Miyerkules, Disyembre 17, 2014

Generosity, gift-giving and the 30% donor tax

IT’S THE most wonderful time of the year, with people worldwide gearing up for Christmas by dispensing gifts. The spirit of the season truly crosses all boundaries of culture, economic background or social status, and business people are definitely not immune to the wave of giving as they sign hefty checks to the objects of their generosity.

Before sending out those gifts, however, it is important to consider the tax implications. Almost everything is taxable, so it should not come as a surprise that the tax authorities also have their eye even on holiday acts of kindness.

Strictly speaking, gifts to strangers -- i.e., anybody who is not a sibling, spouse, ancestor, or lineal descendant; or a relative by consanguinity in the collateral line within the fourth degree of relationship -- are subject to 30% donor’s tax. However, gifts to qualified donee institutions duly accredited by the Philippine Council for Non-Government Organizations (NGO) Certification, Inc. (PCNC), are exempt from donor’s tax provided that the donor complies with certain conditions prescribed by law and other relevant issuances.

The Tax Code provides exemptions from donor’s tax on donations to qualified institutions. In addition, donors to these institutions may enjoy full deductibility of their gift from taxable income. However, to be entitled to the tax exemption, the donor engaged in business is required by Revenue Regulation (RR) No. 02-03 to submit a notice of donation on every gift worth at least P50,000 to the Revenue District Office (RDO) with jurisdiction over the donor’s place of business, within 30 days after receipt of the qualified donee institution’s duly issued certificate of donation.

The certificate of donation shall be attached to the notice of donation, stating that not more than 30% of the said donation/gifts for the taxable year shall be used by such accredited nonstock, nonprofit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101 (A)(3) and (B)(2) of the Tax Code.

In addition to the requirements stated above, the Bureau of Internal Revenue (BIR) also recently issued Revenue Memorandum Circular No. (RMC) 86-2014 dated 5 December 2014, clarifying the valuation of contributions or gifts actually paid or made in computing taxable income, as part of the substantiation requirement under Section 8 of RR 13-98. Under the said 1998 revenue regulations, taxpayers claiming donations as deductions from gross income must present to the BIR the Certificate of Donation indicating the actual receipt and date of donation, and the amount of cash, or acquisition cost if in property.

The mandatory information under Section 8 of RR 13-98 is now required to be provided in the Certificate of Donation (BIR Form 2322) as prescribed by the new RMC 86-2014. BIR Form 2322 consists of two parts -- a donee certification and a donor’s statement of values. The donee certification indicates the donee’s confirmation of receipt of donation, the date it was received, and the amount of cash or the description of the property donated; and is signed by an authorized representative of the donee organization.

On the other hand, the donor statement provides the description, acquisition cost and net book value of the property donated as reflected in the financial statements of the donor, signed by an authorized representative. A copy of the sales document will also be required to support the acquisition cost claimed by the donor.

The numerous requirements unfortunately discourage the business sector in availing of the grant. It suppresses the spirit of giving by mandating requirements that negate the purpose of the incentive if not fully complied with and followed to the letter.

The Congress must evaluate the taxation of donations. Stringent requirements for the availment of tax incentives on donations discourage donors from continuing their generous contributions. There seems to be no logical reason for a donation to be taxed when the income from which such donation came from has already been taxed. If anything, generosity should be applauded and encouraged by the government.

The context of much giving is the calamities that plague our country. In most cases, victims of such calamities cannot depend on the government to provide for their needs. During such times, we can only turn to the private sector to augment the assistance to the victims by donating whatever resources they can spare. However, after donating whatever cash or property is available, the donor is then slapped with an astounding 30% donor’s tax. Why do we punish donors for their acts of kindness?

Yet, despite the difficulties imposed by the donor’s tax, we should always remember the true meaning of Christmas and celebrate this season with generosity and love. It is good to give generously and wholeheartedly. By all means let us be merry, but let us also be wise: before handing out precious gifts, remember to comply with the new requirements under RMC 86-2014 to avail of the exemptions.

On behalf of the Punongbayan & Araullo family, we wish you a Merry Christmas and a Prosperous New Year!

Iderlyn P. Magsambol-Demain
Let’s Talk Tax
Punongbayan and Araullo


Martes, Disyembre 16, 2014

Documentation for deductibility of donations

Pursuant to Section 8 of Revenue Regulations 13-98, taxpayers claiming donations as deduction from gross income in computing the income tax, must present to the BIR the Certificate of Donation indicating the actual receipt and date of donation and the amount of cash, or acquisition cost if in property

These information shall be provided in the Certificate of Donation (BIR Form 2322).  The Form consists of two parts:

1.  the donee certification on the receipt of the donation and indicating the date and amount of cash or description of the property donated, signed by an authorized representative.

2. the donor statement on the description, acquisition cost and net book value of the property donated as reflected in its financial statements, signed by an authorized representative.  Copy of the sales document will also be required to support the acquisition cost.

Revenue Memorandum Circular No. 86-2014, December 5, 2014
Tax Alerts
Punongbayan and Araullo

Martes, Disyembre 9, 2014

Emotional Pain Can Make You Change

 One day, I wanted to impress my girlfriend.
            Thankfully, I felt rich that day because I had P500 in my wallet.
So I invited her to eat in a nice restaurant.
            But a part of me still wondered if I really had enough money for the meal.
            I knew the restaurant's specialty was Crispy Pata or deep-fried pig's knuckles (Yep, I was still eating meat at that time). Quickly, I read the menu. It cost P150 only. Yes! I could afford it.
            I called the waiter and ordered Crispy Pata. With two cups of rice.
            To save money, I didn't order drinks. Thankfully, my girlfriend didn't order too. I smiled.  Things were going my way.
            At the end of our meal, the waiter brought in two little green bowls of Macapuno (sweetened coconut). So this was how it was in more expensive restaurants: They give free desserts!
            The waiter then gave me the bill.
            And that was when I felt like my soul jumped out my body for 10 seconds.
Because my bill was P561!
            With my heart racing, I called the waiter. I asked how my bill could be more than five hundred if I ordered only Crispy Pata worth P150?
            He showed me the menu again. He pointed out that it was P150 per 100 grams. With a smile on his face, he informed me that he served us 300 grams. Like he did me a favor!
So we ate a whopping P450 of Crispy Pata.
            And that wasn't the end of my trials. 
The waiter also pointed out that the Macapuno was P20 each. It wasn't free at all. So with the rice and the tax, the entire bill reached more than what I had in my wallet.
            So I did one of the most embarrassing things I ever did in my entire life—right up there with preaching with my zipper open. Sheepishly, I asked my girlfriend, "Uh, do you have money? I'm a little short…”
            Thankfully, she had a few pesos in her wallet.
            But both of us had nothing left for the waiter's tip.
            With my head bowed down, I walked out of the restaurant as fast as I could.
            Friends, this happened a long time ago. 
But I can never forget how this embarrassing experience gave me a wild fantasy. It may not be wild for you, but it was absolutely wild for me: I fantasized of a time when I had so much money, I could enter into any restaurant I wanted to, and order anything I wanted to—without even looking at the prices on the menu!
Call me silly. Call me juvenile. Call me crazy. But experiences like these were painful enough, they fueled my desire to become wealthy.
           
Write Down Your Emotional Why

            Think deeply.
            Why do you want to become a happy millionaire?
            Write down the reasons below.

"I will earn ­                   by                              .”
                       (Amount)                  (Date)

Here are my Emotional Whys for wanting to be a happy millionaire:






            Next, we work on your beliefs…


            May your dreams come true,

            Bo Sanchez

Sabado, Disyembre 6, 2014

Recourse against invalid subpoena

TO AID in the speedy conduct of tax investigations, the Commissioner of Internal Revenue and its duly authorized officers are empowered to issue a Subpoena Duces Tecum (SDT) to taxpayers who deliberately refuse or ignore the request of the Bureau of Internal Revenue (BIR) to submit books of accounts and/or other documents and records. In case of non-compliance, the BIR may also invoke the authority of the courts by filing a criminal case against a taxpayer. However, is there any available recourse to the taxpayer, in case the issued SDT does not comply with the prescribed guidelines and procedures?

In Revenue Memorandum Order (RMO) 010-2013, submission of the taxpayer’s books of accounts must be done within fourteen days from the issuance of the SDT. The SDT must also be served on the taxpayer within three working days from the receipt of the revenue officers. Since the date of the issuance of the SDT is the date when it was officially signed by an authorized BIR official, it is very possible that the 14-day period given to the taxpayer to comply with, will be shortened. This is because the 14-day period does not commence from the receipt of the SDT but upon the date of its issuance. What will happen if the taxpayer received the SDT one day before the lapse of the 14-day period? Obviously, he may not be able to comply with it especially if the books of accounts or documents are voluminous. In a situation like this, what are the available remedies? Would the non-submission or incomplete submission of books of accounts and documents be tantamount to failure to obey the SDT, and therefore, subjects the taxpayer to administrative penalties?

Another thing to ponder: what if the revenue officer failed to comply with the three-day period to serve the SDT? Would such an infirmity invalidate it? The existing regulations are not clear on this. The rules only provide administrative liability to revenue officials and employees who failed to follow the guidelines and procedures on the issuance of the SDT.

Administrative rules and regulations are created to enforce the law and to implement its intent. Thus, like all laws, it must always withstand the test of reasonableness and must always be in harmony with the law. The 14-day period to comply with the SDT was put in place to afford the taxpayer a reasonable time to prepare and collate documents and accounting records. While the purpose of the SDT is to compel the taxpayer to submit such documents, the law did not envision impossibility of compliance. Therefore, the BIR must revisit the existing regulations so as to address circumstances like these.

Also, under the RMO, the revenue officer handling the particular case must be present during the designated time, date and place set for the presentation of books of accounts and other accounting records. This is to allow the officer to verify if the documents presented are substantially complete. Failure on the part of the revenue officer to do any of the aforementioned shall subject him to administrative liability. What will happen if the revenue officer does not appear on the date of compliance of SDT? Will this invalidate the SDT? Are there any remedies for the taxpayer who brings all the voluminous records and documents during the date of compliance set in the SDT?

The rules and regulations do not provide an answer. However, in most cases, the taxpayer is required to coordinate with the revenue officer for the submission of documents as the assigned action lawyer will not receive it. Now, this begs the question of whether the taxpayer is non-compliant with the SDT since no documents were received by the action lawyer due to the absence of the revenue officer.

It is worthy to note that in case of non-submission or incomplete submission of the books of accounts and other accounting records, the action lawyer assigned to the case shall request the concerned revenue officer to set a conference within five working days from the date set for compliance with SDT, to determine if there is sufficient evidence for the criminal prosecution of the taxpayer. While the regulations provide for a conference, in practice, even if the taxpayer subsequently submits all the documents to the action lawyer in the presence of the revenue officer, the BIR usually fails, probably due to lack of coordination, monitoring and heavy workload, to note the subsequent compliance of the taxpayer with the SDT. This results in the filing of a complaint with the Office of the Prosecutor.

As the filing of a complaint may result in criminal prosecution of the taxpayer, the BIR is duty-bound to strictly comply with the prescribed guidelines and procedures in the issuance and enforcement of SDT. Like any legal process, SDT must observe not only the substantive due process but also the procedural due process to protect the rights of the taxpayer.

Also, it is interesting to note that in RMO 010-13, the BIR deleted the provision found in RMO 88-2010 which allows the dismissal of the case before the Office of the Prosecutor or the Court upon payment of the penalty of P10,000 and upon presentation of joint certification of the revenue officer and authorized BIR officer on the compliance of SDT. In fact, in the said RMO, the BIR mandated that no prosecuting officer of the BIR shall cause the withdrawal or the dismissal of the case notwithstanding the subsequent submission of the document indicated in the SDT.

With the deletion of the aforementioned provision, will there be any recourse available to the taxpayer in cases of defective or invalid subpoena? Considering that the aforementioned circumstances are very prevalent today, it is highly suggested that the BIR revisit the existing rules and regulation on subpoena to guard not only the right of the government agency but also of the taxpayer. 

Farrah Andres-Neagoe
Let’s Talk Tax
Punongbayan and Araullo