Tax consequences of donations

MORE than a week after the devastation left by super typhoon Yolanda (international name: Haiyan), the outpouring of disaster-relief donations from all over the world hasn’t shown any signs of slowing down.

Employers are providing their employees who have relatives in the affected areas with any form of assistance. Individuals and corporations both domestic and foreign are donating goods and cash, in addition to services.

So much help is being sincerely given without expecting anything in return. But, kind-hearted donors should also be mindful of the tax consequences of such donations and the penalties for failing to course the donation through authorized channels.

Many have hoped that the stringent tax rules on donations can be suspended in relation to typhoon Yolanda, but the announcements of the Bureau of Internal Revenue (BIR) have only confirmed that the existing tax rules and procedures should be followed.

ASSISTANCE PROVIDED BY AN EMPLOYER TO ITS EMPLOYEES

Any benefit received by an employee from his employer is generally considered as compensation subject to tax. Only the benefits specifically provided under the laws and regulations issued by the BIR can be exempt. Assistance provided by the employer to its employees due to calamities is not exempted from taxation because they are not included in the exemption list. The BIR has been consistent in its rulings that any kind of assistance given by the employer to its employees due to calamities is not considered as tax-exempt benefits. The employer should either withhold tax from the rank-and-file employee or shoulder the fringe benefits tax in case of managerial/supervisory employees.

DONATIONS IN KIND

Donations are generally subject to donor’s tax at the rate of 30% of the amount of cash or fair market value of the goods. If donations are made to non-strangers (i.e. those related by blood or marriage), the graduated rates from 2% to 15%, with the first Php100,000 exempted, apply.

In all cases, donations by corporations are treated as donations made to a stranger and subject to donor’s tax at the rate of 30%.

Donations, whether from local or foreign entities, or a non-resident non-citizen of the Philippines, can be exempt from donor’s tax if made to or for use of the national government, or any of its agencies which is not conducted for profit or to any political subdivision of the Government, and in favor of any educational, charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization, which must first be accredited with the Philippine Council for NGO Certification, Inc. (PCNC), and subject to the condition that not more than 30% of said donation shall be used for administration purposes.

In addition, the donor engaged in trade, business or profession is allowed to claim as full deduction the donations made within the taxable year to accredited NGOs, if all of the conditions prescribed under Revenue Regulations No. (RR) 13-98 are complied with. That is, the accredited NGO shall make utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, and the level of administrative expenses of the accredited NGO, shall, on an annual basis, not exceed 30% of the total expenses for the taxable year. If the requirements are not complied with, the donation can still qualify as limited deduction in amount not in excess of 10% for an individual donor, and 5% for a corporate donor, of the donor’s income derived from trade, business or profession as computed without the benefit of this deduction. Donations made by donor not engaged in trade, business or profession is not deductible.

CLAIM OF LOSSES

T yphoon victims who are engaged in trade, profession or business may avail of tax relief by claiming, as business deductions, casualty losses incurred for properties actually used in the business enterprise that were damaged. The loss of assets not used in the course of business and/or personal in nature shall not be allowed.

To avail of the deduction, they must file their claim of casualty loss within 45 days after the typhoon Yolanda (i.e. on or before Dec. 23) through a Sworn Declaration of Loss with their respective Revenue District Office (RDO).

ADOPTING BARANGAYS AND FAMILIES

Several corporations and organizations have considered adopting specific barangays or families to provide continuous assistance until they are fully recovered and in a position to be self-sustaining. Such programs will require the sponsoring corporation to directly course the assistance to the barangay or family. In such cases, it will be best if government can provide more permanent solutions to address the tax angles. A scheme similar to the Adopt-a-school program can be legislated. In this program, private entities assist, for at least two years, a public school, whether elementary, secondary, or tertiary, but not limited, in areas such as staff and faculty development for training and further education and construction of facilities. The entities shall be entitled to tax credit, and additional deduction from the gross income equivalent to 50% of expenses incurred for such adoption.

Companies should at least devise a scheme for making donations so they can immediately take action when calamities strike without having to think too much of the tax consequences or implications. 

In these trying times, our unity is tested. There is still so much need for assistance for the victims of typhoon Yolanda as well as the earthquake victims in the Visayas. Many organizations have launched their own programs left and right, 24/7 relief operations, medical missions, fund raisings and the list goes on. Yes, there are a lot more discreet ways of giving, but what matters now is that if it is given from the heart.

Ed Warren L. Balauag

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Punongbayan and Araullo