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5/13/2011

What is meant by “transfer taxes”?

On-Line The term “transfer taxes” refers to the

estate tax and the donor’s tax imposed by
Bar Reviewer on Taxation the National Internal Revenue Code on
gratuitous transfer of property on account
Reynaldo G. Geronimo of the death of the decedent (in which
Partner case the tax is called the “estate tax”) or
upon the making of a gift that is effective
during the lifetime of the transferor (in

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which case the tax is called the “donor’s

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tax”).
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What are the purposes

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of the transfer taxes?
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Transfer Taxes
Trans • Like any other tax, the primary purpose of
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the transfer taxes is to raise revenue to

(Estate and Donor’s Taxes)) defray the expenses of government
overn
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• The specific secondary purpose of the
ary purpo
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transfer taxes is in compli
compliance of the
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requirement thatt the

t rule
rul of taxation be
equitable and to aid in the evolution of a
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progressivee system of taxation, as
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mandateded by the Constitution.

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Advisory
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• No part of this work may be reproduced, stored in

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a retrieval system, or transmitted in any form or by

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any means, electronic, mechanical, photocopying,

recording, scanning, or otherwise except as
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permitted by Atty. Reynaldo G. Geronimo.

• While the author has used best efforts in
Estate
tate Tax
preparing this work, he makes no representations
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or warranties with respect to the accuracy or

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completeness of the contents herein and

specifically disclaims any implied warranties of
merchantability or fitness for a particular purpose.
• Any copy of this work not bearing the signature of
the author on the label comes from an illegal 3 6
source.

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What law governs the imposition of

What is the nature
of the estate tax?
The estate tax is an excise tax or a
tax on the privilege of transmitting
property upon death thereby shifting
the economic benefits and enjoyment
of property from the decedent to
those who by law or by the
the estate tax? The law as of date
of death, or, as of date of payment?
The statute in force at the time death of
decedent governs the taxation of the
estate. The estate tax accrues as of the
date of death when succession takes

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place and when the right to tax instantly
decedent’s wishes may be entitled ed to
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vests on the State.
it, effective upon his death. 7 10
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What theories are pro
propounded to justify Wh is the situs that enables a
What
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osition of the estate tax?

the imposition s
state to impose the estate tax?
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• Benefit-Received
t-Receiv theory- The State protected • Citizenship and residence of aliens allow a
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cumula
the accumulation of the decedents’ wealth for
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which thehe S
State must be compensated; state to impose the estate tax on
properties wherever situated.
ated.
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• Privilege theory- Succession is not a natural

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n be
right but instead a privilege and therefore can • The estates of non-resident
resident aliens are thus
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subjected to taxes.
• State Partnership theory-State was a hiddenden not subject to the estate tax,
t except those
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ent’s
partner in the production of the decedent’s that are locatedd in the
th Philippines, subject
wealth;
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to the rule on
n reciprocity.
recipr
• Ability to Pay- Those who had more in life should
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be made to give in law.

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How is the estate tax computed? What is the rule of reciprocity

ty to the
th extent
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axation of
that it affects the estate taxation
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roperty?
intangible personal property?
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The estate tax is computed by

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applying the progressive estate tax If the country of citizenship

izenship or residence of an
rate schedule to the net estate which, alien does not impose
mpose ana estate tax (or donor’s
tax) at the time
me of the transfer of intangible
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in turn, is arrived at by subtracting the

allowable deductions from the value personal property
roperty or allows an exemption to
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properties owne
owned by Filipinos, the said
of the gross estate of the decedent.
intangible personal property shall, on the basis
of that reciprocity, not also be subject to the
9 estate tax. 12

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What are included in the gross estate of a
decedent who is Phil citizen or resident alien?
1. All the property of the decedent, wherever
situated, to the extent of his interest therein at
the time of his death;
2. Property transferred during his lifetime but in
contemplation of death;
3. Property transferred with the intention of the
transfer taking effect in possession or
What may be deducted from the
gross estate of a citizen or resident
decedent to get the net estate?
1. Actual funeral expenses in an amount
equal to 5% of gross estate but not more
than P200,000;
2. Judicial expenses of estate settlement;
3. Claims against the estate- duly notarized
debt instrument and contracted within 3

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enjoyment at or after death of the decedent, or
where decedent retained the right to possesssess years prior to death of decedent, with

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erson
or enjoy the property or designate the person statement showing how the proceeds
to so possess or enjoy it. 13 were disposed of. 16
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4. Property transferred
erred ssubject to the right to
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4. Claims
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revoke on the parpart of decedent;
persons, provided claim is included in the
es
5. Proceeds
eds of life insurance to the extent gross estate;
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received
ived by the estate or, irrespective of the
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5. Unpaid mortgages where the property,

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beneficiary,
eficia where the decedent had the undiminished by mortgages,ge is included
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right to revoke the designation of the in the gross estate;

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beneficiary; 6. Casualty losses if not deducted
dedu in the
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6. Prior interests transferred, like items
ms 3,4,
3,4 income tax return incurred not later
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and 5, prior to effectivity of tax code; than payment of e estate

at tax;
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7. Property transferred for insufficient
sufficient 7. Diminishing deduction
deduc of property
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previouslyy taxed
consideration
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How are the properties comprising

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8. Bequests, legacies, devisees, es, and other

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the gross estate valued? transfers to Gov’t or political

tical
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• Real property – at fair market value as determined

subdivisions, exclusively
ively for public
purposes;
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by Commissioner or zonal value, whichever is

• Fair Market Value e of the Family Home to
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higher
• Shares of stock- if listed, arithmetic mean between the extent of not more than P1,000,000;
ot mor
highest and lowest quotation on date of death, or • Standard deduction
deducti of P1,000,000;
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date nearest to said date; if unlisted, book value; if • Medical al expenses

expen paid within 1 year
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unlisted preferred, par value; from date

• Usufructuary rights, etc- per annuity tables
approved by Sec. of Finance upon
recommendation of the Commissioner.
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ate of death
• Amounts received by heirs under a
qualified private retirement plan (RA
4917) if included in the gross estate
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How is the estate taxation of non-residents

different from that of citizens/residents?

• Non-residents are taxed only on properties Donor’s Tax

situated in the Philippines;
• Non-residents are allowed only (a) (or Gift Tax)
expenses, losses, indebtedness and
taxes; (b) diminishing deduction; (c)
transfers for public use; and (d) share in
the conjugal property.

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• To avoid unfair double taxation, taxess paid

conditions, Ba
abroad are deductible, subject to certain
rtain
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What transfers, occurr
occurring at time of
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Who are liable for the donor’s tax?

Wh
ot subject
death, are not subj to estate tax?
es
1. Merger er of usufruct
usufru in the owner of the naked
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title; Any person, resident or nonresident,

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smiss
2. Transmission or delivery of inheritance or who transfers property, by w way of a
legacy by the fiduciary heir or legatee to the
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donation inter vivos, orr makes a gift, in

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fideicommissary;
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3. Transmission from the 1st heir, legatee or
trust or otherwise, directly or indirectly,
et er p
regardless of whether property is real or
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donee, in favor of another beneficiary, y,

according to wishes of predecessor; or; gible or
personal, tangible o intangible.
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4. Charitable transfers no part off which benefits
be
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an individual and no more thanhan 30% of which

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rpose
is used for administrative purposes. 20 23
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How is the estate tax paid? What is meant by a “donation

nation inter
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1. Notice of death- filed within 2 months from poses of the

vivos” or “gift” for purposes
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date of death, if estate is over P20,000; donor’s tax?

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2. Estate tax return- filed within 6 months from

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decedent’s death if (a) transfer is subject to

tax; (b) gross value is over P200,000 even For donor’s tax purposes
purposes, a “gift” or a
if exempt; (c) regardless of value, estate “donation” includes
udes boboth a transfer without
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consists of registered or registrable compensation ion or cconsideration with donative

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properties; (d) with CPA certification if over intent (called

P2 million gross value.;
3. Tax paid when return is filed. Extensions
may be granted: 2 years if extrajudicially
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settled; 5 years if judicially settled
ed a “direct”
“ gift) or transfer, even
without donative intent, for less than
adequate or full consideration (called an
“indirect” or “deemed” gift).
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What is the purpose of the donor’s tax
• The donor’s tax, like any other tax, was
primarily intended to raise revenue.
• The donor’s tax is secondarily intended to
minimize the effect of the avoidance of the
estate tax by those who transfer property
prior to the taxpayer’s death as well as of
Under the same facts, except the donees are not
strangers, how is the tax computed?
The tax on the June 1, 2008 gift is zero; to
compute the tax for the December 31, 2008, the
June 1 gift is added to the December 31 gift for
a total of P200,000 which according to the
schedule rates is taxed at 0% on the first
P100,000 and 2% on the following P100,000.
The tax is therefore P2,000. For the third

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the avoidance of the income tax by thoseose donation, the two previous donations are not

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who, by such transfers, also split their
eir added to the third because the latter is given in
another year. Tax is again 0%.
income tax base. 25 28
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What gifts made by residents are
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What are the rates

ates of the donor’s tax for
nter vivos
donations inter vivo made by residents?
e e
exempt from the donor’s tax?
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1. Dowries or gifts proper nuptias and

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before the celebration of marriage by

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• If the donee is a stranger, the tax rate is

parents to each of their chi
children-
30% of the net gifts made during the
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P10,000;

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calendar year;
2. Gifts made to National Gov’t, any of its
ional Gov
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• If the donee is NOT a stranger, the tax agencies not conducted
ducted for profit,
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rate is according to a progressive political subdivisions;

visio s;
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schedule, from 2% after the first P100,000
st P100 3. Gifts to educational
cationa and/or charitable
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to 15% over P10,000,000 on the net ne gifts institutions, more than 30% of which
ns, not m
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made during the calendar year. are used administration

ed for a
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Illustrate the computation of the donor’s

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Are contributions, in cash or in kind,

kin
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tax on gifts made to strangers. ndidate

made to any political candidate,
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ition of parties for

political party or coalition
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Assume X makes a gift to stranger A on June election campaign n purposes

purpo subject to
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1, 2008 with the value of P100,000; a second donor’s tax?

gift to stranger B on December 31, 2008 and
a third gift to stranger C on January 15, No. The law says that
tha such contributions
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2009. “shall be governed

overned bby the Election Code, as
The tax on the gift on June 1, 2008 is amended.” The Election Code does not
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P30,000; on the gift on Dec 31, 2008 also make such contribution subject to tax.
P30,000; and on the gift on January 15,2009 Moreover, such contributions are in effect
also P30,000 for a total of P90,000. exercises of one’s basic political rights which
27 cannot be subjected to tax. 30

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When is the donor’s tax paid?

The donor’s tax is paid at the

time the donor’s tax return is
filed which is within thirty (30)
days after the date each gift is
made.

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Compare the donor’s

or’s tax with the estate tax.
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As to: Donor’s Tax Estate Tax

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Trigger Donation
Do Succession
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Basis of For non- Only once

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computation strangers,
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cummulative &

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annual;
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Time for 30 days from 6 monthss from

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payment date of each gift death

date of death,
bject to
subject
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extensio
extensions
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Rates (for % From 0% to

From 0% to 15%
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non-strangers) 20
20%
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Thank You
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and
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Good Luck
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