• PCNC and the Implementing Rules and Regulations on Certification
• Section 30 - Entities exempted from Corporate Income Tax
• Tabular Comparative Study of Tax Exempt Entities and Donee Institutions
• Other Notes
• Credits

PCNC and the Implementing Rules and Regulations on Certification

      As drafted, the Implementing Rules and Regulations (IRR) on certification by the PCNC covers only the deductibility of donations to certified NGOs, as well as exemption from donor's tax of such donations. The IRR does not provide for the income tax exemption of the certified entities. It is possible that the Department of Finance (DOF) and the Bureau of Internal Revenue may decide to make PCNC certification as a pre-requisite for income tax exemption for some entities. However, this matter has not yet been raised. Thus, the income tax exemption would not be an issue insofar as PCNC certification is concerned.

      In any case, Section 30 of the Tax Code provides that "the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income" shall be subject to the income corporate tax. Under this proviso, tax exempt entities would be subject to the 34% corporate income tax on unrelated and recurring business income.

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Section 30 of the Tax Code enumerates the entities exempt from the Corporate Income Tax as follows:

1. Labor, agricultural or horticultural organizations not organized principally for profit;
2. Mutual savings bank not having a capital stock organized and operated for mutual purposes and without profit;
3. A beneficiary society, order or association, operating for the exclusive benefit of the members such as fraternal organizations operating under the lodge system, or mutual, aid association or non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusive to the members of such society, order or association or non-stock corporation or their dependents;
4. Cemetery company owned and operated exclusive for the benefit of its members;
5. Non-stock corporations or associations organized and operated exclusive for religious. Charitable. Scientific, athletic or cultural purposes or for the rehabilitation of veterans, no part of whose net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;
6. Business league, chamber of commerce or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual;
7. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
8. A non-stock, non-profit educational institution;
9. Government education institution;
10. Farmers' or other mutual typhoon of fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consist solely of assessments, dues and fees collected from the members for the sole purpose of meeting its expenses; and,
11. Farmers', fruitgrowers' or like associations organized and operated as sales for the purpose of marketing the products of its members and turning back to them the proceeds of sales. Less the necessary selling expenses on the basis of the quantity of produce finished by them.

      Of the above list, only donations to the entities under items (e) and (g) and (h) are deductible and/or exempt from donor's tax under Section 34 (H) and Section 101 respectively, of the Tax Code. Moreover, donations to some of those entities are subject to limited deductibility, i.e. only 10% (individual donor) and 5% (corporate donor) of the taxable income derived from trade or business as computed without the benefit of the deduction.

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Tabular Comparative Study of Tax Exempt Entities and Donee Institutions

      Click Here

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Notes:

      "Non-stock, non-profit corporations or organization" is created or organized under Philippine laws exclusively religious, charitable, scientific, athletic, cultural, rehabilitation of veterans and social welfare purposes, no part of the net income or asset of which shall belong to or inure to the benefit any member, organizer, officer or any specific person.

      A "non-government organization (NGO)" has the following characteristics:

• Non-stock, non-profit domestic corporation or organization organized and operated exclusively for scientific, research, educational , character-building and youth and sports development, health, social welfare, cultural and charitable purposes, or a combination thereof;
• No part of the net income of which inures to the benefit of any private individual, the members of the Board of trustees of which do not receive compensation or remuneration;
• Make utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated not later than the fifteenth (15th) day of the third month after the close of the NGO's taxable year in which contributions are received, unless an extended period is granted by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue;
• The level of administrative expenses of which on an annual basis does not exceed thirty percent (30%) of the total expenses for the taxable year; and,
• In the event of dissolution, the assets of which shall be distributed to another accredited NGO organized for similar purposes, or the State for public purpose or purposes, or would be distributed by a competent court of justice to another accredited NGO to be used in such manner as in the judgement of said court shall best accomplish the general purpose for which the dissolved organization was organized.

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Prepared by:

      ATTY. CORNELIO C. GISON
      Corporate Secretary, PCNC

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