REVENUE REGULATIONS NO. 13-98

DEDUCTIBILITY OF DONATIONS OR GIFTS TO ACCREDITED INSTITUTIONS

 

Q: What tax benefits are granted to taxpayers who provide donations to or gifts to accredited institutions?

A: Donations or gifts made to accredited non-stock, non-profit corporations or non-government organizations(NGOs) can be deducted from gross income of a:

    1. A corporation

    2. An individual engaged in trade or business, or

    3. An individual engaged in the practice of his profession.

In addition, donations made in favor of non-stock, non-profit corporations and NGOs are exempt from the donor’s tax. The exemption from the donor’s tax carries a condition: not more than thirty percent (30%) of the donations and gifts for the year should be used for administration expenses by the recipient.

 

Q: Can the gift or donation be deducted in full?

A: Yes, donations, contributions or gifts which are or made within the taxable year to accredited NGOs can be fully claimed as deduction.

    1. However, there are limits on donations, contributions or gifts which are made to non-stock, non-profit corporations. The deduction cannot exceed ten percent (10%) of the income of an individual donor, and five percent (5%) for a corporate donor. (In determining the ceiling, the donor’s taxable income should be computed without deducting the amount of gift or donation)

 

Q: What is a non-stock, non-profit corporation/organization?

A: It is a corporation or association which is exclusively organized under Philippine laws exclusively for one or more of the following purposes:

No part of the net income or asset of the corporation or association should belong to or be used for the benefit of any member, organizer, officer or any specific person.

 

Q: What is a non-government organization (NGO)?

A: A NGO is a non-stock non-profit domestic corporation/organization organized which is exclusively organized and operated for any of the following purposes:

No part of the net income of an NGO should be used for the benefit of any private individual. In addition:

    1. The contribution which were received during a taxable year must be directly used for carrying out is mission or purposes not later than the 15th day of the 3rd month after the close of the taxable year when the contributions were received, unless an extended period has been granted by the Secretary of Finance.

    2. The administrative expenses of the NGO for th eyear should not exceed thirty percent (30%) of the total expenses for the taxable year; and

    3. The assets of the NGO should be distributed to another accredited NGO with a similar mission, or to the State, in case the NGO is dissolved.

Q: Who will accredit qualified donee institutions?

A: An institution must be accredited by the Philippine Council for NGO Certification, Inc. (PCNC). PCNC is a non-stock non-profit corporation which was established by several NGO networks including the Caucus of Development NGO networks (CODE-NGO), Philippine Business for Social Progress (PBSP), Association of Foundations (AF), League of Corporate Foundations (LCF); Bishops-Businessmen’s Conference for Human Development (BBC); and the National Council for Social Development Foundation (NCSD).

 

Q: How does the accreditation process work?

A: The process of accreditation is as follows:

    1. Newly organized and existing non-stock, non-profit corporations and NGOs will apply with the Accrediting Entity for accreditation and submit to a process of examination and evaluation.

    2. The criteria for evaluation include mission and goals of the organization; its resources; the implementation of its programs and its plans for the future.

    3. The applicant should also show proofs that it is able to manage its resources well through the submission of an audited financial requirement. This requirement can be waived by the Secretary of Finance, upon the recommendation of the Council for newly-organized non-stock, non-profit corporations/NGOs whose programs are of national significance.

    4. A "Certificate of Accreditation" to qualified non-stock, non-profit corporation/NGO is issued by the Council which is valid for a maximum of five (5) years for existing non-stock, non-profit corporations/NGOs, and three (3) years for newly-organized institutions.

    5. Applicants who fail to meet the criteria for accreditation have one year within which to implement the recommendations of the Council. Thereafter, it may re-apply for accreditation.

The Secretary of Finance and the BIR Commissioner will oversee the process of a accreditation.

 

Q: Sould existing non-stock non-profit corporations/NGOs be required to apply for accreditation under the new rules?

A: Donations to organization which have qualified as donee institutions under BIR-NEDA Regulations No. 1-81 can still be claimed as a deductible expense within three (3) years from March 21, 1999.

After the three-year period, only donations and contributions to non-stock, non-profit corporations/NGOs which have been newly accredited by the Council will be allowed as deduction from gross income.

It is therefore necessary for existing non-stock and non-profit corporations or NGOs to go through the new process of accreditation so that donations which are made to them from the year 2002 and beyond can be deductible.

 

Q: Why was there a need to accredit non-profit, non-stock corporations or NGOs?

A: Donations made to non-profit and non-stock corporations and NGOs carried with them tax privileges. They could be claimed as a deductions and reduce the taxable income of a taxpayer. Donors are also exempt from the donor’s tax. It is there necessary to establish a process of accrediting institutions who could receive donations with integrity and efficiency. If the process if flawed, these could serve as occasions for tax avoidance. Pseudo- foundations could be established (which was done in the past) simply for the purpose of avoiding taxes.

The process is also self-regulatory since the process of evaluation is done by the NGOs themselves.

Q: What documents should be submitted to the BIR in claiming a donation as a deductible expense?

A: 1. The taxpayer must present a "Certificate of Donation" from the accredited non-stock, non-profit/NGOs.

Within thirty days after a donation is made, the accredited NGO is required to provide a "Certificate of Donation" to the donor. The certificate follows a form which is prescribed by the BIR and contains the information on the date, amount and nature of the donation.

Following the prescribed BIR form, the certification is required to be distributed within thirty (30) days after the receipt of the donation. The certification should contain the following information:

    1. A taxpayer who donates a gift of more than one million (1.0 million) is required to notify the Revenue District Office (RDO) where his business is located. The notice and the "Certificate of Donation" must be submitted to the BIR within thirty (30) days after his receipt of the certificate.

Q: What reports should accredited donee institutions submit?

A: Accredited non-stock, non-profit corporations and NGOs are also required to file an income tax return or an information return every year with the RDO where their office is located. They must submit the following information:

 

(Rules implementing Sec. 34 (E) of the 1997 Tax Code, as amended by RA No. 8424; Date of of Issue: March 10, 1999 which became effective ten days after publication in newspaper of general circulation.

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