BIR: Tax deductions on donations require proof

In the season of giving, the Bureau of Internal Revenue (BIR) reminds tax deduction claimants that donations made to accredited non-stock, non-profit corporations have to be accompanied by pieces of evidence or proofs.

BIR reiterates its power to examine books of accounts and other pertinent records for purposes of ascertaining tax compliance, including tax deductions. To be exact, the NIRC provides: “[a]ny provision of existing general or special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the Bureau of Internal Revenue for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liability, if any” (Paragraph 2, Sec. 235 cf. Sec. 34 [H] [4], NIRC).

Proof of Deductions

Taxpayers are, thus, reminded to obtain a certificate of donation for contributions or donations made. The certificate has to state the following: (a) actual receipt of the recipient of the contribution or donation; (b) date of receipt; (c) amount of the donation or contribution, be they cash or property, if the latter the acquisition cost thereof; (d) description of the property with a counter-signature by an authorized representative of the donee; (e) a statement of acquisition cost and net book value of the property by the donor as reflected in the financial statements; (f) deed of sale over the property as evidence of its acquisition cost with such document also being counter-signed by an authorized representative of the donee.

Contributions or gifts as tax deductions

Contributions or gifts are tax deductible if they are actually paid or made within the taxable year to, or they are are made for the use of:

(a) the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes; or

(b) accredited domestic corporation or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to non-government organizations (Sec. 34 [H] [1], NIRC).

In either of the above-listed recipients, no part of the net income of which inures to the benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the case of an individual, and five percent (%) in the case of a corporation, of the taxpayer’s taxable income derived from trade, business or profession as computed without the benefit of this and the following subparagraphs (Par. 2, Sec. 34 [H] [1], NIRC).

The tax deductions are made against the gross income of the taxpayer (Sec. 34, NIRC).

Further,notwithstanding above, contributions or donations are deductibe in full if made to the following institutions or entities:

(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 philantrophic 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 (Sec. 34 [H] [2] [a], NIRC);

(b) Donations to Certain Foreign Institutions or International Organizations. – Donations to foreign institutions or international organizations which are fully deductible in pursuance of or in compliance with agreements, treaties, or commitments entered into by the Government of the Philippines and the foreign institutions or international organizations or in pursuance of special laws (Sec. 34 [H] [2] [b], NIRC);

(c) Donations to Accredited Nongovernment Organizations. – The term ‘nongovernment organization’ means a non profit domestic corporation:

(1) Organized and 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 (Sec. 34 [H] [2] [c] [1], NIRC);

(2) Which, not later than the 15th day of the third month after the close of the accredited nongovernment organizations taxable year in which contributions are received, makes utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, unless an extended period is granted by the Secretary of Finance in accordance with the rules and regulations to be promulgated, upon recommendation of the Commissioner (Sec. 34 [H] [2] [c] [2], NIRC);

(3) The level of administrative expense of which shall, on an annual basis, conform with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, but in no case to exceed thirty percent (30%) of the total expenses (Sec. 34 [H] [2] [c] [3], NIRC); and

(4) The assets of which, in the even of dissolution, would be distributed to another nonprofit domestic corporation organized for similar purpose or purposes, or to the state for public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized (Sec. 34 [H] [2] [c] [4], NIRC).

Subject to such terms and conditions as may be prescribed by the Secretary of Finance, the term ‘utilization’ means:

(i) Any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes for which the accredited nongovernment organization was created or organized (Sec. 34 [H] [2] [c] [4], par. 2, NIRC); or

(ii) Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which the accredited nongovernment organization was created or organized (Sec. 34 [H] [2] [c] [4], par. 2, NIRC).

An amount set aside for a specific project which comes within one or more purposes of the accredited nongovernment organization may be treated as a utilization, but only if at the time such amount is set aside, the accredited nongovernment organization has established to the satisfaction of the Commissioner that the amount will be paid for the specific project within a period to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, but not to exceed five (5) years, and the project is one which can be better accomplished by setting aside such amount than by immediate payment of funds (Sec. 34 [H] [2] [c] [4], par. 3, NIRC).

Valuation

To compute for the amount of a charitable contribution of a property, the acquisition cost thereof will serve as the basis (Sec. 34 [H] [3], NIRC).