Salvador Guevara & Associates

December 7, 2007 BIR RULING [DA-618-07] 101 (A) (3) DA-058-2004; DA-531-2006; DA-516-2007 Salvador Guevara & Associates 8F Tower One and Exchange Plaza Ayala Triangle, Ayala Avenue Makati City Attention: Attys. Edmundo P. Guevara, Gerardo V. Francisco, and Rabiev Tobias M. Racho Gentlemen : This refers to your letter dated November 27, 2007 requesting on behalf of your client, Sun Life Financial Philippines Foundation, Inc . (" the Foundation ") for confirmation of your opinion that donations made to the Foundation are exempt from donor's tax. It is represented that the Foundation is a non-stock and non-profit charitable corporation duly registered with the Securities and Exchange Commission ("SEC") under SEC Registration No. CN 200713684 dated August 31, 2007; that the Foundation's primary purposes are stated as follows: 1. To promote the social, cultural, educational and the general well-being and economic development of the Filipino people, especially the less fortunate members of Philippine society by undertaking charitable or philanthropic work or activities. 2. To undertake, directly finance, assist, provide scholarship grants to deserving students and teachers, especially in the area of Mathematics and Actuarial Science, and professorial chairs for the enhancement of professional courses, or otherwise establish facilities and/or upgrade existing facilities for the study, education, training, instruction of deserving students and teachers. 3. To undertake and/or assist in the amelioration of the living conditions of distressed citizens particularly those who are handicapped by reason of poverty, youth, physical and mental disability, illness, old age and natural disasters, pursuing a program for the protection and development of children and youth. [Foundation Articles of Incorporation, Article II] aHTcDA It is further represented that being newly-incorporated, the Foundation is preparing to obtain accreditation as a donee institution pursuant to Executive Order No. 671 [Designating Appropriate Government Agencies to be the Accrediting Entities that Will Certify and Accredit Charitable Organization as Donee-Institutions Relative to Deductibility of Contributions or Gifts Received by them, in Relation to Section 34 of the Tax Reform Act of 1997] dated October 22, 2007; that in the meantime, pending accreditation, the Foundation intends to start operations by setting up and identifying charitable projects; and that the Foundation shall require funding, which shall necessarily come from gifts, donations and other contributions, given that the Foundation is not engaged in activities for profit. In this connection, you now request confirmation of your opinion that the gifts, donations and other contributions made to the Foundation are exempt from donor's tax. In reply, please be informed that Section 101 (A) (3) of the Tax Code of 1997, as amended, provides that the following gifts or donations made by a resident, among others, shall be exempt from donor's tax: (3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation , institution, accredited nongovernment organization, trust or philanthrophic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthrophic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthrophic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthrophy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. [emphasis provided] As represented, the Foundation is a non-profit charitable corporation registered as such with the SEC. It will not pay any dividends. Article IX, Foundation Articles of Incorporation provides that "[n]o part of the funds or assets of the Corporation shall . . . . be distributed as dividends". ADSTCI The Foundation's trustees will receive no compensation. Article IX, Foundation Articles of Incorporation states that "[n]o part of the funds or assets of the Corporation shall belong to or inure to the benefit of any member, organizer, officer, or trustee". The Foundation also complies with the limitation under Section 101, Tax Code that "not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes". Article IX, Foundation Articles of Incorporation, provides: No part of the funds or assets of the Corporation shall belong to or inure to the benefit of any member, organizer, officer, or trustee, nor shall the same be distributed as dividends. Any funds obtained by the Corporation as a result of its operation shall be used for the furtherance of the purposes for which the Corporation is organized. The level of administrative expenses of the Corporation, on an annual basis, shall in no case exceed thirty percent (30%) of the Corporation's total expenses . (emphasis provided) Finally, all of the Foundation's income shall be devoted to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. Article IX, Foundation Articles of Incorporation, provides that "[a]ny funds obtained by the Corporation as a result of its operation shall be used for the furtherance of the purposes for which the Corporation is organized. In BIR Ruling No. DA-058-2004 dated February 9, 2004, this Office had the occasion to rule that a proposed donation to a foundation, pending accreditation with the Philippine Council for NGO Certification ("PCNC"), is exempt from payment of donor's tax, as follows: "This refers to your letter dated March 10, 2000 and May 17, 2001 stating that a donor has come out willing to donate a real property to the Merkaba Foundation, Inc. for the purpose of putting up a retreat house and another donor is about to donate a real property to the Redemptoris Mater Missionary Seminary, Archdiocese of Manila, Inc. for the purpose of putting up a seminary; that pending the issuance of the Certificate of Tax Exemption and Accreditation with the Philippine Council for NGO Certification, you now request if Merkaba Foundation, Inc. and Redemptoris Mater Missionary Seminary, Archdiocese of Manila, Inc. can accept the donations of real properties without having to pay income tax and donor's tax, as well as entitling the donors to a tax deduction; and that you agreed that these taxes will have to be paid if the application for tax exemption and registration as a donee institution will be disapproved. In reply thereto, please be informed that pursuant to Section 101(A)(3) of the Tax Code of 1997, the proposed donations to Merkaba Foundation, Inc. and Redemptoris Mater Missionary Seminary, Archdiocese of Manila, Inc. are exempt from the payment of donor's tax, subject to the condition that not more than 30% of said gift shall be used by the donee for administration purposes." ADEHTS Likewise, in BIR Ruling No. DA-531-2006 dated September 4, 2006, this Office also ruled that the donation to a foundation, prior to accreditation by the PCNC, was exempt from payment of donor's tax, as follows: "This refers to your letter dated July 31, 2006 requesting exemption from the payment of donor's tax on the donation of two (2) parcels of land from the Estate of Lilia L. San Agustin to Doa Lilia L. San Agustin Foundation, Inc. It appears that the Estate of Doa Lilia L. San Agustin is the registered owner of two (2) parcels of land situated in the Municipality of Calapan, Province of Oriental Mindoro, consisting an area of 49,495 and 457 square meters covered by Transfer Certificate of Title Nos. T-67200 and T-58584, respectively, issued by the Register of Deeds for the Province of Mindoro Oriental; that Doa Lilia L. San Agustin Foundation, Inc. is a non-stock, non-profit charitable corporation duly registered with the Securities and Exchange Commission under SEC Registration No. CN200610071 dated June 27, 2006; that Doa Lilia L. San Agustin Foundation, Inc. undertakes to solely put the above described properties with all the buildings and improvements thereon to productive charitable, religious and civic use for the benefit of the beneficiaries of its charitable projects and shall not use the said properties for other use other than for the attainment and furtherance of its purposes as stated in its Article of Incorporation; that the Estate of Doa Lilia L. San Agustin cannot avail of deduction for purposes of computing taxable income under Revenue Regulations No. 13-98 because the said Foundation is not yet qualified to apply for accreditation not having been in operation for at least one (1) year as required under the policy/Rules and Procedures of the Philippine Council for NGO Certification (PCNC); and that it may, however, qualify for exemption from payment of donor's tax." aHICDc Premises being considered and since the Foundation is a charitable institution, this Office confirms your opinion that gifts, donations and other contributions made to the Foundation are exempt from 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 Foundation for administration purposes. 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. ETIcHa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service