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Taximplicationsofdonations
TOPOFMINDByAndrewJamesGerardD.Ruiz(ThePhilippineStar)|UpdatedNovember19,201312:00am

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ThehumantragedybroughtaboutbySuperTyphoonYolandahasresultedinanoutpouringofsympathyfromcompaniesand
individualswhohavebeendonatingtovarioushumanitarianandgovernmentagencies.TheBureauofInternalRevenue(BIR)has
commentedonthetaxesdueondonations.Tobesure,manycompaniesareawareoftheimplicationsofdonorstax,thevalue
addedtax(VAT),andthedeductibilityofdonations.ButlesttheBIRbemisunderstoodforenforcingthelaw,somedetailsshouldbe
providedontheselaws,rulesandregulationswhichgoverndonorstax,andothertaximplicationsofdonations.Movingfromthere,
maybesomeoftheserulescanbereconsideredinthelightofthecurrentstateofnationalcalamity.
Thegenerallawisthatadonorstaxof30percentofthenetgiftisimposedondonationsmadetoastranger.Astrangerisanyone
whoISNOTabrother,sister(whetherbywholeorhalfblood),spouse,ancestorandlinealdescendant,orrelativebyconsanguinity
inthecollaterallinewithinthefourthdegreeofrelationship).Ontheotherhand,anydonationaboveP100,000madetoanon
strangerissubjecttoadonorstaxatratesprovidedintheTaxCode.
Nowthatwehaveclearedthathurdle,thefollowingdonationsmadebyeitherresidents,ornonresidentswhoarenotcitizensofthe
Philippines,areexemptfromdonorstax:
1.GiftsmadetoorfortheuseoftheNationalGovernmentoranyentitycreatedbyanyofitsagencieswhichisnotconductedfor
profit,ortoanypoliticalsubdivisionofthesaidGovernment,includinggovernmentownedand/orcontrolledcorporations.Examples
ofsaidentitiesaretheNationalDisasterRiskReductionandManagementCouncilunderRepublicAct(RA)No.10121,and
DepartmentofSocialWelfareandDevelopment.NOTE,however,thattheBIRrequiresthataBIRRulingshouldbeissuedonaper
transactionandcasetocasebasis(BIRRulingNo.16512,09March2012).
2.Giftsinfavorofaneducationaland/orcharitable,religious,culturalorsocialwelfarecorporation,institution,accredited
nongovernmentorganization,trustorphilanthropicorganizationorresearchinstitutionororganization,collectivelyreferredtoas
NGOs,providedthatthesearequalifieddoneeinstitutions(i.e.,theyhaveaBIRCertificateofRegistration/Rulingconfirmingtheirtax
exemptstatus,andacknowledgingtheiraccreditationwiththePhilippineCouncilforNGOCertification,Inc.).NOTEthatthe
donationshavetobeusedspecificallyforoneormoreofthepurposesforwhichthedoneeentitywascreatedororganized.Inthe
contextofaidtovictimsofthesupertyphoon,thesepurposeswouldprobablybecharitableactivitiesandsocialwelfare
purposes.NOTEFURTHERthatunderRevenueMemorandumOrderNo.202013,existingcertificatesofregistration/rulings
issuedbytheBIRpriorto30June2012havetoberevalidatedbefore31December2013.
Giftstootherentitieswhenthereexistsaspeciallawexemptingtheentityfromdonorstax.AnexamplewouldbethePhilippine
NationalRedCross(PNRC),underRANo.10072.
Thenextquestionwouldbewhetherthedonationsaredeductiblefromthegrossincomeofthedonors.Deductionsareonlyallowed
infullifthedonationsweremadetothefollowingentities:
GovernmentofthePhilippinesortoanyofitsagenciesorpoliticalsubdivisions,includingfullyownedgovernmentcorporations,
exclusivelytofinance,toprovidefor,ortobeusedinundertakingpriorityactivitiesineducation,health,youthandsports
development,humansettlements,scienceandculture,andineconomicdevelopmentaccordingtoaNationalPriorityPlan
determinedbytheNationalEconomicandDevelopmentAuthority(NEDA).

Foreigninstitutionsorinternationalorganizationswhicharefullydeductibleinpursuanceoforincompliancewithagreements,
treaties,orcommitmentsenteredbytheGovernmentofthePhilippinesandtheforeigninstitutionsorinternationalorganizationsorin
pursuanceofspeciallaws.
TheNGOsmentionedabove.

Otherwise,donationstothegovernmentforactivitiesnotcoveredbyaNationalPriorityPlan,ortononqualifiedNGOswouldbe
deductibleonlytotheextentof10%inthecaseofindividuals,and5%inthecaseofcorporations,ofthedonorstaxableincome
derivedfromtrade,businessorprofessionascomputedwithoutthebenefitofthedeductionstatedinSection34(H)(1)and(2)ofthe
TaxCode.NotethatSection5(c)ofRANo.10072providesthatdonationstothePNRCtosupportitspurposesshallbedeductible
fromthegrossincomeofthedonor.
Notethatdeedsofdonationaregenerallysubjecttothedocumentarystamptax(DST)attherateofPhP15.00perdeed.
Finally,donationssubjecttotheVATintwocases:
WhenthedonationinkindisimportedintothePhilippines,andWhenthe(local)donationconsistsofgoodsorpropertiesoriginally
intendedforsaleorforuseinthecourseofbusiness.
Allthathavingbeensaid,maybethefollowingrulesshouldbereconsidered:
TheneedtogetaBIRRulingconfirmingthatthedonationtothegovernmententityisexemptfromdonorstax.Thisrequiresthe
submissionofdocumentssubstantiatingthedonationtothegovernment.WhiletheBIRappearstobedoingitsbesttorelease
rulings,themagnitudeofdonationscurrentlybeingdonewillcreateanevenlargerworkloadfortheconcernedBIRdivisionstasked
todrafttheserulings.Cantsubstantiationbedoneinsteadwhen,andifeverthedonorissubjecttoanauditinvestigation?Canthe
BIRconsiderdraftinganissuancewhichwouldstatewhichspecificdocumentswouldbeneededtosubstantiatethedonation,for
exemptionfromdonorstaxandfordeductibilityofthedonation,withouttheneedforaBIRRuling?
Allexistingcertificatesofregistration/rulingsissuedtoaccreditedorqualifiedNGOsdatedpriorto30June2012willexpireon31
December2013.DoesthismeanthattheallowancesfordeductionandexemptionfromdonorstaxondonationstotheseNGOswill
nolongerbeallowed?WhilesomeofusmayunderstandtheneedtorecertifyNGOs(basedonthecurrentpoliticalsituation),cant
thisdeadlinebeextended?ThereareNGOsthatareintheproverbialthickofthedistributingreliefgoodsandservices,andthe
needfortheircontinuedaidisntexpectedtolessenbytheendoftheyear.Willanextensionofthedeadlinehavethatbadaneffect
ontheBIRsverificationandcollectionefforts?
RANo.10121basicallyprovidesthattheVATonimportationsofdonationsconsignedtotheNDRRMCshallbeaddressedbythe
prevailingGeneralAppropriationsAct.Inotherwords,theVATonimportationswillbeshoulderedbytheNationalGovernment.
ShouldnttheVATonlocaldonationsalsobecoveredunderthisrule?
TobefairtotheBIR,IamsurethatthesequestionsareatthetopoftheBIRleadershipsminds.Whilesomeentitiesmaybeready
toshoulderalltaxesinthespiritofunconditionallyprovidinghumanitarianaid,wouldntreconsiderationoftheaboverulesbefairto
thedonorsandtheirbeneficiaries?
AndrewJamesGerardD.RuizisaSeniorManagerfromtheTaxGroupofManabatSanagustin&Co.(MS&Co.),thePhilippine
memberfirmofKPMGInternational.
Thisarticleisforgeneralinformationpurposesonlyandshouldnotbeconsideredasprofessionaladvicetoaspecificissueorentity.
TheviewandopinionsexpressedhereinarethoseoftheauthoranddonotnecessarilyrepresenttheviewsandopinionsofKPMG
InternationalorMS&Co.Forcommentsorinquiries,pleaseemailmanila@kpmg.comorrgmanabat@kpmg.com.
FormoreinformationonKPMGinthePhilippines,youmayvisitwww.kpmg.com.ph.

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