BIR Ruling [DA-195-05]

April 21, 2005 BIR RULING [DA-195-05] R.A. 8525 Computer Assisted Learning c/o BIR Revenue Region No. 8 Makati City Attention: Ms. Josephine Medina-Manalad Assistant Director/Assistant Vice President Gentlemen : This refers to your letter dated October 26, 2004 requesting for a confirmatory ruling on the computation of the actual amount of contribution/donation and the additional fifty percent (50%) special deduction to be deducted from the donor's gross income under Republic Act (R.A.) No. 8525. It is represented that (Computer Assisted Learning) CAL is one of the world's leading international computer schools for children and is engaged in the business of developing and providing computer assisted programs; and that it wishes to participate in the Adopt-a-School Program of the Department of Education (DepEd) by providing curriculums for public schools beneficiaries, through DepEd. In reply, please be informed that under Section 34(H)(2) of the Tax Code of 1997, donations to the Government, its agencies or political subdivisions is deductible in full from the gross income of the donor. However, donations not in accordance with the National Priority Plan is subject to limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation of the taxpayer's taxable net income as computed without the benefit of this deduction, viz: "(a) Donations to the Government . Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to a National Priority Plan determined by the National Economic and Development Authority (NEDA),in consultation with appropriate government agencies, including its regional development councils and private philanthropic persons and institutions: Provided, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph (1) of this Subsection" Furthermore, Section 5 of R.A. No. 8525, otherwise known as "An Act Establishing an 'Adopt-a-School Program,' Providing Incentives Therefor, and for Other Purposes" provides "SEC. 5. Additional Deduction for Expenses Incurred for the Adoption . Provisions of existing laws to the contrary, notwithstanding, expenses incurred by the adopting entity for the Adopt-a-School Program' shall be allowed an additional deduction from the gross income equivalent to fifty percent (50%) of such expenses. Valuation of assistance other than money shall be based on the acquisition cost of the property. Such valuation shall take into consideration the depreciated value of the property in case said property has already been used." Section 3 of Revenue Regulations (Rev. Regs.) No. 10-2003 implementing R.A. No. 8525 allows 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 of 1997, plus an additional amount equivalent to fifty percent (50%) of such contribution/donation subject to the following conditions: (1) That the deduction shall be availed of in the taxable year in which expenses have been paid or incurred; (2) That the taxpayer can substantiate the deduction with sufficient evidence, such as official receipts or delivery receipts 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. aTEScI In addition, the assistance made by the donor is exempt from payment donor's tax pursuant to Sections 101(A)(2) and (B)(1) of the Tax Code of 1997. In view of the foregoing, the amount actually, directly and exclusively incurred for the Program is deductible in full from the gross income of CAL plus an additional amount equivalent to fifty percent (50%) of the said contribution/donation; and exempt from the payment of donor's tax pursuant to R.A. 8525, as implemented by Rev. Regs. No. 10-2003 and Section 101(A)(2) of the Tax Code 1997, respectively. However, for purposes of entitlement to the full deductibility of the contribution/donation from gross income of the donor under Section 34(H) of the Tax Code of 1997, a certification must be secured from the NEDA that the above contribution/donation to the Government through the DepEd is in accordance with priority programs, projects and activities included in the current National Priority Plan. Accordingly, this Office confirms the correctness of your sample computation as follows: CAL's gross income for the taxable year P100,000.00 Less: Actual donation (inclusive of 10% VAT) 11,000.00 50% Special Deduction 5,500.00 Taxable Income P 83,500.00 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group