Professional Documents
Culture Documents
Transfer taxes
(a) the right to transmit 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 become operative at or after death, in the
case of estate taxes; and
(1) Personal tax (tax of fixed amount imposed upon all persons of a
certain class, e.g., community tax);
(2) Property tax (tax imposed on all property of a certain class, e.g.,
real property tax); and
(3) Excise tax (tax imposed on the performance of an act, the
enjoyment of a right or privilege, or the engagement in an occupation.
Note: Transfer Tax under the National Internal Revenue Code (NIRC)
Different from the Transfer Tax under the Local Government Code (LGC)
The transfer tax referred to in the NIRC, which is a national tax, should
not be confused with the transfer tax referred to in Sec. 135 (for
provinces) and 151 (for cities) of the LGC, which is a local tax.
The transfer tax under the LGC is a tax on the sale, donation, barter,
or any other mode of transferring ownership or title of real property at
the maximum rate of 50% of 1% (in case of provinces) or 75% of 1% (in
the case of cities) of the total consideration or of the fair market value
whichever is higher.
A. ESTATE TAX
Estate tax is a tax that is levied, assessed, collected, and paid upon the
privilege of gratuitously transferring the net estate of a decedent which
are transmitted to his heirs or beneficiaries at the time of his death and
on certain transfers made by the decedent during his lifetime which
are considered by law as equivalent to testamentary dispositions.
Estate tax has the nature of excise or privilege tax imposed on the right
to transmit 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 become operative at or after death.
Note: Aside from it being an excise tax, an estate tax is, likewise
Benefit-Received Theory
The theory asserts that the receipt of inheritance, which is in the nature
of unearned wealth or windfall, place assets into the hands of the heirs
and beneficiaries thereby creating an ability to pay the tax and, thus,
to contribute to government income.
Redistribution of Wealth Theory
Extent of Estate
Estate tax is based on the fair market value of the estate as of the time
of decedents death.
The estate tax accrues as of the time of death of the decedent. The
properties and rights are transferred to the successors at the time of
death. Upon the death of the decedent, succession takes place and
the right of the State to tax the privilege to transmit the estate vests
instantly upon death.
Note: The accrual of the estate tax is distinct from the obligation to pay
said tax. It does not follow that the obligation to pay the estate tax
arises as of the time of death of the decedent. The time of payment is
clearly fixed by law, that is, 6 months from the date of decedents
death.
Governing Law
Note: There are, however, transfers inter vivos which are treated by law
as transfers mortis causa since they are considered as substitutes for
testamentary dispositions (i.e., transfers which are inter vivos in FORM
but mortis causa in SUBSTANCE).
Note: When the donee in the foregoing gratuitous transfers, after the
death of the donor, proves to be his heir, devisee or donee mortis
causa, for the purpose of evading the estate tax, the law presumes that
the gratuitous transfers have been made in anticipation of inheritance,
devise, bequest or gift mortis causa.
Case: Tito donated his piece of land to Vic subject to the condition
that Vic shall give to Tito P50,000 every year for the rest of Titos life. In
case Vic fails to pay the said amount to Tito, the donation shall be
cancelled and the property shall revert back to Tito. Vic accepted the
donation and the property was transferred to Vics name.
Answer: The gratuitous transfer from Tito to Vic is a donation inter vivos.
In a donation mortis causa it is the donor's death that determines that
acquisition of, or the right to, the property donated, and the donation
is revocable at the donor's will. However, where the donation took
effect immediately upon the donees acceptance thereof but it was
just subject to a resolutory condition that the donation would be
revoked if the donee did not fulfill certain conditions, the donation is
considered inter vivos that is subject to donors tax.
Note: The control of whether or not the effect of the transfer continues
or not is on the donee and not on the donor.
CLASSIFICATION OF DECEDENTS
Filipino Citizens
(1) Those who are citizens of the Philippines at the time of the adoption
of the 1987 Constitution;
(2) Those whose fathers or mothers are citizens of the Philippines;
(3) Those born before January 17, 1973, of Filipino mothers, who elect
Philippine Citizenship upon reaching the age of majority; and
(4) Those who are naturalized in the accordance with law.
Answer: The same rule applies to those with dual citizenships since they
are Filipino citizens.
They are, however, entitled to the benefits of availing tax credits for
estate taxes paid to a foreign country under Sec. 86 (E), NIRC.
General Rule: The estate tax imposed will be credited with the
amounts of any estate tax imposed by the authority of a foreign
country.
Limitations on Credit:
(a) Per Country Basis - 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 decedent's taxable net
estate situated within such country bears to his entire net estate; and
(b) Overall Basis - the total amount of the credit shall not exceed the
same proportion of the tax against which such credit is taken, which
the decedent's taxable net estate situated outside the Philippines
bears to his entire net estate.
Resident Alien
Non-Resident Alien
Answer: No. Chris Browns coming to the Philippines was for a definite
purpose, which by its very nature may be promptly accomplished. He
considered a transient or a non-resident alien.
The gross estate is the starting point in determining the estate liability of
a decedent. In general, gross estate includes the total value of the all
the properties, rights and interests of the decedent at the time of his
death.
The Net Estate is the determined value of the decedents estate after all
the allowable deductions have been deducted from the value the
gross estate and which value is subject to the graduated tax rates.
Case: Canada adopts both estate tax and inheritance tax where both
the giver and receiver of the gratuitous transfer are subject to death
taxes. The Philippines adopts estate taxation where only the estate of
the decedent is subject to estate tax.
They may refer to land, buildings, shares of stock, vehicles, cash, bank
deposits, and others.
Decedents Interest
Answer: No. The dividend shares declared and received after Mr.
Angs death are not to be included as part of the his gross estate since
said dividend shares did not yet accrue as the time of Mr. Angs death.
Note: Had the dividends been declared or accrued before the death
of Mr. Ang, the dividend shares received by the estate after his death
would have formed part of the gross estate of the decedent.
Question: If the dividends received do not form part of the estate of Mr.
Ang, how will they be treated?
These include properties that have already been transferred during the
lifetime of the decedent but are nevertheless still subject to payment of
estate tax.
Note: In relation to items (a), (b), (c), and (d) while the law identifies
them as gratuitous transfers mortis causa, if the transfer is bona fide,
meaning the sale, barter or any kind of onerous transfer was for an
adequate and full consideration, then such transfer is to be excluded
from the gross estate of the decedent since it does not partake the
nature of a gratuitous transfer mortis causa.
Transfers in Contemplation of Death
1. The age of the decedent at the time the transfer was made. It must
be noted, however, that age will always be an extremely vital factor,
however, advanced age is never conclusive;
3. The time interval between the transfer and the decedents death;
(5) to see the children enjoy the property while the donor is alive;
Note: The law does not specify the number of years prior to a
decedents death within which a transfer can be considered in
contemplation of death.
PD 1705 (August, 01, 1980) deleted the provision in Sec. 100 (b) NIRC of
1977 (now Sec. 85 (B), NIRC) where transfers made by the decedent
within 3 years prior to his death without such adequate and full
consideration, be deemed to have been made in contemplation of
death.
This contemplates those cases where the owner transfers his property
during his lifetime but still retains economic benefits, such as:
(a) the possession or enjoyment of the property, or
(b) the power to designate the persons who may exercise such rights.
The gross estate shall include any interest in property of which the
decedent has at any time made a transfer by trust or otherwise
Answer: Yes. Jaworskis enjoyment of the income from the property did
not in fact end before his death. It only ended at or after his death.
Hence, the property is likewise to be included as part of Jaworskis
gross estate.
Case 3: Sharon created a trust to pay the income to Kiko for life, with
the remainder to Kikos estate. However, Sharon retained the power to
revoke the trust for the benefit of Kaycee. Sharon suddenly passed
away after the trust was created.
Answer: Yes. Note that Sharon retained the power to revoke the trust
and to designate the person or persons who shall possess or enjoy the
property or any income therefrom. Such revocability of the trust did not
vest upon Kiko the freedom to enjoy and dispose the same as it can be
taken away from here anytime by Sharon.
Question: Will the trust created still be included in the gross estate of
Sharon?
Answer: If Erap dies ahead of Loi, the value of the reversionary interest
of Erap at death is to be included as part of Eraps gross estate. The
transfer is subject to estate tax as it is intended to take effect at or after
Eraps death because the possibility of reversion to Erap makes Lois
usufruct interest conditional as long as Erap lives. Insofar as Jinggoy is
concerned, he is incapable of freely enjoying and disposing of the
property until the death of Erap.
Case: Henry Sy, Sr. gratuitously transferred corporate stock in trust for
the economic benefit of his children Teresita Sy, Henry Sy, Jr., and Hans
Sy with the reservation of the right to vote the shares during his lifetime.
The reservation of the right to vote was purposely to aid his children by
permitting them to assume financial responsibilities gradually.
Answer: No. The reservation did not render the trust corpus subject to
inheritance tax, since Mr. Henry Sy. Sr.s purpose was not to control or to
retain control over the economic benefit of the stocks as this was
already being enjoyed by his children. Instead, the retention of the
right to vote was to aid his children by permitting them to assume
financial responsibilities gradually.
Revocable Transfers
Included in the gross estate is the interest in the property of which the
decedent has at any time made a transfer by trust or otherwise:
Case 2: With the same set of facts, before Andrew died, Andrew
relinquished his power to revoke the transfer as he was already
bedridden.
Answer: The value of the transferred property will still be included in the
gross estate of Andrew. The relinquishment made by Andrew has no
effect on the inclusion of the property in the gross estate considering
that the relinquishment was made in contemplation of death.
Power of Appointment
General Special
(1) When a sale or transfer was made for a price less than its fair
market value (FMV) at the time of sale or transfer, the excess of the
FMV of the transferred property at the time of death over the value of
the consideration received is included in the gross estate.
(2) If the purported absolute sale inter vivos (but mortis causa in
substance) by the decedent is shown to be fictitious, then the total
FMV of the property transferred (at the time of death) is included in the
gross estate.
Case 2: If not a bona fide sale - the excess of the FMV at the time of
death over the value of the consideration received by the decedent
shall form part of his gross estate.
If the transfer for insufficient consideration does not fall under any of
the foregoing instances, the tax imposed is donors tax.
Proceeds of life insurance taken out by the decedent on his own life
shall be included in the decedents gross estate in the following cases:
(1) When the beneficiary is the estate of the deceased, his executor or
administrator, irrespective of whether or not the insured retained the
power of revocation; or
(2) When the beneficiary is other than the decedents estate, executor
or administrator, and the designation of beneficiary is not expressly
made irrevocable (designation of the beneficiary is revocable).
In the first case, it does not matter whether the designation is revocable
or irrevocable; in the second case, the designation is revocable. Thus,
failure to indicate in any insurance policy that the beneficiary is
irrevocably designated will result in the inclusion of the insurance
proceeds as part of the decedents gross estate.
Insolvent Person
For estate tax purposes, as a rule, regardless of the amount the debtor
is unable to pay, the full amount of the claim against the insolvent
person should be included in the gross estate of the decedent. The
portion of the claim which is not collectible should be allowed as a
deduction from the gross estate.
Basic Exemption
Estates which are not in excess of P200,000 are exempted from estate
taxes. This exemption is implied considering that the Tax Code imposes
an estate tax on net estates with value exceeding P200,000.
(1) The merger of the usufruct in the owner of the naked title;
(3) The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the predecessor;
and
(1) For listed shares the FMV is the arithmetic mean between the
highest and lowest quotation at a date nearest the date of death, if
none is available on the date of death itself.
(2) For unlisted shares - common shares are valuated based on book
value; while preferred shares are valuated at par value.
Types of Deductions
Ordinary Deductions
ORDINARY DEDUCTIONS
(1) Expenses
(a) The actual funeral expenses (whether paid or not) up to the time
of interment; or
(1) The mourning apparel of the surviving spouse and unmarried minor
children of the deceased, bought and used on the occasion of the
burial;
(2) Expenses of the wake preceding the burial, including food and
drinks;
(3) Publication charges for death notices;
(4) Telecommunications expenses incurred in informing relatives of
the deceased;
(5) Cost of burial plot, tombstones, monument or mausoleum but not
their upkeep;
(6) Interment and/or cremation fees and charges; and
(7) All other expenses incurred for the performance of the rites and
ceremonies incident to interment.
Question: Are the expenses for the activities after the interment
deductible?
Answer: No. Funeral expenses borne and defrayed by the relatives and
friends of the deceased are not deductible as such since they are not
charged against the estate.
Question: How much may be deducted from the gross estate by way
of funeral expenses?
Answer: Only P150,000 may be deducted from the gross estate by way
of funeral expenses considering that that is the only actual expense
incurred.
Case 4: The gross estate of Max Alvarado is P2,000,000 and the amount
actually paid for funeral expenses is P150,000 plus unpaid funeral
expenses of P25,000.
Question: How much may be deducted from the gross estate by way
of funeral expenses?
Answer: Only the amount of P100,000 (5% of P2M) may be deducted
from the gross estate considering that said amount is lower than total
amount of funeral expenses incurred, which is P175,000 (P150,000
actually paid and P25,000 unpaid).
Answer: Yes. Although the Tax Code specifies judicial expenses of the
testamentary and intestate proceedings, there is no reason why
expenses incurred in the administration and settlement of an estate in
extrajudicial proceedings should not be allowed since that said
expenses may be considered as an essential means in the settlement
of the estate of the decedent.
Case 2: In settling the estate of Rudy Fernandez, the heirs retained the
services of Atty. Edward Serapio for which they incurred expenses by
way of attorneys fees.
Question: Are the attorneys fees paid to Atty. Serapio deductible from
the gross estate?
Answer: Yes, the attorneys fees paid to Atty. Serapio are deductible
from the gross estate, provided, it can be shown that the retention of
Atty. Serapio as counsel is essential to the collection of assets, payment
of debts or the distribution of the property to the persons entitled
thereto. The services for which the fees are charged must relate to the
proper settlement of the estate.
Case 3: The 4 heirs of Rudy Fernandez could not agree on how to settle
the estate of decedent. The heirs retained the services of their own
lawyers who negotiated for settlement of their conflicting claims on the
estate.
Question: Are the attorneys fees paid by the heirs to their respective
lawyers arising from conflicting claims deductible as judicial expenses?
Question: How about notarial fees paid for the extrajudicial settlement
of estate, are they deductible from the gross estate?
Answer: Yes. The notarial fee paid for the extrajudicial settlement is
deductible since such settlement effected a distribution of the estate to
the lawful heirs.
They include all losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other casualties (acts of God), of
from robbery, theft, or embezzlement (acts of man)
(1) The losses were incurred during the settlement of the estate;
(2) The losses arose from acts of God, such as fires, storms, shipwreck or
other casualties, or from acts of man, such as robbery, theft or
embezzlement;
(3) The losses are not compensated by insurance or otherwise;
(4) The losses are not claimed as a deduction for income tax purposes
in an income tax return of the estate subject to income tax;
(5) The losses were incurred not later than the last day for payment of
the estate tax (which is 6 months after the death of the decedent)
(6) the value of the property lost must have been included in the gross
estate (Note: The amount deductible is the amount of the property
lost)
(1) The incapacity of the debtor to pay his obligation should be proven
not merely alleged, although a judicial declaration of insolvency is not
required;
(2) The full amount owed by the insolvent must first be included in the
decedents gross estate; and
(3) If the insolvent could only pay a partial amount, the full amount
owed shall be included in the gross estate, and the amount
uncollectible shall be allowed as a deduction.
(3) Indebtedness -
(2) That the deduction shall be limited to the extent that they were
contracted bona fide and for an adequate and full consideration in
money or moneys worth, if such unpaid mortgages or indebtedness
were founded upon a promise or an agreement.
Case (2014 Bar Question): During his lifetime, Mr. Sakitin obtained a
loan amounting to P10 million from Bangko Uno for the purchase of a
parcel of land located in Makati City, using such property as collateral
for the loan. The loan was evidenced by a duly notarized promissory
note. Subsequently, Mr. Sakitin died. At the time of his death, the
unpaid balance of the loan amounted to P2 million. The heirs of Mr.
Sakitin deducted the amount of P2 million from the gross estate, as part
of the Claims against the Estate. Such deduction was disallowed by
the Bureau of Internal Revenue (BIR) Examiner, claiming that the
mortgaged property was not included in the computation of the gross
estate.
Answer: Yes, the BIR examiner was correct in disallowing the deduction
of the unpaid mortgage from the gross estate. One of the requisites for
an unpaid mortgage to be deductible from the gross is that the fair
market value of the property mortgaged without deducting the
mortgage or indebtedness has been initially included as part of the
gross estate. In this case, it appears that the heirs did not include the
FMV of the mortgaged property as part of the gross estate. Thus, the
BIR examiner was correct in disallowing the deduction of the unpaid
mortgage from the gross estate.
Taxes owed by the decedent and unpaid at the time of death, being
debts in favor of the government are also deductible as a claim
against the estate.
(1) The taxes have accrued as of the death of the decedent, and
(2) They were unpaid as of the time of death.
Question: The estate earned income upon which income tax was paid.
Is the income tax paid by the estate deductible from the gross estate?
Question: How about the Real Property taxes that accrued on the
properties of the decedent after his death, are they deductible from
the gross estate?
(1) Death the present decedent (Mr. A) died within five years from
date of death of the prior decedent (Mr. B) or date of gift;
(2) Identity of the property The property with respect to which
deduction is sought can be identified as the one received from the
prior decedent or the donor, or as the property acquired in exchange
for the original property so received.
(3) Location of the property The property on which vanishing
deduction is claimed must be located in the Philippines.
(4) Inclusion of the property The property must have formed part of
the gross estate situated in the Philippines of the prior decedent, or
must have been included in the total amount of the gifts of the donor
made within five (5) years prior to the present decedents death.
(5) Previous taxation of the property the donor's tax on the gift or
estate tax on the prior succession (Mr. Bs succession) must have been
finally determined and paid by the donor or the prior decedent, as the
case may be.
(6) No previous vanishing deduction on the property, or the property
exchanged therefor, was allowed in determining the value of the net
estate of the prior decedent.
Case 1: Cory is the mother of Kris. On 04 August 2009 Cory died leaving
a parcel of land to Kris by way of inheritance. Estate taxes were paid
on the inheritance received by Kris. On 13 March 2011, Kris also died
leaving the same property to Josh and Bimby.
Answer: Yes. Since the property was already previously taxed and paid
by Kris after inheriting it from Core, and considering further, that the
death of Kris happened within 5 years after the death of Cory, the
same may be subject to a vanishing deduction.
Case 2: With the same set of facts as in Case 1, Josh and Bimby both
died in a car accident on 12 June 2013 leaving the said property to
Noynoy by way of inheritance.
SPECIAL DEDUCTIONS
Case 1: Mr. Salonga has constituted two family homes for his family.
Family Home 1 has a FMV of P550,000 while Family Home 2 has a FMV
of P450,000. Mr. Salonga died.
Case 2: Mr. Salonga has constituted two family homes for his family.
Family Home 1 has a FMV of P2,500,000 while Family Home 2 has a FMV
of P800,000. Mr. Salonga died.
Question: What are the requirements for the estate of the decedent to
avail of the standard deduction of P1,000,000?
(1) The expenses were incurred by the decedent within one (1) year
prior to his death;
(2) The expenses are duly substantiated with receipts and other
documents in support thereof; and
(3) The medical expenses do not exceed P500,000.
Case 1: Dolphy died on 10 July 2012. Prior to his death, he has been
hospitalized from 10 January 2012 to 10 July 2012 where he incurred
medical expenses amounting to P1,000,000 where P400,000 has been
paid leaving the amount of P600,000 as unpaid medical bills.
Answer: The estate of Dolphy may only claim the amount of P500,000,
which includes the P400,000 already paid and P100,000 which is part of
the P600,000 which is still unpaid, as a deduction to the gross estate by
way of maximum medical expenses.
Answer: No. Any amount of medical expenses incurred within one year
from death in excess of P500,000 shall no longer be allowed as a
deduction. Neither can any unpaid amount thereof in excess of the
P500,000 threshold nor any unpaid amount for medical expenses
incurred prior to the one-year period from date of death be allowed to
be deducted from the gross estate under claims against the estate.
Since the expenses is identified as medical expenses, it is subject to
maximum deductible amount of P500,000.
The amount deductible is the net share of the surviving spouse in the
conjugal partnership property. The net share is equivalent to or 50%
of the conjugal property after deducting the obligations chargeable to
such property.
Answer: Yes. This should equally apply to the net share of the surviving
spouse in the absolute community property, considering that the share
of the surviving spouse which also amounts to or 50% of the
community property does not belong to the decedent and, thus,
should not be included in the gross estate of the decedent.
Summary of Deductions
All property at the time of death, Includes only that part of gross
wherever situated estate located in the Philippines
Deductions Deductions
Case: Mr. Brad Pitt, a non-resident alien (NRA) died in the Philippines
while on vacation. While settling his estate located in the Philippines, his
estates Administrator failed to include the value of his other properties
not located in the Philippines as part of his gross estate at the time of his
death.
Question: What is the effect, if any, of the failure to include the value of
the deceased NRAs other properties not located in the Philippines as
part of his gross estate at the time of his death?
(GE, Philippines)
(---------------------) x (World expenses, losses, indebtedness, taxes, etc.)
(GE, World )
TAX RATE
(a) Per Country Basis: 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 decedent's net estate
situated within such country taxable under the NIRC bears to his entire
net estate; and
(b) Overall Basis: The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is taken, which
the decedent's net estate situated outside the Philippines taxable
under the NIRC bears to his entire net estate.
Case (2016 Bar): Jennifer is the only daughter of Janina who was a
resident in Los Angeles, California, U.S.A. Janina died in the U.S. leaving
to Jennifer one million shares of Sun Life (Philippines), Inc., a corporation
organized and existing under the laws of the Republic of the
Philippines. Said shares were held in trust for Janina by the Corporate
Secretary of Sun Life and the latter can vote the shares and receive
dividends for Janina. The Internal Revenue Service (IRS) of the U.S.
taxed the shares on the ground that Janina was domiciled in the U.S.
at the time of her death.
Questions:
(a) Can the CIR of the Philippines also tax the same shares? Explain.
(b) Explain the concept of double taxation.
Answers:
(a) Yes. It can be assumed from the facts of the case that Janina is a
Filipino citizen residing in the U.S. when she died. Under the benefits
received theory, as a citizen of the Philippines her gross estate includes
all her properties wherever located. This includes the 1,000,000 shares of
Sun Life (Philippines), Inc. However, since that the same property is also
subject to estate tax by the U.S. IRS, the estate of Janina may claim the
estate tax paid to the U.S. IRS on the said shares by way of a tax credit.
(Note: If Janina is a non-resident alien, her estate may not claim any
tax credit. Furthermore, the CIR can subject said shares to estate tax,
unless reciprocity applies, in which case they are excluded.)
(b) Double taxation means taxing twice the same taxpayer for the
same tax period upon the same thing or activity, when it should be
taxed but once, for the same purpose and with the same kind of
character of tax.
When Required:
Contents:
(1) The value of the gross estate of the decedent at the time of his
death, or in case of a nonresident, not a citizen of the Philippines, of
that part of his gross estate situated in the Philippines;
(2) The deductions allowed from gross estate in determining the net
taxable estate; and
(3) Such part of such information as may at the time be ascertainable
and such supplemental data as may be necessary to establish the
correct taxes.
(4) For estate tax returns showing a gross value exceeding Two Million
pesos (P2,000,000) - there must be a statement duly certified to by a
Certified Public Accountant containing the following:
(a) Itemized assets of the decedent with their corresponding gross
value at the time of his death, or in the case of a nonresident, not a
citizen of the Philippines, of that part of his gross estate situated in the
Philippines;
(b) Itemized deductions from gross estate allowed in Sec. 86, NIRC;
and
(c) The amount of tax due whether paid or still due and
outstanding.
When Filed:
As a general rule, estate tax returns are required to be filed within six
(6) months from the decedent's death. The time of filing the return may,
however, be extended by the BIR Commissioner, in meritorious cases,
for a reasonable period of not exceeding thirty (30) days.
Where Filed:
(1) In
(a) An authorized agent bank (AAB);
(b) A Revenue District Officer (RDO);
(c) A Collection Officer;
(d) A Duly authorized Treasurer of the city or municipality, where the
decedent was domiciled at the time of his death; or
(2) With the Office of the Commissioner, if the decedent has no legal
residence in the Philippines.
Subsidiarily, the heirs or beneficiaries are liable for the payment of that
portion of the estate which his distributive share bears to the value of
the total net estate. The extent of the heirs liability, however, shall in no
case exceed the value of his share in the inheritance.
Note: As a rule, estate taxes are to be paid before the shares of the
heirs are distributed to them.
Question: Can the heirs still be liable for unpaid estate taxes after they
already received their inheritance share?
Answer: Yes. Claims for taxes, whether assessed before or after the
death of the deceased, can be collected from the heirs even after the
distribution of the properties of the decedent. The heirs shall be liable
therefor, in proportion to their share in the inheritance.
When Paid:
The estate tax is paid at the time the return is filed by the executor,
administrator or the heirs. Since the estate tax return is required to be
filed within 6 months from the decedent's death, the payment of the
estate tax must also be paid within 6 months and simultaneously upon
filing of the estate tax return.
Extension of Payment
B. DONORS TAX
A donors tax is levied, assessed, collected and paid upon the transfer
by any person, resident or nonresident, of the property by gift. It shall
apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible
or intangible.
Donors tax is not a property tax but an excise tax or privilege tax
imposed on the transfer of property by way of gift inter vivos.
(1) The donors tax is imposed on donations inter vivos or those made
between living persons to take effect during the lifetime of the donor.
(2) It supplements the estate tax by preventing the avoidance of the
latter through the device of donating the property during the lifetime
of the deceased.
(3) It shall not apply unless and until there is a completed gift. The
transfer of property by gift is perfected from the moment the donor
knows of the acceptance by the donee; it is completed by delivery,
either actually or constructively, of the donated property, to the
donee.
Donation, defined
(1) The donor must have capacity at time of the making of donation;
(2) There must be an intent to donate; and
(3) The donee must accept the donation.
Answer: The assignment is not a gift, thus, it is not subject to donors tax.
One of the requisites of donation is the existence of the intent to
donate which element is lacking in this case. Further, this lack of intent
to donate on the part of Solar is clearly indicated by Davids execution
of the Deed of Declaration of Trust and Assignment of Shares, as
required by the Club, wherein he acknowledged the absolute
ownership of Solar over the share.
Case 1: John and Marsha are husband and wife. John died causing
the dissolution of the spouses property relations. The surviving spouse,
Marsha, renounced her share in the Conjugal Partnership or Absolute
Community of Properties in favor of her children Maricel, Van, and
Rolly. What is the effect of the Marshas renunciation of her shares in
favor of her children?
Case 2: With the same set of facts as in Case 1, one of the heirs,
Maricel, renounced her share in the inheritance in favor of his co-heirs.
Is the renunciation subject to donors tax?
Answer: No. Real property considered capital assets under the Tax
Code are excepted from the rule considering that the FMV itself, if
higher than the gross selling price, is the base for computing the capital
gains tax imposed upon the sale of such capital assets. Thus, what the
seller avoids in the payment of the donors tax, it pays for in the capital
gains tax.
Question: What if the consideration is fictitious?
GIFT-SPLITTING
CLASSIFICATION OF DONORS
(1) Citizens and residents of the Philippines. They are taxable on all
properties located not only within the Philippines but also in foreign
countries.
(2) Nonresident Aliens. They are taxable on all real and tangible
personal properties within the Philippines, as well as intangible personal
properties, unless there is reciprocity, in which case such intangible
personal properties are not taxable.
Gifts made in property are valuated by taking their FMV at the time of
donation. More specifically:
(1) For real property FMV as determined by the CIR (Zonal Value) or
FMV as shown in the latest schedule of values of the provincial and city
assessor (Market Value per Tax Declaration), whichever is higher. If
there is no zonal value, the taxable base is the FMV that appears in the
latest tax declaration.
Question: What is the proper valuation of Mr. L's gifts to his children for
purposes of computing donor's tax?
If there were several gifts made during the year, the formula is as
follows:
(1) If the donee is a stranger to the donor, the tax rate is equivalent to
30% of the net gifts.
(2) If the donee is not a stranger to the donor, the tax for each
calendar year shall be computed on the basis of the total net gifts
made during the calendar year is subject to the graduated rates from
2% to 15%.
Stranger, defined
Answer: No. A legally adopted child is entitled to all the rights and
obligations provided by law to legitimate children. Therefore, the
donation made by Fernando Poe to his adopted child shall is not
considered as a donation made to a stranger. As such, the donation
shall be subject to the graduated rates.
Case 3: In the Case 2, what if the donation was made not by San
Miguel Corporation but instead made by its Chairman Mr. Cojuangco
to Liberty Corporation? Is the donation still considered as a donation to
strangers?
The tax credit system also applies in donors taxation. A situation may
arise when the property given as a gift is located in a foreign country
and the donor may be subject to donors tax twice on the same
property: first, by the Philippine government and second, by the foreign
government where the property is situated. The remedy of claiming a
tax credit is, therefore, aimed at minimizing the burdensome effect of
double taxation by allowing the taxpayer to deduct his foreign tax from
his Philippine tax, subject to the limitations provided by law.
Answer: Yes. If both spouses made the gift, then the gift is taxable
one-half to each donor spouse, where they can deduct P10,000 each
from their share. In which case separate donors tax returns must be
filed.
PERSONS LIABLE
TAX BASIS
The tax for each calendar year shall be computed on the basis of the
total net gifts made during the calendar year.
Net gift is the net economic benefit from the transfer that accrues to the
donee. Accordingly, if a mortgaged property is transferred as a gift,
but imposing upon the donee the obligation to pay the mortgage
liability, then the net gift is measured by deducting from the fair market
value of the property the amount of the mortgage assumed.
A donors tax return is to be filed within thirty (30) days after the date
the gift is made or completed. The donors tax due thereon shall be
paid at the same time that the return is filed.
Unless the Commissioner otherwise permits, the donors tax return shall
be filed and the tax paid to:
(1) An authorized agent bank;
(2) The Revenue District Officer;
(3) Revenue Collection Officer;
(4) Duly authorized Treasurer of the city or municipality where the
donor was domiciled at the time of the transfer; or
(5) If there be no legal residence in the Philippines, with the Office of
the Commissioner.