Line Of Sight

Tax treatment of donations in the COVID-19 era

Across communities around the globe, the coronavirus (COVID-19) has a significant humanitarian impact. In the Philippines, the support of the private business sector in the fight against the COVID-19 pandemic is essential during this critical period. In the spirit of solidarity, local tax authorities have recently taken into consideration the community efforts of donor organizations and individuals and have enacted changes to give incentives to generous donors. 

Acts of generosity in a time of crisis could be financially beneficial to the kindhearted. On April 6, 2020, the Bureau of Internal Revenue (BIR) released Revenue Regulations (RR) No. 9-2020, granting further benefits from donations during the enhanced community quarantine (ECQ) in relation to the Tax Code. RR No. 9-2020 provides that donations or gifts for the sole purpose of combating the COVID-19 pandemic during the state of national emergency shall be exempt from donor's tax.

The donation or gift shall also be considered fully deductible against the gross income of the donor corporation or individual, granted that documentary evidence is provided. Such contributions are limited to cash donations, donations of critical or needed health care equipment and supplies, relief goods (e.g., food packs and water), and real property (e.g., shuttle service, use of lots or buildings), whether real or personal. 

For donors donating to a donee-recipient

To be fully deductible and allowable as an expense against the gross income of the donor corporation or individual, donations to the national government or any entity created by any of its agencies (including public hospitals and fully-owned government corporations) should be supported by a Deed of Donation. Donations to accredited non-stock, nonprofit organizations, on the other hand, require a Certificate of Donation (BIR Form 2322). 

For donors donating to other donee-recipients

For donations to both accredited and non-accredited non-stock, nonprofit organizations, donors need to provide a sworn certification executed by the President (or any authorized officer for donor corporations) or the individual donor, stating: the name of the donee, the date of donation, the value of the contribution, and that the gift was made solely to support efforts to fight the COVID-19 pandemic during the state of national emergency. If the donation was given in kind, proof of purchase is also required. Furthermore, donors must provide a BIR-registered acknowledgment receipt. Donee-recipients, meanwhile, must provide a liquidation report in the BIR-prescribed format.

For donations to local private corporations or international organizations that partner to serve as a conduit with accredited non-government organizations (NGOs) or the national government, donors need to provide a Certificate of Donation (BIR Form 2322) or Deed of Donation duly issued by the NGO or government institution, respectively, in the name of the donor corporation or individual. If the donation was given in kind, proof of purchase is also required. Furthermore, donors must provide a BIR-registered acknowledgment receipt. Donee-recipients, meanwhile, must provide a liquidation report in the BIR-prescribed format, as well as a Certificate of Donation (BIR Form 2322) or Deed of Donation. 

The documentary requirements shall be submitted to the Revenue District Office where the donor and donee-recipient are registered within 60 days from the lifting of the ECQ.

Donations or gifts to foreign institutions or international organizations shall not be subject to the documentary requirements enumerated under Section 6 of RR No. 9-2020. Still, they shall be subject to verification rules under Section 34(H)(4) of the Tax Code. Donations of critical or needed health care equipment or supplies, as well as relief goods, shall not be treated as a transaction deemed sale subject to value-added tax (VAT) under Section 106(B) of the Tax Code. Furthermore, any input VAT attributable to such purchase of goods shall be creditable against any other output tax.

It is important to note that the BIR can audit and investigate donations to verify if they indeed qualify for donor’s tax exemption and deductibility from gross income.

As the national government, through the BIR, expresses its thanks to individual and corporate donors for their contributions to the fight against the COVID-19 pandemic through tax relief, let us not lose sight of the countless Filipinos who have contributed (and continue to help) their share in easing the adverse effects of this global problem. These are the people who, without fanfare, prepare food and refreshments for police personnel enforcing the lockdown, sew face masks using their resources and distribute them for free, and provide free lodging and transportation to medical front-liners.

Artche Lleve is an Associate of Tax Compliance and Advisory of P&A Grant Thornton in Cebu.  P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines, with 23 partners and more than 900 staff members. We’d like to hear from you! Tweet us: @GrantThorntonPH, like us on Facebook: P&A Grant Thornton, and email your comments to jobelle.bongato@ph.gt.com or pagrantthornton@ph.gt.com. For more information, visit our website: www.grantthornton.com.ph

 

As published in Mindanao Times, dated 09 June 2020