Alsons Development and Investment Corporation

December 1, 2009 BIR RULING [DA-(DT-066) 720-09] Section 34 (H); 101; RA 8525; BIR Ruling No. DA-195-05 Alsons Development and Investment Corporation 329 Bonifacio Street Davao City Attention: Amado C. Bernardino Finance Manager Gentlemen : This refers to your letter dated September 4, 2008, indorsed to this Office by BIR Revenue Region (RR) No. 19, requesting a confirmatory ruling on the tax exemption and deductibility of the donation made by your company in taxable years 2007 and 2008 in favor of Cabantian Elementary School (CES) and Cabantian National High School (CNHS) through the Adopt-a School Program of the Department of Education (DepEd). Documents submitted disclose that Alsons Development and Investment Corp. (ALDEVINCO) is a private corporation engaged in the real estate business with principal office located at 329 Bonifacio St., Davao City. Sometime in 2007, ALDEVINCO entered into a Memorandum of Agreement (MOA) with the DepEd to construct a one-storey, three-classroom building at CES and to subsidize the monthly wages of three teachers of CNHS for the school years 2006-2007 and 2007-2008. The Deed of Donation transferring the said property in favor of the school was subsequently executed by ALDEVINCO on December 4, 2007. Verification made by Revenue District Office No. 113 of RR 19 reveals that the donation made by ALDEVINCO amounted to P1,134,876.69. ALDEVINCO is now claiming the said amount and the additional amount of P567,433.85 equivalent to 50% of its donation as deduction from its gross income pursuant to the provisions of Republic Act (RA) No. 8525, otherwise known as the "Adopt-a-School Act of 1998." Moreover, for the said donation, ALDEVINCO is seeking an exemption from donor's tax under Section 101 of the Tax Code of 1997 (Tax Code). The following documents were submitted in support of your request: IcaHTA 1. Deed of Donation; 2. Deed of Acceptance; 3. MOA; and 4. Official Receipts, vouchers and other pertinent documents to support the actual expenses incurred. In reply, please be informed that under Section 34 (H) (2) of the Tax Code, donations to the Government, its agencies or political subdivisions is deductible in full from the gross income of the donor. However, donations not in accordance with the National Priority Plan is 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, viz. : "(a) Donations to the Government. Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to a National Priority Plan determined by the National Economic and Development Authority (NEDA), in consultation with appropriate government agencies, including its regional development councils and private philanthropic persons and institutions: Provided, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph (1) of this Subsection." Furthermore, Section 5 of R.A. 8525 provides as follows: "SEC. 5. Additional Deduction for Expenses Incurred for the Adoption . Provisions of existing laws to the contrary, notwithstanding, expenses incurred by the adopting entity for the Adopt-a-School Program shall be allowed an additional deduction from the gross income equivalent to fifty percent (50%) of such expenses. Valuation of assistance other than money shall be based on the acquisition cost of the property. Such valuation shall take into consideration the depreciated value of the property in case said property has already been used." Section 3 of Revenue Regulations (Rev. Regs.) No. 10-2003, implementing R.A. No. 8525, allows a deduction from the gross income of the amount of contribution/donation that were actually, directly and exclusively incurred for the Program subject to limitations, conditions and rules set forth in Section 34 (H) of the Tax Code, plus an additional amount equivalent to fifty percent (50%) of such contribution/donation, subject to the following conditions: EHcaAI (1) That the deduction shall be availed of in the taxable year in which expenses have been paid or incurred; (2) That the taxpayer can substantiate the deduction with sufficient evidence, such as official receipts or delivery receipts and other adequate records (2.1) The amount of expenses being claimed as deduction; (2.2) The direct connection or relation of the expenses to the adopting private entity's participation in the Adopt-a-School Program. The adopting private entity shall also provide a list of projects and/or activities undertaken and the cost of each undertaking, indicating in particular where and how the assistance has been utilized as supported by the Agreement; and (2.3) Proof or acknowledgment of receipt of the contributed/donated property by the recipient public school. (3) That the application, together with the approved Agreement endorsed by the National Secretariat, shall be filed with the Revenue District Office (RDO) having jurisdiction over the place of business of the donor/adopting private entity, copy furnished the RDO having jurisdiction over the property, if the contribution/donation is in the form of real property. In addition, the assistance made by the donor is exempt from payment donor's tax pursuant to Section 101 (A) (2) of the Tax Code. In view of the foregoing, the amount actually, directly and exclusively incurred for the Program is deductible from the gross income of ALDEVINCO plus an additional amount equivalent to fifty percent (50%) of the said contribution/donation, and exempt from the payment of donor's tax pursuant to R.A. 8525, as implemented by Rev. Regs. No. 10-2003 and Section 101 (A) (2) of the Tax Code, respectively. However, for purposes of entitlement to the full deductibility of the contribution/donation from gross income of the donor under Section 34 (H) of the Tax Code of 1997, a certification must be secured from the NEDA that the above contribution/donation to the Government through the DepEd is in accordance with priority programs, projects and activities included in the current National Priority Plan. TcHCIS 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service