TAX 2

ESTATE TAX excise tax on the right of transmitting property at the

time of death and on the privilege that a person is given in controlling to
a certain extent the disposition of his property to take effect upon death

Gross Estate Rule for Imposition

RESIDENT

To the extent of his interest

The value AT THE TIME OF DEATH

Of all real & personal property, tangible & intangible

o Regardless of any subsequent increase or decrease in
value
NON-RESIDENT ALIEN

Value AT THE TIME OF HIS DEATH

Of all real & tangible personal property

o Situated IN THE PHILIPPINES

And intangible personal property

o With a situs in the Philippines
o Unless exempted based on reciprocity
RECIPROCITY OF EXEMPTION
Collector v. Fisher:

Section 122 of the National Internal Revenue Code exempts

payment of both estate and inheritance taxes on intangible
personal properties
o if the laws of the foreign country of which the
decedent was a resident at the time of his death
o Allow a similar exemption from transfer taxes or
death taxes of every character
o In respect of intangible personal property owned
by citizens of the Philippines not resident of that
foreign country.

On the other hand , Section 13851 of the California Law exempts

the payments of inheritance tax
o If the laws of the country in which the decedent
resided
o Allow
a
similar exemption
from
legacy,
succession, or death taxes of every character

It is clear from these provisions that the reciprocity must be

total, that is, with respect to transfer or death taxes of any and
every character, in the case of the Philippines law, and to legacy,
succession, or death tax of any and every character, in the case
of the California law.

Therefore, if any of the two states collects or imposes and

does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not
work
This is the underlying principle of the reciprocity clauses in both
laws. Since in the Philippines two taxes are collectible from the
decedents estate (inheritance and estate taxes) and in
California, only inheritance tax, reciprocal exemption of the
inheritance tax in both countries, leaving payable the estate tax
in the Philippines, will not work as that would violate the
California law that authorizes exemption only when there is in
the other country an exemption from legacy, succession or
death taxes of every character. Held: There could not be partial
reciprocity. It would have to be total or none at all.

RULE OF RECIPROCITY

With reciprocity
o Shall not be included in the gross estate if

The laws of the foreign country to which the

decedent was a citizen and resident at the time
of his death did not impose a transfer tax of
any character in respect of intangible personal
property of citizens of the PH not residing in that
country

If the foreign country allows a similar exemption

from transfer or death taxes of every character
owned by citizens of the PH not residing in that
foreign country

Without reciprocity
o Shall be included in the gross estate
VALUATION OF GROSS ESTATE

The value of the gross estate of the decedent shall be

determined by
o Including the value at the time of death
o Of all property, real or personal, tangible or intangible
wherever situated

Sec 88. Determination of the Value of Estate

Usufruct To determine the value of the right of usufruct,

use or habitation, as well as that of annuity
o There shall be taken into account the probable life of
the beneficiary in accordance with the latest Basic
Standard Mortality Table
o To be approved by the Sec. of Finance
o Upon
recommendation
of
the
Insurance
Commissioner

Properties The estate shall be appraised at its fair market

value as of the time of death.
o However, the appraised value of real property as of
the time of death shall be, whichever is the higher of

FMV as determined by the Commissioner

FMV as shown in the schedule of values fixed

by the Provincial and City Assessors

DECEDENTS INTEREST includes any interest having value or

capable of being valued, transferred by the decedent at the time of his
death

Transfers in contemplation of death

Revocable transfers

Property passing under general appointment

Proceeds of life insurance

Prior interest

Transfer for insufficient consideration

Transfers in contemplation of death

Transfer shall be considered as transfer in contemplation of

death if, during the lifetime of the decedent, he still retained in
the property the ff:
o Possession or enjoyment, or the right to the income from
the property
o The right, either alone or in conjunction with any person

To designate the person who shall possess or

enjoy the property or the income therefrom

Except in case of a bona fide sale for an

adequate and full consideration in money or
moneys worth

It is contemplation of death not contemplation of imminent

death

Not confined to disposition of property or property rights made

by the last will and testament or to gifts mortis cause, which are
made in anticipation of impending death, are revocable and are
defeated if the donor survives the apprehended peril
Revocable transfers

Transfers (except in case of bona fide sale or an adequate & full

consideration) by trust or otherwise
Where the enjoyment was subject at the date of his death to any
change through the exercise of a power by
o The decedent alone or
o By the decedent in conjunction with any other person to
alter, amend, revoke or terminate or
o Where any such power is relinquished in contemplation
of the decedents death

Property passing under general appointment

Any property passing under a general power of appointment

exercised by the decedent by
o Will
o Deed executed in contemplation of, or intended to take
effect in possession or enjoyment at, or after his death
o Deed under which he has retained for his life or any
period not ascertainable without reference to his death
or for any period which does not in fact end before his
death:

Possession or enjoyment of, or the right to the

income from, the property

Right either alone or in conjunction with any

person, to designate the persons who shall
possess or enjoy the property or the income
therefrom

Except: bona fide sale for an adequate and full consideration

Power of appointment: right to designate the person who shall

enjoy or possess certain property from the estate of a prior
decedent
Proceeds of life insurance

Will depend on the depend on the designated beneficiary,

manner of designation, period and source of the funds used in
paying the premiums on the insurance contract

Proceeds of life insurance taxable in ff cases

o Beneficiary is estate of the deceased, executor or
administrator

Whether or not the insured retained the power of

revocation
o Beneficiary is other than the decedents estate, executor
or administrator
o `When designated as revocable

Not taxable
o Accident insurance proceeds
o Proceeds of a group insurance policy taken out by a
company for its employees
o Amount receivable by a beneficiary irrevocably
designated in the policy of insurance by insured
o Proceeds issued by the GSIS to government officials
o Benefits under SSS
o Proceeds of life insurance payable to heirs of deceased
members of military personnel

To determine the conjugal or separate character of proceeds the

ff factors considered:
o Policy taken before marriage source of funds
determines ownership of the proceeds of life insurance

Policy taken during marriage

Beneficiary is the estate of the insured

Proceeds are presumed conjugal; 1/2 of

share of SS not taxable

Beneficiary is 3P

Payable to beneficiary even if premiums

were paid out of conjugal partnership

Transfer for insufficient consideration

Transfer, trusts, interests, rights or powers made, created,

exercised or relinquished for a consideration in money or
moneys worth but is not a bona fide sale for an adequate and
full consideration

Value to be included: excess of the FMV of the property @ time

of decedents death over the consideration received
EXCLUSION FROM GROSS ESTATE: CAPITAL OF SURVIVING
SPOUSE

Should be taken to mean the property of the spouses brought to

the marriage

CIVIL LAW: capital property brought by the husband to the

marriage while that brought into marriage by wife: paraphernal
prop

Capital of the SS of a decedent shall NOT be deemed a part of

gross estate
DEDUCTION FROM GROSS ESTATE

Funeral expenses

Judicial expenses

Claims v. the estate

Claims v. insolvent persons

Unpaid mortgages & losses

Property previously taxed vanishing deductions

Transfer for public use

Funeral expenses

Actual funeral expenses

o Or amount equal to 5% of gross estate; whichever lower
o No case to exceed 200K

Actual funeral expenses those which are actually incurred in

connection with the interment or burial of deceased
o Must be duly supported by receipts
o Expenses after interment not deductible
Judicial expenses

Allowed only if the settlement of the estate has been the object
of testamentary or intestate proceedings expenses incurred

during the settlement of the estate but not beyond the last day
prescribed by law
Expenses of administration essential to the collection of assets,
payment of debts or distribution of the property to the persons
entitled to it; expenses must be essential to the proper
settlement of the estate
Compensation paid to a trustee of the decedents estate when it
appeared that such trustee was appointed for the purpose of
managing the decedents real estate for the benefit of the
testamentary heir not included
Attorneys fees incident to litigation incurred by heir by asserting
their respective rights not included
Notarial fee paid for EJ settlement which effected distribution of
the decedents estate to his lawful heirs and the attorneys fees
paid to a bank for acting as guardian of the decedents property
during his lifetime deductible
In case estate settled extra judicially, reasonable amount for
legal fees & accounting expenses may be allowed

Claims v. the estate

Debts or demands of a pecuniary nature

o Which could have been enforced against the deceased in
his lifetime
o And could have been reduced to simple money
judgments

Requisites for deductibility

o Must be a personal obligation of the deceased existing @
time of death

Except unpaid obligations incurred incident to

his death
o Must be incurred in good faith & for adequate
consideration
o Must be valid in law & enforceable in court
o Must not have been condoned by the creditor or action
must not have prescribed

Substantiation requirement
o If claim arose out of a debt instrument

Must be notarized

If contracted within 3 years before the death of

the decedent

Administrator or executor shall submit a

statement under oath showing the
disposition of the proceeds of the loan
Claims v. insolvent persons

Requisites for deductibility

Amount has been initially included as part of gross

estate
o Incapacity of debtors to pay obligations is proven
In case the claim is the exclusive property of the deceased
o Same is not considered in determining the share of the
SS
o

Unpaid mortgages & losses

Requisites for deductibility

o FMV of the mortgaged property w/o deducting the
mortgage indebtedness has been initially included as
part of the GE
o Mortgage indebtedness was contracted in GF and for an
adequate and full consideration

In case unpaid mortgage payable claimed by estate

o Verification muse be made as to who was the beneficiary
of loan proceeds

If loan found to be accommodation loan

o Value of unpaid load must be included as a receivable of
the estate
Property previously taxed vanishing deductions

Operates to ease the harshness of successive taxation of the

same property within a relatively short period of time up to 5
years
o Occasioned by untimely death of the transferee
o After receipt of property prior decedent or donor

Requisites
o Prior decedent must have died or the donation must
have been made within 5 years before the decedents
death
o Property subject of vanishing deduction must be same
property inherited or donated from prior decedent
o Vanishing deduction is based on value of property @
time of donation or death of prior decedent or @ time of
death of the present decedent, whichever lower
o Donors or estate tax due of prior decedent must have
been faith
Value of property previously taxed mortgage debt paid = initial basis
Initial basis/value of gross estate of present decedent x Expenses, etc &
transfers for public purposes = 2nd deduction
Initial basis 2nd deduction = final basis
Final basis x rate of deduction = vanishing deduction

Transfer for public use

Tax code allows deduction from the GE, the amount of all
bequests, legacies or transfers, to or for the use of govt or any
political subdivision thereof for exclusively public purposes

Transfer must be testamentary in character or donation mortis

causa
FAMILY HOME

Current FMV of the family home

Limit is 1M any amount in excess is subject to estate tax

Must have been the decedents family home as certified by the

barangay captain of the locality

Requisites for deductibility

o Must be the actual residential home of the decedent &
his family, as certified by the Barangay Captain of the
locality where the family home is situated
o Total value of family home must be included as part of
GE of a person who died on or after 7/28/1992
o 1/2 of share of SS is deducted from the total GE to arrive
at the total net estate of the decedent
o 1/2 share of the family home is allowed as a deduction
from the net estate in an amount equivalent to the
current FMV or zonal value of that 1/2 postion not
exceeding 1M excess subject to estate tax
SHARE IN CONJUGAL PROPERTY

Where the decedent was married

o Conjugal property shall first be determined
o All obligations properly chargeable to it shall be
deducted therefrom
o From the balance, the net share of the SS shall be
deducted from the net estate of the decedent for
purposes of imposing the estate tax

Special deductions are not taken into account in determining the

net conjugal estate

Ordinary deductions properly chargeable to the conjugal estate

are not to be deducted from the separate property of the
deceased spouse
STANDARD DEDUCTION

Deduction in the amount of 1M

Shall be allowed as an additional deduction

Without need of substantiation

Full amount of 1M shall ne allowed as deduction for the benefit

of the decedent

TAX CREDIT FOR ESTATE TAXES

Tax credit against PH estate tax is allowed for the estate tax or
taxes paid to a foreign country or countries

Limitations
o The amount of the credit in respect to the tax paid to
any country shall not exceed the same proportion
of the tax against which such credit is taken which
the decedents net estate situated within such country
taxable under the NIRC bears to his entire net estate
o The total amount of the credit shall not exceed the
same proportion of the tax against which such credit
is taken, which the decedents net estate situated
outside the PH taxable under the NIRX bears to his entire
net estate

If decedent is a non-resident alien, the value @ time of death of

that part of his gross estate situated outside the PH must be
included in the estate tax return to be entitled to deductions

Paid to one foreign country

2 or more foreign countries

EXEMPTION OF CERTAIN ACQUISITIONS

FF shall not be taxed

o Merger of usufruct in the owner of the naked title
o Transmission/delivery of the inheritance or legacy by
fiduciary heir or legatee to fideicommissary
o Transmission from first heir, legatee or done in favor of
another beneficiary, in accordance with the desire of the
predecessor
o All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of
the net income of which inures to the benefit of any
individual

Provided, that not more than 30% of said bequests, devices,

legacies or transfers shall be used by such institutions for
administration purposes

In addition to 200K exemption

TAX RETURNS
Filing of notice of death

When filed
o Transfer is subject to tax
o Although exempt from tax, the gross value of the estate
exceeds 200K

Period of filing
o Must be filed with the Commissioner within 2 months
after the decedents death or within a like period after
qualifying as executor or administrator
Filing of tax return

When filed
o When GE exceeds 200K
o Regardless of value of GE, where the estate consists of
registered or registerable properties for which a
clearance from BIR is required as condition precedent for
the transfer of ownership
Period of filing

GR: within 2 months from the decedents death

XPN: In meritorious cases, Commissioner may grant extension

not exceeding 30 days
PAYMENT OF TAX

pay-as-you-file system
o Time for paying is @ the time the return is filed by
executor, administrator or heirs

Installment
o In case insufficient cash, estate may be allowed to pay
tax by installment
o Clearance shall be released only with respect to the
property which has been paid

Persons liable to pay

o Executor or administrator before delivery to any
beneficiary of his distributive share of the estate
o 2 or more executors or admin severally liable for
payment
o Beneficiary subsidiarily liable

shall in no case exceed the value of his share

OBLIGATIONS
o Executor or administrator ensure that payment shall be made
of the amount of which he is notified before he shall be
discharged from personal liability

o
o
o

o
o
o

Judge will not issue authorization to deliver distributive share

until certification of payment is shown
ROD shall not register in Registry of Prop any document
without certification from the Commissioner that the tax had
been paid
Lawyer, notary public, or any govt officer intervening in the
preparation or acknowledgment of documents, regarding
partition or disposal of donation, legacy or inheritance shall the
duty of furnishing the Commissioner, Regional Director, Revenue
District Officer or Revenue Collection officer
Debtor not pay his debts to the heirs, legatee, executor or
administrator unless certification of the Commissioner that tax
has been paid is shown
Corporation will not transfer to new owners of shares, bond,
obligation or rights without certification from Commissioner
Bank when bank has knowledge of a death of a person who
maintained a joint account, it shall not allow any withdrawal by
the surviving depositor without certification

DONORS TAX An excise tax imposed on the privilege to transfer

property by way of gift inter vivos based on a pure act of liberality
without any or less than adequate consideration and without any legal
compulsion to give
IMPOSITION OF TAX
o There shall be levied, assessed, collected & paid upon the
transfer by any person, resident or nonresident
o Of the property by gift, a tax, computed as provided in
Sec. 99
o The tax shall apply whether the transfer is in trust or otherwise
o Whether the property is real or personal, tangible or
intangible

Donors tax imposed on donations inter vivos or those made

between living persons to take effect during lifetime of donor

Purposes

Supplements the estate tax by preventing the avoidance of the

latter through the device of donating the property during the
lifetime of deceased

Prevents avoidance of income taxes

Requisites

Capacity of donor

Donative intent, or intent on part of donor to make a gift

Delivery, whether actual or constructive, of the subject matter of

the gift

Acceptance by done

Completed gift Donors tax shall not apply unless there is a

completed gift

Transfer by gift perfected from the moment the donor knows of

donees acceptance

Completed by delivery

Gift incomplete because of reserved powers becomes complete

when
o Donor renounces the power; or
o His right to exercise the reserved power ceases because
of the happening of some event or contingency or
fulfillment of some condition, other than because of
donors death
TRANSFER FOR LESS THAN ADEQUATE & FULL CONSIDERATION

Where property, other than real property referred to in Section

24 (D),

Is transferred for less than adequate & full consideration in

money or moneys worth

Then the amount by which the FMV of the property exceeded the
value of the consideration shall, for the purpose of the tax
imposed by this Chapter

Be deemed a gift &

Shall be included in computing the amount of gifts made during

the calendar year
Transfer constitutes a gift & is subject to donors tax although
there is no donative intent
EXEMPTION OF CERTAIN GIFTS
In case of gifts made by a resident

Dowries/gifts made on account of marriage & before its celebration

or within 1 year thereafter by parents to the extent of first 10K
o Gift was made on acct of marriage
o Made before or w/in 1 year after celebration of marriage
o Donor is a parent
o Donee is a legitimate, recognized natural or adopted child
o Amt exempted only to the extent of first 10K

Gifts made to or for the use of the Natl Govt or any entity created
by any of its agencies not conducted for profit or to any political
subdivision of said govt

Gifts in favor of an educational/charitable, religious, cultural or social

welfare , corp, institution, accredited non-govt org, trust or
philanthropic org or research institution or org Provided that not
more than 30% of gifts shall be used for administration purposes

Not more than 30% used for admin purposes

Donee must b non-stock, non-profit organization
Donee should be governed by trustees who do not receive
compensation
o Donee not authorized to receive dividends
o Donee devotes all of its income to the accomplishment and
promotions of its purposes enumerated in its Articles of
Incorp
o NGO must be accredited by PH Council for NGO certification
o Donor engaged in business shall give notice of fonation on
every donation at least 50K to the RDO of place of business
within 30 days after receipt

Athletes prizes & awards

Encumbrances on the property donated if assumed by the done

Donations made to the ff entites exempted under special laws

Gifts made by Nonresident not a citizen of PH

Gifts made to or for the use of the Natl Govt or any entity created
by any of its agencies not conducted for profit or to any political
subdivision of said govt

Gifts in favor of an educational/charitable, religious, cultural or social

welfare , corp, institution, accredited non-govt org, trust or
philanthropic org or research institution or org
o Provided that not more than 30% of gifts shall be used for
administration purposes
o
o
o

TAX CREDIT FOR DONORS TAX PAID TO FOREIGN COUNTRY

Donors tax imposed upon a citizen or resident

@ the time of the donation

Shall be credited with the amount of any donors tax,

Of any character and description

Imposed by the authority of a foreign country

Limitations

Amount of credit shall not exceed the same proportion of the tax
against such credit is taken
o Which the net gifts situated within such country taxable
under donors tax bears to entire net gifts

Amount of tax credit shall not exceed the same proportion of the
tax against such credit is taken
o Which the donors net gifts situated outside the PH
taxable under donors tax bears to his entire net gifts
TAX RETURN

Filing of return under oath in duplicate

o Each gift made during the calendar year which is
included in computing net gifts

Deductions claimed & allowable

Any previous net gifts made during the same calendar
year
o Name of done
o Relationship of or to ee
o Further info as commissioner may require
Time of filing
o Within 30 days after date gift is made or completed
o Tax due shall be paid @ same time return is filed
Place of filing
o Authorized Agent Bank
o Revenue District Officer
o Revenue Collection Officer
o Duly authorized treasurer of the city or municipality
where donor was domiciled @ time of transfer
o If no legal resident office of Commissioner
o In case non resident may be filed with PH embassy or
consulate in country where he is domiciled or directly
with Office of Commissioner
o
o

POLITICAL CONTRIBUTIONS

Any contribution to any candidate, political party or coalition of

parties for campaign purposes shall be governed by the Election
Code

RA 7166: any provision of law to the contrary notwithstanding,

any contribution in cash or kind to any candidate, or political
party or coalition of parties for campaign purposes, duly
reported to the Commission, shall NOT be subject to the
payment of any gift tax

Contributions made prior to passage of RA 7166 were subject to

donors tax