GMA Network, Inc.

December 23, 2009 BIR RULING [DA-(DT-075) 837-09] R.A. No. 8525; BIR Ruling No. DA-086-05 GMA Network, Inc. GMA Network Center, EDSA cor. Timog Ave. Diliman, Quezon City Attention: Mr. Ronaldo P. Mastrili VP-Finance Gentlemen : This refers to your letter dated April 8, 2009 requesting, in effect, for a ruling that the cost of airtime you incurred featuring Brigada Eskwela 2008, a project of the Department of Education (DepEd) that enhanced information dissemination encouraging the different sectors in the community to participate in efforts that will directly benefit public schools nationwide is donation subject to 150% deduction from your gross income. cAHIaE It is represented that on September 6, 2008, the DepEd as represented by Secretary Jesli A. Lapus and GMA Network, Inc. as represented by its President/Chairman/CEO Felipe L. Gozon entered into a Memorandum of Agreement (MoA) for the project known as Brigada Eskwela Media Campaign under the Adopt-A-School Program. The project is an awareness campaign, for Brigada Eskwela 2008, through print advertising and airing of TV/radio plugs (infomercial), important announcement and other promotional activities. "Brigada Eskwela" is one of DepEd's ways of generating additional community maintenance and operating expenses for public schools by conducting the National Schools Maintenance Week to enjoin the entire nation to participate in the maintenance and minor repair of public schools. As one of the country's major broadcast network, you extended support for the Program, by way of giving free airtime to feature Brigada Eskwela 2008 through promotional plugs to enhance information dissemination and create greater awareness to the public. You now claim deduction from your gross income the amount of PhP12,026,850.00 representing your donation to the DepEd. This represents the cost of airing of television and radio announcement and plugs/infomercial relating to the activities of Brigada Eskwela project broken down to PhP8,017,900.00, plus an additional 50% equivalent to PhP4,008,950.00. Based on your representation and the evaluation of your documents, the Large Taxpayer Service found the donations amounting to PhP12,026,850.00 as deductible in full for income tax purposes. 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." HTcDEa Moreover, Section 5 of Republic Act (R.A.) No. 8525, otherwise known as "An Act Establishing an 'Adopt-a-School Program' Providing Incentives Therefor, 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. . . ." 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. 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. AEcTaS 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 Brigada Eskwela Media Campaign under the Adopt-A-School Program amounting to PhP8,017,900.00 is deductible in full from your gross income plus an additional amount equivalent to fifty percent (50%) of the said contribution/donation or PhP4,008,950.00, 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. For the above purpose, you are required to secure a certification from the NEDA for the determination of the qualification of the donee institution based on the projects listed in the National Priority Plan to serve as basis for the BIR to allow the donation as deduction from the taxable income of the donor. Thus, 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). Finally, the aforesaid 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. aEACcS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service