BIR Ruling No. 029-10

August 12, 2010 BIR RULING NO. 029-10 Section 30 (E); NSNP(S30G-086)754-2009; NSNP (S30G-131)769-2009; NSNP(S30E-156)799-2009; NSNP(S30E-158)806-2009; NSNP(S30E-160)814-2009; DA-471-98 Uplift Movement Foundation, Inc. No. 25 Zamboanga St., West Avenue, Quezon City Attention: Mr. Rito D. Saguing, Jr. President Gentlemen : This refers to your letter dated October 15, 2009 requesting exemption from taxes as a non-stock, non-profit organization pursuant to Section 30 of the Tax Code of 1997, as amended. DTcHaA Documentary evidence submitted disclosed that the Uplift Movement Foundation, Inc. with TIN 244-692-215-000 is a non-stock, non-profit corporation registered with the Securities and Exchange Commission under SEC Registration No. CN200605206 dated March 31, 2006; and that the purposes for which the corporation was organized, among others are as follows, viz. : a. To educate and move the Filipinos from all walks of life about true spiritually, nationhood, democracy, work ethics and other teachings and activities that will enhance their beings and will uplift their lives; b. To serve as an avenue to uplift one another through enhancement in words and in deeds; c. To enable the Filipinos to express their abilities through connecting the individual and/or companies to each other in a win-win atmosphere for global competition; d. To model a micro-level governance to serve as an example to other organizations. Based on the foregoing, this Office is of the opinion and so holds that the Uplift Movement Foundation, Inc. falls within the purview of a non-stock, non-profit foundation organized for social welfare purposes as contemplated under Section 30 (E) of the Tax Code of 1997. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code of 1997 on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest from currency bank deposits and yield or any other monetary benefit from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax; provided, however, that interest income derived from it from a depository bank under the expanded foreign currency deposit system shall be subject to 7 1/2% final withholding tax pursuant to Section 27 (D) (1) in relation to Section 57 (A), both of the Tax Code of 1997. Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in its By-Laws, Articles of Incorporation, manner of operation and activities as well as resources and disposition of income. ITEcAD It should be understood that the said exempt non-stock, non-profit organization shall be constituted as withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98. It is of course understood that its books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purposes of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liabilities, if any, pursuant to Section 235 of the Tax Code of 1997. In addition, Section 101 (A) (3) of the Tax Code of 1997, as amended, provides that the following gifts or donations made by a resident, among others, shall be exempt from donor's tax: "(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthrophic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthrophic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthrophic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthrophy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation." [emphasis provided] The foundation, as in this case, Uplift Movement Foundation, Inc. should comply with the limitation under Section 101, Tax Code that "a maximum of thirty percent (30%) of the educational organization's income and revenue may be used for administrative purposes". DTcACa Finally, all of the Uplift Movement Foundation, Inc.'s income shall be devoted to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. In BIR Ruling No. DA-058-2004 dated February 9, 2004, this Office had the occasion to rule that a proposed donation to a foundation, pending accreditation with the Philippine Council for NGO Certification ("PCNC"), is exempt from payment of donor's tax, as follows: "This refers to your letter dated March 10, 2000 and May 17, 2001 stating that a donor has come out willing to donate a real property to the Merkaba Foundation, Inc. for the purpose of putting up a retreat house and another donor is about to donate a real property to the Redemptoris Mater Missionary Seminary, Archdiocese of Manila, Inc. for the purpose of putting up a seminary; that pending the issuance of the Certificate of Tax Exemption and Accreditation with the Philippine Council for NGO Certification, you now request if Merkaba Foundation, Inc. and Redemptoris Mater Missionary Seminary, Archdiocese of Manila, Inc. can accept the donations of real properties without having to pay income tax and donor's tax, as well as entitling the donors to a tax deduction; and that you agreed that these taxes will have to be paid if the application for tax exemption and registration as a donee institution will be disapproved. In reply thereto, please be informed that pursuant to Section 101(A)(3) of the Tax Code of 1997, the proposed donations to JAPRL are exempt from the payment of donor's tax, subject to the condition that not more than 30% of said gift shall be used by the donee for administration purposes." Likewise, in BIR Ruling No. DA-531-2006 dated September 4, 2006, this Office also ruled that the donation to a foundation, prior to accreditation by the PCNC, was exempt from payment of donor's tax, as follows: "This refers to your letter dated July 31, 2006 requesting exemption from the payment of donor's tax on the donation of two (2) parcels of land from the Estate of Lilia L. San Agustin to Doa Lilia L. San Agustin Foundation, Inc. It appears that the Estate of Doa Lilia L. San Agustin is the registered owner of two (2) parcels of land situated in the Municipality of Calapan, Province of Oriental Mindoro, consisting an area of 49,495 and 457 square meters covered by Transfer Certificate of Title Nos. T-67200 and T-58584, respectively, issued by the Register of Deeds for the Province of Mindoro Oriental; that Doa Lilia L. San Agustin Foundation, Inc. is a non-stock, non-profit charitable corporation duly registered with the Securities and Exchange Commission under SEC Registration No. CN200610071 dated June 27, 2006; that Doa Lilia L. San Agustin Foundation, Inc. undertakes to solely put the above described properties with all the buildings and improvements thereon to productive charitable, religious and civic use for the benefit of the beneficiaries of its charitable projects and shall not use the said properties for other use other than for the attainment and furtherance of its purposes as stated in its Article of Incorporation; that the Estate of Doa Lilia L. San Agustin cannot avail of deduction for purposes of computing taxable income under Revenue Regulations No. 13-98 because the said Foundation is not yet qualified to apply for accreditation not having been in operation for at least one (1) year as required under the policy/Rules and Procedures of the Philippine Council for NGO Certification (PCNC); and that it may, however, qualify for exemption from payment of donor's tax." (BIR Ruling No. DA-531-2006 dated September 4, 2006) AaDSTH Donations to donee institutions are tax-deductible and/or exempt from donor's tax (Section 34 (H) and Section 101 of the Philippine Tax Code). In other words, aside from being exempt from donor's tax, local donors, whether individual or corporate, can deduct the amount they have donated from their taxable income derived from trade or business as computed without the benefit of the deduction. Donations to some donee institutions, however, are subject to limited deductibility: 10% for individual donors and 5% for corporate donors. Thus, tax incentives such as those mentioned above encourage local donations and, especially in these times of dwindling financial resources from abroad, complement PCNC's aim to strengthen private sector participation in our country's social development. Organizations seeking certification shall file with the PCNC Secretariat a letter of intent to apply for certification and submit the necessary documents. If the organization is qualified for evaluation, it undergoes the evaluation process which includes site visits by an evaluation team. A recommendation based on the results of the evaluation is then submitted to the Board. If the applicant NGO has met the minimum criteria for certification, the Board gives a 3-year or 5-year certification to the organization and informs the Bureau of Internal Revenue (BIR) which then issues to the organization a certification of DONEE INSTITUTION STATUS. Premises being considered although the Uplift Movement Foundation, Inc., is not yet accredited with the PCNC, this Office opines that gifts, donations and other contributions made to it are exempt from donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used for administration purposes. However, the donors cannot avail of deduction for purposes of computing taxable income under Revenue Regulations No. 13-98. The Uplift Movement Foundation, Inc. is advised to contact The Secretariat, Philippine Council for NGO Certification (PCNC), tel. nos. 7821-568; 7159-594; 7152-756 or telefax 7152-783. 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, or that the requirements herein stated are not complied with, then this ruling shall be considered null and void. EHaCID Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue