BIR Ruling [DA-301-00]

August 11, 2000 BIR RULING [DA-301-00] 101; RR13-98 DA-301-2000 Philippine Center for Population and Development, Inc. P.O. Box 3060 Makati Central Post Office Makati City Attention: Ma . Socorro Camacho-Reyes President & Executive Director Gentlemen : This refers to your letter dated October 19, 1999 requesting for a ruling to the effect that grants or donations and other expenses incurred by you in your grant-giving or donor function is fully deductible from business rental income, provided such grants are to qualified donee institutions. ECTSDa It is represented that PCPD is a private non-stock, non-profit organization serving as a resource center for the social development concerns of rural and urban communities in the Philippines; that with funding from the USAID and the Rockeller Foundation, PCPD constructed a two-storey building and facilities in Pasong Tamo Extension, Taguig, Metro Manila; that PCPD started leasing its building and facilities in 1990 to fund its project, regularly paying its income tax on the rental income and claiming only ordinary and necessary expenses directly related to the rental activity; that for the last 25 years, PCPD has relied on donor funds for its programs and projects; that recently, the donor funds have been reduced considerably; that PCPD has been using its trust funds and rental activity for the maintenance of the building, overhead costs and counter-part for donor funds; that PCPD is now dependent only on the income of its trust fund and rental activity for its social development programs and profits; and that PCPD has shifted its role from project implementation to grant-giving or donations to qualified fully deductible donee institutions. In reply, please be informed that for purposes of determining whether your charitable and other contributions to NGO's/donee institutions can be fully deductible from the donor's gross income, the said NGO's/donee institutions must first be fully accredited by the Philippine Council for NGO Certification, Inc. Section 3(2) of Revenue Regulations No. 13-98, provides that donations, contributions or gifts actually paid or made within the taxable year to an accredited NGO shall be allowed full deductibility, subject to the following conditions: "(1) The accredited NGO shall make utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, not later than the fifteenth (15th) day of the third month after the close of the accredited NGOs taxable year in which contributions are received, unless an extended period is granted by the Secretary of Finance, upon recommendation of the Commissioner. For this purpose, the term "utilization" shall mean: "(i) Any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes for which the accredited nongovernment organization was created or organized. "(ii) Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which the accredited nongovernment organization was created or organized. "An amount set aside for a specific project which comes within one or more purposes of the accredited nongovernment organization may be treated as a utilization, but only if at the time such amount is set aside, the accredited nongovernment has established to the satisfaction of the Commissioner that the amount will be paid for the specific project within a period to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, but not to exceed five (5) years, and the project is one which can be better accomplished by setting aside such amount than by immediate payment of funds. AIcECS "(2) the level of administrative expenses of the accredited NGO, shall, on an annual basis, not exceed thirty percent (30%) of the total expenses for the taxable year; "(3) In the event of dissolution, the assets of the accredited NGO, would be distributed to another accredited NGO organized for similar purpose or purposes, or to the State for public purpose, or would be distributed by a competent court of justice to another accredited NGO to be used in such manner as in the judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized. "(4) The amount of any charitable contribution of property other than money shall be based on the acquisition cost of said property. "(5) All the members of the Board of Trustees of the non-stock, non-profit corporation, organization or NGO do not receive compensation or remuneration for their service to the aforementioned organization." In addition, donors claiming donations and contributions to accredited NGOs as deductions from their taxable business income should submit evidences or proofs to the BIR by showing Certificate/s of Donation and indicating therein the following: (i) Actual receipt by the accredited non-stock, non-profit corporation/NGO of the donation or contribution and the date of receipt thereof; and (ii) The amount of the charitable donation or contribution, if in cash; if in property, whether real or personal, the acquisition cost of the said property. On the other hand, donations and gifts made in favor of accredited non-stock, non-profit corporation/NGOs shall be exempt from the donor's tax provided that not more than 30% of the said donations and gifts for the taxable year shall be used by such accredited non-stock, non-profit corporations/NGOs, for administration purposes pursuant to the provision of Section 101(A)(3) and (B)(2) of the Tax Code of 1997. However, donors claiming exemption from donor's tax on their donations and contributions to accredited non-stock, non-profit corporations/NGOs should submit evidences or proofs showing the amount of donation, if in cash; if in real property, the fair market value or the zonal value thereof at the time of donation, whichever is higher; and if personal property, the acquisition cost thereof, but if said personal property had already been used at the time of donation, the depreciated or book value thereof. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group