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ESTATE TAX
Estate Tax is a tax levied on the transmission of properties from a decedent to his heirs. It is not a tax on property nor on the transferor or transferee. Donation mortis causa In consideration of death, without the donors intention to lose the thing conveyed or its free disposal in case of survival Being testamentary in nature, it is embodied in a last will and testament Transfer conveys no title or ownership to the transferee before death of transferor, or transferor retains ownership, full or naked, of property conveyed Transfer is revocable before the transferors death and revocability may be provided indirectly by means of the reserved power in the donor to dispose of the property conveyed Transfer would be void if transferor survived the transferee Being in the form of a will, donation mortis causa is not accepted by the donee during the donors lifetime.
ESTATE TAX
Death is the generating source of the power to tax (Lorenzo v. Posadas). No manual or physical transfer of the property is required for the estate tax to accrue. The law in force at the time of death of the decedent governs. Residence refers to the permanent home, the place to which whenever absent, for business or pleasure, one intends to return, and depends on facts and circumstances, in the sense that disclose intent (Corre v. Tan Corre). It is not necessarily the actual place of residence at the time of death. All properties and interests in properties of the decedent at the time of his death shall be included in his gross estate. However, properties transferred or interests relinquished by the decedent before his death are excluded from his gross estate. The estate shall be appraised at its fair market value at the time of death. Real property: fair market value as determined by the CIR Shares of stocks: fair market value as shown in the audited financial statements closest to the date of death of the decedent
ESTATE TAX
Gross estate: Conjugal
Real property Personal property
Exclusive
Total
Less: Deductions:
Funeral expenses Claims against the estate Unpaid taxes and mortgages Medical expenses Family home Standard deduction Properties previously taxed Share of the surviving spouse
Net Taxable Estate Estate tax due (First P200,000 is exempt; 5% from P200,001; and 20% on over P10 M)
ESTATE TAX
WHO IS THE DECEDENT AND WHAT PROPERTIES FORM PART OF HIS GROSS ESTATE? Resident decedent: Citizen or resident alien
Include in his gross estate all properties, real or personal, tangible or intangible, regardless of location (within or without the Philippines)
ESTATE TAX
THESE INTANGIBLE PROPERTIES HAVE SITUS IN THE PHILIPPINES (Sec. 104, NIRC): Franchise which is exercised in the Phil Shares, obligations or bonds issued by any corporation organized in the Phil Shares, obligations or bonds issued by any foreign corporation, 85% of the business of which is located in the Phil or if such properties have acquired business situs in the Phil (Wells Fargo case) Shares or rights in partnership, business or industry established in the Philippines
ESTATE TAX
DECEDENTS GROSS ESTATE (Sec. 85, NIRC)
Decedents interest (in property owned or possessed) Transfers in contemplation of death Revocable transfers Property passing under a general power of appointment Proceeds of life insurance Transfers for insufficient consideration Capital of the surviving spouse
ESTATE TAX
Transfers in contemplation of death refers to the thought of death, as a controlling motive, which induces the disposition of the property for the purpose of avoiding the tax. Revocable transfers covers transfers, by trust or otherwise, where the enjoyment was subject at the date of his death to any change or where such power is relinquished in contemplation of death.
Deceased declared her conveyance was a donation mortis causa and forbade the registration of the deed until after her death (Puig v. Penaflorida). It does not cover bona-fide sale of property for an adequate and full consideration in money or moneys worth.
ESTATE TAX
Transfer of property under a general power of appointment By will, or by deed executed in contemplation of death, or by deed where he retains for his life or any period not ascertainable without reference to his death, which in fact does not end before his death Possession or enjoyment of, or the right to the income from, the property, or the right to designate the persons who shall possess or enjoy the property or the income thereof Except in case of bona-fide sale for an adequate and full consideration in money or moneys worth. Power of appointment is general when it gives to the donee the power to appoint any person he pleases, thus having as full dominion over the property as though he owned it. It is special when the donee can appoint only among a restricted or designated class of persons other than himself.
ESTATE TAX
Proceeds of life insurance Taxable:
Beneficiary is the estate of the deceased, his executor or administrator, irrespective of whether or not the insured retained the power of revocation Beneficiary is other than the decedents estate, executor or administrator, when the designation of beneficiary is not expressly made irrevocable. Under the Insurance Code, insurance policies are presumed revocable.
Not Taxable:
Accident insurance proceeds (not life insurance) Proceeds of group insurance policies Beneficiary (NOT decedents estate, executor or administrator) is designated irrevocably GSIS, SSS, and AFP RSBS
ESTATE TAX
REQUISITES OF PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTION)
Death Identity of the property Inclusion of the property (in gross estate or gross gift) Previous taxation of the property (estate tax or gift tax) No previous vanishing deduction on the property (to preclude application of vanishing deduction on same property more than once). Percentage of deduction decreases over a period of 5 years or 20% reduction every year
ESTATE TAX
FORMULA OF VANISHING DEDUCTION Value taken of property previously taxed (as declared in prior decedents gross estate) Less: Mortgage debt paid (1st deduction) Initial basis Divided by the value of gross estate of present decedent = __% Multiplied by expenses, indebtedness, etc and transfers for public purposes Equals 2nd deduction Initial basis less 2nd deduction = Final basis multiplied by applicable rate of vanishing deduction = Amount of vanishing deduction deductible from the estate of second decedent
DONORS TAX
Donors Tax is a tax on the privilege to transfer property from a living person to another living person.
It is an excise tax, and not a property tax. It is imposed on the donor of property. Donees tax was already abolished and incorporated into donors tax.
Donation of property must be accepted by the donee. Sale or exchange of property for less than adequate and full consideration is subject to donors tax, except where the property is capital gains tax, such as real property located in the Phil and shares of stock of a domestic corporation. Donated property must be valued at fair market value at the time of the donation.
DONORS TAX
Transfer of property may be in trust or otherwise, direct or indirect. Transfer becomes complete and taxable only when the donor has divested himself of all beneficial interest in himself or his estate. Donors tax rates
Donee is member of the family
First P100,000 of net gift is exempt 2% on P100,001 to P200,000 15% on amount over P10 M
Stranger is a person who is not a (a) brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal descendant; or (b) relative by consanguinity in the collateral line within the fourth degree of relationship.
DONORS TAX
Donor
Individual
Citizen and resident alien -- Taxable Non-resident alien Taxable on property located in the Phil
Corporation
Domestic corporation and resident foreign corporation -Taxable Non-resident foreign corporation Taxable on property located in the Phil
Donation of conjugal
Made by both spouses TWO donations Made only by one spouse (Tang Ho v. Board of Tax Appeals [now CTA]) ONE donation
DONORS TAX
Cumulative computation of donors tax is required for all donations by the same donor to members of the family during the calendar year, but no cumulative computation is required for donations to strangers. Exempt donations
To Phil govt for scientific, engineering, etc purposes To social welfare, cultural, and charitable organizations, not more than 30% shall be used for administration purposes To IRRI and Ramon Magsaysay Awards Foundation To National Museum and National Library To Intramuros Administration
BUSINESS TAXES
VAT (Title IV, NIRC) Taxable transactions
Sale or lease of goods or properties Sale of services Importation of goods
Formula
Output Tax Less: Input Tax VAT Payable/(Excess Input Tax)
Seller of services
Listed services are performed or to be performed in the Phil In the course of trade or business For a valuable consideration Services are not exempt from VAT
Importer of goods
Whether done in the course of his trade or business or for personal consumption
Goods or properties must be located in the Philippines and consumed or destined for consumption in the Phil.
Special economic zones under RA 7916 (PEZA Law) and freeport zones under RA 7227 (BCDA Law) are treated as foreign territories by fiction of law. Hence, importation of goods by a special economic or freeport zone enterprise shall be exempt from VAT and customs duties and will be subject to VAT and duties only upon their withdrawal from the customs custody. Destination Principle:
Export sales of goods are zero-rated (0% VAT), provided seller is VAT-registered person Import of goods into the Phil is taxable at 12% VAT
Tax rates
12% beginning Feb 1, 2006 (RA 9337) 0% VAT on zero-rated sales (automatic or effectively zero-rated)
For as long as the goods remain within the zone, consumed or destroyed there, they will be duty-free and tax-free (Coconut Oil
Refiners Asso v. Torres (2005)
Effectively zero-rated sales (sales to ADB, embassies, etc) need approval from BIR before sale; otherwise, sale is exempt. Sales of gold to BSP, but sales of silver is subject to 12% VAT. Foreign currency denominated sales Sales of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations
EXEMPT SALE Exemption removes the VAT at the exempt stage Exempt taxpayer cannot reclaim VAT passed on to it by VAT-registered sellers Exempt sales are not taxable sales for VAT purposes
Services performed by subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceeds 70% of total annual production Transport of passengers and cargo by domestic air or sea carriers from the Phil to a foreign country Sale of power or fuel generated thru renewable sources of energy (biomass, solar, wind, hydropower, geothermal and other emerging sources)
H. Educational services rendered by private educ institutions accredited by DepEd, CHED, TESDA, and those rendered by government educational institutions
Review schools and training institutes are not accredited by govt; hence, subject to VAT
I. Services rendered by individuals pursuant to an employer-employee relationship O. Export sales by persons who are not VAT-registered P. Sale of real property not primarily held for sale to customers or for lease in the ordinary course of trade or business, or real property for low-cost and socialized housing, residential lot valued at P1.5 M or below, house and lot and other residential dwellings valued at P2.5 M or below
R. Sale, importation, printing or publication of books and any newspaper or magazine which appear at regular intervals with fixed prices and is not devoted principally to publication of paid advertisements V. Sale or lease of goods or property or the performance of services other than transactions mentioned above, the gross sales or receipts do not exceed P1.5 M
If sale of goods pertains to agricultural or marine food products in their original state or sale of books, or sale of service relates to rental of residential unit not exceeding P10,000, transaction is exempt even if gross sales or receipts exceed P1.5 M.
Transitional input tax credit Presumptive input tax credit Withholding input tax credit Excess input tax credit
Only VAT-registered persons are entitled to credit input taxes against their output tax. Non-registration as a VAT taxpayer does not exempt him from VAT output tax liability on his taxable sales of goods, properties or services.
For non-zero-rated sales, remedy available is only to carry over EIT to the next quarter(s), or to dissolve the corporation or cease operation of business subject to VAT within 2 years from date of dissolution or cessation of business
BIR FORM
NAME, BUS. STYLE, ADDRESS AND TIN OF VAT-REGISTERED BUYER OR CUSTOMER, IF AMOUNT IS P1,000 OR MORE (Sec. 113(B), RA 9337)
If VAT invoice or receipt is issued by a seller for a VAT-exempt transaction, he is liable to VAT output tax as a penalty, but the buyer is entitled to claim VAT input tax.
ISSUE Whether or not pawnshops are liable for 5% lending investors tax.
END OF PRESENTATION Atty. Vic C. Mamalateo Mobile: 0918-9037436 Email: vic.mamalateo@vcmlaw.com.ph; vicmamalateo@yahoo.com