BIR Ruling No. 257-14

June 30, 2014 BIR RULING NO. 257-14 R.A. 8525; RR 10-03; BIR Ruling No. 223-11 Praxis Fides Mutual Benefit Association, Inc. 35 Paseo del Congreso, Catmon, Malabon Attention: Mr. Aurelio C. Joaquin President & GM Gentlemen : This refers to your letter dated February 28, 2012 requesting legal opinion on Praxis Fides Mutual Benefit Association, Inc.'s ( "Praxis Fides" for brevity) availment of tax incentives under the Adopt-a-School Program (ASP) under Republic Act (R.A.) 8525. Documents submitted disclose that Praxis Fides is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 138299 dated February 17, 1987; that Praxis Fides is also registered with the BIR with Taxpayer Identification No. 002-838-406-000; that on July 8, 2011, Praxis Fides entered a Memorandum of Agreement with DepEd-Turo Elementary School of Turo, Bocaue, Bulacan wherein the former proposed to donate monocular microscopes, microscope slide set and triple beam balance (hereinafter referred to as "science equipment package") for the latter's laboratory room in consonance with the ASP; that on August 11, 2011, Praxis Fides executed a Deed of Donation of the science equipment package in favor of DepEd-Turo Elementary School which manifested its acceptance through its Principal (Amelia Batongbakal) in a Deed of Acceptance executed on the same date; that the National Economic and Development Authority has issued a Certification dated January 31, 2012 that the ASP is included in the National Priority Plan of the Government for the year 2012; and that Praxis Fides submitted the following documents in support of its request: THIAaD 1. Certified true copy of the SEC Registration; 2. Certified true copy of the association's Amended Articles of Incorporation; 3. Certified true copy of the association's By-laws; 4. Copy of the association's BIR Certificate of Registration; 5. Duplicate original of the Memorandum of Agreement; 6. Duplicate original of the Deed of Donation; 7. Duplicate original of the Deed of Acceptance; 8. Duplicate original of the Certification under Oath by the Principal as to the donated items; 9. Photocopies of the receipts and invoices supporting the items donated and certification under oath by the President of Praxis Fides; 10. Copy of the NEDA Certification dated January 31, 2012; 11. Photocopy of the DepEd Indorsement dated November 9, 2009; and 12. Affidavit of Non-Forum Shopping. In reply, please be informed that Revenue Regulations (RR) No. 10-2003 implementing R.A. No. 8525, otherwise known as "An Act Establishing an 'Adopt-a-School Program,' Providing Incentives Therefor, and for Other Purposes", provides TCHEDA "SEC. 3. Tax Incentives Accruing to the Adopting Private Entity . A pre-qualified adopting private entity, which enters into an Agreement with a public school, shall be entitled to the following tax incentives: (a) Deduction from the gross income of the amount of contribution/donation that were 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 the expenses have been paid or incurred; (2) That the taxpayer can substantiate the deduction within sufficient evidence such as official receipts or delivery receipt 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. cTCADI (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. (b) Exemption of the Assistance made by the donor from payment of donor's tax pursuant to Sections 101(A)(2) and (B)(1) of the Tax Code of 1997, as amended." The full deductibility of the donation (science equipment package) of Praxis Fides is further subject to Section 34 (H) (2) of the Tax Code of 1997, which states that donations to the Government, its agencies or political subdivisions is deductible from the gross income of the donor, 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." EDcIAC Hence, for purposes of entitlement to the full deductibility of the contribution/donation from gross income of the donor under Section 34 (H) (2) (a) of the Tax Code of 1997, as amended, a certification must be secured from the NEDA that the contribution donation to DepEd-Turo Elementary School is in accordance with priority programs, projects and activities included in the current National Priority Plan. Otherwise, donations not in accordance with the National Priority Plan is 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. (BIR Ruling No. 223-11 dated July 12, 2011) In view of the foregoing, this Office hereby holds that: 1) The amount actually, directly and exclusively incurred by Praxis Fides for the donation of the science equipment package to DepEd-Turo Elementary School is deductible from its gross income. However, for purposes of entitlement to the full deductibility of the contribution/donation from gross income of the donor under Section 34 (H) of the Tax Code of 1997, a certification must be secured from the NEDA that the above contribution/donation to the Government through the DepEd is in accordance with priority programs, project and activities included in the current National Priority Plan, otherwise, it is subject to limited deductibility or deductions in an amount not exceeding 5% of the taxpayer's taxable net income as computed without the benefit of this deduction; 2) Praxis Fides is also entitled to an additional deduction in an amount equivalent to fifty percent (50%) of the said contribution/donation subject to verification by the Revenue District Office (RDO) having jurisdiction over the place of business of the donor/adopting private entity of the substantiation requirements provided under RR 10-2003; and 3) The donation of Praxis Fides to DepEd-Turo Elementary School is exempt from the payment of donor's tax pursuant to R.A. 8525, as implemented by RR 10-2003 and Section 101 (A) (2) of the Tax Code 1997, 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 as represented are different, then this ruling shall be considered null and void. HScaCT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue