BIR Ruling [DA-347-00]

September 22, 2000 BIR RULING [DA-347-00] Secs. 30 (F); 27 (D) (1); 101 S26-73-97 Cruz Enverga & Lucero Law Offices 25/F Cityland 10 Tower 1 6815 Ayala Avenue, North Salcedo Village Makati City Attention: Attys . Teodoro B . Cruz, Jr . and Maria Flora A . Falcon Gentlemen : This refers to your letter dated May 5, 1999 requesting on behalf of your client, Philippine Press Institute, Inc., for a ruling on the following: (1) Whether your client is exempted from the payment of income taxes; (2) Whether donations to your client is exempted from donor's taxes; and (3) Whether said donor's, in computing their taxable income, can deduct said donations from their gross income and to what extent. It is represented that Philippine Press Institute, Inc. (PPI) was incorporated as non-stock, non-profit corporation on June 8, 1987; that the primary purpose for which the corporation was organized, as stated in its Articles of Incorporation, is as follows: "To provide a professional institution that will improve and develop journalism in the Philippines by such means as providing instruction in practical journalism through long and short term courses, seminars, workshops, consultation visits, etc., and by conducting continues studies on the state of the press, its relationship with the government, the people and other media, its professionals and ethical performance, its possibilities of development, market and readership surveys, the special problems of the provincial press"; that the underlying objective of the organization is to provide a professional institution that will improve and develop journalism in the Philippines; that the operations of the organization are financed by donations and not more than thirty percent (30%) of said donations is used by the organization for administration purposes; that PPI is governed by a Board of Trustees whose members do not receive any compensation; that PPI devotes all its income, if any, and all gifts to the accomplishment and promotion purposes enumerated in the Articles of Incorporation; and that you submitted to this Office, copies of the Certificate of Incorporation, Articles of Incorporation and the By-Laws of PPI. ATHCac In reply please be informed of the following: A) Based on the foregoing, this Office is of the opinion and so holds that the Philippine Press Institute, Inc. falls within the purview of the word "business league", which is organized not for profit and no part of its net income inures to the benefit of any private stockholder or individual contemplated under Section 30(F) of the 1997 Tax Code. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. In such case, the interest income it derives from Philippine currency bank deposits and yield or any other monetary benefits from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 27(D)(1), in relation to Section 57(A), both of the 1997 Tax Code. (BIR Ruling No. S-26-73-79 dated September 1, 1997.) However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. In such case, the interest income it derives from Philippine currency bank deposits and yield or any other monetary benefits from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 27(D)(1), in relation to Section 57(A), both of the 1997 Tax Code. (BIR Ruling No. S-26-72-97 dated September 1, 1997.) Furthermore, while PPI is not required to file an income tax return, you are nonetheless required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in the by-laws, Articles of Incorporation, manner of operation and activities, as well as sources and disposition of income. Finally, PPI's exemption from the payment of income taxes does not exempt it from being duly constituted withholding agent of the government if it acts as an employer and its employees received compensation subject to withholding tax under Section 79(A), Chapter XIII, Title II of the Tax Code, as implemented by Rev. Regs. 2-98, or if it makes income payments to individuals or corporation subject to withholding tax provided for in Section 57 of the 1997 Tax Code, and as implemented by same Rev. Regs. 2-98. B) Pursuant to Section 101 of the 1997 Tax Code, only the following gifts or donations are exempt from donor's tax, viz: "(A) In the case of Gifts Made by a Resident "(1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized, or adopted children to the extent of the first ten thousand pesos (P10,000); "(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and "(3) Gifts in favor of an education and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution: Provided, however, that not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution, accredited, nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receives no compensation, and devoting all its income, whether student fees or gifts, donations, subsidies or other form of philanthropy, to the accomplishment and promotion of the purposes enumerated in the Articles of Incorporation." Based on the foregoing, PPI does not qualify as a donee organization and such, any gift or donation made thereto by the donor/s are not exempt from the donor's tax. IAEcCT C) In the light of the above, donations made to PPI are not deductible from the gross income of the donor/s as provided for under Section 34(H) of the 1997 Tax Code. This ruling is being issued on the basis of the facts represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group