Taxation 2

Tax Credit on
Estate/Donor's Tax
Report by:
Mr. Cris T. Casiple

Legal provisions on this tax credit...

Title III, Chapter I, Section 86 (E) of the NIRC:
Chapter I. Estate Tax
Section 86.
Computation of Net Estate
Par. E.
Tax Credit for Estate Taxes paid to a Foreign Country.

The provision reads:

(1)In general."The tax imposed by this Title shall be credited with the
amounts of any estate tax imposed by the authority of a foreign
country."
(2) Limitations on Credit. "The amount of the credit taken under this
section shall be subject to each of the following limitations: (a) 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 this Title bears to his entire net estate; and (b) 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 this Title bears to his
entire net estate.

Title III, Chapter II, Section 101 (C) of the NIRC:

Chapter II. Donor's Tax
Section 86.
Exemption of Certain Gifts
Par. E.
Tax Credit for Donor's Taxes paid to a Foreign Country.

The provision reads:

(1)In general."The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited with the
amount of any donor's tax imposed by the authority of a foreign
country."
(2) Limitations on Credit. "The amount of the credit taken under this
section shall be subject to each of the following limitations: (a) 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 net gifts situated within such country taxable
under this Title bears to his entire net gifts; and (b) The total amount
of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the donor's net gifts situated
outside the Philippines taxable under this Title bears to his entire net
gifts.

Comparison of Provisions on Tax Credit in

Estate and Donor's Taxation
(1)In general."The tax imposed by this Title
shall be credited with the amounts of any
estate tax imposed by the authority of a
foreign country."
(2) Limitations on Credit. "The amount of the
credit taken under this section shall be
subject to each of the following limitations:
(a) 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 this Title bears to his
entire net estate; and (b) 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 this Title bears to his entire
net estate.

(1)In general."The tax imposed by this Title upon

a donor who was a citizen or a resident at the
time of donation shall be credited with the
amount of any donor's tax imposed by the
authority of a foreign country."
(2) Limitations on Credit. "The amount of the
credit taken under this section shall be
subject to each of the following limitations: (a)
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 net gifts situated within
such country taxable under this Title bears to
his entire net gifts; and (b) The total amount
of the credit shall not exceed the same
proportion of the tax against which such credit
is taken, which the donor's net gifts situated
outside the Philippines taxable under this
Title bears to his entire net gifts.

The result of comparison:

The tax credit concept under estate taxation,
donor's taxation and even income taxation
is the same.

What is Tax Credit?

Tax credit, as used here, refers to the
taxpayer's right to deduct from tax due,
the amount of tax he has paid to a foreign
country subject to limitations. It is allowed
to lessen the rigor of international double
or multiple taxation. For estate and
donor's taxation, all taxpayers except for
non-resident alien are entitled to tax credit
since they are

Illustration
XYZ, a resident citizen of the Philippines, died leaving
properties in Philippines, USA and Switzerland. The fair
value of the properties at the death of decedent's death
are as follows:
Philippines
P
5,000,000
USA
2,000,000
Switzerland
1,000,000
TOTAL
P
8,000,000
Assuming no deduction, the estate tax due in the
Philippines for all such properties is therefore P 915,000.
He actually paid estate taxes in USA and Switzerland in
the amount of P 100,000 and P 20,000, respectively.

Illustration continued
Ceiling

Foreign Tax
Allowable
Paid
Tax Credit
Limitation 1
USA
(915,000 x 2/8)
228,750
250,000
228,750
Switzerland
(915,000 x 1/8)
114,375100,000
100,000
_______
_______
Limitation 2
(915,000 x 3/8)
343,125
328,750
Estate Tax
P 915,000
Less: Tax Credit328,750
Estate tax due
P 586,250