BIR Ruling [DA-379-06]

June 20, 2006 BIR RULING [DA-379-06] 101 (A) (3); 34 (H) (2) (c); DA-048-2006 Boy Scouts of the Philippines National Office 181 Natividad Almeda-Lopez St. Ermita, Manila Attention: Mr. J. Rizal C. Pangilinan Secretary General Gentlemen : This refers to your letter dated April 20, 2006 requesting for exemption from payment of donor's tax and full deductibility from its donor's gross income. Documents show that Boy Scouts of the Philippines (BSP) was created by virtue of Republic Act (R.A.) No. 7278, otherwise known as " An Act to Create a Public Corporation to be known as the Boy Scouts of the Philippines, and to Define Its Powers and Purposes "; that under R.A. No. 7278 amending Commonwealth Act No. 111, the Boy Scouts of the Philippines (BSP) is considered to be a corporation organized for religious, charitable, scientific, athletic or cultural purposes, operated exclusively for the promotion of social welfare and for other non-profitable purposes; that RA 7278 provides that the BSP shall be exempt from income tax pursuant to Section 30(E) of the Tax Code of 1997, as amended; and that being a non-stock, non-profit corporation the purpose of which is "to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common used by boy scouts." Section 8 of R.A. No. 7278 provides, viz: "SEC. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government or by private entities and individuals shall be expended by the National Executive Board in pursuance of this Act. The corporation shall be entitled to the following tax and duty privileges: (a) Exemption from income tax pursuant to Section 26(e), (g) and (h) of the National Internal Revenue Code, as amended. (b) Exemption from donor's tax pursuant to Section 94(a)(3) of the National Internal Revenue Code, as amended; (c) Full deductibility of donations from the donor's from income for purposes of computing taxable income; and (d) Tax and/or duty exemption of donations from foreign countries as provided under relevant laws such as, but not limited to Section 105 of the Tariff and Customs Code of the Philippines, as amended, Section 103 of the National Internal Revenue Code, as amended. EaIcAS Any other provisions of law to the contrary notwithstanding, there shall be no discrimination in tax treatment of the Boy and Girl Scouts of the Philippines." Currently, BSP has been experiencing some financial difficulties stemming from its non-inclusion in the budgetary appropriations of the Government. Thus, the whole management greatly relies on the donation made by various entities. Based on your experience, your intended donors would like to request a BIR certification so that their donations are exempt from donor's tax and could be fully deducted from their gross income. In reply, please be informed as follows: DONOR'S TAX Inasmuch as the donee, the BSP, is a organized for religious, charitable, scientific, athletic or cultural purposes, operated exclusively for the promotion of social welfare and for other non-profitable purposes, donations to it is exempt from the payment of donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used by the donee for administration purposes. Section 185 of Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, implementing Title VII of the Tax Code, provides that conveyances of realties not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the Deed of Donation is not subject to the documentary stamp tax (DST) prescribed under Section 196 of the Tax Code of 1997, as amended, but only to the DST of P15.00 imposed under Section 188 of the same Code. On the other hand, donation in cash coming from a non-resident shall not be subject to any Philippine tax since non-residents are beyond the taxing jurisdiction of the Philippine Government (cited in BIR Ruling No. 115-99 dated August 6, 1999). In this connection, it may be stated that should such donation materialize, a non-resident donor is required to submit to this Office a copy of the Deed of Donation covering the aforesaid gift with the signature of the authorized representative of the non-resident donor, notarial commission and signature of the Notary Public acknowledging the instrument of donation duly authenticated by the Philippine Consulate General of the donor's residence. (BIR Ruling No. DA-048-2006 dated February 15, 2006) DEDUCTIBILITY OF DONATION Section 34(H)(2)(C) of the Tax Code of 1997 provides that donations to an accredited non-government organization (NGO), 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 combination thereof, no part of the net income of which inures to the benefit of any private individual shall be deductible in full from the taxable business income of the donor depending on the donee's compliance with the level of administrative expense and utilization requirements. Otherwise, it shall be entitled only to the limited deductions as provided for under Section 34(H)(1) of the same Tax Code. Donations, contributions or gifts actually paid or made within the taxable year to an accredited NGO shall be allowed full deductibility on the taxable year it was incurred pursuant to Section 34(H)(2)(c) of the Tax Code of 1997, as amended. (BIR Ruling No. DA-124-2004, April 20, 2004 and BIR Ruling No. S30-016-2004 dated May 6, 2004). acCITS Accordingly, for purposes of full deductibility from the taxable business income of its donor, BSP must first be accredited with the Philippine Council for NGO Certification, Inc. (PCNC) which has been duly designated by the Secretary of Finance as the Accrediting Entity pursuant to Memorandum of Agreement dated January 29, 1998 executed by and between the Secretary of Finance and PCNC's Interim Chairman. For further inquiries on the accreditation and certification process, BSP may contact PCNC at 6/F, SCC Building, CFA-MA Compound, 4427 Interior Old Sta. Mesa, 1016 Manila or call their office at 715-9594, 715-2756, 782-1568 and 715-2783. You may also visit their website: http://www.pcnc.com.ph or e-mail them at [emailprotected]. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service