information returns with respect to donee institutions shall be filed in the proper revenue office which has administrative supervision over the taxpayers. SECTION 9. Utilization Requirements . A. For qualified donees under the National Priority Plan . All donations for any project contained in the National Priority Plan shall be used exclusively for the implementation thereof. B. For domestic corporations or associations registered with the BIR . (a) Utilization for administrative expenses .The amount of utilization intended for administrative expenses shall not exceed 30% of total utilization for the taxable year. (b) Use of programmed funds .For purposes of determining utilization of funds for any taxable year, an amount set aside not exceeding 50% of total utilization during a taxable year may be considered as utilization if: (i) such amount is set aside for specific project which comes within one or more purposes as enumerated and defined herein above which the corporation or association was created or organized; IaDTES (ii) the corporation or association establishes to the satisfaction of the Commissioner of Internal Revenue that such amount will actually be paid for the specific project within five years from the date the amount was first set aside; and (iii) the corporation or association establishes to the satisfaction of the Commissioner of Internal Revenue that such specific project is one which can be better accomplished by setting aside such amount than by the immediate payment of funds. (c) Approval requirements for amounts set aside .Amounts set aside must have the prior approval of the Commissioner of Internal Revenue in writing on or before the last day of the taxable year in which the amount is actually set aside. Application therefor must contain the following: (i) the nature and purpose of the specific project and the amount set aside for which such approval is requested; (ii) the reasons why the project can be better accomplished by setting aside the amount requested than by the immediate payment of funds; (iii) the amounts and approximate dates of any planned additions to the amounts set aside after its initial establishment; (iv) a detailed description of the projects, including estimated costs, sources of any future funds expected to be used for completion of the project, and the location or locations (general or specific) of any physical facilities to be acquired or constructed as part of the project; and aHcACI (v) a statement by an authorized official of the corporation or association that the amounts to be set aside will actually be paid for the specific project within five years from the date the amount was set aside. (d) Evidence of an amount set aside . An amount set aside to be approved by the Commissioner of Internal Revenue shall be evidenced by book entries and documents showing evidence of deposits or investments, or other documents that the Commissioner may require. SECTION 10. Valuation of Donation . Donations/gifts made in kind shall be determined at its fair market value as of the date such donations or gifts are made. Cash donation or gift shall be determined solely on the cash receipts and disbursement method of accounting. SECTION 11. Verification Procedure and Substantiation Requirements . A. For Donors . Donors claiming deduction from their taxable income for donations authorized by Batas Pambansa Blg. 45 should submit evidence to the BIR showing submission of the Certificate of Donation and/or Notice of Donation: (a) actual receipt by the donee of the donation and the date of receipt thereof; and (b) the amount of the donation, if in cash; if real property, the value thereof at the time of donation, which shall be based on the assessor's most recent valuation; and if personal property, the acquisition cost thereof, but if said personal property had already been used at the time of donation, the depreciated or book value thereof. B. For Donees .Donees shall include in their income tax return an annual information report with the BIR. Provided, that donees covered by the national priority plan, must furnish the NEDA with the annual information report by accomplishing NEDA Forms 3A, 3B and 3C. The report shall be certified by the authorized official of the Institution or Association and shall contain: SaICcT (a) a list of the donations and income received during the year, showing the name and address of the donor; the source of income; the amount or market value of each donation and items of income and the disposition thereof; (b) a list of the activities and/or projects undertaken by the institution and the cost of each undertaking indicating in particular where and how the donation has been utilized; (c) a list of projects; their corresponding costs; the amount "set aside" and the status of funds balances at the end of the year; (d) that the utilization requirements under Section 9 of this Regulations have been sufficiently complied with; (e) that no part of its net income inures to the benefit of any private stockholder or individual; and (f) the status of project implementation. C. Books of accounts as well as the operations of qualified donee institutions may be verified annually by the Commissioner of Internal Revenue or his duly assigned representative for the purpose of ascertaining whether or not they have met the requirements for maintaining such qualified status. SECTION 12. Penalty Provision . Any donee who is found to have violated any provision of this Regulation may be disqualified either by suspension or cancellation of the right to avail of the privileges granted under Batas Pambansa Blg. 45, in addition to any administrative or criminal penalties provided for by law or regulation. SECTION 13. Effectivity . This regulation shall take effect upon approval. The qualification and activities of donee institutions and the deductibility and non-deductibility of donations prior to the date of effectivity of these Regulations shall be governed by the laws and regulations applicable at that time. TIADCc (SGD.) CESAR VIRATA Minister of Finance (SGD.) GERARDO P. SICAT Director-General (NEDA) Recommending Approval: (SGD.) RUBEN B. ANCHETA Acting Commissioner (BIR) (SGD.) ROMEO M. BAUTISTA Deputy Director-General (NEDA)