BIR Ruling [DA-035-03]

February 5, 2003 BIR RULING [DA-035-03] Philippine Council for NGO Certification 6/F SCC Building, CFA-MA Compound 4427 Interior Old Sta. Mesa Road Sta. Mesa, Manila Attention: Ms. Fely I. Soledad Executive Director Gentlemen : This refers to your letter dated January 16, 2003 requesting for clarification on the roles/functions of other accrediting agencies such as the Department of Science and Technology (DOST), Department of Social Welfare and Development (DSWD) and the likes in relation to non-stock, non-profit corporations and NGOs and as to whether or not the issuance of the Memorandum of Agreement (MOA) and Revenue Regulations No. 13-98 makes the authority to certify non-stock, non-profit corporations/NGOs for donee institution status exclusive only to the Philippine Council for NGO Certification (PCNC). It is represented that PCNC, by virtue of the MOA signed by then Secretary of Finance Roberto de Ocampo and your President, Victoria Garchitorena on February 29, 1998 and the issuance on December 8, 1998 of Revenue Regulations No. 13-98, Implementing Republic Act No. 8424 specifically Section 34(H) relative to the deductibility of contributions or gifts actually paid or made to accredited donee institutions in computing taxable income, was designated as the accrediting entity which shall examine, evaluate and accredit non-stock, non-profit corporations and NGOs as a prerequisite for their registration with the BIR as qualified-donee institutions under Section 34(h)(1) and 2(c) of the Tax Code. In reply, please be informed that with the advent of NGOs all over the country, the government deemed it proper to devise a system of registration and accreditation to ensure that they were set up for national welfare purposes only and not for any unscrupulous/surreptitious objectives. According to a study conducted by Mr. Buenaventura S. Ortiz, Tax Specialist 1, Fiscal Incentives Branch, the following are the accrediting agencies and their areas of involvement: Accrediting Area of Agency Involvement DSWD Social welfare services DA Agricultural development DA/CDA Cooperatives development PCUP Urban poor development DTI Livelihood development (self-employment loan assistance) NNC Food and nutrition-related activities SEC Corporations DOLE/BRW Rural employment/enterprise development DOST Scientific and technological development DAR Agrarian reform The registration and accreditation procedures conducted by the accrediting agencies examine prospective organizations for certain requirements/criteria in terms of membership, number and composition, financial viability, manpower training and specific capabilities, track record, management and accounting systems and to serve as basis for the extension of government assistance thereto, particularly in terms of tax incentives and funding through the facilities of official development assistance. HSIDTE However, with respect to exemption of certain gifts, a non-government organization must be an accredited non-government organization. Thus, Sections 1(d) and 2(e) of Revenue Regulations No. 13-98 provides, viz. : "Sec. 1(d) xxx xxx xxx " The Philippine Council for NGO Certification, Inc. (PCNC), a non-stock, non-profit corporation which was established by several NGO networks (e.g., Caucus of Development NGO Networks (CODE-NGO); Philippine Business for Social Progress (PBSP); Association of Foundations (AF); League of Corporate Foundations (LCF); Bishops-Businessmen's Conference for Human Development (BBC); and the National Council for Social Development Foundation (NCSD), has been duly designated by the Secretary of Finance as an Accrediting Entity pursuant to Memorandum of Agreement dated January 29, 1998 executed by and between the Secretary of Finance and PCNC's Interim Chairman." (emphasis supplied) Sec. 2(e) xxx xxx xxx "Existing non-stock, non-profit corporations/NGOs which have qualified as donee institutions under BIR-NEDA Regulations 1-81, as amended, shall have three (3) years beginning the effectivity of these rules and regulations within which to secure a Certificate of Accreditation from the Accrediting Entity. Failure by the said non-stock, non-profit corporations/NGOs to secure accreditation within the three-year period shall be a ground for the cancellation by the BIR of their Certificates of Registration as qualified-donee institutions : Provided, however, that donations and contributions to the said non-stock, non-profit corporations/NGOs during the three-year period shall still be allowed as deductible expense on the part of the donors subject to the provisions of Sec. 4 of these Regulations: Provided further, That after the three-year period, only donations and contributions to non-stock, non-profit corporations/NGOs which have been accredited under these Regulations, shall be allowed as deductible expense on the part of the donors." (emphasis supplied) The Memorandum of Agreement executed by and between the Department of Finance and the Philippine Council for NGO Certification dated January 29, 1998, provides that "The Philippine Council for NGO Certification shall be the sole body to establish and operationalize a system of accreditation to determine the qualification of domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or welfare educational purposes or for the rehabilitation of veterans or non-government organizations for accreditation as donee institutions. . . . " Thus, for purposes of qualification as a non-government organization, the various accrediting agencies examine prospective organizations for certain requirements/criteria in terms of membership, number and composition, financial viability, manpower training and specific capabilities, track record, management and accounting systems and to serve as basis for the extension of government assistance thereto, particularly in terms of tax incentives and funding through the facilities of official development assistance while the PCNC shall be the sole body for accreditation as donee institutions. We hope that we have clarified the matter. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service