BIR Ruling [UN-187-94]

June 28, 1994 BIR RULING [UN-187-94] R.S. Bernaldo & Associates Unit 1810 Cityland Condominium 10 Tower I 6815 Ayala Avenue cor. H. V. dela Cost Ext. Makati, Metro Manila 1200 Attention: Atty . Rosario S . Bernaldo General Manager Gentlemen : This refers to your letter dated April 27, 1994 requesting for a confirmation of your opinion that your client, GCM FOUNDATION, INC. (GCM), is exempt from the payment of donor's tax and documentary stamp tax on the donated portion of a certain condominium unit it acquired from State Investment Trust, Inc. (STATE INVESTMENT) under a Contract of Sale with Donation. cdtech Documentary evidences submitted to this Office disclosed that GCM is a private non-stock, non-profit domestic corporation organized and registered with the Securities and Exchange Commission under SEC Reg. No. ANO92-1809 dated September 30, 1993 for the following purposes: 1. To promote goodwill and understanding amount its members as well as with other organizations organized for similar purposes; 2. To establish, maintain and operate charitable institutions; 3. To furnish financial assistance to aged, infirm and destitute persons; 4. To carry out education, charitable and other eleemosynary or humanitarian activities for the promotion of the welfare, not only of its members, but also of the community in general and not for financial gain or profit; and 5. To create scholarship funds to poor but deserving students, participate in charitable activities by giving food, medicine, clothing and other forms of aids to victims of typhoon, conflagration and other natural disasters or calamities. Further to the above, you represented that your client applied for registration as a donee institution with the Bureau of Internal Revenue sometime after its registration with the SEC in order to avail of the benefits set forth under Batas Pambansa Blg. 45 in accordance with the requirements set forth under Sec. 5 of the BIR-NEDA Regulations No. 1-81; that on December 7, 1993, a temporary exemption from the filing of income tax returns and the payment of income tax thereon was issued to it subject to proof by actual operation for at least three (3) years that it is really a tax-exempt organization; that on April 7, 1994, it entered into a Contract of Sale with Donation with STATE INVESTMENT for the acquisition of a certain condominium unit consisting of 593.47 square meters, more or less, covered by Condominium Certificate of Title No. 4328 situated at the 16th Floor, State Centre Bldg., 333 Juan Luna St., Binondo, Manila of which the latter is the absolute and registered owner thereof; that in consideration of the aforestated noble purposes for which GCM is acquiring the said condominium unit, STATE INVESTMENT conveyed the same in favor of GCM by way of SALE in the amount of P5,341,230.00 a portion of the said condominium unit measuring 284,8656 square meters, and by way of DONATION the remaining portion of 308.6044 square meters; that not more than 30% of the said donation shall be used by your client for administration purposes; and that it is therefore your opinion that the portion of the condominium unit which was donated to it is exempt from donor's tax and consequently from documentary stamp tax. In reply thereto, we would like to confirm your opinion that inasmuch as your client, GCM, is a non-stock, non-profit domestic corporation organized and operated for charitable, educational, religious and social welfare purposes, donations made to it are exempt from donor's tax subject to the condition that not more than thirty per centum (30%) of the said gifts shall be used by such donee for administration purposes pursuant to Section 94 (a) (3) of the Tax Code, as amended. In view thereof, the donation of a portion of the condominium unit consisting of 308.6044 square meters out of the total area of 593.47 square meters situated at the 16th Floor, State Centre Building, 333 Juan Luna St., Binondo, Manila, covered by Condominium Certificate of Title No. 4328 made by STATE INVESTMENT in its favor in consideration of the noble purpose for which GCM is acquiring the said condominium unit is, therefore, exempt from the donor's tax pursuant to the abovestated section of the Tax Code, but the said donation is subject to the documentary stamp tax of P10.00 imposed under Section 188 of the Tax Code, as amended by R.A. No. 7660. (BIR Ruling No. 301-92) The portion, however, of the aforesaid condominium unit in the total area of 284.8656 square meters, which was sold to in the amount of P5,341,230.00 is a taxable income on the part of STATE INVESTMENT subject to the creditable withholding tax of 5% under Section 1 (j) (iii) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 1-90, and to the corresponding documentary stamp tax under Section 196 of the Tax Code, as amended by R.A. 7660. In the light of the foregoing request for tax exemption, however, it may be noteworthy to state further that under Section 29(h)(2)(C) of the Tax Code, as amended by Batas Pambansa Blg. 45, as implemented by BIR-NEDA Regulations No. 1-81, as amended by Revenue Regulations Nos. 1-82 and 10-82 donations to a private foundation, which means a non-profit domestic corporation or association organized 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 taxable business income of the donor. On the other hand, under Section 29 of the Tax Code, as amended by R.A No. 7496 (An Act Adopting the Simplified Net Income Taxation Scheme [SNITS] for the Self-Employed and Professionals Engaged in the Practice of Their Profession), and as implemented by Revenue Regulations No. 2-93 which took effect on July 28, 1992, individuals engaged in business or practice of profession shall only be allowed to deduct from their gross income, among others, contributions made to the Government and accredited relief organizations for the rehabilitation of calamity-stricken areas declared by the President. Pure compensation income earners likewise are not allowed to deduct from their gross compensation income whatever charitable contributions they would ever make to anybody, but they are just allowed to deduct their personal and additional exemptions. (Sec. 29, Tax Code) In view thereof, please be further informed that for income tax purposes, contributions and donations in favor of GCM by individual donors/contributions shall not be deductible from their gross income; and that since GCM is a private non-stock, non-profit corporation organized and operated for charitable, educational, religious and social welfare purposes, contributions and donations in its favor shall be deductible in full from the gross income of corporate donors/contributors only. (BIR Ruling No. 517-A-93) casia This ruling is being issued on the basis of the foregoing fact as represented. However, if it will be disclosed upon investigation that the facts are different from the aforesaid representations, this ruling shall be considered null and void. Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner Legal Service