Memorandum of Agreement (MOA)

A Memorandum of Agreement (MOA) is a written document describing a

cooperative relationship between two parties wishing to work together on a
project or to meet an agreed upon objective. An MOA serves as a legal
document and describes the terms and details of the partnership agreement.
An MOA is more formal than a verbal agreement, but less formal than a
contract. Organizations can use an MOA to establish and outline collaborative
agreements, including service partnerships or agreements to provide technical
assistance and training. An MOA may be used regardless of whether or not
money is to be exchanged as part of the agreement.
The typical format of an MOA include:
 Authority
 Purpose of the Agreement
o Name of parties involved
o Brief description of the scope of work
o Financial obligations of each party, if applicable
o Dates agreement is in effect
o Key contacts for each party involved
 Detailed Description of Roles and Responsibilities
 Payment Schedule if Applicable
 Duration of the Agreement
 Modification of Termination
 Signatures of Parties’ Principals
Tips for Writing a Memorandum of Agreement (MOA)
 Only use one Memorandum of Agreement form when writing the terms of an
agreement.
 Keep it simple. Make sure that the wording is clear and concise. Whenever
possible, use the wording of the parties when drafting the mediation
agreement.
 Agreements should strive for balance – a “sandwich” model can be useful. Start
with “both parties agree” then state what each individually agrees to then close
with “both parties agree.” Balance is not that each party has the same number
of bullet points but that what is expected of each in the future has a sense of
balance for them.
 Agreements should be written in positive language. For example, state what
someone will do, not what they will not do.
 Agreements should be specific. As much as possible address: who, what, when
and how questions.
 Careful reality checks should be done with the parties to ensure that the terms
of the agreement are realistic and within their scope of authority.
 Carefully review each item in the terms of agreement with both parties to
ensure that each item is correct and appropriately captures each party’s intent.
You should read each item out loud and ask each party if the wording is
accurate. Each party should be able to understand their responsibilities in the
terms of agreement.
 Keep in mind that the Memorandum of Agreement is a Settlement Agreement;
therefore, appropriate personnel will need to clearly understand the terms of
the agreement in order to effectuate the contents of the agreement.
 Be absolutely sure that all parties sign the agreement.
 All parties should receive a written copy of their agreement before they leave
the session.

Instead, the Court focused on resolving these questions: is donor’s tax a direct
or indirect tax? Consequently, who is liable to pay for it?

Of course, it is a safe assumption that the BIR is well aware that donor’s tax is
a direct tax that should be paid by the giver or contributor. In fact, the term
“donor’s tax” already implies that it is a tax on the donor, and not on the
recipient.

Further, all the relevant requirements to pay the tax point toward the donor as
the party that must report, file, and pay the tax. Nowhere is there a
requirement that the donee must pay for the tax, whether directly or in behalf
of the donor.

However, in trying to justify the filing of the case against the donee, it is evident
that the BIR was mindful of the fact that the donor was a foreign entity beyond
its tax jurisdiction. Unable to enforce its authority on the donor, the BIR
instead went after the taxpayer-donee, a domestic corporation subject to the
laws of the Philippines.

The CTA disagreed with the BIR. As the tax sought to be imposed is a donor’s
tax, the Court ruled that a donee may not be made liable for its payment.
Section 13 of Revenue Regulation No. 2-2003 explicitly provides that the
person making a donation shall be the one required to accomplish and file a
donor’s tax return. This is in line with Section 98 of the Tax Code, which
provides that the donor’s tax shall be levied on the transfer by any person,
resident or nonresident, of a property by gift.
Thus, it is clear under the law, as well as the BIR’s regulations, that the
donor’s tax is a direct tax that can only be imposed on, and paid by, the donor.
Consequently, the CTA ruled that the liability for donor’s tax falls on the
donor’s shoulders and is, therefore, not transferable.

This case is novel in the sense that the principle of “non-transferability of the
burden of direct tax” had not been previously applied to donor’s tax. Although
the Supreme Court (SC) already had occasion to explain the nature of direct
and indirect taxes, jurisprudence only goes so far as to state that transfer
taxes, specifically donor’s tax, are classified as direct taxes. The recent CTA
case, therefore, is the first court decision to directly apply the said principle to
donor’s taxes.

There were other issues left undecided by the CTA because answering the
question on who should bear the tax seemed the end of it. However, it would
have been equally important, if not more so, to discuss whether additional
capital contribution should be considered a donation in the first place.

For now, we may have to wait for the resolution of the BIRs’ appeal to see if this
other equally important issue will be tackled more directly -- pardon the pun.

Unfortunately, until the BIR reconsiders this position, other taxpayers may find
it necessary to contest similar assessments or impositions.

The views or opinions expressed in this article are solely those of the author and
do not necessarily represent those of Isla Lipana & Co. The firm will not accept
any liability arising from the article.
Not so, with the issuance of Revenue Regulations (RR) No. 12-2018,
the consolidated regulations governing the imposition and payment of
estate and donor’s taxes, implementing the provisions of Republic Act
(RA) No. 10963, or the “Tax Reform for Acceleration and Inclusion”
(TRAIN) Law.

The donor’s tax for each calendar year is now at a uniform rate of 6
percent, which is imposed on the “net gifts” received by the donee
(recipient of the donation) in excess of the P250,000.00 threshold for
exempt gifts, and is computed on a cumulative basis over a period of
one calendar year. “Net gifts” is defined as the “net economic benefit
from the transfer that accrues to the donee.”

So, if your parents were to donate to you mortgaged property and

obliged you to pay off the loan on the mortgage, the net gift would be
the fair market value (FMV) of the property less the value of the loan
that you assumed.

The donor’s tax shall not be applicable unless and until there is a
“completed gift.” A donation of property is perfected from the
moment the donor knows of the acceptance of the donee, and is
completed by the delivery of the property to the donee. The applicable
law at the time of the perfection/completion of the donation shall
determine the imposition of the donor’s tax. Thus, the 6 percent
donor’s tax shall only be applicable to donations that have been
perfected or completed on or after January 1, 2018, the the date of
effectivity of the TRAIN Law.

Donations of real property must be made in a public document, which

means that the Deed of Donation should be notarized by a duly-
authorized notary public.For donor’s tax purposes, the determination
of the appraised value of real property is the FMV determined by the
Commissioner of Internal Revenue (CIR); or the FMV shown in the
schedule of values fixed by the provincial and city assessors,
whichever is higher.

Generally, when property is transferred for less than its FMV at the
time of the execution of the Deed of Sale, the difference between the
FMV and the selling price for the property shall be deemed a gift and
shall be included in computing the amount of gifts received by the
donee for the calendar year.

n exception to this rule may be allowed if it is shown that the sale of

property was made in the ordinary course of business and free from
any donative intent, in which case, the sale shall not be subject to
donor’s tax.

For every donation made, a person is required to accomplish, under

oath, a donor’s tax return in duplicate, setting forth each gift made
during the calendar year; the deductions claimed and allowable; any
previous net gifts made during the same calendar year; the name of the
donee; and such further information as the CIR may require.

Within 30 days from the perfected/completed donation, the donor’s

tax return shall be filed, and the donor’s tax paid with any authorized
agent bank (AAB); the Revenue District Office (RDO) of the place of
residence of the donor; with RDO No. 39-South Quezon City, if the
donor doesn’t have a legal residence in the Philippines; or with the
Philippine Embassy or Consulate of the country where the donor is
domiciled, for donations made by non-residents.

A donation may be exempt from donor’s tax, specifically those made

to the following donee institutions:
Gifts made to the National Government, or any of its agencies and
political subdivisions not conducted for profit;
Gifts in favor of an educational and/or charitable, religious, cultural
or social welfare corporation, institution, accredited non-government
organization, trust or philanthropic organization, or research
institution or organization. The rules also require, among others, that
not more than 30 percent of the proceeds shall be used by the donee
institution for administration purposes (i.e., salaries, rent).