Core tax deduction rule for contributions
- Section 30(h)(1)(a) allows deductions for 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.
- Section 30(h)(1)(a) also allows deductions for contributions to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes, or for the rehabilitation of veterans.
- Deductions under Section 30(h)(1)(a) are limited to an amount not in excess of six per centum for an individual and three per centum for a corporation of the taxpayer’s taxable net income, computed without the benefit of this and the following subparagraph.
- Section 30(h)(1)(a) applies the same limitation even when contributions are made to eligible domestic corporations or associations described in the law.
Full deductibility: donations under exceptions
- Section 30(h)(2) provides that donations to certain institutions or entities shall be deductible in full, notwithstanding the general percentage limits.
- Donations that qualify for full deductibility under Section 30(h)(2)(A), (B), or (C) are not subject to the six per centum / three per centum limitations of Section 30(h)(1).
- The law requires that these full-deductibility categories operate subject to terms and conditions the Minister of Finance may prescribe in implementing rules.
Full deduction for donations to government (priority activities)
- Section 30(h)(2)(A) allows full deductibility for donations to the Government of the Philippines or its agencies or political subdivisions, including fully-owned government-corporations.
- The donation must be used 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.
- The national priority plan must be determined by the NEDA, in consultation with appropriate government agencies, including regional development councils, and including “private philanthropic persons and institutions.”
- Section 30(h)(2)(A) provides a limitation: any donation made to the Government or its agencies or political subdivisions not in accordance with the said annual priority plan is subject to the percentage limits of Section 30(h)(1).
Full deduction for foreign institutions and international organizations
- Section 30(h)(2)(B) allows full deductibility for donations to foreign institutions or international organizations that are fully deductible in pursuance of or in compliance with agreements, treaties, or commitments entered into by the Government of the Philippines.
- Section 30(h)(2)(B) also allows full deductibility when the donations are deductible in pursuance of special laws.
Full deduction for donations to private foundations
- Section 30(h)(2)(C) allows full deductibility for donations to certain private foundations, subject to the foundation meeting the law’s definition and requirements.
- Section 30(h)(2)(C) defines a “private foundation” as a non-profit domestic corporation organized and operated exclusively for one or more of the following:
- scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof; and
- no part of the net income inures to the benefit of any private individual.
- Section 30(h)(2)(C)(ii) requires that the private foundation, not later than the 15th day of the third month after the close of the foundation’s taxable year in which contributions are received, makes utilization directly for the active conduct of its purposes—unless an extended period is granted by the Minister of Finance under rules and regulations.
- Section 30(h)(2)(C)(iii) limits administrative expenses: the administrative expense level must conform to regulations and in no case exceed 30 per cent of total expenses.
- Section 30(h)(2)(C)(iv) requires that, upon dissolution, assets are distributed to another non-profit domestic corporation organized for similar purpose, or to the State for a public purpose, or are distributed by a court to another organization to be used to accomplish the general purposes for which the dissolved organization was organized.
Definition of “utilization” and project setting-aside
- Section 30(h)(2)(C) provides that, subject to terms and conditions prescribed by the Minister of Finance, the term “utilization” means amounts used to accomplish the foundation’s purposes.
- Utilization includes:
- any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes; and
- any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes.
- The law allows a special rule for amounts set aside for a specific project: an amount set aside for a specific project that comes within the foundation’s purposes may be treated as utilization only if:
- at the time of setting aside, the private foundation establishes to the satisfaction of the Commissioner of Internal Revenue that the amount will be paid for the specific project within a period to be prescribed in regulations, but not to exceed 5 years; and
- the project can be better accomplished by setting aside funds than by immediate payment.
- The Minister of Finance must promulgate rules and regulations to implement this project set-aside treatment.
Valuation of non-cash donations
- Section 30(h)(3) requires that properties other than cash donated shall be valued in accordance with rules and regulations prescribed by the Minister of Finance in consultation with appropriate government agencies.
Proof and verification for deductibility
- Section 30(h)(4) provides that contributions or gifts are allowable as deductions only if verified under rules prescribed by the Minister of Finance.
Implementing rules and timetable
- Section 2 directs the Minister of Finance to promulgate rules and regulations within 90 days after approval of the Act.
- The Minister of Finance must consult appropriate government agencies when promulgating the implementing rules.
- The implementing rules must be consistent with national socio-economic development programs.
Requalification for full deductibility
- Section 3 requires organizations or institutions already qualified donees for full deductibility under the National Internal Revenue Code of 1977 or under special laws to apply for re-qualification with the Commissioner of Internal Revenue.
- The application for re-qualification must be filed within the period provided by the implementing regulations.
- Section 3 provides that donations made during the re-qualification period to those organizations or institutions are allowed as full deductibility donations to the extent they qualify for full deductibility under the Act.
Repeal and modification of prior rules
- Section 4 repeals or modifies provisions of any general or special law allowing full deductibility of donations to any institution or entity except donations made under Presidential Decrees Nos. 697 and 698.
- Section 4 also repeals or modifies provisions of any general or special law allowing deduction of any investment for the purchase of cultural properties.
- Section 4 directs that the repeal or modification applies to the extent those prior provisions conflict with the Act’s rules on full deductibility and cultural-property investment deductions.
Administrative and regulatory references
- The Minister of Finance holds rule-making authority for:
- implementing rules under Section 2;
- valuation standards for properties other than cash under Section 30(h)(3); and
- verification requirements and conditions under Section 30(h)(4), and terms/conditions for the meaning of utilization under Section 30(h)(2)(C).
- The Commissioner of Internal Revenue plays a role in:
- accepting a private foundation’s demonstration of project set-aside compliance for treating set-asides as utilization under Section 30(h)(2)(C); and
- receiving re-qualification applications under Section 3.