Gift giving has always been a part of the Filipino culture -- one that is innate and manifests our generosity towards others. It is our way of expressing gratitude, love, affection, friendship, or simply showing that we care. In a country where relationships (with family, friends, co-workers, etc.) are highly valued, giving gifts is seen as a way of strengthening these relationships. Most especially for Filipinos who have an extensive support network of family and friends, we tend to spend significant time, effort and money searching for the right gifts for special occasions and ceremonies.
Donor’s tax is a tax on any donation or gift. It is imposed on the gratuitous transfer of property between two or more persons (resident or not) during their lifetime. This applies regardless of whether or not the transfer is in trust, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.
Generally, donations made to strangers are subject to 30% donor’s tax based on the net gift. For this purpose, the Tax Code defines a “stranger” as a person who is not a brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendant, or a relative by consanguinity in the collateral line within the fourth degree of relationship. On the other hand, donations to relatives exceeding P100,000 are subject to graduated tax rates ranging from 2% to 15%, while those below P100,000 are exempt.
Imposing taxes on gifts might seem unreasonable as it puts a burden on a person who gives away property, without expecting anything in return. To be fair, the Tax Code also provides exemptions to certain donations such as those made on account of marriage up to P10,000 (in case of a resident donor); gifts made to or for the use of the national government or any entity created by any of its agencies; and gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization (NGO), trust or philanthropic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes.
In addition, donations to accredited NGOs or those accredited by the Philippine Council for NGO Certification, Inc. shall also be deductible for purposes of computing the net taxable income of the donor. However, in order to claim the deduction, the Bureau of Internal Revenue (BIR) provides certain conditions which should be followed. Under Section 8 of Revenue Regulations No. 13-98, the claimant-donor should secure a Certificate of Donation from the donee for every donation within 30 days from making the donation. The Certificate should indicate the date the NGO received the donation and the value of the donation, if in cash, or the acquisition cost, if in the form of property. Further, the donor is required to notify the Revenue District Office having jurisdiction over his place of business by filing a Notice of Donation for every donation worth at least P50,000 within 30 days upon receipt of the certification.
The substantiation requirement mentioned above was again reiterated by the BIR in a fairly recent issuance, Revenue Memorandum Circular (RMC) No. 86-2014. The RMC prescribes a revised Certificate of Donation (BIR Form 2322) which shall now consist of two parts -- a donee certification, and a donor statement of values.
The donee certification indicates the donee’s acknowledgement of the receipt of the donation, the date of receipt as well as the value of the donated cash or property. Compared to the old form, the first page of the revised version already provides a schedule showing the description of the properties (personal or real property) received by the donee. This must be signed by an authorized representative of the donee organization.
The second page of the new form is the donor statement showing the descriptions, acquisition costs, and net book value of the property donated as reflected in the financial statements of the donor.
Similar to the previous form, the new format also requires the donor to attach a certified true copy of the deed of sale/bill of sale, or a sworn certification by the donor of the net book value and acquisition cost as proof of valuation. The new form now requires the donor or authorized representative to sign the statement. The values indicated by the donor in the form shall still be subject to further confirmation by the BIR.
Oddly, given the minimal incentives and the steep tax on donations, the law appears to be discouraging gift-giving. In addition to this, the BIR continues to come up with new rules, placing more requirements in order for taxpayers to avail of deductions or exemptions.
While some would say that giving is its own reward, taxpayer-donors should make sure they satisfy the deductibility requirements of the BIR in order to make the act of giving, however full of liberality, even more rewarding.
Florida K. Fomaneg is a consultant at the Tax Services Department of Isla Lipana & Co., the Philippine memberfirm of the PwC network.
+63 (2) 845-2728
florida.k.fomaneg@ph.pwc.com
source: Businessworld
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