TRANSFER AND BUSINESS

TAXATION
UNIVERSITY OF SAN JOSE-RECOLETOS
Second Semester 2014
ATTY. GERALD R. YU, CPA, CRB

FUNDAMENTALS
Estate Taxation

TRANSFER TAXATION
A. TRANSFER TAXES
Taxes imposed upon the gratuitous disposition of property, whether real or personal,
tangible or intangible.
Also called excise or privilege taxes. They are not property taxes because their
imposition does not rest upon general ownership but rather considered as privilege
taxes imposed on the act of pasing ownership of property. dada

B. Types of Transfers:
Onerous refers to the exchange of property for a monetary consideration or a
transfer of goods or services in return for something of equal value like in sales or
barter.
Gratuitous a conveyance of property without any consideration involved in
exchange for the property given away. It is a transfer of property for FREE because
there is no financial consideration or no performance of service as payment for the
transfer of property.

KINDS OF TRANSFER TAXES

A. DEATH TAXE OR DUTIES levied on the gratuitous transfers of property upon
ones death, formerly comprised of the estate and inheritance taxes. The
two were correlative taxes, they have been imposed on the right to
transmit and to receive property by succession, respectively, i.e., the
existence of one in any particular case necessarily presupposes the
corollary existence of the other. (BIR Ruling No. 173-84, 06 November 1984).
Both taxes are now integrated into an ESTATE TAX. Fundamentally considered, the
subject levied upon by all death taxes is the power to transmit or the right or
privilege to inherit, or the transmission or receipt of property at death.

B. GIFT TAXES imposed on the gratuitous transfers of property during ones

lifetime, formerly comprised of the donors and donees gift taxes.
Both taxes are now integrated into a donors tax.

MODES OF PROPERTY TRANSFER

Properties: (1) Real (2) Personal (Tangible and
Intangible)
TRANSFER OF PROPERTY THROUGH:

ONEROUS

GRATUITOUS

Normal Course of
Business (Sale or
Exchange)

VAT, OPT, Excise

Taxes

Casual Transfer

CGT

TRANSFER TAXES

FACT OF DEATH

ESTATE TAX

DONATION

DONORS TAX

GRATUITOUS TRANSFERS IN
GENERAL
SUBJECT TO
DONORS TAX
DONATION INTER
VIVOS
EFFECTIVITYDURING LIFETIME OF
DONOR
GRATUITOUS
TRANSFERS
TESTAMENTARY
DONATION MORTIS
CAUSA

SUBJECT TO ESTATE
TAX & EFFECTIVITY
UPON DEATH OF
PROPERTY OWNER
INTESTATE

ESTATE TAX
A. ESTATE TAX tax on the right to transmit property at death and on certain
transfers by the decedent during his lifetime which are made by the law
the equivalent of testamentary dispositions. The tax is measured by the
value of the property at the time of death.
B. INHERITANCE TAX tax on the privilege of inheriting the property of a
person upon his death. A tax imposed on the legal right or privilege to
succeed to, receive or take property by or under a will, intestacy law, or
deed, grant or gift becoming operative at or after death. (Lorenzo v.
Posadas, 64 Phil. 353; 85 C.J.S. 844-845.)
It is also referred to as Succession Tax of Duty or Legacy Tax.
Sometimes used in a general sense as including estate tax.

NATURE OF ESTATE TAX

A. ESTATE TAX is not a direct tax on property. Neither is it a capitation tax; that
is the tax is laid neither on the property nor on the transferor or the
transferee. It is in other words, an excise or privilege tax.
The object of estate tax is to tax the shifting of economic benefits and enjoyment
of property from the dead to the living. (Gregg v. Comm., 315 Mass. 704)

B. See Section 84, National Internal Revenue Code.

PURPOSE AND JUSTIFICATION OF

ESTATE TAX (FUNDAMENTAL
PRINCIPLES OR THEORIES)
1.
2.

3.

4.

5.

PRIMARILY, to augment the revenue of the government.

BENEFIT-RECEIVED THEORY Considers the services the government renders in the distribution of
the estate of the decedent, either by law or in accordance with his wishes. Because of these
services that result to benefits received by the estate and the heir, it is therefore fair that the
government collects its equivalent compensation in protecting individual persons and properties
or rights.
PRIVILEGE OR STATE PARTNERSHIP THEORY Asserts that inheritance is not a right but a privilege
granted by the State and large estates have been acquired only with the protection of the
State. Consequently, the State, as a PASSIVE AND SILENT PARTNER in the accumulation of
property, has the right to collect the share which is properly due to it.
ABILITY TO PAY THEORY Asserts that the receipt of inheritance, which is in the nature of
unearned wealth or a windfall, places assets in the hands of the heirs and beneficiaries, in effect
increasing the wealth of the heir thereby creating an ability to pay the tax and thus to contribute
to governmental income. The exemption of a minimum amount of inheritance from the tax can
provide for cases of need.
REDISTRIBUTION OF WEALTH THEORY The receipt of inheritance is a contributing factor to the
inequalities in wealth and incomes. The imposition of death tax reduces the property received by
the successor, thus helping bring about a more equitable distribution of wealth in society. The tax
base is the value of the property and the progressive scheme of taxation is precisely motivated
by the desire to mitigate the evils of inheritance in its original form.

DEATH, THE GENERATING SOURCE

OF POWER
Art. 777. The rights to the succession are transmitted from the moment of the death
of the decedent. (657a)
Thus, the properties and rights of the decedent are transferred to his successor at the
time of his death without any interruption. In other words, the generating source of
power to transfer the properties and rights is death. The transfer accrues at the time
of death of the decedent. (Lorenzo v. Posadas, 65 Phil 353)
Ordinarily, an estate or inheritance tax accrues as of the date of the decedents
death, although the amount of the tax may then be unknown, but on determination
thereof, it relates back to the time of death.
Upon the death of the decedent, succession takes place and the right of the State
to tax the transmission of the estate vests instantly upon death.
The obligation to pay the estate tax accrues at the moment of death. (Lorenzo v.
Posadas, 64 Phil. 353)
TAKE NOTE: ACCRUAL OF v. OBLIGATION TO PAY

APPLICABLE LAW
It is well-settled that estate (or inheritance) taxation is governed by the
statute in force at the time of the death of the decedent.
The taxpayer cannot foresee and ought not to be required to guess the
outcome of pending legislative bills or measures.
Tax may be retroactive in its operation. But legislative intent that a tax
statute should operate retroactively should be perfectly clear.

DONORS TAX V. ESTATE TAX

Points of Distinction

Donors Tax

Estate Tax

1. Effectivity of transfer of
property

During the lifetime of donor

and donee

Upon the death of the

decedent

2. Taxpayer

The Donor

Estate of the deceased person

3. Tax Base

Net Gift

Net Estate

4. Exempt Amount

Net gift of P100,000 and below Net estate of P200,000 and

below

5.Filing and Payment

Within thirty (30) days after the

date gift is made.

Within six (6) months from the

decedents death.

DONATION MORTIS CAUSA V. DONATION INTER VIVOS

DONATION MORTIS CAUSA

DONATION INTER VIVOS

1. Made, as its name implies, in consideration of

death or mortal peril, without the donors
intention to lose the thing or its free disposal in
case of survival, as in testamentary dispositions.

1. Made without such consideration but out of

the donors generosity. (Balaqui v. Dongso, 53
Phil. 673).

2. Being testamentary in nature, should be embodied in a last will and testament. It is not a
contract unlike a donation inter vivos. It is in reality a legacy. If not embodied in a valid will, the
donation is void. (Puig v. Peaflorida, 15 SCRA 216 [1965]).

3. Transfer conveys no title or ownership to the

Effect is produced while the donor is still alive.
transferee before the death of the transferror, or
the transferror retains the ownership, full or
naked, of the property conveyed; it is the
donors death that determines the acquisition
of, or the right to the property.
4. The 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.

The transfer would be void if the transferor arried the transferee

6. Acceptance by the donee not necessary.

6. Acceptance is a requirement.

GROSS ESTATE

COMPOSITION
A. Consists of the totality of the value of all property of the decedent at the time of
his death, whether real or personal, tangible or intangible. (Blas v. Santos, 29
March 1961, 1 SCRA 914)
B. It shall not include the separate (exclusive) properties of the surviving spouse.
C. The gross estate of a decedent shall be comprised of the following properties and
interest therein AT THE TIME OF HIS DEATH, including:
1)
2)
3)
4)
5)
6)
7)

Decedents interest
Transfers in contemplation of death
Revocable transfers
Property passing under general power of appointment
Proceeds of life insurance
Prior Interests
Transfers for insufficient consideration.

CLASSIFICATION OF DECEDENTS
RESIDENT

ALL PROPERTY, WHEREVER

SITUATED AT TIME OF DEATH

NONRESIDENT

ALL PROPERTY, WHEREVER

SITUATED AT TIME OF DEATH

RESIDENT

ALL PROPERTY, WHEREVER

SITUATED AT TIME OF DEATH

NON-RESIDENT

ONLY THAT PART OF THE ENTIRE

G.E. WHICH IS SITUATED IN THE
PHILS. (Intangible Personal
Property subject to Rule on
Reciprocity under Section 104.

CITIZEN

DECEDENT

ALIEN

RESIDENCE, SITUS AND THE DATEOF-DEATH VALUATION RULE

Residence synonymous with domicile and used interchangeably without
distinction. It 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, 100
Phil. 321). It is not necessarily the actual place of residence.
DATE-OF-VALUATION RULE Properties comprising the gross estate shall be
valued based on their fair market value as of the time of death. It bears
emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government. Any doube on
whether a person, article or activity is taxable is generally resolved against
taxation. (Dizon v. CTA, G. R. No. 140944, 30 April 2008, 553 SCRA 111)

 GENERALLY, the situs of a property is the domicile or residence of the owner.

(51 Am Jur. 494-495)
The principle however is not controlling:
1. When it is inconsistent with express provisions of statute;
2. When justice does not demand that it should be, as where the property has in
fact a situs elsewhere. Thus, shares acquired by a nonresident alien from a
domestic corporation are taxable in the Philippines. (Coll v. Fisher, L-11621, 28
January 1961; Wells Fargo Bank v. Coll. 70 Phil. 505)

SUMMARY OF PROPERTIES
INCLUDED IN THE GROSS ESTATE
PARTICULARS

CITIZEN/RESIDENT ALIEN

NONRESIDENT ALIEN

(a) In the Phils.

(b) Outside the Phils.

1. Real of Immovable Property

situated

2. Tangible personal property

situated
(a) In the Phils.

(b) Outside the Phils.

3. Intangible personal property

with situs
(a) In the Phils.

(b) Outside the Phils.

Particulars

Citizen/Resident Alien

Nonresident Alien

(a) In the Phils.

(b) Outside the Phils.

5. Shares, obligations or bonds

issued by corporations
organized or constituted
under Phils. Laws

6. Shares, obligations or bonds

issued by Foreign corporations
(85% of business located in the
Phils.)

7. Shares, obligations or bonds

issued by any Foreign
corporation that acquired
business situs in the Phils.

8. Shares or rights in
partnership business or industry
established in the Phils.

4. Franchise exercised

VALUATION OF THE GROSS ESTATE

1. GENERAL valued at its fair market value at the time of the decedents death.
(Sec. 88, NIRC).
2. Real properties valued at the current FMV as shown in the schedule of values
fixed by the Provincial/City Assessors, or the FMV as determined by the BIR
Commissioner, whichever is higher (ibid).
3. Personal Properties reported at the acquisition cost for the recently acquired
properties or the current market price for the previously acquired properties.
4. Stocks, bonds, and other securities:
A. If listed in the LSE value is the mean between the highest and lowest quoted
selling prices at the date nearest the date of death, if none is available on the
date of death;
B. If not listed:
a)
b)

Unlisted common shares should be valued at book value at the date of death;
Unlisted preferred shares are valued at par value.

ADDITIONS TO THE GROSS ESTATE

Some of the unidentifiable rights or properties to be added in the gross
estate are:
1. Taxable transfers: (transfers during the lifetime of the decedent)
a.
b.
c.
d.

Revocable transfers;
Transfers in contemplation of death
Property passing under general power of appointment
Transfers for insufficient consideration.

2. Others:
a.
b.
c.
d.

Decedents interest accrued at the date of death;

Proceeds of life insurance with revocable beneficiary;
Claims against an insolvent person; and
Amount received by heirs under RA No. 4917.

1.
2.

EXCLUSIONS AND EXEMPTIONS

EXCLUSION The separate or exclusive property of the surviving spouse (husbands

capital or wifes paraphernal or separate property) is not deemed part of the gross
estate of the decedent spouse.
EXEMPTIONS
A.
B.

C.

Section 87 of the NIRC

Bequests to be used actually, directly, and exclusively for educational purposes (Article XIV,
Sec. 4[4], 1987 Constitution)
Proceeds of life insurance

D.
E.
F.
G.

Transfer by way of bona fide sales;

Properties held in trust by the decedent;
Exemptions under reciprocity clause of estate tax law;
Exemptions under Special Laws, such as:

A.
B.

Where the beneficiary is irrevocably appointed

Under a group insurance taken by the employer in favor of the employee

A.
B.
C.

Benefits received from SSS (PD 1161, as amended) or GSIS (PD 1146, as amended)
Benefits received from US Veterans Administration (RA 360)
War benefits given by the Philippine government and US government due to damages suffered
during the war (RA 227)
Grants and donations to the Intramuros Administration. (PD 1616)

D.

SIMILARITIES BETWEEN CPG AND ACP

PROPERTY

CONJUGAL PARTNERSHIP

ABSOLUTE COMMUNITY

1. Property inherited or
received as donation during
marriage

Exclusive

Exclusive

2. Property acquired during

marriage other thatn
inheritance or donation

Conjugal

Community

3. Property acquired from

labor, industry work or
profession of the spouses

Conjugal

Community

4. Fruits or income due or

derived during the marriage
coming from common
property

Conjugal

Community

DIFFERENCES BETWEEN CPG AND ACP

Property

Conjugal Partnership

Absolute Community

1. Property before the

marriage or brought to the
marriage

Exclusive

Community

2. Fruits or income due or

received during the marriage
coming from exclusive
property

Conjugal

Exclusive