BIR Ruling [DA-123-01]

July 18, 2001 BIR RULING [DA-123-01] 34 S-30-54-98; DA 28-98 Manila Electric Company Ortigas Avenue, Pasig City Attention: Mr . Rolando R . Arbues First Vice President & Head, Legal Services Gentlemen : This refers to your letter dated July 10, 2000 requesting for confirmation of your opinion as follows: 1) That the donation made by Manila Electric Company (Meralco) to ABS-CBN Foundation Incorporated (ACFI) is exempt from the payment of donor's tax; 2) That since the Deed of Donation was executed on December 20, 1999, the same may be recorded or booked by the donor as of December 1999 notwithstanding the possibility that the Tax Clearance Certificate authorizing the registration of the donated property in the name of the donee is issued in 2000; 3) That ACFI is entitled to the benefit set forth in Section 34(H)(2)(C) of the Tax Code of 1997; and 4) That the donated property shall be valued at its fair market value as of the date in which the donation was made. IaAHCE It is represented that Meralco is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines; that ACFI is a non-stock, non-profit charitable and social welfare foundation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 165508 dated July 5, 1989; that ACFI is a registered donee institution by virtue of an undated Certificate of Registration No. 1437; that on December 20, 1999, a Deed of Donation was executed by and between Meralco as Donor and ACFI as Donee, whereby the former donated to the latter a parcel of land covered by Transfer Certificate of Title No. T-6514P (M) of the Registry of Deeds for the Province of Bulacan; that the entire donated property consisting of a parcel land located at Bo. Mulawin, Norzagaray, Bulacan with an area of 25,000 square meters, including any structure or improvement to be built thereon shall be used exclusively for the construction of the Donee's Bantay Bata 163 Children's Village; and that this was Meralco's realization of its vision to contribute to the promotion of the welfare and well-being of Filipino children as well as the protection of their basic rights. In reply, please be informed as follows: 1) Since ACFI is an accredited donee institution, the aforementioned donation is exempt from the payment of the donor's tax pursuant to Section 101 (A)(3) of the Tax Code of 1997, subject to the condition that not more than 30% of said gift shall be used by the donee for administration purposes. ACFI shall have three (3) years from the effectivity of Revenue Regulations No. 13-98 dated December 8, 1998, amending Revenue Regulations No. 1-81, within which to secure a Certificate of Accreditation from the Philippine Council for NGO Certification. Failure by ACFI to secure accreditation within the three-year period shall be a ground for the cancellation by the BIR of its Certificate of Registration as qualified-donee institution. However, donations and contributions to ACFI during the three-year period shall still be allowed as deductible expense on the part of Meralco subject to the prior approval of the application with the Commissioner in writing, of the amounts set aside or to be set aside for a specific project, which application shall contain the following: 1) The nature and purpose of the specific project and the amount programmed therefor; 2) A detailed description of the project, 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 facility to be acquired or constructed as part of the project; and 3) A statement by an authorized official of the organization that the amount to be set aside will actually be disbursed for the specific project within five (5) years from the date of approval by the Commissioner, unless the nature of the project is such that the five-year period is impracticable. Amounts set aside shall be evidenced by book entries and documents showing evidence of deposits or investments, including investment of the funds so set aside, or other documents that the Commissioner may require. Moreover, the aforesaid Deed of Conditional Donation is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997. (BIR Ruling No. 108-94 dated May 30, 1994 and BIR Ruling No. DA-28-98 dated January 29, 1998) 2) Donations, contributions or gifts actually paid or made within the taxable year to accredited NGOs shall be allowed full deductibility on the taxable year it was incurred pursuant to Section 34(H)(2)(C) of the Tax Code of 1997. Since ACFI is an accredited donee institution, your opinion that the donation by Meralco to ACFI may be recorded or booked by Meralco as of December 1999 or the year the donation was made, notwithstanding the possibility that the Tax Clearance Certificate authorizing the registration of the donated property in the name of ACFI is issued in 2000, is hereby confirmed. 3) Section 34(H)(2)(C) of the Tax Code of 1997 provides that donations to an accredited non-government organization (NGO), 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 depending on the donee's compliance with the level of administrative expense and utilization requirements. Otherwise, it shall be entitled only to the limited deductions as provided for under Section 34(H)(1) of the same Tax Code. (BIR Ruling No. S-30-054-98 dated September 30, 1998) Since the subject Foundation is a private foundation organized and operating for charitable and social welfare purposes, contributions and donations in its favor shall be deductible in full from the gross income of Meralco depending on whether ACFI is an accredited donee institution and its compliance with the level of administrative expense and utilization requirements. 4) Since the donation or gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift. However, the appraised value of real property shall be whichever is higher of: (1) The fair market value as determined by the Commissioner; or (2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors pursuant to Section 102 of the Tax Code in relation to Section 88(B) of the same Code. However, for purposes of deductibility of the donation, the amount deductible by Meralco is the acquisition cost of such property, as provided in Section 34(H)(3) of the Tax Code. 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 or that the requirements imposed therein have not been complied with, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group