In the Philippines, the intersection of corporate social responsibility and tax law is primarily governed by the National Internal Revenue Code (NIRC) of 1997, as significantly amended by the TRAIN Law (RA 10963) and the CREATE Act (RA 11534). For private organizations looking to donate to Non-Governmental Organizations (NGOs), understanding the distinction between taxable donations and tax-exempt transfers is critical for financial planning and compliance.
1. The General Rule: The 6% Flat Rate
Under the current tax regime (post-TRAIN Law), the donor’s tax is no longer calculated using a progressive bracket system.
- The Rate: A flat rate of 6% is computed based on the total gifts in excess of ₱250,000 made during the calendar year.
- Applicability: This rate applies regardless of whether the donor is an individual or a corporation, and regardless of whether the donee is a "stranger" or a relative.
For a private organization (a corporation), any donation made to an ordinary NGO that does not meet specific accreditation criteria will be subject to this 6% tax on the amount exceeding the ₱250,000 annual threshold.
2. The Exemption: Section 101(B) of the Tax Code
The law provides a significant incentive for private organizations to support specific types of NGOs. Donations to non-profit entities may be exempt from donor’s tax if the recipient falls under specific categories defined in Section 101(B)(3) of the NIRC.
Qualifying Donees for Tax Exemption:
- Educational and/or charitable institutions.
- Religious, cultural, or social welfare institutions.
- Accredited NGOs (accredited by the Philippine Council for NGO Certification or PCNC).
- Philanthropic organizations and research institutions.
The "30% Rule" for Exemptions: To qualify for the donor's tax exemption, the law dictates that not more than 30% of said gifts shall be used by the donee-institution for administration purposes. This ensures that the bulk of the donation directly funds the programs and services of the NGO rather than overhead costs.
3. Accredited vs. Non-Accredited NGOs
The distinction between an "ordinary" NGO and a "Donee Institution" is pivotal:
| Feature | Non-Accredited NGO | Accredited (Donee Institution) |
|---|---|---|
| Donor's Tax | 6% (above ₱250k) | Exempt |
| Deductibility | Subject to 5% cap of taxable income | Fully Deductible (in certain cases) |
| Documentation | Deed of Donation | Certificate of Donation (BIR Form 2322) |
Private organizations must verify the Certificate of Registration and the PCNC Accreditation of an NGO to ensure the donation remains tax-exempt.
4. Deductibility from Gross Income
Beyond the donor's tax, private organizations are often interested in whether the donation can be deducted from their Gross Income to lower their Corporate Income Tax (CIT).
- Limited Deductibility: Generally, donations to NGOs are deductible only up to 5% of the corporation's taxable income derived from trade, business, or profession (computed before the deduction of the donation).
- Full Deductibility: Donations to certain accredited NGOs, specifically those organized and operated exclusively for scientific, educational, character-building and youth-service, social welfare, cultural, or charitable purposes, may be fully deductible if they meet the stringent requirements of Section 34(H)(2) of the NIRC.
5. Compliance and Documentation
To legally claim exemptions and deductions, the private organization and the NGO must comply with the following administrative requirements:
- Notice of Donation: For certain large donations, the donor may need to file a notice to the Revenue District Office (RDO).
- Certificate of Donation (BIR Form 2322): The NGO must issue this to the donor, indicating the date of receipt and the amount (if cash) or the description and costs (if property).
- Donor’s Tax Return (BIR Form 1800): Even if the donation is exempt, the donor must file the return within thirty (30) days after the date the gift is made to report the transaction.
6. Valuation of Property Donations
When a private organization donates assets other than cash (e.g., land, equipment, or inventory), the donor’s tax is based on the fair market value (FMV) of the property at the time of the gift.
- If the property is real estate, the FMV is the higher value between the Zonal Value (prescribed by the BIR) and the Fair Market Value as shown in the schedule of values of the Provincial and City Assessors.
- For personal property, the cost or book value is generally evaluated against current market standards.