BIR Ruling [DA-509-04]

September 29, 2004 BIR RULING [DA-509-04] Section 101 (A) (3) BIR Ruling No. S-30-054-98 & DA-123-2001 Angeles University Foundation 2009 Angeles City Attention: Atty. Joseph L. Angeles Executive Assistant to the Board of Trustees Gentlemen : This refers to your letter dated July 5, 2004 stating that Angeles University Foundation (AUF) is a non-stock, non-profit educational institution founded on May 25, 1962 and duly accredited with the Philippine Council for NGO Certification (PCNC); that it is one of only forty (40) educational institutions in the Philippines granted autonomous status by the Commission on Higher Education (CHED); that the University is not only a center of excellence in Region 3 but an exemplar of community service; that at present, more than 25,000 people have received scholarships and have benefited from the community extension programs implemented by the University; that you intend to pursue a community extension project; that this project is dubbed "Loaves and Fishes" and is patterned after the U.S. Harvest program in the United States where a group of enterprising individuals in the United States thought of distributing food to individuals who are so destitute that they could not afford to buy their own food; that the group subsists purely on the time and resources given by volunteers and its partner organizations; that you wish to adopt this program in AUF; that for your version of the program, partner restaurants and supermarkets shall donate food to AUF, which in turn shall distribute the food through its employees, volunteers and partner organizations to needy individuals; and that you do not intend to obtain any remuneration from the beneficiaries of this project. Based on the foregoing, you now request for a ruling on the following issues: Q: Can donations of the following items by partner organizations be considered as charitable contributions deductible from taxable income within the purview of Section 34(H) of the National Internal Revenue Code and Revenue Regulations No. 13-98: a. Cooked food donated by partner restaurants; b. Canned goods and other forms of packaged food donated by partner supermarkets; c. Expenses of partner restaurants and supermarkets in storing the donated food and delivering the same to AUF distribution centers for the project (e.g. salaries of the partner restaurants and supermarkets drivers, gasoline expenses, warehouse rental, etc.); d. Value of donated services by partner organizations (e.g. legal services of a law firm, bookkeeping services of an accounting firm, marketing services of an advertising agency, publication and advertising space or time in a newspaper or television station, etc.)? A: Yes. Donations, contributions or gifts actually paid or made within the taxable year to accredited NGOs 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. Since AUF is an accredited donee institution, donations by partner restaurants, supermarkets, and organizations to AUF may be recorded or booked by donors on the year the donation was made (cited in BIR Ruling No. DA-123-2001 dated July 18, 2001). Accordingly, cooked food, canned goods, other forms of packaged food, and value of services donated to AUF relative to its project, "Loaves and Fishes," are deductible in full from the gross income of its donors depending on its compliance with the level of administrative expense acid utilization requirements. However, expenses of partner restaurants and supermarkets in storing the donated food and delivering the same to AUF distribution centers for the project, including salaries (which is subject to withholding tax) of the partner restaurants and supermarkets drivers, gasoline expenses, warehouse rental, etc. are not deductible under Section 34(H)(2)(C) of the Tax Code of 1997 since these are not charitable contributions but expenses incurred by the donors in making the donation. Nevertheless, said expenses are deductible from the gross income of the donors under Section 34(A) of the same Tax Code. Q: If the answer to the foregoing queries is in the affirmative, to what extent may the deduction be taken? Will the deduction be subject to the 10% and 5% net income limitation for individuals and corporations respectively or will the deduction be exempted from the above limitation? A: 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. (BIR Ruling No. S-30-054-98 dated September 30, 1998 and cited in BIR Ruling No. DA-123-2001 dated July 18, 2001). DTIaCS Since AUF is an accredited donee institution, contributions and donations in its favor are deductible in full from the gross income of its donors depending on its compliance with the level of administrative expense and utilization requirements. 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, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service