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CORPORATIONS’ POLITICAL CONTRIBUTIONS UNDER RCC

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By: Richelle Dianne R. Patawaran on March 21, 2019

With the 2019 Philippine general election less than two months away, and with the recent passage of the Revised Corporation Code (RCC), we take this opportunity to revisit the issue of whether political contributions by corporations are allowed under the law.

Section 36(9) of Batas Pambansa Blg. 68, or the old Corporation Code of the Philippines, contained an absolute prohibition on corporations, both foreign and domestic, donating to any political party or candidate, or for the purpose of any partisan political activity.

Furthermore, Section 95 of the Omnibus Election Code of the Philippines (OEC) prohibits certain types of juridical entities from making direct or indirect contributions for purposes of partisan political activity. These entities include: 1) public or private financial institutions, 2) entities operating a public utility or in possession of or exploiting any natural resources of the nation, 3) entities which hold contracts or sub-contracts to supply the government, or any of its divisions, subdivisions or instrumentalities, with goods or services or to perform construction or other works, 4) entities which have been granted franchises, incentives, exemptions, allocations or similar privileges or concessions by the government or any of its divisions, subdivisions or instrumentalities, including government-owned or controlled corporations, 5) entities which, within one year prior to the date of the election, have been granted loans or other accommodations in excess of P100,000 by the government or any of its divisions, subdivisions or instrumentalities, including government-owned or controlled corporations, 6) educational institutions which have received grants of public funds amounting to no less than P100,000, and 7) foreign corporations.

While the enumeration in Section 95 of the OEC could, at first glance, give the impression that only the entities listed are prohibited from making political donations, the Securities and Exchange Commission (SEC), in an opinion dated July 27, 2015, clarified that Section 36(9) of the old corporation code contained a blanket prohibition on all corporations from making political donations, without regard as to classification—whether foreign or domestic. The SEC further explained that Section 95 of the OEC merely serves as an industry-specific amplification of the absolute prohibition contained in the old corporation code.

However, Section 35(i) of the RCC signed by President Rodrigo Duterte on Feb. 20, 2019, no longer contains the word “domestic” and now provides that “a corporation has the power and capacity to make reasonable donations… Provided, that no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity.”

Thus, with the deletion of the word “domestic” in Section 35(i) of the RCC, domestic corporations are now allowed to give donations in aid of any political party or candidate or for purposes of partisan political activity, and only foreign corporations are prohibited from making political donations.

Nevertheless, despite the removal of the blanket prohibition on domestic corporations under the RCC, the entities listed in Section 95 of the OEC continue to be prohibited from making political donations. Stated otherwise, a domestic corporation, which is not among the entities listed in Section 95 of the OEC, is now allowed to donate to any political party or candidate, or for the purpose of any partisan political activity, under the RCC.

It should be noted that, in accordance with Republic Act No. 7166, contributions to any candidate or political party for campaign purposes, duly reported to the Commission on Elections (COMELEC), are not subject to the payment of any donor’s tax. Therefore, contributions which have been duly reported to the COMELEC are exempt from donor’s tax, while political contributions which have not been reported shall be subject to donor’s tax at the rate of 6 percent (for net gifts in excess of P250,000 per year).

Note that despite the lifting of the ban on political donations by corporate donors, donations to a political party or candidate or any contribution for partisan political activities cannot be claimed as deductible expenses, whether by an individual or by a domestic corporation. Pursuant to Section 34(H) of the National Internal Revenue Code, donations for religious, charitable, scientific, youth and sports development, cultural or educational purposes, or for rehabilitation of veterans or social welfare, or donations to non-government organizations are considered as deductible expenses. However, donations to a political party or candidate, or for the purpose of any partisan political activity, are not allowable deductible expenses. Unlike in other countries, there is no tax benefit to making political contributions in the Philippines.

We must be conscious, however, that this development in the law, which now allows corporate political contributions, can put corporate donors in a position in which they can exert influence, or set policy agendas that can be favorable to them in the future. The possibility of building close relationships with politicians will, of course, be a central factor in corporate decision-making on political contributions.

Richelle Dianne R. Patawaran is a Senior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, deal, litigation and labor lawyer. The contents of the above article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF Counsel’s website at www.mtfcounsel.com.

From the The Manila Times website on March 21, 2019

https://www.manilatimes.net/corporations-political-contributions-under-rcc/528679/

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