Title
Implementing Tax Incentives of R.A. No. 8525
Law
Bir Regulations No. 10-2003
Decision Date
Jan 27, 2003
BIR Regulations No. 10-2003 implements tax incentives for private entities participating in the Adopt-a-School Program, allowing them to deduct contributions to public schools from their taxable income and exempting such donations from donor's tax.
tax incentives
adopt
school

Legal basis and coverage scope

  • The Regulations are promulgated pursuant to Sections 4 and 244 of the National Internal Revenue Code (Tax Code) of 1997, and to implement the tax provisions of Republic Act No. 8525.
  • Section 1 limits coverage to implementing the tax provisions of Republic Act No. 8525 through procedures and rules governing adopting private entities and their donations/assistance to public schools.
  • The Regulations apply to an adopting private entity that enters into an Agreement with a public school for an Adopt-a-School Program.
  • Section 3 grants incentives only to a pre-qualified adopting private entity that enters into an Agreement with a public school.

Policy and program framework

  • The Regulations operationalize the Adopt-a-School Act of 1998 by defining the program structure and the roles of adopting private entities, public schools, and the education agencies involved.
  • The core program structure requires assistance for a public school under an agreed period through a formal Memorandum of Agreement (MOA) or Agreement/Deed of Donation.
  • Section 2 establishes a coordinating structure through a National Secretariat composed of representatives of DepEd, CHED, and TESDA.

Key definitions established

  • “Act” means Republic Act No. 8525, the Adopt-a-School Act of 1998 (Section 2(a)).
  • “Adopt-a-School Program” means a program allowing private entities to assist a public school in a particular aspect of its educational program within an agreed period (Section 2(b)).
  • “Public school” means a government school (elementary, secondary, post-secondary, or tertiary) that enters into an Agreement with an adopting private entity concerning assistance under the program (Section 2(c)).
  • “Private entity” means an individual engaged in trade or business, a professional, or other business organization (including partnerships, corporations, or cooperatives), resident or non-resident, that teams up with DepEd, CHED, or TESDA to provide assistance to public schools; it is also known as the “adopting private entity” (Section 2(d)).
  • “Assistance” means the aid/help/contribution/donation provided by an adopting private entity to a public school, including infrastructure, teaching and skills development, learning support, computer and science laboratories, and food and nutrition (Section 2(e)).
  • “Agreement” means an MOA or Agreement/Deed of Donation entered between the adopting private entity and the public school, specifying terms and conditions of adoption, including tasks and responsibilities (Section 2(f)).
  • “National Secretariat” means the office composed of representatives of DepEd, CHED, and TESDA for overall management and coordination of the Program (Section 2(g)).
  • “Application for tax incentives or tax exemption” refers to an application for tax credit by the adopting private entity, described as an application for additional deduction in arriving at net taxable income under Section 4 of the Act (Section 2(h).

Tax incentives for adopting private entities

  • Section 3 grants incentives to a pre-qualified adopting private entity that enters into an Agreement with a public school.
  • Section 3(a)(a) provides a deduction from gross income of the amount of contribution/donation that were actually, directly and exclusively incurred for the Program, subject to limitations, conditions, and rules in Section 34(H) of the Tax Code.
  • Section 3(a) adds an additional fifty percent (50%) of such contribution/donation subject to the conditions in Section 3(a)(1) to (3).
  • Section 3(a)(1) requires that the deduction be availed in the taxable year in which the expenses have been paid or incurred.
  • Section 3(a)(2) requires substantiation of the deduction using sufficient evidence, including official receipts or delivery receipt and other adequate records showing:
    • the amount of expenses claimed as deduction (Section 3(a)(2.1));
    • the direct connection or relation of the expenses to the adopting private entity’s participation, including a list of projects/activities undertaken, the cost of each undertaking, and where/how assistance was utilized as supported by the Agreement (Section 3(a)(2.2)); and
    • proof or acknowledgment of receipt by the recipient public school (Section 3(a)(2.3)).
  • Section 3(a)(3) requires filing of the application with the Revenue District Office (RDO) having jurisdiction over the adopting private entity’s place of business; the RDO having jurisdiction over the property must be furnished a copy if the contribution/donation is real property.
  • Section 3(b) provides exemption of the assistance made by the donor from payment of donor’s tax pursuant to Sections 101(A)(2) and 101(B)(1) of the Tax Code of 1997.

Tax consequences to the public school

  • Section 4(a) governs foreign donation: the VAT and excise tax, if any, on importation of goods are assumed by DepEd, CHED, or TESDA (as consignee/importer), except where the importation is exempt from VAT under Section 109 of the Tax Code.
  • Section 4(a) deems VAT on importation payable by the concerned national government agency for the foreign donation to the National Government as automatically appropriated and considered expenditure of the government under Section 13 of the Government Appropriation Act (GAA) as determined by Congress on an annual basis.
  • Section 4(b) addresses local donation treated as a “transaction deemed sale”:
    • the transfer is subject to VAT on the transfer of goods or properties under Section 106(B)(1) of the Tax Code;
    • the adopting private entity may claim available input tax, subject to rules on allocation among taxable sales, zero-rated sales, and exempt sales;
    • the donee-public school is deemed the final consumer/end-user, and therefore is not entitled to any input VAT.
  • Section 4(b) provides that if local donation is not treated as a “transaction deemed sale,” the transfer of the goods or properties to the public school is exempt from VAT.

Valuation rules for donations and assistance

  • Section 5(a) sets cash valuation: the value is based on the actual amount appearing in the official receipt issued by the donee.
  • Section 5(b)(i) values personal property at acquisition cost, but if already used, the valuation takes into account the depreciated value of the property.
  • Section 5(b)(ii) values consumable goods at the acquisition cost by the donor or the actual cost at donation time, whichever is lower.
  • Section 5(b)(iii) values services at the value of the services rendered as agreed upon in the Memorandum of Agreement and by the donor, service provider, and public school, or the actual expenses incurred by the donor, whichever is lower.
  • Section 5(b)(iv) values real property at the fair market value at the time of contribution/donation as determined under Section 6(A) of the Tax Code or the book value/depreciated value, whichever is lower.
  • Section 5(b)(iv) excludes appraisal increase or appreciation recorded in the books from computing book value for valuation purposes.

Procedures for claiming incentives

  • Section 6 requires compliance with procedures and requirements to avail of tax incentives under the Regulations.
  • National Secretariat endorsement requirement: The National Secretariat must endorse to the BIR RDO with jurisdiction over the adopting private entity’s place of business, and furnish a copy to the RDO with jurisdiction over the property if the donation/contribution is real property, the following:
    • a duly notarized/approved Agreement;
    • a duly notarized Deed of Donation;
    • official receipts or any document showing the actual value of the contribution/donation;
    • Certificate of Title and Tax Declaration if the donation is real property; and
    • other adequate records showing direct connection/relation of claimed expenses to the adopting private entity’s participation in the Program, and showing/proving receipt of donated property.
  • Application filing requirement: The adopting private entity must submit an application to the RDO having jurisdiction over its place of business, copy furnished to the RDO with jurisdiction over the donated real property, for:
    • entitlement to the additional 50% special deduction from gross income; and
    • exemption from donor’s tax.
  • The entitlement process relies on the approved Agreement endorsed by the National Secretariat being filed with the appropriate RDO (Section 3(a)(3)).

Repeal and effectivity

  • Section 7 repeals or modifies all revenue rules and regulations and other revenue issuances, or parts thereof, that are inconsistent with the Regulations.
  • Section 8 provides that the Regulations take effect fifteen (15) days after publication in the Official Gazette or in a newspaper of general circulation, whichever comes first.

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