University of Baguio

School of Law

Taxation Law 2

Seatwork

By:
Robin Santana
April Rose Almazan
Janelle Ann Buhangin
Dynachen Amy Diwan
Cathrine Lagodgod
Mona Mendoza

January 17, 2019

SALIENT REVISIONS PROVIDED BY RA 10963 AS FAR AS TRANSFER TAXATION ( ESTATE
AND DONOR’S TAX) ARE CONCERNED:

ESTATE TAX

I. Amendment of the Estate Tax Rate

Section 22 of the TRAIN law amends Section 84 of the Tax Code, which provides for
the estate-tax rate. Previously, a tax based on the value of the net estate of the dece-
dent, whether resident or nonresident of the Philippines, was computed based on a
tax schedule where an estate worth P200,000 and over was taxed from 5 percent to
20 percent. Under the TRAIN law, it will now be subject to a flat rate of 6 percent.

II. Amendments on Estate Tax Deductions

Section 23 of the TRAIN law amends Section 86 of the Tax Code, which provides for
the computation of the net estate or, effectively, the deductions allowed to the gross
estate of an individual.

The TRAIN law removes funeral expenses, judicial expenses and medical expenses as
allowable deductions.

Instead, the law increases the Standard Deduction to P5 million, which previously only
amounted to P1 million. Only available to citizens (resident or nonresident) and resi-
dent aliens, TRAIN law now provides that nonresident aliens can avail themselves of a
standard deduction, although only up to P500,000.
Another TRAIN law significant change from the old tax rule is that now, family homes
that are worth up to P10 million will be exempted from estate tax. Previously, only
family homes worth P1 million are exempted.

III. Amendments on the Procedure for Estate Tax Settlement

A. Repeal of Filing of Notice of Death provision

Section 24 of the TRAIN law repeals Section 89 of the Tax Code. The repealed provision
provides for when a notice of death should be filed and the period to file the same.

B. Amendment on Filing of Estate Tax Return

Section 25 of the TRAIN law amends Section 90 of the Tax Code, which provides for
the procedural requirements for the estate-tax return.

The TRAIN law requires that estate-tax returns showing a gross value exceeding P5
million must be certified by a certified public accountant. This is P3 million higher than
the old tax rule, which only required CPA certifications for estate-tax returns that ex-
ceed a gross value of P2 million. The TRAIN law has also increased the period for filing
of estate-tax returns from six months from the decedent’s death to one year.
C. Amendment of Payment of Estate Tax by Installment

Section 26 of the TRAIN law amends Section 91(c) of the Tax Code, which provides for
the payment of estate tax by installment.

Under the TRAIN law, payment by installment has been particularly simplified. How-
ever, the law has provided for an implied limitation of two years for the payment of
the full estate-tax liability, which was previously not contained in the old tax rule.

IV. Amendment on Withdrawals from Deceased’s Bank Account

Section 27 of TRAIN Law amends Section 97 of the Tax Code, which concerns allowable
withdrawals from the deceased person’s account.

Under the old Tax Rule, only withdrawals up to P20,000 are allowed. The administra-
tor of the estate or any one of the heirs may, when authorized by the commissioner,
withdraw an amount not exceeding P20,000. However, the Train Law has increased
allowable withdrawals from the deceased person’s account to any amount, subject to
a 6-percent final withholding tax.

COMPREHENSIVE COMPARISON OF THE OLD LAW AND THE NEW LAW

CHANGE IN TAX RATE

OLD TAX RATE:

Net Estate Bracket Tax Rate

over But not Exempt

over

200,000 5% of Excess over 200,000

200,000 500,000 15,000+8% of excess over 500,000

500,000 2,000,000 135,000+11 % of excess over 2,000,000

2,000 000 5,000,000 465,000+15% of excess over 5,000,000

5,000 000 10, 000 1,215,000+20% of excess over 10,000,000

000

10,000 000
NEW TAX RATE:
TAX BASE TAX RATE

Value of Net Es- 6%

tate*

*Value of Net Estate Value of gross estate less allowable deductions.

OTHER CHANGES

ON THE COMPUTATION OF ESTATE TAX:

Removes the deduction from
gross estate pertaining to actual funeral
expenses or 5% of the gross estate, which-
STANDARDEDUCTION ever is lower; judicial expenses; and medi-
5 Million Pesos cal expenses but increased the amount of
standard deduction from P 1 Million to P 5
Million

Increases the amount fro family home

P 10 Million from up to P 1 million to up to P 10 Million
and removes the sine qua non condition
for exemption or deduction, that the fam-
ily home must have been the decedent’s
family home as certified by the barangay
captain of the locality.

Removes the deduction for non resident

estates pertaining to expenses, losses, in-
Standard Deduction debtedness, and taxes but provides for a
P 500,000 standard deduction amounting to P
500,000

Gross Estate of Non Resident Alien
P 5 Million
ON ADMINISTRATIVE PROCEDURES:
FILING OF NOTICE OF DEATH
DEADLINE OF FILING
Delegates the provision that requires ex-
ecutor, administrator or anyone of the
heirs to include in the estate tax return
that part of the nonresident alien’s gross
estate not situates in the Philippines to be
able to claim deductions;
Increases the amount of gross value of es-
tate provided in estate tax returns that re-
quires to be supported with a statement
duly certified by a Certified Public Ac-
countant from P 2 Million to p 5 Million.
Repeals the provision requiring the filing
of notice of death of the decedent by
his/her executor, administrator or any of
the legal heirs within (2) months after the
decedent’s death.
Extends the period within which the es-
tate tax return should be filed, from 6
months to 1 year from the decedent’s
death.

PAYMENT ON INSTALLMENT BASIS
WITHDRAWAL LIMIT
Provides for the payment by basis in case
available cash is insufficient to pay the es-
tate tax due. Payment shall be allowed
within 2 years from the statutory date for
its payment without civil penalty and in-
terest.
Removes the P20,000 limit that may be
withdrawn from the bank account of the
decedent without certification from the
BIR and allows for the withdrawal of any
amount but subject to a final withholding
tax of 6%.
DONOR’S TAX

I. Amendments on Donor’s Tax Rate

Section 28 of the TRAIN Law amends Section 99 of the Tax Code, which provides that
A.) the tax for each calendar year shall be six percent (6%) computed on the basis
of the total gift in excess of Two hundred fifty thousand pesos (P250,000) ex-
empt gift made during the calendar year.
B.) The tax rate payable by donor if the done is a stranger is deleted. There is no
longer a need to categorize whether the gift was given in favor of a relative or
a stranger. A uniform tax rate of 6% for donations to relatives or strangers.

II. Other Amendments

Section 29 of the TRAIN Law amends Section 100 of the tax Code. Train Law also
added as an exception to the general rule (in a transfer of less than an adequate and
full consideration in money or money’s worth) that a sale, exchange or transfer of
property made in the ordinary course of business (i.e., bona fide transfer, at arm’s
length, and free from donative intent) will be considered as made for an adequate
and full consideration in money or money’s worth. In other words, a sale or ex-
change of property for less than adequate and full consideration is subject to donor’s
tax. The burden of proving that the same is being made in the ordinary course of
business apparently lies with the donor.

Section 30 of the TRAIN Law amends Section 101 of the Tax Code, which deletes the
provision exempting from the donor’s tax dowries or gifts made by parents to each
of their legitimate, recognized natural, or adopted children on account of marriage.

COMPREHENSIVE COMPARISON OF THE OLD LAW AND THE NEW LAW

CHANGE IN RATE

OLD TAX RATE

A. In General

Net Gifts Bracket Tax Rate

over But not Exempt

over

100,000 Exempt

100,000 200,000 2% of Excess over 100,000

200,000 500,000 2,000 + 4% of excess over 200,000

 500,000 1,000,000 14,000+6% of excess over 500,000

1,000 000 3,000 000 44,000+8% of excess over 1,000,000

3,000 000 5,000,000 204,000 + 10% of excess over 3,000,000

5,000,000 10,000,000 404,000 + 12% of excess over 5,000,000

10,000,000 1,004,000 + 15% of excess over 10,000,000

B. Tax Payable by Donor if Donee is a Stranger

If the done is a stranger, tax rate is 30% of the net gift.

NEW TAX RATE

A. InGeneral

TAX BASE TAX RATE

Total gift not exceeding Exempt

250,000

In excess of 250,000 6%

B. Tax Payable by Donor if Donee is a Stranger

Uniform tax rate for donations to relative or strangers.

OTHER CHANGES
TRANSFER FOR LESS THAN ADEQUATE that a bona fide, at arm’s length and dona-
AND FULL CONSIDERATION
Inserts an additional provision under Sec-
tion 100of the Tax Code, which provides
tive-intent free sale, exchange or other
transfer of property made in the ordinary
course of business shall be considered as
made for an adequate and full considera-
tion in money or money’s worth and is
therefore not subject to donor’s tax.
 Deletes the provision exempting from the
IN THE CASE OF GIFT MADE BY PARENT donor’s tax dowries or gifts made by par-
ON ACCOUNT OF MARRIAGE ents to each of their legitimate, recognized
natural, or adopted children on account of
marriage.
B. Group’s Opinion on the salient revisions by R.A. 10963 as far as transfer taxation
are concerned.

a. IMPACT ON THE TAXPAYER

The implementation of the TRAIN Law has brought about mixed reactions from
the taxpayers as it has been seen as an additional burden to them because of the
increase in the percentage of the tax being imposed upon them. Although it is a way
of increasing the revenue of the State from where the government gets its funds to
operate and fund its projects. But then such increase has been viewed as a better and
simpler way of imposing the percentage tax on properties that are to be transferred
to heirs or even on gifts and donations given to family members or even to strangers.
The uniform percentage imposed on property to be transferred or donated benefits
the taxpayer since only one percentage is used regardless what the amount of the
estate or the property is.

The revision of tax laws as estate and donor’s taxes are concerned is that the com-
putation is simpler. Computing the estate tax and donor’s tax used to be very compli-
cated with different rates. Under the new tax reform law, the estate and donor’s tax
will have a single, fixed rate of 6%. It aims to make the tax system more efficient,
simpler and fairer.

The said salient revisions are equalizing change that citizens should support and
not to contradict. The impact of these revisions will surely not be beneficial to us as of
this time but the long term effect of it will be surely beneficial for the future.

b. IMPACT ON THE REVENUES OF THE BIR

The legislative intent of passing the TRAIN law was to increase the revenue of the
State in order to fund government projects and infrastructures. The implementation
of the TRAIN Law has the goal of increasing revenue gradually up to the year 2020 in
order to fund the specific projects and infrastructures of the government.

With the drastic changes in the imposition of tax due to the implementation of
the TRAIN Law such changes have led to the increase in the revenue collected by the
BIR which would help fund the projects of the government. With the positive effect of
the TRAIN on the revenue collected by the BIR government projects and infrastruc-
tures would no longer be delayed due to lack of funds and all projects and infrastruc-
tures would be able to be accomplished by the funds from the revenues being col-
lected. With the increase in the revenue the government would be able to continue
its operation since it is with these revenues that the government is able to operate.

Due to the lower estate tax rates, it will improve compliance with the law there-
fore BIR may collect the target revenue for the period of year in order to achieve the
goals of TRAIN. From the previous law, most of the heirs didn’t bother filing and paying
the estate taxes, which explains why many of the properties being bought and sold
are still in the names of long deceased persons. Today, due to the simpler steps of
filing and lower rate it might change the non-compliance of filing and paying of estate
taxes. It remains to be seen whether collection of estate taxes will improve.

c. EQUAL PROTECTION CLAUSE

The equal protection clause bars arbitrary discrimination in favor of or against a

class whether in what the law provides and how it is enforced (Barok vs The Philippine
Truth Commission, GR No. 192935). The requisites provided that it must be based on
substantial distinctions which make for real differences, must be germane to the pur-
pose of the law, must not be limited to existing conditions, and must apply equally to
each member of the class. The amendment of the TRAIN Law on tranfer taxes does
not violate the equal protection clause. Making the tax rate of 6% of net donations for
gifts above P250,000 yearly, regardless of the donee’s relationship to the donor is
even more equitable than the original provision which provides different tax rates de-
pending on the donee's relationship. If tax rates will be based from the donee's rela-
tionship, then it would be a discrimination to the donee. The donor might be discour-
aged to donate the property because of the higher expenses that he has to pay. Unlike
when there is a uniform tax rate, the donor will be encouraged to donate his property
to anyone and therefore the greater chances for the property to be productive and
not idle.