Atty. Rey E. Bulay

August 24, 2007 BIR RULING [DA-468-07] Rev. Regs. No. 13-98 Atty. Rey E. Bulay Asian Hospital Charities, Inc. 2nd Floor, Asian Hospital and Medical Center, Inc. No. 2205, Civic Drive, Filinvest Corporate City Alabang, Muntinlupa City S i r : This refers to your letter requesting for a ruling on whether or not Revenue Regulations (Rev. Regs.) No. 13-98 had the effect of amending Sections 87, 88, 94 and 95 of the Corporation Code (Batas Pambansa Blg. 68) in reference to the powers and attributes of a non-stock, non-profit corporation in relation to the Philippine Council for NGO Certification (PCNC) requirement for accreditation. As represented, a PCNC prescribed form for a Secretary's Certificate provides, viz: "That in the event of dissolution, the existing assets of Asian Hospital Charities, Inc. will be passed on to another accredited NGO or organization of similar purpose, or to the State for public purpose or purposes, or would be distributed by a competent court of justice to another accredited NGO to be used in such manner as in judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized." (Paragraph A) "That the level of administrative expenses shall not exceed thirty percent (30%) of the total fund used during the fiscal year." (Paragraph C) Provisions of the Corporation Code comparing the powers and attributes of a non-stock, non-profit corporation vis a vis a foundation are quoted as follows: "For purposes of Corporation Law, with respect to corporation powers and capabilities, and rules on internal management and membership relations, there are no distinctions between foundations and regular non-stock corporations and there is no advantage enjoyed in this realm by foundations over regular non-stock corporations. In fact, a foundation would suffer a diminution of the extent of power by which to distribute its net assets in the event of dissolution, compared to a regular non-stock corporation. SCIcTD When it comes to charitable contributions, a foundation is limited in the manner by which it disburses the same by the 30% limitation on its administrative expenses, whereas no such limitation applies to regular non-stock corporations." You opine that unlike a foundation, a non-stock, non-profit corporation applicant is required to comply with Rev. Regs. No. 13-98, thus, contravening the powers and attributes of a corporation in its Articles of Incorporation invested upon it by the Corporation Code. In reply, please be informed as follows: 1. Rev. Regs. No. 13-98 did not amend Sections 87, 88, 94 and 95 of the Corporation Code . We do not agree that Rev. Regs. No. 13-98 violates the hereunder quoted provisions of the Corporation Code (Pambansa Blg. 68) and thereby has the effect of amending Batas Pambansa Blg. 68 (B.P. Blg. 68), viz: "SEC. 87. Definition . For the purposes of this Code, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of this Code on dissolution: Provided, That any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provision of this Title. xxx xxx xxx SEC. 88. Purposes . Non-stock corporations may be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agriculture and like chambers, or any combination thereof, subject to the special provisions of this Title governing particular classes of non-stock corporations. xxx xxx xxx SEC. 94. Rules for distribution . In case of dissolution of a non-stock corporation in accordance with the provisions of this Code, its assets shall be applied and distributed as follows: 1. . . . 2. . . . 3. Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by reason of the dissolution, shall be transferred or conveyed to one or more corporations, societies or organizations engaged in activities in the Philippines substantially similar to those of the dissolving corporation pursuant to a plan of distribution adopted as provided in this Chapter ; ACIESH 4. . . . 5. . . . SEC. 95. Plan of distribution of assets . A plan providing for the distribution of assets, not inconsistent with the provisions of this Title, may be adopted by a non-stock corporation in the process of dissolution in the following manner: The board of trustees shall, by majority vote, adopt a resolution recommending a plan of distribution and directing the submission thereof to a vote at a regular or special meeting of members having voting rights. Written notice setting forth the proposed plan of distribution or a summary thereof; and the date, time and place of such meeting shall be given to each member entitled to vote, within the time and in the manner provided in this Code for the giving of notice of meetings to members. Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the members having voting rights present or represented by proxy at such meeting." There is a presumption in statutory construction that the legislative mind is presumed to be consistent, hence, its enactments are presumed to be consistent with each other ( Black on Interpretation of Laws , pp. 118-119). Accordingly, it is presumed that Section 34 (H) of the Tax Code of 1997 as well as its implementing regulations, Rev. Regs. No. 13-98 are consistent with the aforecited provisions of the Corporation Code (B.P. Blg. 68). A regulation cannot amend a law. Only a law can amend another law. Such being the case, Rev. Regs. No. 13-98 cannot amend provisions of the Corporation Code (B.P. Blg. 68). Moreover, the Tax Code and the Corporation Code provisions refer to different subjects. Section 34 (H) of the Tax Code of 1997 (then paragraph (h), Section 30 of the old Tax Code as amended by Batas Pambansa Blg. 45 as implemented by Section 3 (B) of BIR-NEDA Regulations No. 1-81) as implemented by Section 3 of Rev. Regs. No. 13-98 specifically refers to "non-stock, non-profit corporations" whereas the aforequoted Corporation Code (B.P. Blg. 68) provisions make reference to "non-stock corporations." The two are different since not all non-stock corporations are non-profit whereas all non-stock, non-profit corporations are "non-stock." Incidentally, a perusal of the hereunder provisions of the Corporation Code you cited which compared the powers and attributes of a non-stock, non-profit corporation vis a vis a foundation, to wit: "For purposes of Corporation Law, with respect to corporation powers and capabilities, and rules on internal management and membership relations, there are no distinctions between foundations and regular non-stock corporations and there is no advantage enjoyed in this realm by foundations over regular non-stock corporations. In fact, a foundation would suffer a diminution of the extent of power by which to distribute its net assets in the event of dissolution, compared to a regular non-stock corporation. DAESTI xxx xxx xxx" would show that the aforequoted provision specifically applies "for purposes of Corporation Law . . ." as contra-distinguished from tax purposes. 2. Both the foundations and the non-stock, non-profit corporations are required to comply with Rev. Regs. No. 13-98 . Contrary to your opinion, both the foundations and the non-stock, non-profit corporations are required to comply with Rev. Regs. No. 13-98 if they want to apply for exemption from taxation of donations. Section 3 (B) of BIR-NEDA Regulations No. 1-81 implementing paragraph (h), Section 30 of the old Tax Code (now Section 34 (H) of the Tax Code of 1997) as amended by Batas Pambansa Blg. 45 re: qualifications of donee institutions and the requirements for the deductibility or non-deductibility of donations thereto provides, viz: "B. Full Deductibility All donations given to the following institutions or entities shall be deductible in full for income tax purposes: (a) The Government . . . (b) Foreign Institution or International Organization; (c) Private Foundation which: (i) is duly registered with the SEC and governed by trustees who receive no compensation nor any type of remuneration in cash or in kind; (ii) not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, unless an extended period is granted by the Minister of Finance (now Secretary of Finance) not exceeding thirty (30) days in accordance with these rules and regulations; (iii) the level of administrative expenses on an annual basis does not exceed 30% of its total utilization during the taxable year ; (iv) the assets, in the event of dissolution, would be distributed to another domestic corporation or association or to the Government for a public purpose or as a competent court of justice would distribute to accomplish the general purpose for which the dissolved organization was organized. " TCDHaE The same requirements were incorporated in Section 3 of Revenue Regulations No. 13-98, implementing Republic Act No. 8424, otherwise known as "An Act Amending the National Internal Revenue Code, as Amended" specifically Section 34 (H) relative to the deductibility of contributions or gifts actually paid or made to accredited donee institutions in computing their taxable income. "SEC. 3. Donations to Accredited Non-stock, Non-profit Corporations/NGOs . Donations to accredited non-stock, non-profit corporations/NGOs shall be entitled to the following benefits: (1) Limited Deductibility . . . . (2) Full Deductibility . Donations, contributions or gifts actually paid or made within the taxable year to accredited NGOs shall be allowed full deductibility, subject to the following conditions: (i) 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 NGO's 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 have the meaning as defined under Sec. 1(c) of these Regulations. (ii) 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 . (iii) 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 purposes, 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. (iv) The amount of any charitable contribution of property other than money shall be based on the acquisition cost of said property. (v) All 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. IaAHCE (3) Exemption from Donor's Tax Donations and gifts made in favor of accredited non-stock, non-profit corporations/NGOs shall be exempt from the donor's tax: Provided, however, That not more than thirty percent (30%) of the said donations and gifts for the taxable year shall be used by such accredited non-stock, non-profit corporations/NGOs institutions qualified-donee institution for administration purposes pursuant to the provisions of Section 101 (A) (3) and (B) (2) of the Tax Code." Accordingly, for purposes of exemption from taxation of donations, donee-institutions, whether non-stock, non-profit organizations or foundations must be registered and accredited by the PCNC pursuant to the provisions of Rev. Regs. No. 13-98. For tax exemption purposes, the level of administrative expenses of donee-institutions, shall, on an annual basis, not exceed thirty percent (30%) of the total expenses for the taxable year; and 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 purposes, 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. Incidentally, the requirements for registration with the BIR as a donee institution serve as the basis for the extension of government assistance to such an institution, particularly in terms of tax incentives by allowing the donors to claim the donation as deduction from their gross income, as well as exemption from donor's tax to make them supportive of the projects of the donee institution. The issuance of a Certificate of Registration to NGOs is a confirmation of the eligibility of such NGO as a donee institution. The mandate of PCNC to accredit the qualified donee institutions is in pursuance to a Memorandum of Agreement entered into by and between the BIR and the PCNC. Tax exemptions and tax incentives are not a matter of right but a privilege which may or may not be availed of by the taxpayer. In order to avail of tax exemptions and incentives, the taxpayer must comply with the requirements otherwise he/it cannot benefit from the law granting the same. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service