Tax Treatment of Gift-Giving Under the Bayanihan Spirit
The Bayanihan Spirit, a fundamental aspect of Filipino culture, is manifest in times of crises. In the past several weeks, the private sector, through concerted efforts, resorted to social media newsfeeds, private and group messages, and radio and television communications with the aim of pooling financial resources to alleviate the suffering of our fellow Filipinos.
With the rise of COVID-19 cases at this time and age, Filipinos have taken great strides to make their generous contributions and donations count. What is the tax treatment of our acts of generosity and how could a donor harness tax benefits in the course of contributing to COVID-19 needs?
To begin with, one must note that the transfer of properties (whether in cash or in kind) can be considered as a taxable event, subject to various taxes and procedures. To ease the burden of social cost in the course of the Enhanced Community Quarantine (ECQ) and pursuant to the provisions of Republic Act (RA) №11469, otherwise known as “Bayanihan to Heal as One Act,” the Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) №9–2020 which grants certain tax benefits on donations made during the ECQ. The tax benefits shall be in force during the three-month effectivity period of RA №11469.
Do all donations made during this effectivity period automatically bring about tax benefits? The quick answer, unfortunately, is a “No,” because the donor must take certain steps to ensure that the particular donation is exempted under newly issued rules and to submit supporting documentation. Even in the midst of a global pandemic, the constitutional principle which states that taxes remain to be the “lifeblood of the government” — the Lifeblood Theory — will continue to prevail, and any tax exemption must still be construed against taxpayers. To avail of tax benefits, the donor must submit, within 60 days from lifting of the ECQ, correct supporting documents with his or her respective BIR Revenue District Office.
Exemption from Donor’s Tax
Prior to the issuance of RR №9–2020, donations to the national government or any entity created by any of its agencies, including public hospitals, which is not conducted for profit, or to any political subdivision such as LGUs; and accredited non-stock, non-profit education and/or charitable, religious, cultural or social welfare corporation, institution, foundation, non-government organization, trust or philantrophic organization and/or research institution or organization (collectively, “entities”) were already considered exempt from donor’s tax under the Tax Code.
With the issuance of RR №9–2020, the BIR expanded the coverage of the exemption of donor’s tax to include donations that are made to private hospitals and non-accredited entities. In addition, donations to local private corporations, civic organizations and international organizations or institutions are now exempted from donor’s tax, provided that these corporations, organizations or institutions actually, directly and exclusively distribute said donations to or partner-up with the government or accredited entities.
Deductibility of Full Amount of Donation from Donor’s Gross Income
Prior to RR 9–2020, the Tax Code allows for a full deduction only of donations to government, certain foreign institutions or international organizations and accredited NGOs, subject to certain conditions. With the new RR, the full deduction includes the donation to private hospitals and non-accredited entities.
VAT Treatment for Donations in Kind
If the donation is made by VAT-registered taxpayers and the donation pertains to critical or needed healthcare supplies or equipment (such as personal protective equipment, gloves, hospital gowns, masks, face shields, laboratory equipment, medical supplies, consumables such as alcohol, tissues, testing kits) or if it pertains to relief goods, such as food packs and water, the donation shall not be considered as a transaction subject to VAT. The input VAT attributable to the purchase of said goods can also be creditable against any other output tax of the donor.
Submission of Supporting Documents
If the donation is already exempt from donor’s tax and has been allowed full deduction from gross income prior to the effectivity of the new RR (such as donation to the government and accredited entities), the supporting document is a Deed of Donation or BIR Form 2322 (Certificate of Donation), as the case may be. If not, the supporting documents aside from the Deed of Donation and Certificate of Donation may include a Liquidation report, Sworn Certification, Acknowledgment Receipt, and proof of purchase of donated goods, as applicable.
The foregoing are among the key tax relief measures which the Philippine government has issued to encourage, if not incentivize acts of generosity during these trying times and mitigate the impact of the COVID-19 pandemic. As the COVID-19 curve continues to unfold from the short to the medium term, and in light of a whole-of-the-nation approach towards COVID-19, we expect Philippine tax authorities to continuously reassess, review, and take additional tax and fiscal measures to be in keeping with the needs of the times.
*Dyan Angela A. de la Fuente is a Mid-Level Associate of Gorriceta Africa Cauton & Saavedra (www.gorricetalaw.com) and a member of its Tax and Corporate Departments. Dyan’s practice consists of representation and advisory work for clients involving matters before government agencies including the Bureau of Internal Revenue, Bureau of Customs, Securities and Exchange Commission, and local government units. Any queries and suggestions about this essay may be submitted to email@example.com.