BIR Ruling [DA-478-03]

December 10, 2003 BIR RULING [DA-478-03] Section 34 BIR Ruling No. S30-022-98 Philippine Council for NGO Certification 4/F, MSCB Building 4718 Eduque Street Makati City Attention: Ms. Fely I. Soledad Executive Director Gentlemen : This refers to your letter dated July 11, 2001 relative to the practice of the Philippine Council for NGO Certification (PCNC) of giving one (1)-year certification to newly established non-government organizations. In your letter, you stated that: "Our process of determining the length of an organization's certification life involves actual evaluation of the applicant and a rating system that follows a statistical range, e . g . an organization with an average rating of 4.1-5.0 is certified for five (5) years; an organization with an average rating of 3.04.0 is certified for three (3) years, and so on down the line. Fully operating applicants are certified if the evaluation team finds them worthy of certification, but are usually given only one (1) year as they still have to establish a track record and prove that what they declare as their modus operandi is actually carried out. PCNC thus has a chance to check, when the organization applies again, if the applicant has implemented the recommendations of the previous team, and is therefore worthy of a longer certification life (3 years or 5 years, as the case may be). We believe our practice of giving one (1)-year certification to newly established organizations is within the abovementioned provision of RR 13-98 which stipulates only the maximum period of validity of the certification issued by the accrediting entity, in this case, PCNC." In reply, please be informed that this Office poses no objection to the process of examination, evaluation and accreditation adopted by PCNC in determining the duration of an organization's certification life for purposes of establishing whether an entity is a bona fide non-stock, non-profit corporation/NGO pursuant to Section 34 of the Tax Code of 1997. More specifically, PCNC's practice of granting one (1)-year certification to newly established organizations is not inconsistent with Section 2(f) of Revenue Regulations (RR) No. 13-98 which implements the provisions of Section 34(H) of the 1997 Tax Code relative to the deductibility of contributions or gifts actually paid or made to accredited donee institutions in computing taxable income. The Regulations provide that an Accrediting Entity shall establish and operationalize a system of accreditation to determine the qualification of non-stock, non-profit corporations or organizations and NGOs for accreditation as qualified-donee institutions. PCNC has been designated as an Accrediting Entity pursuant to a Memorandum of Agreement dated January 29, 1998 by and between the Secretary of Finance and the PCNC's Interim Chairman. As an Accrediting Entity, PCNC issues a certification to non-stock, non-profit corporations and NGOs that meet the criteria for accreditation. RR No. 13-98 merely provides the maximum period for the validity of its certification, viz : HEASaC "The Accrediting Entity shall issue a Certificate of Accreditation to a non-stock, non-profit corporation/NGO upon determination that it meets the criteria for accreditation; Provided , that the Certificate of Accreditation shall be valid for a maximum period of five (5) years for existing non-stock, non-profit corporations/NGOs, and three (3) years for newly-organized, non-stock, non-profit corporations/NGOs." In fact, this Office has occasionally issued certificates of exemption from income tax valid only for one (1) year and renewable every year thereafter depending upon the result of investigation. Moreover, Section 2(g) of the same Regulations allows a non-stock, non-profit corporation/NGO whose application for accreditation has been denied, a period of one (1) year within which to implement the evaluator's recommendations and thereafter, re-apply for accreditation. For as long as the procedures are fairly and properly adopted, any means as are necessary may be resorted to by PCNC to give effect to Section 34 of the Tax Code of 1997, as implemented by RR No. 13-98 (BIR Ruling No. S30-022-98 dated April 20, 1998 citing BIR Ruling No. S30-654-97 dated June 24, 1997). In no case, however, should the power granted to PCNC be used to defeat or impair its avowed object of examining, evaluating and accrediting NGOs as partners of the government in the nation's development process. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group