Alsons Development & Investments Corporation

December 1, 2009 BIR RULING [DA-(DT-067) 721-09] R.A. No. 8525; BIR Ruling No. DA-086-05 Alsons Development & Investments Corporation Bonifacio Street Davao City Attention: Mr. Amado C. Bernardino Finance Manager Gentlemen : This refers to your request for tax exemption from donor's and other applicable taxes under the Adopt-a-School Program. Findings of Revenue Region No. 19-Davao City shows that Alsons Development & Investments Corporation (ALDEVINCO) is a private corporation duly organized and existing under the laws of the Philippines. It is engaged in real estate business developing first class subdivisions and residential communities. It has the corporate commitment to maintain goodwill among its neighbors and to assist the community in the areas of education and health. On October 14, 2008, a Memorandum of Agreement and a Deed of Donation was entered into by ALDEVINCO and the Department of Education (DepEd) whereby the former donated the newly repaired and rehabilitated four (4) old school buildings of Cabantian Elementary School located in Cabantian, Davao City for a total amount of PhP1,774,982.24. In view of your request, you submitted the following documents: 1. Endorsement Letter from the DepEd National Secretariat; 2. Notarized Memorandum of Agreement; 3. Deed of Donation; TADaCH 4. Deed of Acceptance; 5. Summary of Expenses; and 6. Supporting receipts/payment documents. In reply, please be informed that under Section 34 (H) (2) of the Tax Code of 1997, as amended, donations to the Government, its agencies or political subdivisions are deductible in full from the gross income of the donor. However, donations not in accordance with the National Priority Plan 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, 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 Republic Act (R.A.) No. 8525, otherwise known as "An Act Establishing an 'Adopt-a-School Program' Providing Incentives. Therefore, and for Other Purposes" provides "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." Revenue Regulations (Rev. Regs.) No. 10-2003 implementing R.A. No. 8525 defines "assistance" to refer to the aid/help/contribution/donation provided by an adopting private entity to a public school. Assistance may be in the form of, but not limited to, infrastructure, teaching and skills development, learning support, computer and science laboratories, and food and nutrition. TDcEaH Section 3 of the same regulations allows a deduction from the gross income of the amount of contribution/donation that was actually, directly and exclusively incurred for the Program subject to limitations, conditions and rules set forth in Section 34 (H) of the Tax Code of 1997, as amended, plus an additional amount equivalent to fifty percent (50%) of such contribution/donation subject to the following conditions: (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 of donor's tax pursuant to Sections 101 (A) (2) and (B) (1) of the Tax Code of 1997, as amended. In view of the foregoing, the amount actually, directly and exclusively incurred for the Program is deductible in full from the gross income of ALDEVINCO plus an additional amount equivalent to fifty percent (50%) of the said contribution/donation subject to the foregoing conditions. Moreover, the said amount is exempt from the payment of donor's tax pursuant to R.A. No. 8525, as implemented by Rev. Regs. No. 10-2003 and Section 101 (A) (2) of the Tax Code of 1997, as amended, respectively. SDTaHc Finally, a certification from the NEDA should be secured for purposes of determining whether or not a donee institution is qualified based on the projects listed in the National Priority Plan and serves as a basis by the BIR for allowing the donation as deduction from the taxable net income of the donor. Hence, in order that the donation to the DepEd may be entitled to full deductibility, the program should be determined to be in accordance with the National Priority Plan. Absent a certification from the NEDA that the aforesaid project is a priority activity in education according to the Annual Priority Plan as determined by the NEDA, the amount actually, directly and exclusively incurred for the Program shall be subject to the 5% limitation prescribed in subsection 34 (H) (1) of the Tax Code of 1997, as amended (Section 34 (H) (2) (a) of the Tax Code of 1997, as amended). An additional amount equivalent to fifty percent (50%) of the said contribution/donation shall be deductible from the gross income of ALDEVINCO subject to the foregoing conditions. Moreover, said amount is exempt from the payment of donor's tax pursuant to R.A. No. 8525, as implemented by Rev. Regs. No. 10-2003 and Section 101 (A) (2) of the Tax Code of 1997, as amended, respectively. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service