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Newsbreak: Supreme Court foundation gets special treatment from BIR

November 13, 2007 1:43pm

It has no legal personality—but it’s exempt from taxes.

The Society for Judicial Excellence (SJE), an organization that works closely with the Supreme Court and gives annual awards to the judiciary, has no legal personality—it is not registered with the Securities and Exchange Commission—yet it got a tax-exempt status from the Bureau of Internal Revenue.

The two-year old organization is considered a “special case" by the BIR, according to BIR Assistant Commissioner for Legal Service James Roldan.

Headed by retired Supreme Court Justice Bernardo Pardo, the SJE is governed by a board of trustees composed of Supreme Court Justice Angelina Sandoval-Gutierrez and active justices and judges from the Court of Appeals and Regional Trial Courts.

In a BIR ruling dated August 16, 2006, donations to the SJE were declared exempt from donor’s tax and fully deductible from the donor’s gross income, tax perks that were both awarded to SJE because it is both a “charitable institution and a government entity."

This year, the SJE received donations from prominent businessmen such as San Miguel Corporation (SMC) chairman Ambassador Eduardo ‘Danding’ Cojuangco Jr. (P1.2 million) and SMC president Ramon Ang. In July 2006, the SJE received a P1.2 million-donation from Manila Bulletin Publisher and Manila Hotel owner Emilio Yap and from the Euro-Med Corporation.

Other donors include Chief Justice Reynato Puno, the Integrated Bar of the Philippines and the Madrigal and Avanceña families, who sponsored the Chief Justice Jose Abad Santos and Chief Justice Ramon Avanceña awards, and the newly introduced Don Antonio Madrigal award.

All the donations were used for the Judicial Excellence Awards, which recognizes judges and court personnel who have contributed significantly to the administration of justice.

The ceremonies this year were held at the Supreme Court which presented the awardees with trophies and medals.

Dual identity

The SJE is a ‘special case’ because, according to Roldan, it bears two identities: that of a charitable institution and government agency.

As a non-stock, non-profit organization, the SJE is considered a charitable institution for it works for the improvement of the dispensation of justice, while it is also recognized as a government entity since it operates under the judiciary.

Organizations applying for tax exemption are required to submit the following to the BIR: a letter of request, articles of incorporation, by-laws and constitution, and financial statement for the past three years.

Among these, only the loss of a financial statement can be considered excusable for newly formed organizations.

For non-government organizations, they need to be accredited first by the Philippine Council for NGO Certification, an entity mandated by the Department of Finance and the BIR to evaluate the eligibility of non-stock, non-profit corporations to become donee institutions.

In SJE’s case, former SJE chairperson Justice Sandoval-Gutierrez sent a letter dated August 9, 2006 to the BIR requesting income and donor’s tax exemption. Roldan said he issued the ruling approving the request even if SJE is not registered with the SEC because it is a government entity. Then Commissioner Jose Mario Buñag affirmed this in a subsequent ruling.

However, the current SJE chairperson, retired Supreme Court Justice Pardo, refers to SJE as a “private organization." A source from SJE told us that SJE operates independently from the judiciary because it has its own bylaws and constitution, and is governed by its own board of trustees.

Since it is also composed of past awardees, Pardo says that it is “not part of the judiciary."

The organization that has been registered with the SEC since 1990 is the Foundation for Judicial Excellence. It filed its amended bylaws and constitution in 2000. The Foundation used to run the awards but the project was passed on to the SJE in 2006.
Tax Perks

In the August 2006 BIR ruling, Roldan stated that just like other charitable corporations, the SJE is exempt from paying corporate income tax as stipulated in the Tax Code of 1997.

Gifts given to charitable institutions are also exempt from payment of donor’s tax as stated in the Tax Code, provided that not more than 30% of the gifts will be used for administration purposes.

According to Section 30 of the Tax Code of 1997, donations to non-stock corporations or associations organized and operated for religious, charitable, scientific, athletic or cultural purposes are subject to limited deductibility only, or up to 10% for individual donors and 5 per cent for corporate donors.

Donations could only be fully deductible from the donor’s gross income if they are given to donee institutions, or non-stock, non- profit corporations accredited by the PCNC and other organizations that have met the qualifications of BIR Revenue Regulations No. 13-98.

Donee institutions are accorded with tax benefits that could be considered more enticing for donors, as compared to tax exemption privileges given to non-accredited non-stock, non-profit corporations.

The PCNC does not cover government entities, however. How could the SJE be a qualified donee-institution and receive donations that are fully deductible from the donors’ gross income?

This is where the other identity of SJE comes in: that of as a government unit, or what is called GOP/GOCCs (Government of the Philippines/agencies/political subdivisions and government-owned or controlled corporations).

As stated in the BIR-NEDA (National Economic and Development Authority) regulations, GOP/GOCCs are considered qualified donee institutions, from which donations could be fully deductible from the donor’s gross income, provided that the donations are in line with the National Priority Plan and used for priority activities, which include projects in education, health, youth and sports development, human settlements, science and culture. - Newsbreak
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