Foundations for elections

THEY WERE supposedly set up to uplift the lives of those in need. Yet in their first few months of operation, they served a rather different, yet specific, purpose: to promote the candidacy of two legislative aspirants who eventually won and are now occupying seats in the Senate.

Senator Joseph Victor ‘JV’ G. Ejercito of the United Nationalist Alliance (UNA) and Senator Mary Grace Poe-Llamanzares of Team PNoy were each supported during the campaign by organizations formed in their name: JV Para sa Bayan Movement Inc. and the Friends of Grace Poe Foundation Inc., respectively.

These two non-stock associations were registered in the Securities and Exchange Commission (SEC) close to and right at the start of the campaign period — JV Para sa Bayan on Dec. 14, 2012 and Friends of Grace Poe on Feb. 15, 2013. The names of these foundations immediately emerged as major donors of the two candidates, buying ads in bulk in the thick of the campaign.

The creation of foundations during an election cycle or even prior to the elections, of course, is no longer surprising to Commissioner Christian Robert S. Lim of the poll body’s Campaign Finance Unit (CFU) and Commissioner Kim S. Jacinto Henares of the Bureau of Internal Revenue (BIR). Henares even notes that historically, many foundations have been set up in the name of politicians such as Friends of Mar for Interior and Local Government Secretary Manuel ‘Mar’ A. Roxas II and the Yellow Ribbon Movement for President Benigno Simeon ‘Noynoy’ C. Aquino III.

Lim says, however, that foundations, just like any other campaign donor, are bound by campaign-finance rules. For instance, he says, a foundation is not allowed to buy airtime for a particular candidate without the candidate’s consent or acceptance. Foundations are also not allowed to receive money from prohibited contributors such as public or private financial institutions, entities that hold government contracts, civil servants, and foreigners and foreign corporations, among others.

Under revenue regulations, a non-stock association or a foundation may enjoy certain tax exemptions if it applies for and is issued a tax exemption certificate by the tax authority. She ticks off two basic requirements a foundation must meet for this: one, it must be registered with the Securities and Exchange Commission (SEC), and two, it must get an accreditation from the BIR to determine its exemption.

All these may sound simple. But there could be a lot of hair-pulling and furious exchanges of documents once the Commission on Elections (Comelec) and the BIR begin their respective audits involving foundations that donated to candidates in the last elections.

Take the case of Friends of Grace Poe Foundation. Its incorporation papers say that it was formed to promote the advocacies of Mary Grace Poe; to help those who are much in need; to undertake medical missions and other projects; and to exercise all powers provided under Section 36 of the Corporation Code. Yet it has emerged as paying for the majority of Poe’s campaign advertisements. The latter was borne out by various advertising contracts and broadcast orders gathered by PCIJ from the Education and Information Department (EID) of the Comelec.

Election laws also require media entities to submit a series of advertising documents to the Comelec at certain deadlines during and after the campaign period. One such set of documents shows that advertiser Friends of Grace Poe, broadcast network ABS-CBN, and agency Mejah Inc. entered into an advertising contract worth P5.11 million on April 22, 2013. This contract is composed of 20 15-second TV ads that were supposed to be aired from April 27, 2013 to May 6, 2013. The advertising contract bears the signature of Grace Poe accepting the donation made by Friends of Grace Poe.

Poe-Llamanzares reported receiving 60 separate donations, 11 of which were made by six companies or non-individuals, in the Statement of Election Contributions and Expenditures (SOCE) she filed with Comelec nearly a month ago. Friends of Grace Poe, however, was not among the donors she listed in her SOCE.

In his reply to PCIJ’s queries, Teodoro ‘Neil’ Llamanzares, Poe-Llamanzares’s husband and finance head of her campaign team, explained that “(f)or purposes of simpler accounting, ad placement and TV and Radio ad tagging, disbursements and ad contracts were booked using the name of the foundation, being the juridical entity that made the donations for the said ad contracts.”

But, he said, “(In) the spirit of transparency, we went ahead and disclosed the actual contributors to the foundation, for the purpose, in our campaign financial reports to the Comelec.”

Llamanzares also confirmed that the foundation was set up to facilitate his wife’s advocacies. He also happens to be one of the five incorporators and trustees of Friends of Grace Poe. He contributed P1,999,996 or nearly 100 percent of the foundation’s capital when it was set up. The other four contributed P1 each. “Grace is not an officer or an incorporator,” he wrote.

Henares meanwhile sees a possible gray area in the senator’s reporting that may need to be resolved. She says Friends of Grace Poe is neither a registered political party nor a candidate, hence donations made to it may not be tax exempt.

Section 13 of Republic Act No. 7166 otherwise known as the Synchronized Elections Act provides that “any contribution in cash or in kind to any candidate or party for campaign purposes, duly reported to the Commission, shall not be subject to the payment of donors’ tax.”

Donors’ tax, according to BIR’s website, is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer.

“If you donate to Grace Poe, then that is exempt,” Henares explains. “But if you donate to Friends of Grace Poe, the donation is not clear if it is exempted. It’s not clear because it’s not contributed to Grace Poe, it’s donated to Friends of Grace Poe.”

Under tax rules, foundations such as Friends of Grace Poe may enjoy certain taxation exemptions if they are accredited by the BIR. Henares says a foundation should both be registered and accredited with the BIR to determine its exemption. “You cannot donate to a foundation that has no accreditation,” she says. “You cannot get an exemption.”

“If Friends of Grace Poe made the donation to Grace Poe, then that’s exempt,” Henares adds.

The tax chief also says that the candidate should have issued a receipt to the donor Friends of Grace Poe in such a situation.

In the first place, Henares says the senator should have made the disclosure because the foundation donated goods to her campaign. “It’s not an act of transparency,” she says. “It’s a requirement, you donated something. Grace Poe should have issued a receipt to Friends of Grace Poe. And Friends of Grace Poe should have issued a receipt to whoever donated to them.”

Queried if Friends of Grace Poe is registered and accredited as an exempt entity with the BIR, Neil Llamanzares said that the foundation collected election campaign funds for Grace via a Comelec Authority to Incur Expenditures.

Llamanzares also told PCIJ, “You are correct in that normally a non-profit foundation would have to pay gift taxes for donation. But the Friends of Grace Poe Foundation received the campaign fund donations on behalf of Grace and the funds were meant for and spent for campaign expenses only; so said campaign funds were collected and used strictly as campaign donations and therefore, are tax exempt.”

The Authority to Incur Expenditures is based on Section 103 of the Omnibus Election Code. A Comelec lawyer explains that the authority means precisely what it says — authority granted by a candidate or party treasurer to a representative to incur expenditures on their behalf.

The lawyer, however, notes that this does not prevent the candidate or the party treasurer from issuing an authority to a representative to receive contributions as well. In addition, Section 105 of the Omnibus Election Code imposes an obligation on “every person receiving contributions or incurring expenditures by authority of the candidate or treasurer of the party” to render a detailed account with proper vouchers or official receipts, within five days after receiving such contribution or incurring such expenditure, to the candidate or party concerned.

The lawyer explains that there is no express prohibition on the part of Grace Poe to appoint the Friends of Grace Poe Foundation as her agent to receive contributions on her behalf, since the language of law seems to indicate that the legislators took into account the possibility of such an arrangement. “There is no standard form for this ‘authority to receive contributions’ but legally, this can done through a special power of attorney (SPA),” the lawyer adds.

In the case of JV Para sa Bayan, Ejercito reported it as one of his campaign’s top contributors, donating P43.68 million in cash. In fact, among the 73 non-individual donors of the 33 senatorial candidates and national political parties, JV Para sa Bayan made the second highest donation in the May 2013 elections. It is next to Bagong Pilipinas, Bagong Pilipino Movement Inc., a foundation that donated P55 million to Eduardo ‘Brother Eddie’ C. Villanueva’s Bangon Pilipinas Party.

Official documents filed by JV Para sa Bayan at the SEC say it was set up for “uplifting the lives and standards of living of the Filipino youth through education and employment.” In addition, it was created “to raise funds in support of other associations, nongovernmental organizations, government, or any other persons, which espouse the upliftment of the Filipino youth through education and employment.”

JV Para sa Bayan’s incorporators include Victorina B. Bautista, Luisito P. Basilio Jr., Anthony Isaias D. Arriola III, John Joseph Gabriel C. Puzon, Marilyn V. Manansala, Scarlet Go Jocson, Stephen Chan Choa, Wilfredo Mari N. Chua, and Eugene C. Ang. The association was set up with a total capital of P90,000.

Advertising contracts and broadcast orders submitted by media entities show that JV Para sa Bayan paid for more than P100 million worth of Ejercito’s ads. Yet only less than half of this amount was reported by the senator in his SOCE as donation given to him by JV Para sa Bayan. The senator reported spending P133 million on campaign advertising.

Responding to PCIJ’s queries regarding his SOCE, Ejercito wrote that he submitted his SOCE “to the best of my knowledge and abilities, through the help of my staff, similar to what I have done with my Statement of Assets, Liabilities and Net Worth.”

He confirmed that “the JV Para sa Bayan Movement, Inc. paid for and solicited support for the high cost of my ad placements.” He added, “JV Para sa Bayan Movement, Inc., is a duly registered institution with SEC-approved constitutions and by-laws. It was organized by individuals who also share my vision of service for the people.”

Commissioner Lim says that if a candidate in general did not report a certain contributor that has a record of buying an advertisement for the candidate, the ad may be considered as aired without the candidate’s consent. Lim says that the candidate and the media entity that published or aired the ad may then be asked to explain themselves.

Campaign-finance rules also prohibit media entities from publishing an advertisement paid by a donor without the written acceptance of the candidate who will benefit from the ad.

“There are many foundations, the ‘friends of’ type that are set up for the purpose of elections, to solicit funds,” Lim allows.

For example, he says, a foundation may host an event and solicit funds from participants of the event. “Then,” he says, “the foundation will turn over the solicited funds to the candidate.” — with additional research by Miguel Gamara, Charmaine Manay, Rosemarie Corpin, Fernando Cabigao Jr., and Charmaine Lirio, PCIJ