San Miguel Corporation

March 12, 2009 BIR RULING [DA-(DT-014) 149-09] Sec. 34 (H); RR 13-98; DA-468-07; DA-124-04; & S30-016-04 San Miguel Corporation 40 San Miguel Avenue Mandaluyong City Attention: Atty. Alfredo R. Villacorte Tax Manager Gentlemen : This refers to your letter dated January 22, 2008 requesting on behalf of San Miguel Foundation, Inc. ("SMF" for brevity) for confirmation of your opinion that HTDcCE 1) Since SMF's application for accreditation is still pending with the Philippine Council for NGO Certification (PCNC), donors of SMF during this time can only avail of the limited deductibility of their donations ( i.e., 10%/5%); and 2) In the event that SMF's application is approved, donors can avail full deductibility of their donation from their taxable business income subject to certain limitations under Revenue Regulations (RR) No. 13-98. As represented, SMF is a non-stock, non-profit social welfare institution organized and existing under the laws of the Philippines. It was granted a Certificate of Registration issued by the Department of Social Welfare and Development (DSWD) on October 15, 2008. On January 9, 2008, SMF filed with the PCNC an application for accreditation as a donee-institution pursuant to Executive Order No. 671, dated October 22, 2007 and Revenue Regulations No. 13-98. In the meantime, pending the approval of its application, donations were already made to SMF. EcaDCI In reply, please be informed that Section 3 of RR 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. CSHDTE xxx xxx xxx (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 must be registered and accredited by the PCNC pursuant to the provisions of RR 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. EHSADc 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. On the other hand, 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. aDTSHc Section 34 (H) (2) (c) of the Tax Code of 1997, as amended, on full deductibility from the gross income of the donor of donations to accredited non-government organizations, applies only to donations to accredited non-government organizations or those registered with the PCNC. Since the SMF is not yet accredited by PCNC, Section 34 (H) (2) (c) will not apply to it (BIR Ruling No. 009-06 September 21, 2006). However, donations not in accordance with the above conditions provided under RR No. 13-98 are subject to limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation of the taxpayer's taxable net income as computed without the benefit of this deduction. EDISTc In view of all the foregoing, this Office hereby confirms your opinion that 1) Since SMF's application for accreditation is still pending with the PCNC, donors of SMF during this interim period can only avail of the limited deductibility of their donations ( i.e. , 10%/5%); and 3) * In the event that SMF's application is approved, donors can avail full deductibility of their donation from their taxable business income subject to the conditions imposed under Section 3 (2) of Revenue Regulations No. 13-98 implementing Sec. 34 (H) of the Tax Code of 1997, as amended. cEASTa 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