BIR Ruling [DA-312-00]

August 21, 2000 BIR RULING [DA-312-00] Hon . Antonio F . Corrado Assistant Secretary for Legislation Presidential Legislative Division Office Malacaang S i r : This refers to your letter dated March 29, 2000 requesting our comments and recommendations on House Bill No. 5864 and Senate Bill No. 364 both entitled: " AN ACT CREATING THE PHILIPPINE EAR RESEARCH INSTITUTE WITHIN THE UNIVERSITY OF THE PHILIPPINES SYSTEM, DEFINING ITS POWERS AND FUNCTIONS, PROVIDING FUNDS THEREFOR AND FOR OTHER PURPOSES ." The identical bills provide in Section 9 thereof as follows: "Sec. 9. Exemptions from Taxes . Any position of existing law to the contrary notwithstanding, all donations, contributions, endowments, subsidies or financial aids shall be exempt from income and gift taxes and shall constitute allowable deductions in full from the income of the donors. The institute shall be exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for, the Institute. The assets of the Institute and its equipment and supplies imported by authorized entities or persons shall be exempt from all taxes, duties, fees, charges, and imposts imposed by the Republic of the Philippines." We have no objection to the proposal to exempt from income and donor's taxes all donations, contributions, endowments, subsidies or financial aids to the Philippine Ear Research Institute. Section 30 of the Tax Code of 1997 provides for the exemption from income tax of the organizations enumerated therein in respect to income received by them as such while Section 101(A)(3), also of the Tax Code, exempts from the donor's tax, gifts in favor of the research institution or organization subject to the condition that not more than thirty (30%) of said gifts shall be used by such donee for administrative purposes. We believe that the Philippine Ear Research Institute to be created within the College of Medicine, University of the Philippines, being a government agency to undertake research and training on the prevention and cure of ear diseases falls under the purview of Sections 30 and 101(A)(3) of the Tax Code of 1997. DTaSIc This Office however, does not conform with the proposal to deduct in full the amount of donation from the income of the donor/s. To be entitled to full deductibility, the donation to the Government or any agencies or political subdivisions must be in accordance with the National Priority Plan to be determined by the National Economic and Development Authority (NEDA) pursuant to Sec. 34(H)(2)(a) of the Tax Code of 1997. With respect to the exemption of the Philippine Ear Research Institute from taxes (obviously VAT) on equipment purchases made by, or for, the institute, we hereby pose objection thereto. Under the VAT System, the persons liable are the sellers of goods and services. However, VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. (Sec. 105, Tax Code of 1997) Such being the case, purchases made by, or for, the institute shall be subject to VAT indirectly passed on to it by the sellers of the equipment/s. Finally, the proposed grant of tax exemption to the institute on equipment and supplies imported by authorized persons or entities would adversely affect VAT collection on importation. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group