Donation Made by NSC in Favor of AFP

September 29, 1988 BIR RULING NO. 467-88 94 (a) (2) 29 (h) (1) 393-87 467-88 Gentlemen : This refers to your letters dated September 19, and 26, 1988 stating that the Armed Forces of the Philippines (AFP) is currently negotiating with Atlas Developer and Steel Industries, Inc. for the procurement of 5,027 units of heavy-duty, multiple-collapsible armracks for the four Major Service Commands; that the AFP needs approximately 935 metric tons or equivalent to P12 M worth of steel materials to be supplied by the National Steel Corporation (NSC) for the fabrication of collapsible armracks; that AFP shall secure a Guarantee Bond from GIC, MBAI for the supply and delivery of steel materials worth P12 M from the NSC to the manufacturer's plant; that the amount will be paid directly by the AFP to the NSC; that the NSC is a government owned and controlled corporation; that cognizant of its responsibility on matters concerning the security of the country, NSC is firmly committed to support project aimed at improving the well being of the Armed Forces; that NSC is not exempt from sales and income taxes; and that NSC is not included under Executive Order No. 226 which grants tax holidays to BOI-Registered firms. In connection therewith, you now request a ruling on the following queries: "1. Are parties qualified or covered under the relevant provision of Section 30? "2. What benefits will NSC derive from such donation and under what terms and conditions may NSC claim the said benefits? "3. Are there limitations or restrictions to the donation? "4. What are the formalities required to effect said donation? "5. The consequence should NSC donate the full P12 M worth of materials to the AFP as against the obligations to the AFP to pay Atlas Developer and Steel Industries, Inc. on a 3 year deferred payment term; or to spread to deduction over a period of three (3) years." cdt In reply thereto, please be informed that pursuant to Section 94(a)(2) of the Tax Code, as amended, gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of the said Government by a resident shall be exempt from the donor's tax. Moreover, Section 29(h)(1) of the Tax Code, as amended, provides that contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof for exclusively public purposes are deductible for income tax purposes only to an amount not in excess of 6% in the case of an individual donor and 3% in the case of a corporate donor of the donor's or contributor's taxable income derived from business as computed without the benefit of said deductions. Such being the case, the aforementioned donation by NSC in your favor is exempt from the payment of donor's tax. Moreover, said gift is deductible in an amount in excess of 3% of NSC's taxable income derived from business as computed without the benefit of said donation. Furthermore, pursuant to Section 39 of the Tax Code, as amended deductions shall be taken for the taxable year in which "paid or accrued" or "paid or incurred" dependent upon the method of accounting upon the basis of which the net income is computed, unless in order to clearly reflect the income the deductions should be taken as of a different period. Accordingly, the deduction of the aforementioned donation can not be spread for a period of three (3) years. cd Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner