Whether the Expenses/Contributions for a Scholarship Program Could be Allowed as Fully Deductible Business Expenses

April 5, 1994 BIR RULING NO. 084-94 29 (h) 00-90 084-94 National Panasonic Bonaventure Plaza Building Ortigas Avenue, Greenhills San Juan, Metro Manila Attention: Manuel B . Espinoza Finance Manager Gentlemen : This refers your letter dated May 19, 1993 stating that The Philippine Matsushita Group of Companies, MATSUSHITA ELECTRIC PHILIPPINES CORPORATION (MEPCO) and MATSUSHITA COMMUNICATION INDUSTRIAL CORPORATION OF THE PHILIPPINES (MCP) launched a scholarship program in September 1992, the purpose and objective of which is to promote their corporate image as companies committed to the education and development of the Filipino youth; that the said program is for underprivileged, but deserving students in High School and in College who shall be chosen strictly on the basis of applicant's annual family income, scholastic record, competitive scores in qualifying examinations and moral standing; that under the said program, they will undertake the high school education of 30 students and the college education of 10 students every year in either electronics and Communication engineering or Mechanical engineering; that the said program will be administered by one of your departments, the Manpower Training Center (MTC); that the expenses will be shared equally by the Philippine Matsushita Group of Companies; and that the expenses/contribution for the said program shall be paid directly to the schools concerned. Based on the foregoing facts, you are requesting for a ruling on whether the expenses/contributions for said scholarship program could be allowed as fully deductible business expenses of your companies. In reply, please be informed that pursuant to Section 29 (h)(2)(C) of the Tax Code, as amended by Section 2 of B. P. Blg. 45 as implemented by BIR-NEDA Regulations No. 1-81, as amended, charitable and other contributions to non-stock, non-profit private foundations organized and operated exclusively for scientific, research, educational, character-building and youth and sports development; health, social welfare, cultural or charitable purposes or a combination thereof no part of the net income of which inures to the benefit of any private individual shall be deductible in full from the donor-corporate taxpayer's gross income subject to the conditions that not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, the latter makes utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated; the level of administrative expenses of which, shall on an annual basis not exceed 30% of total expenses during the taxable year; the assets, of which in the event of dissolution, would be distributed to another non-profit, domestic corporation organized for similar purpose or purposes, or to the State for public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized. Accordingly, since the recipient/beneficiaries of your contributions for the scholarship program are individual students and not a duly organized private foundation for charitable or social welfare purposes, the alleged contributions by your company to the Scholarship Program will not qualify for either partial or full deductibility under Section 29 (h) (1) and (2) of the Tax Code, as amended by Batas Pambansa Blg. 45. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue