Vicente E. Reyes & Associates

October 17, 2008 BIR RULING [DA-(DT-014) 308-08] 34 (H) (2) (c); DA-509-2004 Vicente E. Reyes & Associates Certified Public Accountants 26 Tirad Pass St., Sta. Mesa Heights Quezon City Attention: Amado P. Galang Managing Partner Gentlemen : This refers to your letter dated September 5, 2008, requesting on behalf of your client, Mercury Group of Companies, Inc. and all of its subsidiary companies, for a ruling as to the correct interpretation of Section 45 in relation to Section 34 (H) of the Tax Code of 1997, as amended, relative to the donations granted by your clients to various charitable institutions under the following circumstances: 1) Each year your clients, provide donation to their donee-institution, Mercury Drug Foundation, Inc. which is equivalent to 1% of their net income before bonus and income tax; 2) Your clients employ the accrual method of accounting in recognizing income and expenses; 3) After the audit of each company is completed, i.e., on or before April 15 of the succeeding year, but before determination of the corresponding bonus and income tax due, the donations are computed and set-up and/or accrued in the books as an expense in adherence to the accounting principle of matching of revenue and expense; 4) Thereafter, these donations were paid to the donee-institution which issues the official receipts and records the same in its books of accounts. In connection therewith, you would like to know if a. The donations mentioned above are deductible in the same year they are accrued; EHASaD b. The donations given/granted to the recipients should be reported in their income tax return on the same year they received them. In reply, please be informed as follows: 1. 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, as amended. Since Mercury Drug Foundation, Inc. is an accredited donee institution, donations to it may be recorded or booked by donors on the year the donation was made. (BIR Ruling No. DA-509-2004 dated September 29, 2004). 2. Donations received by the donee should be reported in their income tax returns in the year the donation was made and not in the year the donation was actually or constructively received. 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