Tax Alert No. 35 [Revenue Regulations (RR) No. 9-2020 dated 6 April 2020]

Implementing Sections 4(z) and 4(ee) of Republic Act (RA) No. 11469 or the “Bayanihan to Heal as One Act” by granting further benefits on donations during the period of the Enhanced Community Quarantine (ECQ) in relation to the National Internal Revenue Code (NIRC) of 1997, as amended. 

The Secretary of Finance has issued RR No. 9-2020 to implement Sections 4(z) and 4(ee) of RA No. 11469 in relation to Sections 101 and 34(H) of the NIRC, as amended. RR No. 9-2020 covers the full deductibility, exemption from donor’s tax and value-added tax (VAT) treatment of the following donations given for the sole and exclusive purpose of combatting COVID-19 during the period of the state of national emergency under RA No. 11469:

1. Cash donation;
2. Donations of all critical or needed healthcare equipment or supplies;
3. Relief goods such as, but not limited to, food packs (rice, canned goods, noodles, etc.) and water; and
4. Use of property, whether real or personal (shuttle service, use of lots/buildings).

Full deductibility of donations/gifts already exempt from donor’s tax under the law

Donation of items (1) to (4) above, when given to the following donees, is exempt from donor’s tax and shall be considered as fully deductible against the gross income of the donor (corporation or individual):

• 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 of the said government, including fully-owned government corporations (regardless if covered by the National Economic and Development Authority’s annual priority plan, considering that such donations are made during State of Public Health Emergency and State of Calamity)
• Accredited non-stock, non-profit educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, non-government organization (NGO), trust or philanthropic organization and/or research institution or organization
  

The claim for deduction must be supported with the necessary documents.

The requirement for the submission of a Notice of Donation shall be dispensed with for this purpose.

Other donations/gifts exempted during the period of the state of national emergency

Donation of items (1) to (4) above shall also be considered as exempt donations and deductible in full against the gross income of the donor (corporation or individual) when given to the following donees:

• Non-stock non-profit educational and/or charitable, religious, cultural, or social welfare, corporation, institution, foundation, NGO (even if non-accredited), to include those organized and operated exclusively for health purposes such as private hospitals, trust, philanthropic organization, and/or research institution or organization
• Local private corporations, civic organizations, and/or international organizations/institutions provided that they shall actually, directly and exclusively distribute and/or transfer said donations to and/or partner as conduit/logistical machinery with the accredited NGOs and/or national government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said government
  

The exemption from donor’s tax and claim for deduction of the donations to the above donees are subject to the timely submission of the documentary requirements. These documents must be submitted to the Revenue District Office where the donor and the donee-recipient are registered within sixty (60) days from the lifting of the ECQ.

Please see Appendix A hereof for a summary of the documentary requirements.

However, donations which qualify for full deductibility pursuant to Section 34(H)(2)(b) of the NIRC, as amended, referring to donations/gifts to foreign institutions or international organizations shall not be subject to the documentary requirements but shall be subject to verification rules under Section 34(H)(4) of the NIRC.

VAT treatment

Donation of items (2) and (3) above shall not be treated as a transaction deemed sale subject to VAT. Any input VAT attributable to such purchase of goods shall be creditable against any output tax.

The benefits granted under RR No. 9-2020 shall be subject to the power of the Bureau of Internal Revenue (BIR) under Section 235 of the NIRC, as amended, to examine any books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives for purposes of ascertaining compliance with the conditions under which they have been granted exemptions or tax incentives and their tax liability, if any.

The rules on donation and deductibility of the same as provided in the NIRC, as amended, and other Revenue Regulations shall apply suppletorily.

RR No. 9-2020 shall take effect starting 16 March 2020 upon the issuance of the Presidential Proclamation (PP) No. 929 and shall be in full force only during the three months effectivity of RA No. 11469, unless extended or withdrawn by Congress or ended by PP.

You may access the full version of the RR through the BIR website.