Exemption from Donor's Gift Tax

October 10, 1990 BIR RULING NO. 196-90 29 (h) 013-90 196-90 Gentlemen : This refers to your letter dated June 27, 1990 requesting a ruling as to whether contributions/donations made in favor of the Government to be used in the construction of interchange and/or other infrastructures, i.e., roads in the CALABAR (Cavite-Laguna-Batangas-Rizal) region, shall be fully deductible from gross income. aisadc It is represented that the Toll Regulatory Board has approved your application to construct an interchange at the Pulo Overpass of the South Luzon Expressway; that the location of the proposed interchange is within the CALABAR priority development area of the government and will certainly contribute in attracting both local and foreign investors to locate their manufacturing plants and other projects in the Philippines; that since the amount involved is very substantial, you are requesting landowners and companies that will be favorably affected to contribute in the funding of the project; and that the project will be owned by the Philippine Government. In reply, please be informed that pursuant to Section 29 (h)(2)(A) of the Tax Code, donations shall, for income tax purposes, be deductible in full if given, among others, 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 to be determined by the NEDA, in consultation with appropriate government agencies, including 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 subparagraph (1) of this Section. Such being the case, the aforesaid donations/contributions by certain landowners and companies for the funding of the infrastructure projects i.e., roads within the so-called Calabar region being for economic development, shall be deductible in full for income tax purposes if they are covered by the national priority plan of the NEDA. If the donations/contributions are not in accordance with said plan, the same are deductible in an amount not in excess of 6% in the case of an individual-donor and 3% in the case of a corporator-donor of the taxpayer's taxable income derived from business as computed without the benefit of this deduction pursuant to Section 29 (h) (1) of the Tax Code. If lands, instead of money were contributed, the fair market value of real property as determined by the Commissioner of Internal Revenue or the fair market value as shown in the schedule of values fixed by the Provincial or City Assessors, whichever is higher, at the time of the donation, shall be considered as the amount of the donation. (Section 95, in relation to Section 81 both of the Tax Code, as amended) Said amount shall be the basis for calculation of the amount of the gifts to be claimed as deduction for income tax purposes. (Sec. 116, Revenue Regulations No. 2) For purposes, however, of the deduction under Section 29 (h) of the Tax Code, once a zonal value has been established with respect to the property being donated, such zonal value as determined by the Commissioner of Internal Revenue pursuant to Section 16 (e) of the same Code shall be considered the said property's fair market value. (BIR Ruling No. 167-89 dated August 9, 1989) Finally, the abovementioned donations shall be exempt from the donor's gift tax. [Section 94 (a) (2), Tax Code] cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner