BIR Ruling [DA-113-97]

March 19, 1997 BIR RULING [DA-113-97] Alba Ledesma & Co. 7th Floor, Den Chua Lamco Bldg. H. V. dela Costa cor Alfaro Sts. Salcedo Village, Makati City Attention: Mr. Romco C. Alba Partner Gentlemen : This refers to your letter requesting on behalf of your client, LRP Foundation, Inc. for exemption from the payment of income tax, and for registration as a donee institution under BIR-NEDA Regulations No. 1-81, as amended in relation to Section 29 (h) (2) (c) of the Tax Code, as amended. Documentary evidence submitted disclosed that LRP Foundation Inc., is a non-stock, non-profit domestic corporation duly registered with the Securities and Exchange Commission under SEC Registry No. AH094-000605 dated February 16, 1994 for the following purposes: 1) To function, engage and operate as a non-stock, non-profit private foundation that will propagate, develop, enrich and preserve Filipino arts and culture; 2) To undertake and/or assist in activities on all aspects of Philippine history, social system, customs and conditions; In furtherance of these purposes the corporation will organize, produce, present, record and purchase, sell, rent, exchange and otherwise deal in and with motion pictures, programs, plays, shows and other cultural presentations of various kinds and nature, both live and film, including dramatic, operatic, musical performances, and concerts that will provide quality entertainment to the public provided, that profit may be derived thereof shall not inure to the individual members but will be used in the furtherance of the purposes of the corporation. To erect, equip, rent, operate and manage theaters, opera houses and other places of amusements where cultural shows, movies, plays, concerts and other stage presentations shall be conducted, held and promoted; 3) To provide technical, managerial and financial support or assistance to schools, musical and cultural institutions, theater, art and other cultural groups, individual actors, actresses, artists and other performers or entertainers, to conduct seminars, researches, publications, and such other related endeavors to cultivate and develop Filipino arts and culture; and 4) To solicit, receive and/or give contributions, grants, gifts, legacies, donations, contributions, endowments, and financial aids or loans from any sources whatever, to aid not only the theater or movie industry, but also other individuals, groups and entities engaged in other activities and to administer, manage or use the same according to the purposes of the foundation and in the manner specified by the donors. that its trustees do not receive any compensation; and that no part of its funds and income shall inure to the benefit of its members. Furthermore, as a corporation organized and operated for cultural purposes, donations in favor of LRP Foundation, Inc., are exempt from the payment of donor's tax pursuant to Section 94 (a) (3) of the Tax Code, as amended, subject to the condition that not more than 30% of the said gifts shall be used by the donee, LRP Foundation, Inc. for administration purposes. On the other hand, Section 29 (h) (2) (c) of the Tax Code, as amended by Batas Pambansa Blg. 45, as implemented by BIR-NEDA Regulations No. 1-81, as amended by Revenue Regulations Nos. 1-82 and 10-82 provides that donations to a private foundation which means a non-profit domestic corporation or association organized and operated exclusively for scientific, research, educational, character building and youth and sports development, health, social welfare, cultural or charitable purposes or a combination thereof, no part of the net income of which inures to the benefit of any private individual shall be deductible in full from the taxable business income of the donor. Under Section 29 of the Tax Code as amended by Republic Act No. 7496 (An Act Adopting the Simplified Net Income Taxation Scheme [SNITS] for the Self-Employed and Professionals Engaged in the Practice of Their Profession), and as implemented by Revenue Regulations No. 2-93, effective July 28, 1992, individuals engaged in business or practice of profession shall only be allowed as deduction from gross income, among others, contributions made to the Government and accredited relief organizations for the rehabilitation of calamity-stricken areas declared by the President . Pure compensation income earners are allowed to deduct from their gross compensation income only their personal and additional exemptions. (Sec. 29, Tax Code) It should be understood that the said exempt organization/foundation shall be constituted as withholding agent for the government if it acts as an employer and its employees received compensation income subject to the withholding tax under Section 72 (a), Chapter 10, Title II of the NIRC as implemented by Revenue Regulations No. 6-82 as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax pursuant to Section 50 (b) of the NIRC, as amended, and as implemented by Revenue Regulations No. 6-85, as amended. Such being the case, this Office is of the opinion as it hereby holds that for income tax purposes, contributions and donations in favor of LRP Foundation, Inc. by individual donors/contributors shall not be deductible from their gross income; and that since LRP Foundation, Inc. is a private foundation organized for cultural purposes, contributions and donations in its favor shall be deductible in full from the gross income of corporate donors/contributors. It is requested that a copy of this letter of exemption be attached to the annual information return which you will file on or before April 15 of each year. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. (BIR Ruling No. 517-A-93 dated December 23, 1993) Very truly yours, (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)