BIR Ruling [DA-172-04]

April 6, 2004 BIR RULING [DA-172-04] Section 34 (H) BIR Ruling No. 139-91 Mr. Manuel G. Imson Acting Secretary Department of Labor and Employment Intramuros, Manila S i r : This refers to your faxed letter dated January 6, 2004 requesting for an opinion to the effect that your donors can dispense with the requirement of official receipts and instead, submit "other adequate records" that can be regarded as sufficient evidence to substantiate tax deduction from gross income of the amount of contribution/donation. It is represented that in June 2003, you launched the Classroom, Galing sa Mamamayang Pilipino sa Abroad (CGMA) Project , a donate-a-classroom project targeting mainly the Filipino communities worldwide and also local entities as prospective donors of school buildings; that in this project, the Department of Labor and Employment (DOLE) forged a partnership with the Department of Foreign Affairs (DFA), the Department of Education (DepEd) and the Federation of the Filipino-Chinese Chambers of Commerce and Industry, Inc (FFCCCII); that under the Memorandum of Agreement (MOA), the DOLE and the DFA shall be the main marketing conduits, the DepEd shall assist in identifying priority areas while the FFCCCII will handle the construction through their local chambers; that being one of the MOA signatories, the DepEd agreed to include CGMA local donors in its Adopt-A-School Program to allow the donors to avail of the incentives under Revenue Regulations (Rev. Regs.) No. 10-2003; that you arranged a "straight contract" agreement with the FFCCCII wherein a fixed amount will be released before the construction starts and once completed, FFCCCII will be released of any accountability only with the school principal's acceptance of the donated building; that under this agreement, no official receipts of expenses for labor and materials are required from the FFCCCII; that in lieu of official receipts, the following documents shall be considered as "other adequate records": 1. Official Receipt issued by the FFCCCII for the receipt of actual amount of donation; 2. Memorandum of Agreement between the Donor, the DepEd and the CGMA Project Management Office; 3. Deed of Donation signed by the Donor; and 4. Turn Over and Acceptance by the Beneficiary School. and that your local donors, mostly corporations, chambers of commerce, ecozone locators, individual and other entities have already signified their interest in availing the tax incentive. In reply, please be informed that Section 3(a) of Rev. Regs. No. 10-2003 provides, viz : "SEC. 3. TAX INCENTIVES ACCRUING TO THE ADOPTING PRIVATE ENTITY A pre-qualified adopting private entity, which enters into an Agreement with a public school, shall be entitled to the following tax incentives: (a) Deduction from the gross income of the amount of contribution/donation that were actually, directly and exclusively incurred for the Program, subject to limitations, conditions and rules set forth in Section 34(H) of the Tax Code, plus an additional amount equivalent to fifty percent (50%) of such contribution/donation subject to the following conditions: aHICDc (1) That the deduction shall be availed of in the taxable year in which the expenses have been paid or incurred; (2) That the taxpayer can substantiate the deduction with sufficient evidence, such as official receipts or delivery receipt and other adequate records (2.1) The amount of expenses being claimed as deduction; (2.2) The direct connection or relation of the expenses to the adopting private entity's participation in the Adopt-a-School Program. The adopting private entity shall also provide a list of projects and/or activities undertaken and the cost of each undertaking, indicating in particular where and how the assistance has been utilized as supported by the Agreement; and (2.3) Proof or acknowledgment of receipt of the contributed/donated property by the recipient public school. (3) That the application, together with the approved Agreement endorsed by the National Secretariat, shall be filed with the Revenue District Office (RDO) having jurisdiction over the place of business of the donor/adopting private entity, copy furnished the RDO having jurisdiction over the property, if the contribution/donation is in the form of real property. (b) Exemption of the Assistance made by the donor from payment of donor's tax pursuant to Sections 101(A)(2) and (B)(1) of the Tax Code of 1997. Moreover, Rev. Regs. No. 10-2003 should be read in relation to Batas Pambansa Blg. 45 and Section 34(H) of the Tax Code of 1997, as implemented by Rev. Regs. No. 13-98. Under the said provisions of laws, donors claiming donations and contributions as deductions from their taxable business income should submit pieces of evidence or proofs to the BIR by showing the Certificate/s of Donation indicating therein the following: 1) Actual receipt by the donee of the donation and the date of receipt thereof; and 2) The amount of 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 the said personal property had already been used at the time of the donation, the depreciated or book value thereof (cited in BIR Ruling No. 139-91 dated July 18, 1991 ). On the basis of the foregoing, this Office holds that your donors can submit the above records/pieces of evidence in lieu of official receipts as sufficient to substantiate their claim for deduction on donations/contributions under Section 34(H) of the Tax Code of 1997. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group