National Book Development Board

June 25, 2007 BIR RULING [DA-347-07] Section 34 (H); BIR Ruling No. 009-2006 & DA-502-2006 National Book Development Board A. Maria Regidor Street, Area XI, University of the Philippines Diliman, Quezon City Attention: Atty. Andrea Pasion-Flores Executive Director Gentlemen : This refers to your letter dated February 26, 2007, requesting for opinion on whether or not the National Book Development Board (NBDB), as a government agency tasked to promote readership, is eligible to issue tax deductible certifications to its donors. If so, how can it acquire the necessary permit in order to issue such certifications. As represented, the NBDB is a government agency created under Republic Act (R.A.) No. 8047 or the Book Publishing Industry Development Act. It is currently accepting book donations from private companies and NGOs in the country, for donation to barangay reading centers throughout the archipelago. To encourage more companies to donate books to the NBDB, you would like to offer them tax deductions in full for book purchases bought from NBDB-registered publishers and booksellers and subsequently donated to the NBDB. In reply, please be informed that in general, the Government and fully-owned government corporations are eligible donee institutions pursuant to Section 4 (E) of BIR-NEDA Regulations No. 1-81 implementing Section 30 (h) of the old Tax Code (now Section 34 (H) of the Tax Code of 1997 as amended by Batas Pambansa (B.P.) Blg. 45, as amended). cHEATI Pursuant to Section 5 of BIR-NEDA Regulations No. 1-81, the Government need not register with the BIR in order to avail of the benefit set forth under B.P. Blg. 45. Section 34 (H) (2) (a) of the Tax Code of 1997 which incorporated Section 2 (A) of B.P. Blg. 45, as implemented by Section 3 (B) of BIR-NEDA Regulations No. 1-81, provides that donations to the Government, its agencies or political subdivisions are deductible in full from the gross income of the donor. However, donations not in accordance with the National Priority Plan are subject to limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation of the taxpayer's taxable net income as computed without the benefit of this deduction, viz: "(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." Sections 6, 7 and 11 of BIR-NEDA Regulations No. 1-81 implementing Section 30 (h) of the old Tax Code, as amended by B.P. Blg. 45 (now Section 34 (H) of R.A. No. 8424) relative to the deductibility of contributions or gifts actually paid or made to qualified donee institutions state "SEC. 6. Certificate of Donations . All qualified donee institutions are required to issue a certificate of donation in such form as prescribed by the BIR, on every donation or gift they receive. Such certificate shall be accomplished by donee in three or four copies and distributed within thirty (30) days after the receipt of the donation, as follows: HaEcAC (A) Original copy - Donor (B) Duplicate copy - BIR (C) Triplicate copy - Donee (D) In the case of qualified donees under the National Priority Plan, a quadruplicate copy shall be furnished to NEDA. SEC. 7. Notice of Donations. Donors should give a notice for every donation worth over P1,000 to the Commissioner of Internal Revenue within thirty (30) days after the receipt of the Certificate of Donation attaching thereto copy of the Certificate of Donation issued to him by the qualified donee institution. xxx xxx xxx SEC. 11. Verification procedure and substantiation requirements . A. . . . B. For Donees . Donees shall include in their income tax return an annual information report with the BIR. Provided, that donees covered by the national priority plan, must furnish the NEDA with the annual information report by accomplishing NEDA Forms 3A, 3B and 3C. The report shall be certified by the authorized official of the Institution or Association and shall contain: (a) a list of the donations and income received during the year, showing the name and address of the donor; the source of income; the amount or market value of each donation and items of income and the disposition thereof; (b) a list of the activities and/or projects undertaken by the institution and the cost of each undertaking indicating in particular where and how the donation has been utilized; (c) a list of projects; their corresponding costs; the amount "set aside" and the status of funds balances at the end of the year; ASHaDT (d) that the utilization requirements under Section 9 of this Regulations have been sufficiently complied with; (e) that no part of its net income inures to the benefit of any private stockholder or individual; and (f) the status of project implementation. C. Books of accounts as well as the operations of qualified donee institutions may be verified annually by the Commissioner of Internal Revenue or his duly assigned representative for the purpose of ascertaining whether or not they have met the requirements for maintaining such qualified status. xxx xxx xxx" It is clear from the foregoing that for every donation or gift it receives, NBDB's obligation as donee is to issue in quadruplicate the proper COD within thirty (30) days after the receipt of the donation. It should furnish the donor, RDO having jurisdiction over it and NEDA one copy each of the COD and keep the last copy for itself. On the part of the donor and for purposes of full deductibility from his/its taxable business income, the donor should notify within thirty (30) days from receipt of the COD, the RDO where his/its place of business is located, of donations worth over P1,000 he/it made. In view of the foregoing, NBDB is eligible to issue tax deductible certifications to its donors. Moreover, being a government agency, it is not required to register with the BIR for purposes of full deductibility from the taxable business income of donations made to it by its donors. 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service