BIR Ruling [DA-259-98]

June 19, 1998 BIR RULING [DA-259-98] SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated March 10, 1998 requesting on behalf of your client, Ateneo De Manila University (ATENEO), for confirmation of your opinion, as follows: 1. That the donation made by Manila Electric Company (MERALCO) to ATENEO is exempt from the payment of donor's tax pursuant to Section 94 of the Tax Code, as amended [now Section 101 (A)(3) of the Tax Code of 1997]; 2. That MERALCO is entitled to deduct from its 1997 gross income the fair market value of the said property donated to ATENEO pursuant to Section 29(h)(2)(C)(i) of the Tax code, as amended [now Section 34(H)(2)(c)(1) of the Tax Code of 1997]; llcd It is represented that ATENEO is non-stock, non-profit educational institution organized and existing under and by virtue of Philippine laws with principal office located at Loyola Heights, Quezon City; that it was organized primarily to establish and conduct a university, open and maintain the necessary schools, colleges and institutes, and offer therein elementary, secondary, collegiate, and postgraduate courses of study as well as technical, vocational and special courses, the primary intention being to afford a Catholic education to the youth of the land and to develop and mold such youth, physically, intellectually and spiritually according to Catholic standards; that the sources of income to finance its projects shall be donations, gifts, inheritances, contributions, legacies and devices as may be given by individuals, persons or entities, and from fees and/or charges received or collected by it thru matriculation, tuition and other fees thereof, and thru any other money or property it may acquire from its investments and other transactions permitted by law; that it is expressly declared under its Articles of Incorporation that no dividend or profit, whatsoever shall at any time be declared or pain to any person whomsoever; that all fees, charges, donations, inheritances, devices and legacies collected or received by it shall be spent solely and exclusively for such purposes as may enable it to carry out its objectives for which it is established; that it is registered as a donee institution under Certificate of Registration No. 1941 issued on March 15, 1993; that on December 19, 1997, MERALCO executed a Deed of Donation in favor of ATENEO covering a piece of land (the Donated Property) consisting of Five Thousand (5,000) square meters, located at the southern portion of the parcel of land presently covered by TCT No. (227933)-12102 of the Registry of Deeds for Metro Manila, District II; that acceptance of the donation was made by ATENEO on the same date and under the same instrument that ATENEO is aware and recognizes that certain creditor's liens and encumbrances are attached to the Donated Property; that it accepted the donation under such circumstances and agreed to honor and bind itself to the limitations and terms inherent to such liens and encumbrances; that in recognition of the purposes and objectives of ATENEO, the terms of the donation expressly provided that ATENEO shall build and construct a medical school which it shall operate and administer; that the Donated Property and any structure and improvements to be built thereon shall be used only and exclusively for the medical school; and that ATENEO shall likewise ensure that the school shall be of the kind and nature that shall be considered at par with the premier and finest medical schools in the country. cdll In reply thereto, please be informed that under then Section 94 (a) (3) of the Tax Code, as amended [now Section 101 (A) (3) of the Tax Code of 1997], gifts/donations in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organizations, trust or philanthropic organization or research institution or organization are exempt from the payment of donor's tax subject to the condition that not more than 30% of the said gifts/donations shall be used by such donee for administration purposes. Such being the case, your opinion to the effect that the donation made by MERALCO in favor of ATENEO shall be exempt from payment of the donor's tax is hereby confirmed, provided however, that the condition set forth herein-above shall be complied with and provided further that the verification procedure and the substantiation requirements set forth under Section 11 of BIR-NEDA Regulations No. 1-81 as amended are complied us for. Furthermore, your opinion that MERALCO shall likewise deduct from its 1997 gross income the fair market value of the donated property is hereby confirmed pursuant to then Section 29 (h)(C)(i) 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, which provides that donations to an accredited non-government organizations 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 combined thereof, no part of the net income of which insures to the benefit of any private individual shall be deductible in full from the taxable business income of the donor, provided that the utilization requirements and that the level of administrative expenses of Ateneo shall not exceed 30% of its total expenses for the year 1997 and such other conditions as set forth under Section 29 (h)(2)(c) of the Tax Code of 1997, as amended, as implemented by BIR-NEDA Regulations No. 1-81, as amended. Moreover, the aforesaid Deed of Donation is not subject to 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. [BIR Ruling No. 015-98 dated March 5, 1998] prll 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)