Transfer Taxes 1.

ESTATE TAX

Transfer taxes- are those taxes imposed upon the privilege granted by the a) Basic principles, concept, and definition
state to the taxpayer so that he may transfer properties, real or personal,
without consideration. Basic Principles:

- are excise or privilege taxes that are imposed on the act of passing  Kind of Transfer subject to Estate Tax: The transfer of the net
ownership of property and not taxes on the property transferred. estate of every decedent, whether resident or non-resident is
subject to estate tax.
Kinds of Transfer Taxes:
 Basis: upon the basis of the net estate of the decedent, considered
 Estate tax – a tax that is levied, assessed, collected and paid upon as a unit, regardless of the number of shares into which it may be
the transfer of the net estate of a decedent to his or her heirs. divided or the relationship of the beneficiaries.
 Donor’s tax - is an excise tax levied, collected, and paid upon the
privilege of transferring property gratuitously by way of gift inter Definition:
vivos by any person, resident or non-resident
 Estate tax is a tax on the right to transmit property at death and on
Estate Tax Donor’s Tax certain transfers by the decedent during his lifetime which are made
Tax on the privilege to transfer Tax on the privilege to transfer by the law equivalent of testamentary dispositions.
property upon one’s death (mortis property during one’s life time (inter
causa) vivos) - Is a graduated tax imposed on the privilege of the decedent to
Estate tax is computed on the basis Donor’s tax is computed on the transmit property at death and is based on the entire net estate,
of the net estate transferred at the basis of net gifts given during a regardless of the number of heirs and relations to the decedent.
time of the death of the decedent calendar year
- It is a tax levied, assessed, collected and paid upon the privilege of
Transfer taxes are governed by the laws existing at the time the transfer gratuitously transferring the net estate of a decedent to his heirs.
takes place. In particular –
- The estate tax is based on the laws in force at the time of death
a. Donations inter vivos are governed by the law existing at the time of the notwithstanding the postponement of the actual possession or
effectivity of the donation since the transfer takes place at that time enjoyment of the estate by the beneficiary.

b. Donations mortis causa are governed by the law at the time of death - It accrues upon the death of the decedent.
because it is at that time that the property is transferred.
- The tax is measured by the value of the property transmitted at the
Donations inter vivos Donations mortis causa time of death, regardless of its appreciation or depreciation.
Both are transfers without onerous consideration
takes effect upon the death of the takes effect during the lifetime of the - The accrual of the tax is distinct from the obligation to pay the tax.
transferor transferor
Ownership will pass only upon death Ownership will pass during the
donor’s life time
subject to estate tax subject to donor’s tax

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The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall
be, whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors. [Sec. 88 (b)]
b) Nature, purpose, and object
c) Time and transfer of properties
> A transmission by inheritance is taxable at the time of the predecessor’s
death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary.
> There may be properties, which at the time of the decedent’s death, are
not in the estate because they were transferred by him during his lifetime.
These transfers are:

Nature: An estate tax is a tax on the privilege of the decedent to transmit

 Transfers in contemplation of death
property at the time of death. As such, it is in the nature of an excise tax. The
 Revocable transfers
tax is also imposed on “certain transfers of property, made by the decedent
 Transfers under a general power of appointment; and
during his lifetime which, under the law, are in the nature of testamentary
dispositions.”  Transfers for an insufficient consideration.

Purpose and object: The generally accepted purposes for imposing the > In the determination of the estate tax, you should note 4 things:
estate tax are as follows:
(1) The classification of the decedent based on nationality and/or
1. To generate additional revenue for the government domicile
2. To reduce the concentration of wealth (2) The nature and the location of the assets
3. Provide an equal distribution of wealth (3) The computation and valuation of the assets (which includes
4. It is the most appropriate and effective method for taxing the deductions) and
“privilege” which the decedent enjoys of controlling the dispositions (4) Rates.
5. It is the only method of collecting the share which is properly due to
the State as a partner in the accumulation of property which was d) Classification of decedent
made possible on account of the protection given by the State
P.S. Only natural persons can be held liable for estate tax. A
Theories to discuss purposes of Estate Tax: corporation cannot be liable for the obvious reason that they cannot
die (naturally speaking).
Benefit-received The tax is in return for the services rendered by
theory the state in the distribution of the estate of the
decedent and for the benefits that accrue to the 1. Resident citizen
estate and the heirs 2. Non-resident citizen
Statepartnership 3. Resident alien
The tax is in the share of the state as a passive
4. Non-resident alien
theory and silent partner in the accumulation of property
Ability to Pay Theory The tax is based on the act that the receipt of
inheritance creates the ability to pay and thus e) Gross estate and net estate
contribute to governmental income
Redistribution of The tax is imposed to help reduce undue Gross Estate: The value of the gross estate of the decedent includes the
wealth theory concentration of wealth in society to which the value at the time of his death of all property, real or personal, tangible or
receipt of inheritance is a contributing factor intangible, wherever situated. [Sec. 85]

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 SEC. 104. Definitions. - For purposes of this Title, the
terms "gross estate" and "gifts" include real and personal
property, whether tangible or intangible, or mixed,
wherever situated: Provided, however, That where the
decedent or donor was a nonresident alien at the time of
his death or donation, as the case may be, his real and
personal property so transferred but which are situated
outside the Philippines shall not be included as part of his
"gross estate" or "gross gift": Provided, further, That
franchise which must be exercised in the Philippines;
shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the
Philippines in accordance with its laws; shares, obligations
or bonds by any foreign corporation eighty-five percent
(85%) of the business of which is located in the
Philippines; shares, obligations or bonds issued by any
foreign corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines; shares
or rights in any partnership, business or industry
established in the Philippines, shall be considered as
situated in the Philippines: Provided, still further, that no
tax shall be collected under this Title in respect of
intangible personal property: (a) if the decedent at the time
of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time
of his death or donation did not impose a transfer tax of
any character, in respect of intangible personal property of
citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which
the decedent or donor was a citizen and resident at the
time of his death or donation allows a similar exemption
from transfer or death taxes of every character or
description in respect of intangible personal property
owned by citizens of the Philippines not residing in that
foreign country.
Net Estate: The net estate is determined by deducting from the value of
gross estate the total amount of allowable deductions.
GROSS ESTATE NET ESTATE
The value of all the property, real or The value of the gross estate less
personal, tangible or intangible, of the ordinary and special deductions
the decedent wherever situated to (see Section 86, Tax Code)
the extent of his interest at the time
of his death as well as other items
includible in the gross estate (See
Section 85, Tax Code
Note: In the case of a nonresident
alien decedent, only that part of the
entire gross estate which is situated
in the Philippines shall form part of
his gross estate
f) Determination of gross and net estate
Determination of Gross Estate:
Decedent Determination of gross estate
Resident Citizen, Non-resident All properties, real or personal,
Citizen, Resident Alien tangible or intangible, wherever
situated, plus items includible in gross
estate
Non-Resident Alien Only those properties situated in the
Philippines provided that with respect
to intangible personal property, its
inclusion in the gross estate is subject
to the rule of reciprocity under Section
104 of the Tax Code
Rule in determining the situs of intangible personal property for estate
tax purposes:
GR: Apply the principle of res mobilia sequuntur personam (“chattels
follow the person”). In other words, the intangible property is taxed based on
the domicile of the owner.
However, SECTION 104 provides that certain intangibles be deemed located
in the Philippines, namely:
1. Franchises being exercised in the Philippines
2. Shares, obligations, or bonds issued by domestic corporations, or
partnerships, business or industry located in the Philippines
3. Shares, obligations or bonds issued by foreign corporations
(a) At least 85% of the business of which is located in the
Philippines; or
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 (b) which have acquired situs in the Philippines
4. All intangibles owned by residents
> As provided in Section 104, there is reciprocity if the foreign country of
which the decedent was a citizen or resident at the time of his death:
1. Did not impose an estate tax; or
2. Allowed a similar exemption from estate tax with respect to
intangible personal property owned by Filipino citizens not residing in
that foreign country.
Determination of Net Estate:
Decedent Determination of net estate
Resident Citizen, Non-resident Net estate is equal to gross estate
Citizen, Resident Alien less ordinary and special deductions
and exclusions allowed by law
Note: The special deductions
(FSMA) are: (1) Family Home; (2)
Standard deduction (3) Medical
expenses and (4) Amount received
by heir under RA 4917.
Non-Resident Alien Net Estate is equal to gross estate
less ordinary deductions and
exclusions allowed by law
Note: Non-resident alien decedent
cannot avail of special deductions.
g) Items to be included in the gross estate
Decedent Composition of gross estate
Resident Citizen, Non-resident 1. Real property within and without
Citizen, Resident Alien the Philippines
2. Tangible personal property within
and without the Philippines
3. Intangible personal property within
and without the Philippines
Non-Resident Alien 1.Real property within the
Philippines
2. Tangible personal property within
the Philippines
3. Intangible personal property within
the Philippines unless there is
reciprocity in which case it is not
taxable
Fair Market Value of the Different Properties:
Real Property Fair market value 1. the CIR (zonal value) or
determined by: 2. that shown in the schedule of
values fixed by Provincial and City
Assessors, whichever is higher
Shares of Stock If unlisted:
1. Unlisted common shares are
valued based on their book value
2. Unlisted preferred shares are
valued at par value.
If listed:
The fair market value shall be 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.
Usufructuary, use or habitation, The probable life of the beneficiary
annuity in accordance with the latest basic
standard mortality table shall be
taken into account
Improvement 1.The construction cost per building
permit or
2.FMV per latest tax declaration
Gross estate includes property falling under any of the following categories:
(1) Decedent’s interest, to the extent of his interest therein at the time
of his death;
(2) Transfers in contemplation of death;
(3) Revocable transfers;
(4) Property passing under general power of appointment;
(5) Proceeds of life insurance;
(6) Prior interests; and
(7) Transfer for insufficient consideration. [Sec. 85 (a) to (g)]
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(1) Decedent’s Interest: It includes any interest having value or capable of (4) Property under General Power of Appointment:
being valued, transferred by the decedent at his death.
Kind of appointment Nature Tax Treatment
(2) Transfer in contemplation of death: A transfer is considered made in General Donor gives the donee Shall form part of the
contemplation of death when the impelling motive or reason for the transfer the power to appoint gross estate
is the thought of death, regardless of whether the transferor is near the any person as
possibility of death or not. successor to enjoy the
property
> One should consider the following: Special Donor gives the donee Shall not form part of
the power to appoint a the gross estate
person within a limited
1. The type of heir (whether compulsory or voluntary)
group to succeed in the
- When there is a donation inter vivos is made to a person who is
enjoyment of the
not a forced heir, the presumption is that such transfer is a donation
property
inter vivos.

However, if the recipient of the property is a forced heir, the (5) Proceeds of Life Insurance
presumption is that such transfer was made to accelerate
inheritance and hence, such transfer is mortis causa. This > They shall form part of the gross estate if the beneficiary is:
presumption may be rebutted by evidence to the contrary.
1. The estate of the deceased, his executor or administrator,
2. The timing of the transfer
irrespective of whether the insured retained the power of revocation
3. Other special factors

> Disprove the claim that the transfer was made in contemplation of
death.
1. see his children enjoy the property while the donor is still alive
2. save income of property taxes
3. settle family disputes
4. relieve donor from administrative burden
5. to reward services rendered
6. to provide independent income for dependents
(3) Revocable Transfers: Is a transfer where the transferor has reserved
his right to alter, amend or revoke such transfer, regardless of whether the
power is actually exercised or not during his lifetime and whether the power
should be exercised by him alone or in conjunction with someone else. To
the extent of any interest therein, it forms part of the gross estate of the
decedent.
2. Any beneficiary (third person) designated in the policy as revocable
Note: (1) If the policy expressly stipulates that the designation of the
beneficiary is irrevocable, then the amount of the proceeds shall not be
included in the gross estate.
(2) It is revocable when the beneficiary may still be changed and the
decedent has still retained interest in the policy. It is irrevocable when the
beneficiary may no longer be changed as they have acquired a vested
interest. For third persons whose designations are irrevocable, the proceeds
of life insurance shall not form part of the gross estate. If it is revocable, it
shall form part of the gross estate.
(6) Prior Interest
(7) Transfers for Insufficient Consideration: those transfers that are not
bona fide sales of property for an adequate and full consideration in money
or money’s worth.

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h) Deductions and exclusions from estate The expenses must be duly supported by receipts or invoices or
other evidence to show that they were actually incurred.
1. Ordinary deductions
a. Expenses, losses, indebtedness, taxes, etc (ELIT) ii. Judicial expenses of testamentary or intestate
i. Funeral expenses proceedings;
ii. Judicial expenses
iii. Claims against the estate Requisites:
iv. Claims against insolvent persons
v. Unpaid mortgage or indebtedness on property 1. Must be incurred during the settlement of the estate
vi. Taxes but not beyond the last day prescribed by law (within
vii. Losses 6 months from the date of death of the decedent) or
b. Vanishing Deduction the extension thereof (in meritorious cases, the CIR
c. Transfer for public use may grant reasonable extension not exceeding 30
days) for the filing of the estate tax return.
2. Special deductions (FSMA)
a. Family home 2. The judicial expenses are incurred in:
b. Standard deduction a. Inventory-taking of assets comprising the gross
c. Medical expenses estate
d. Amount received by heir under RA 4917 b. Administration
c. Payment of debts of the estate
d. The distribution of the estate among the heirs (RR
The deductions from the gross estate are:
2-2003)

(1) Ordinary Deductions iii. Claims against estate;

a. Expenses, losses, indebtedness, taxes, etc. Requisites:

1. Must be a personal obligation of the deceased

i. Funeral expenses;
existing at the time of his death except those incurred
incident to his death or those medical expenses
Conditions:
2. Liability must have been contracted in good faith
1. Whether paid or unpaid
3. The claim must be a debt or claim which is valid in
2. Up to the time of interment
law and enforceable in court
3. The actual amount or in an amount equal to 5% of
4. Indebtedness not condoned by the creditor or the
the gross estate, whichever is lower, but in no case to
action to collect from the decedent must not have
exceed P200,000
prescribed
- For actual funeral expenses or in an amount equal to five
Requirements to Substantial Claims:
percent (5%) of the gross estate, whichever is lower, but in
no case to exceed Two hundred thousand pesos
In case of simple loan a. Instrument must be duly
(P200,000)
notarized b. Duly notarized
Certification from the creditor
* Actual funeral expenses shall mean those which are actually
c. Proof of financial capacity
incurred in connection with the interment or burial of the deceased.
of the creditor to lend; d.

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 Statement under oath
executed by the
executor/administrator of the
estate reflecting the
disposition of the proceeds
of the loan (if the loan was
contracted within 3 years
prior to the death of the
decedent)
In unpaid obligation a. Pertinent documents
arose from purchase evidencing the purchase of
of goods or services goods or service b. Duly
notarized Certification from
the creditor as to the unpaid
balance of the debt,
including interest as of the
time of death; c. Certified
true copy of the latest
audited balance sheet of the
creditor
iv. Claims against the insolvent persons;
Requisites:
1. The amount has been initially included as part of
the gross estate; and
2. The incapacity of the debtors to pay their
obligations is proven, not merely alleged.
v. Unpaid mortgage or indebtedness on property;
Requisites:
1. The FMV of the property mortgaged without
deducting the indebtedness has been initially included
as part of the gross estate; and
2. The mortgage indebtedness was contracted in
good faith and for an adequate and full consideration
in money/money’s worth.
vi. Taxes paid;
- Taxes are deductions from the gross estate if such taxes
accrued prior to the decedent’s death. Those that accrued
after the decedent’s death are not deductions from gross
estate.
Requisites:
1. Taxes which have accrued as of or before the death of
the decedent; and
2. Unpaid as of the time of his death, regardless of
whether or not it was incurred in connection with trade or
business
vii. Losses.
Requisites:
1. were incurred during the settlement of the estate
2. arose from fires, storms, shipwreck or other casualties
or from robbery, theft or embezzlement
3. are not compensable
4. are not claimed as deduction for income tax purposes
5. were incurred not later than the last day for payment of
the estate tax
b. Vanishing deductions: A vanishing deduction is a deduction
allowed on the property left behind by the decedent which he had
acquired previously by inheritance or donation
Conditions:
1. Death
2. Identity of property (the property with respect to which
deduction is sought can be identified as the one received from
the prior decedent)
3. Inclusion of the property (the property must form part of the
gross estate situated in the Philippines of the prior decedent or
was a taxable gift of the donor)
4. Previous taxation of property (Estate tax or donor’s tax due
thereon must have been paid)
5. No vanishing deduction on the property was allowed to the
estate of the prior decedent
c. Transfer for public use
- The amount of all the bequests, legacies, devises or
transfers to or for the use of the Government of the
Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes.
TRANSFER TAXES | 7
(2) Special Deductions appointed
(4) Proceeds of life insurance under a group insurance taken by
a. Family Home; employer (not taken out upon his life)
(5) War damage payments
(6) Transfer by way of bona fide sales
Requisites: (7) Transfer of property to the National Government or to any of its
political subdivisions
1. The family home must be the actual residential home of the (8) Separate property of the surviving spouse
decedent and his family at the time of his death as certified by the (9) Merger of usufruct in the owner of the naked title
barangay captain (10) Properties held in trust by the decedent
2. The total value of the family home must be included as part of the (11) Acquisition and/or transfer expressly declared as not taxable
gross estate (12) Personal Equity and Retirement Account (PERA) assets of the
3. Allowable deduction must be in an amount equivalent to: decedent-contributor
a. the current FMV of the family home as declared or included in
the gross estate or Deductions allowed to Non-Resident Estate
b. the extent of the decedent’s interest (whether
conjugal/community or exclusive property), whichever is lower 1. Ordinary deductions
4. The deduction not exceed Php 1,000,000. 2. Share in conjugal property

b. Standard deduction: P1M without need of substantiation Exclusions from estate

1. The capital (exclusive property) of the surviving spouse is
considered as an exclusion in the gross estate under Section 85(H) of
c. Medical expenses; the Tax Code

Requisites:
1. The expenses were incurred by the decedent within 1 year prior to
his death
2. The expenses are duly substantiated with receipts
3. The deductible expense shall not exceed Php 500,000
d. Amounts received by heirs under R.A. 4917: Any amount received by
the heirs from the decedent - employee as a consequence of the death of
the decedent-employee in accordance with Republic Act No. 4917: Provided,
That such amount is included in the gross estate of the decedent.
*Note: These deductions are allowed for a citizen or resident of the PH. Non-
resident aliens are not entitled to special deductions.
The following are excluded from the gross estate:
(1) GSIS proceeds/ benefits
(2) Accruals from SSS
(3) Proceeds of life insurance where the beneficiary is irrevocably
Note: Under Section 86(C), the share of the surviving spouse n the
absolute community/conjugal partnership is considered as a
deduction
2. Other items which are excluded:
a. GSIS proceeds/benefits
b. Accruals from SSS
c. Proceeds of life insurance where the beneficiary is
irrevocably appointed
d. Proceeds of life insurance under a group insurance taken by
employer (not taken out upon his life)
e. War damage payments
f. Transfer by way of bona fide sales
g. Transfer of property to the government or to any of its
political subdivisions
h. Merger or usufruct in the owner of the naked title
i. Properties held in trust by the decedent
j. Acquisition and/or transfer expressly declared as not taxable
i) Tax credit for estate taxes paid to a foreign country

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Who may avail?
1. Citizen
2. Resident alien
(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) 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 this Title 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 this Title bears to his entire net estate. [Sec. 86 (e)]
j) Exemption of certain acquisitions and transmissions
SEC. 87. Exemption of Certain Acquisitions and
Transmissions. - The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary;
(C) The transmission from the first heir, legatee or donee
in favor of another beneficiary, in accordance with the
desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of the
net income of which insures to the benefit of any
individual: Provided, however, That not more than thirty
percent (30%) of the said bequests, devises, legacies or
transfers shall be used by such institutions for
administration purposes.
k) Share in the conjugal property
> The net share of the surviving spouse in the conjugal partnership property
as diminished by the obligations properly chargeable to such property shall,
for the purpose of this Section, be deducted from the net estate of the
decedent. [Sec. 86 (c)]
The following are the community/conjugal deductions:
- Funeral expenses and judicial expenses
- Those obligations contracted during the marriage which are
presumed to have benefitted the family (debts incurred during the
marriage)
Filing of notice of death
Q: When is notice of death required to be given to the BIR?
1. In all cases of transfers subject to tax; or
2. Where, though exempt from tax, the gross value of the estate
exceeds P20,000
Q: If required, when shall the notice of death be given?
1. Within 2 months after the death of the decedent; or
2. Within a like period after the executor or administrator or
executor qualifies as such.
l) Estate Tax returns (Time for filing, place, time of payment)
Time of filing: The estate tax return shall be filed within six (6) months from
the decedent’s death. The Commissioner shall have the authority to grant,
in meritorious cases a reasonable extension not exceeding thirty (30) days
for filing the return. [Sec. 90 (b)]
Place of filing: The return shall be filed with an authorized agent bank,
Revenue Collection Officer or duly authorized Treasurer of the City or
municipality in the Revenue District Office having jurisdiction over the place
of domicile of the decedent at the time of his death.
In case of a non-resident decedent, with executor or administrator
in the Philippines, the estate tax return shall be filed with the AAB of the
RDO where such executor/administrator is registered or is domiciled, if not
TRANSFER TAXES | 9
yet registered with the BIR. For non-resident decedent with no executor or
administrator in the Philippines, the estate tax return shall be filed with the
AAB under the jurisdiction of RDO 39–South Quezon City. [Sec. 90 (d)]
Time of payment: The estate tax shall be paid at the time the return is filed
by the executor, administrator or the heirs. The Commissioner may grant
extension of time not exceeding five (5) or two (2) years depending on
whether the estate was settled judicially or extrajudicially.
In case the available cash of the estate is not sufficient to pay its
total estate tax liability, the estate may be allowed to pay the tax by
installment and a clearance shall be released only with respect to the
property the corresponding/computed tax on which has been paid. There
shall, therefore, be as many clearances (Certificate Authorizing Registration)
as there are as many properties released because they have been paid for
by the installment payments of the estate tax. The computation of the estate
tax, however, shall always be on the cumulative amount of the net taxable
estate. Any amount paid after the statutory due date of the tax shall be
imposed the corresponding applicable penalty thereto. However, if the
payment of the tax after the due date is approved by the Commissioner or
his duly authorized representative, the imposable penalty thereon shall only
be the interest. [Sec. 91 & Sec. 9 (F), RR 2-2003]
m) Duties of certain Officers and debtors
SEC. 95. Duties of Certain Officers and Debtors. -
Registers of Deeds shall not register in the Registry of
Property any document transferring real property or real
rights therein or any chattel mortgage, by way of gifts inter
vivos or mortis causa, legacy or inheritance, unless a
certification from the Commissioner that the tax fixed in
this Title and actually due thereon had been paid is show,
and they shall immediately notify the Commissioner,
Regional Director, Revenue District Officer, or Revenue
Collection Officer or Treasurer of the city or municipality
where their offices are located, of the non payment of the
tax discovered by them. Any lawyer, notary public, or any
government officer who, by reason of his official duties,
intervenes in the preparation or acknowledgment of
documents regarding partition or disposal of donation inter
vivos or mortis causa, legacy or inheritance, shall have the
duty of furnishing the Commissioner, Regional Director,
Revenue District Officer or Revenue Collection Officer of
the place where he may have his principal office, with
copies of such documents and any information whatsoever
which may facilitate the collection of the aforementioned
tax. Neither shall a debtor of the deceased pay his debts
to the heirs, legatee, executor or administrator of his
creditor, unless the certification of the Commissioner that
the tax fixed in this Chapter had been paid is shown; but
he may pay the executor or judicial administrator without
said certification if the credit is included in the inventory of
the estate of the deceased.
2. DONOR’S TAX
> The donor’s tax is imposed only on donaitons inter vivos. Donations mortis
causa partake of the nature of testamentary dispositions are subject to
estate tax.
> Donor’s tax is imposed upon the transfer by any person, resident or non-
resident, of any property by gift.
Who are liable for donor’s tax? Every person, whether natural or juridical,
resident or nonresident, who transfers or causes to transfer property by gift,
whether in trust or otherwise, whether the gift is direct or indirect and
whether the property is real or personal, tangible or intangible. In other
words, the donor is always liable to pay the donor’s tax.
a) Basic principles, concept and definition
Definition: Is synonymous with the term gift tax. “It is a tax imposed on the
gratuitous transfer of property between two or more persons who are living
at the time of the transfer.” The gift tax falls upon the gratuitous transmission
of property which tends to reduce the estate subject to tax at death.
> A donation is defined as an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another who accepts it.
There are two individuals involved in donation: the one disposing the
thing gratuitously or the donor, and the one accepting the thing or the donee.
Donation can be of two kinds:
donations mortis causa donations inter vivos
takes effect upon the death of the a donation between two living
TRANSFER TAXES | 10
donor and partakes of a persons which is perfected from the c) Time and transfer of properties
testamentary disposition, and is time the donor has knowledge of the
thus, properly the subject of estate donee’s acceptance and is properly > The transfer of property by gift is perfected from the moment the donor
tax. the subject of donor’s tax. knows of the acceptance by the done; it is completed by the delivery, either
actually or constructively, of the donated property to the donee.
b) Nature, purpose and object
Thus, the law in force at the time of the perfection/completion of the donation
Nature: Like estate tax, donor’s tax is in the nature of an excise tax which is shall govern the imposition of donor’s tax.
imposed on the transfer of property by lifetime gifts. It has been held that:
“The donor’s tax is not a property tax, but is a tax imposed on the transfer of d) Requisites of a valid donation
property by way of gift inter vivos.”
> The following are the requisites of a donation for purposes of the donor’s
Purpose: The purposes of donor’s tax are the following: tax:
1. To raise revenues
2. To tax the wealthy and reduce certain other excise taxes (1) Capacity of the donor- All persons who may contract or dispose of their
3. To discourage inter vivos transfers of property which could reduce property may make a donation.
the mortis causa transfers on which a higher tax, the estate tax would (2) Donative intent, or an intent of the donor to make a gift- necessary only
be collected in case of a direct gift. If the gift is indirectly taking place by way of sale,
4. It will tend to reduce the incentive to make gifts in order that exchange or other transfer of property as contemplated in cases of transfers
distribution of future income from the donated property may be to a for less than adequate and full consideration.
number of persons with the result that the taxes imposed by the (3) Delivery, whether actual or constructive, of the subject matter of the gift-
higher brackets of the income tax are avoided. There is delivery if the subject matter is within the dominion and control of
the done
Coverage of the Tax “Gifts” include real and personal property, whether (4) Acceptance of the gift by the donee- necessary because nobody is
tangible or intangible, or mixed wherever situated. obliged to receive a gift against his will.
(5) Form prescribed by law.
In case of a nonresident alien, his real and personal property so transferred
but which are situated outside the Philippines are not included as part of the Requirements for a donation to be valid:
gross gift.
MOVABLE IMMOVABLE
The following are considered situated in the Philippines and includible as 1. Donation may be oral or in writing 1. It must be in public document
gifts: 2. If oral, the donation must be 2. The property donated and the
(1) Franchise which must be exercised in the Philippines; accompanied with delivery value of the charges which the done
(2) Shares, obligations or bonds issued by any corporation or 3. If value is more than Php 5,000, must satisfy must be specified
sociedad anonima organized or constituted in the Philippines; the donation must be in writing and 3. The donee must accept through a
(3) Shares, obligations or bonds by any foreign corporation 85% of t he business
accepted
of which
in writing.
is located
(Art.in748,
the Philippines;
NCC) deed or similar instrument. (Art. 749,
(4) Shares, obligations, or bonds issued by any foreign corporation if NCC)
such shares, obligations, or bonds have acquired a business situs in
the Philippines; and To be subject to donor’s tax:
(5) Shares or rights in any partnership, business or industry 1. Property donated is not real property that is a capital asset
established in the Philippines, which are to be considered as situated 2. The transfer is for less than adequate consideration
in the Philippines. 3. The transfer is inter vivos

TRANSFER TAXES | 11
e) Transfers which may be constituted as donation f) Determination of gross gift

a) Sale/exchange/transfer of property for insufficient consideration Gross Estate Net Estate

b) Condonation/remission of debt Refers to all property, real or Means the net economic benefit
personal, tangible or intangible, that from the transfer that accrues to the
(1) sale for insufficient consideration is given by the donor to the done by done.
way of gift, without the benefit of any
Requisites: deduction.
1. The transfer was for less than adequate and full consideration
2. Such transfer was effective during his lifetieme (inter vivos) and How determined?
3. Other than real property in Sec 24(d), i.e. the property was not
subject to final capital gains tax (capital asset) Donor Determination of gross gift
Citizens and Resident Gross gift includes all real properties,
(2) condonation/remission of debt Aliens tangible and intangible personal properties
> If a creditor desires to benefit a debtor, and without any consideration wherever located
therefore, cancels the debt (and the debtor “accepts”), the amount of the Non-Resident Aliens Gross gift includes all real properties,
debt is a donation by the creditor to the debtor. tangible, and intangible properties located
in the Philippines unless the reciprocity rule
(3) transfer for less than adequate and full consideration applies.
> Generally, transfers for less than adequate and full consideration are
considered donations to the extent by which the FMV of the donated g) Composition of gross gift
property exceeds the value of the consideration.
> As a general rule, gross gifts include real and personal property, whether
But TRAIN law now gives an exception: When the transfer is made in the tangible or intangible or mixed, wherever situated.
ordinary course of business, it will be considered as made for an adequate
and full consideration. The requisites are: There are 2 kinds of donors (similar to estate tax):
1. The resident or citizen of the Philippines; and
1. bona fide transaction; 2. The non-resident, not citizen of the Philippines
2. arm’s length; and
3. free from any donative intent. If the donor is a resident or a citizen of the Philippines, gross gifts would
consist of:
Who are liable to pay donor’s tax? 1. Real estate, regardless of location
1. Resident citizen 2. Tangible personal property, regardless of location
2. Non-Resident Citizen 3. Intangible personal property, regardless of location
3. Resident Alien
4. Non-Resident Alien If the donor is a non-resident, not citizen of the Philippines, gross gifts
5. Domestic Corporation would consist of:
6. Foreign Corporation 1. Real estate located in the Philippines
2. Tangible personal property located in the Philippines
3. Intangible personal property located in the Philippines, subject to the
“reciprocity clause”
a. If donor at the time of the donation was a citizen and resident
of a foreign country which at the time of the donation did not
impose a transfer tax of any character in respect of intangible

TRANSFER TAXES | 12
 personal property of Filipino citizens not residing in that
country, or
b. If the laws of the foreign country of which the donor was a
citizen and resident at the time of donation allow a similar
exemption from transfer taxes of every character in respect of
intangible personal property owned by citizens of the
Philippines not residing in that country
Also be considered as gifts are the following:
1. Transfers for insufficient consideration; and
2. Cancellation of indebtedness.
h) Valuation of gifts made in property
> The fair market value of the property donated/given at the time of the
donation shall be the value of the gross gifts.
For Real Property The value shall be based on either (1) the
fair market value as determined by the CIR
or
(2) the fair market value as shown in the
schedule of values fixed by provincial and
city assessors (zonal value), whichever is
higher.
If there is no zonal value, taxable base is
FMV that appears in the latest tax
declaration
For improvements The value of the improvement is the
construction cost per building permit and/or
occupancy permit plus 10% per year after
year of construction or the FMV per latest
tax declaration
For all other properties The fair market value at that time will be
considered the amount of gift
i.) Tax credit for donor’s taxes paid to a foreign country
> A resident citizen is taxable on all income derived from worldwide sources
and it is not unlikely that the foreign-source income may also be subject to
taxation in the country from which it was derived.
> To minimize the possibility of double taxation, the taxpayer may avail of
the benefits provided under the applicable and effective tax treaty, which
may either be in the form of tax exemption or a preferential tax rate. The
amount of income taxes paid during the taxable year to any foreign country
may be used as credits against Philippine income taxes
j) Exemption of gifts from donor’s tax
The following gifts or donations are exempt from the donor’s tax, under
certain conditions:
(1) In case of gifts made by a resident of the Philippines:
(a) Dowries or gifts made on account of marriage and before its
celebration or within one year thereafter by the parents to each
legitimate, recognized, natural, or adopted children to the extent of
the first PhP10,000.00;
(b) Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit,
or to any of its political subdivisions; and
(c) Gifts in favor of an educational and/or charitable, religious, cultural
or social welfare corporation, institution, accredited non-government
organization, trust or philanthropic organization or research institution
or organization provided that not more than 30% of said gifts shall be
used by such donee for administrative purposes.
 Requisites for dowries:
1. The gift was made on account of marriage
2. It was made before or within one year after the celebration
of marriage
3. Donor is a parent
4. Donee is a legitimate, recognized natural or adopted child
of the donor
5. The amount of the gift exempted is only to the extent of
the first P10,000 (per parent, if made out of conjugal or
community funds)
 Requisites for gifts in favor of an education and/or
charitable, religious, cultural or social welfare
corporation, institution, accredited NGO, trust or
philanthropic organization or research institution or
organization to be exempted:
1. Not more than 30% of the said gift should be used for
administrative purposes
2. The donee must be a non-stock, non-profit organization or
TRANSFER TAXES | 13
 institution
3. The donee organization or institution should be governed a. Filing and contents of returns
by trustees who do not receive any compensation
4. Said donee devotes all of its income to the > A return is required in all cases of transfers by gift except those which are
accomplishment and promotion of its purposes exempt under the NIRC, and shall set forth: each gift made during the
5. The NGO must be accredited by the Philippine Council for calendar year which is to be included in computing net gifts; the deductions
NGO Certification claimed and allowable; any previous net gifts made during the same
6. The donor engaged in business shall give notice of calendar year; name of donee; relationship of the donor to the donee; and
donation on every donation worth at least P500,000 to the such other information as may be required.
RDO which has jurisdiction over his place of business within
30 days after receipt of the qualified donee’s institution’s b. Time and place of filing and payment
duly issued Certificate of Donation (RR 2-2003)
> The return shall be filed within thirty (30) days after the date the gift is
 Requisites for a donation given to athletes as prize or made and the tax due thereon shall be paid at the time of filing with an
award to be exempted: authorized agent bank, Revenue District Officer, Revenue Collection Officer
or duly authorized Treasurer of the city or municipality where the donor was
The donation must be prize or award given to athletes: domiciled at the time of the transfer or if there is no legal residence in the
1. In local and international sports tournaments and competitions Philippines, with the Office of the Commissioner. In case of gifts made by a
2. Held in the Philippines or abroad; 3. Sanctioned by their non-resident, the return may be filed with the Philippine embassy or
respective national sports associations (RA 7549) Consulate in the country where the donor is domiciled at the time of the
transfer, or directly with the office of the Commissioner
(2) In case of gifts made by a nonresident alien of the Philippines:
(a) Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit,
or to any of its political subdivisions; and
(b) Gifts in favor of an educational and/or charitable, religious, cultural
or social welfare corporation, institution, foundation, trust or
philanthropic organization or research institution or organization,
provided that not more than 30% of said gifts shall be used by the
recipient for administrative purposes.

Exemptions are allowed to nonresident aliens:

 Gifts made to or for the use of the national government or any entity
created by any of its agencies which is not conducted for profit, or
to any political subdivision of the said government

 Gifts in favor of an education and/or charitable, religious, cultural or

social welfare corporation, institution, accredited NGO, trust or
philanthropic organization or research institution or organization
provided not more than 30% of said gifts will be used by such done
for administrative purposes.

k) Time and place of filing returns

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