BIR Ruling [DA-240-06]

April 11, 2006 BIR RULING [DA-240-06] 101 (A) (2); DA-036-2003 Puyat Jacinto & Santos 12/F Manilabank Building 6772 Ayala Avenue Makati City Attention: Atty. Virginia B. Viray Gentlemen : This refers to your letter dated August 26, 2005, requesting on behalf of your client, The Manila Banking Corporation (TMBC) for a confirmation that its donation of a parcel of land to the Philippine Government is exempt from the payment of donor's tax and documentary stamp tax (DST) and is deductible in full from the donor's gross income for income tax purposes. The facts as you represented are as follows: The Manila Banking Corporation (TMBC) is a corporation organized under Philippine laws with principal address at 6772 Ayala Avenue, Makati City and authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in thrift banking operations. The Housing and Urban Development Coordinating Council (HUDCC) was created by Executive Order (EO) No. 90 (1986), mandated to coordinate the activities of the government housing agencies to ensure the accomplishment of the National Shelter Program. On November 26, 2003, TMBC, HUDCC and the Armed Forces of the Philippines (AFP) entered into a Memorandum of Understanding (MOU). Under the MOU, TMBC offered to donate, in a Deed of Donation to be executed on some future date, a parcel of land with an aggregate area of 50 hectares located in San Miguel, Bulacan to the Philippine Government through the HUDCC. The aforestated property shall be specifically used for a housing project to benefit members of the Scout Rangers and other members of the AFP. The property to be donated by TMBC is vast, can accommodate at least one thousand beneficiaries and is adjacent to Camp Tecson in Bulacan. Under the MOU, the HUDCC shall develop the said property in coordination with the AFP under the program of both agencies to provide decent and affordable housing for members of the AFP. One of the conditions to the execution of the Deed of Donation over the parcel of land is the certification by the Bureau of Internal Revenue (BIR) that the donation is not subject to tax. In reply, please be informed as follows: 1. Donations made to the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision thereof pursuant to Section 101(A)(2) is exempt from the payment of donor's tax. HUDCC was created by EO No. 90 and is mandated to coordinate the activities of the government housing agencies to ensure the accomplishment of its National Shelter Program, it is not conducted for profit but for the accomplishment of the socialized housing program of the government. Considering that the donation of the subject property is: (1) for the purpose of providing socialized housing for the members of the Scout Rangers and other members of the AFP, which is a governmental function, and (2) will be made to an entity which is mandated to oversee such governmental function, the donation therefore, is exempt from the donor's tax as provided in Section 101 (A)(2) of the 1997 Tax Code. 2. Likewise, the MOU will not be subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the same Tax Code. 3. With regard to the deductibility of donations for income tax purposes, under Section 34(H) of the Tax Code of 1997, the same are deductible in full if they are given to the Government or to any of its agencies or political subdivision to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development as described in the priority plan prepared by the National Economic and Development Authority (NEDA). Section 34(H) of the 1997 Tax Code states that: (H) Charitable and Other Contributions . (1) In General . Contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes, . . . in an amount not in excess of ten percent (10%) in the case of an individual, and five percent (5%) in the case of a corporation, of the taxpayer's taxable income derived from trade, business or profession as computed without the benefit of this and the following subparagraphs. aEHADT (2) Contributions Deductible in Full . Notwithstanding the provisions of the preceding subparagraph, donations to the following institutions or entities shall be deductible in full: (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; It is to be noted that socialized housing is a declared priority program of the government. To this end, the HUDCC is designated as the lead government agency to formulate a land donation program to promote active participation by the private sector in the program. The President likewise directed HUDCC to oversee and fast-track the implementation of development housing projects which includes, among others, AFP Off-Base Housing. Moreover, housing is included in the 2004-2010 Medium Term Philippine Development Program (MTPDP) which was drafted pursuant to the President's 10-point agenda. Under the MTPDP, the Department of National Defense (DND) and the APP will seek to promote the welfare of soldiers through, among others, off-base and on-base housing program. Furthermore, Republic Act (RA) 9166, otherwise known as "An Act Promoting the Welfare of the Armed Forces of the Philippines by Increasing the Rate of Base Pay and Other Benefits of its Officers and Enlisted Personnel and for Other Purposes", also provides: "SEC. 4. Housing Assistance Program . The DND in coordination with the Housing and Urban Development Coordinating Council shall establish a special housing assistance program for AFP officers and personnel whose objective is to ensure that every soldier has a home that is structurally sound, environmentally safe, affordable and located in a wholesome community. Under the program, deserving soldiers and military personnel shall receive housing assistance whose amounts shall be based on rank, geographic location and family status: Provided , that the family of those who were killed in battle or otherwise died as a result of such service may receive such assistance." The purpose of the donation to be made to HUDCC is in accord with declared priority program of the government and in furtherance of the mandate of the law to ensure that every soldier has a home that is structurally sound, environmentally safe, affordable and located in a wholesome community. It is to be understood that the book value or acquisition cost of the aforesaid property may be deducted in full from the gross income of TMBC for the taxable period when the Deed of Donation is executed and upon inclusion by the NEDA of the Project in the National Priority Plan. Otherwise, the value of the property is deductible in an amount not in excess of five percent (5%) of TMBC's taxable income derived from trade or business as computed without the benefit of donations or charitable contributions. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC, Head Revenue Executive Assistant Legal Service