October 2019 DONOR’S TAX Atty. C. Llamado - Also called Gift Tax oo | Imposed on the gratuitous transfer of real or personal, tangible or intangible property. = Imposed whether the transfer is in trust or otherwise. Purpose: Requisites: 1) To prevent avoidance of the estate tax 2) To compensate for the loss or decrease of ineome taxes when large estates are split. 1) Transfer is gratuitous or without consideration. ‘The transfer is made out of pure generosity of the donor (donative intent). 2) Both the donor and the donee are living at the time of the transfer (inter vivos). 3) There must be a completed gift. Contract of Donation When perfected? At the moment the donor knows of the acceptance of the gift by the donee (Art. 734, Civil Code). Who can be donors? All persons who may contract and dispose of their property may make a donation (Art. 735, Civil Code). Who can be donees? All those who are not specially disqualified by law may accept donations (Art. 738, Civil Code). Minors and others who cannot enter into a contract may become donees, but acceptance shall be done through their parents or legal representatives (Art. 741, Civil Code). Donations made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already born (Art. 742, Civil Code), What donations shall be void? 2 1) Between spouses, whether direct or indirect, during the marriage, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing (Art. 87, Family Code); Note: Indirect donations to a spouse are void, and include the following donations of a spouse: a) Toa stepchild who has no compulsory heirs other than the other spouse at the time of the donation; b) To a common child who has no compulsory heirs other than the other spouse at the time of the donation; ©) To the parents of the other spouse; d) To the other spouse’s adopted child in cases when, at the time of the donation, the only surviving relatives of the adopted is the adopter-spouse, the illegitimate children of the adopted, and the surviving spouse of the adopted;October 2019 ) Toa common adopted child who has no other surviving heirs (see Art. 190, Family Code) 2) Between persons living together as husband and wife without a valid marriage (Art 87, Family Code); 3) Between persons guilty of concubinage or adultery at the time of donation (Art. 739, Civil Code); 4) Between persons found guilty of the same criminal offense, in consideration thereof (Art. 739, Civil Code); 5) ‘Those made to a public officer or his/her spouse, descendants, and ascendants, by reason of his or her office (Art, 739, Civil Code); 6) Donations made by persons to those who cannot inherit from them; (@) Donations to the priest who heard the confession of the donor during his last illness, or the minister who extended spiritual aid to him during the same period; (6) Donations to the relatives of such priest or minister in (a) within the 4" degree; (©) Donations to the church, order, chapter, community, organization, or institution to which such priest or minister in (a) belongs; (@ Those made to a guardian with respect to donations made by a ward before the final accounts of the guardianship have been approved, except when the guardian is the ‘ward’s ascendant, descendant, brother, or sister; (© Any physician, surgeon, nurse, health officer, or druggist who took care of the donor during his last illness (Art. 740, Art. 1027, Civil Code) Donation of Movables (1) Donation may be oral or in writing. (@) If orally made, it requires the simultaneous delivery of the thing or the document representing the right donated () If in writing, it does not require simultaneous delivery of the thing donated. (2) Acceptance may be oral, in writing, or tacit. If value of the movable does not exceed P5,000, the donation may be oral or in writing, and the acceptance may be oral, in writing, or tacit. If the value of the movable is exceeds P5,000, the donation and the acceptance must be in writing, otherwise the donation is void. Without such writing, the donation would be void, even if there is simultaneous delivery (Art. 748, Civil Code) * Donation of Immovables Donation must be in writing and in a pubtic instrument (notarized). ion or in a separate public instrument. Acceptance may be made in the same deed of donati f the donor, and the latter must be The acceptance must be done during the lifetime 0 notified of the acceptanceOctober 2019 j OTHER TRANSACTIONS SUBJECT TO DONOR’S TAX (a) Transfers for Insufficient Consideration (Sec. 100, NIRC) Requisites: (@) The property transferred is real or personal property, except real property classified -apital set referred Section 24(D) of the Tax Code; (&) The transfer is for less than a full price; ” (©) The transfer is inter vivos. | Purpose: To prevent escape from the income tax by accepting a lower price for the Property. ‘ax Col ence [ Gift (subject to the Donor’s Tax) Income (subje ‘Gubject to Income Tax) | FMV of the property transferred | Price (consideration) received | Less: Price (consideration) received | Less: Cost In Transfers for Insufficient Consideration in the Sale of Domestic Shares of Stock: FMV of share of stock sold, bartered or exchanged shall be as follows: (1) If the shares are listed, but are sold, bartered, or exchanged outside the local stock exchange, the FMV shall be: (a) The closing price on the day the shares are sold, bartered, or exchanged; or (b) The closing price on the day nearest to the date of sale, barter, or exchange if there is no sales transaction of the shares in the local stock exchange on the day it was sold, bartered, or exchanged. (2) If the shares are not listed in the local stock exchange, the FMV shall be determined using the Adjusted Net Asset Value Method. In such method, all assets and liabilities are adjusted to fair market values, The net adjusted asset minus the adjusted liability values is the value of the equity. For real properties, the FMV shall be the highest of the zonal value, assessor's value, or the independent appraiser's value (Rev. Regs. 6-2008, 6-2013). EXCEPTION: When the sale/exchange is bona fide, at arm’s length, and free from any donative intent, the same will be considered as made for an adequate and ars . toe ; fall consideration in money or money’s worth.' In such cases, there is no insufficient consideration, and therefore no gift. (2) Condonation or Remission of Debt : . = Where the debtor did not render any service in favor of the creditor. ee Sec, 100, NIRC, as amended by R.A. No. 10963October 2019 GROSS GIFT = Depends upon the citizenship and/or residence of the donor: Tangible Personal | ‘Intangible Personal Donor Real Property Prony Dae | Within | Without |~ Within [Without Within | Without rm (9@/@)/@|o @/1® 2) eae © | © | © (aa 2 © Nears | Ol oe) © 96) © | 3 9 | (if there is reciprocity) | do not have any physical form, rademarks, shares of stock, Intangible personal property means incorporeal property which but represent rights and privileges. Examples include bank deposits, t patents, copyrights, bonds, notes, interest in a partnership, etc. ___Intangible Asset. T)_Receivable (promissory note) 2) Bank deposit _ '3)_Other intangible prop: a) Franchises, patenls, copytigh ')_Investinent in pa ©) Shares of stock, bonds, corporate obliga (1) Domestic corporation ) Foreign corporation Excopt: 1) IF> 85% of business is ii) If shares or bond: situs in the Philippi 1 | Within tae Piadippines | Withovr the Phifippines | Philippines | Withir. the Philippines: wired a business 1 Philip Gross Gift of Husband and Wife Husband and wife may donate: (a) The conjugal or community properties. Each spouse stall be cot donor of his or ner interest in the property: ¥ of the conjugal property donated being a gift of the husband, and the other half that of the wife. (b) Separate or exclusive property owned by only one spouse Valuation of Gifts + Properties shall be valued at the time the gift is madeOctober 2019 Property Valuation Real Property FMV which isthe higher of the zonal value or the assessor's value Personal Property FMV atthe time of the gift Stocks listed in the stock Average ofthe lowest and highest quotes on the valuation date Gate of exchange sift) or day nearest to the valuation date. ‘Stocks not listed in any For common shares: Book Value’ local exchange For preferred shares, par value, Notes; accounts FMV is the discounted amount of the unpaid principal plus interest. receivable | Stock options (1) Attthe time of donation, the FMV of the stock option (2) Upon exercise of the option, the difference between the higher of the BV or FMV of the underlying shares at the time of exercise, and the exercise price. Units of participation in any | Bid price nearest the date of the gift published in any newspaper or association, recreation, or | publication of general circulation. amusement club * In determining the book value, appraisal surplus and the value assigned to preferred shares shall not be considered,October 2019 EXEMPTIONS (EXCLUSIONS) FROM GROSS GIFT A) Gis taado ee ecanal Government or to any political subdivision of the ent or to any enti te i Natitnal Goveriines yy entity created by the government which is not B) Gifts made to educational, charitable, religious, cultural, social welfare institutions, accredited NGOs and trusts, philanthropic organizations, and research institutions. Provided: 1) The non-profit institution is a non-stock entity that pays no dividends, is governed by trustees who do not receive any compensation, and devotes all ofits income to the accomplishment of its purposes; and 2) Not more than 30% of the gifts shall be used for administrative purposes. 3) The non-profit institution must be accredited by the designated accrediting government agency, and registered with the BIR. ©) Campaign contributions in cash or in kind to any candidate which are duly reported to the COMELEC (R.A. 7166) ations in violation of Section 36(9) of the However, donations made by corpor tax, and may not be deducted by the donor- Corporation Code are subject to donor’ corporation.? D) Other donations which are exempted from the donor's tax under special laws: stem under R.A. No. 7686. (1) Donation made for the operation of the Dual Training Syst research, and educational (2) Donations of cooperatives to duly accredited charitable, institutions, and to socio-economic projects within their area of operations; (6) Donations of lands certified by the LGU to have been donated for socialized housing purposes; (4) Donation to the Philippine Red Cross: (5) Donations to state universities and colleges. DEDUCTIONS FROM GROSS GIFT A) Mortgage or encumbrance on the property which obligation is assumed by the donee (RR 2-2003). B) Those specifically provided by the donor as a diminution of the property donated. . C) The first 250,000, *RMCNo, 38-2018,October 2019 COMPUTATION OF DONOR’S TAX Beginning Jam muary 1, 2018, the tax shall be six percent (6%) computed on the basis of the total gifts in exces: ss. of Two Hundred Thousand Pesos (P250,000) exempt gift made during the calendar year The ., rae re of the donor's tax is on a cumulative basis over a period of one (1) calendar The donor's or gift tax is computed on the net gift of the first donation. In case there are subsequent donations in the same calendar year, the tax is computed on 2 ‘cumulative basis, i.¢., the prior gross gifts in the same calendar year are added tothe current gross Bit 0 arrive at the racted from the total gross total gross gifts. The total exemptions or deductions shall be subt gifts. The donor's tax shall be based on the total net gifts. (a) Qn the first donation during the year: Gross gift Pox Less: Exemption or deduction (xxx) Net gift P xxx Gift tax (6%) P xxx (b) On subsequent donations within the same calendar veat: Gross gift Pox ‘Add: Prior gross gift XXX, Total gross gifts Pox Less: Exemptions and deductions _ (xx) Total net gifts P_xxx Gift tax (6%) Po oxxx Less: Gift tax on prior net gifts in the same calendar year _ (xxx) P xxx Gift tax on subsequent gift —____ 52°. 9(A), NIRC; Re N 5 ), NIRC; Rey. Ri Rev Reg No. 122018 12-2018October 2019 CREDIT FOR FOREIGN DONOR'’S TAXES PAID ~ Available only to Resident Donors (citizens or resident alien donors) + Subject to Limits Limits: (A) NetGift (per Foreign Country) x Philippine Donor’s Tax Total Net Gifts (B) Net Gifts (in ll Foreign Countries). x Philippine Donor's Tax Total Net Gifts Rules: 1) If there is only one (1) foreign country, only Limit (A) is used 2) If there are > two (2) foreign countries, use both Limits Formula: 7 yl Donor’s tax paid in Country } om Limit A (Country 1) Donor's tax paid in Country 2] , [Lower (2) Limit A (Country 2) zl Lindt (4) ! _ i [ Lower= Credit Sum of donor's taxes paid in] | Countries I and 2 Lower Limit (B) | Limit B JOctober 2019 Donor’s Tax Return Who files? ly individual who makes any transfer by gift. Notes: (@) No return is required i the National coe if the transfer is exempt from donor's tax, like donations to vernment or to non-profit institutions. A sey ) ae pear eaa all be filed by each donor for each gift or donation made on ae tees year Any previous gifts made in the same calendar year (c) Only one return shall be filed for several gifts or donations by a donor made on the same date to different donees. (4) If the gift or donation involves conjugal/community property, each spouse shalll file a separate return corresponding to his/her respective share in the conjugal/community property. This rule shall likewise apply in the case of co-ownership over the property being donated. Time of filing? Within thirty (30) days from the date the gift is made Time of payment: At the time of filing the return. Where filed? (@) If donor is a resident donor (ie., citizen or resident alien) ~ with the Authorized ‘Agent Bank (AB), RDO, collection officer or duly authorized treasurer of the city or municipality where donor is domiciled at the time of transfer, or with the Office of the Commissioner if donor has no legal residence. (b) If donor is a non-resident donor (i.e., non-resident alien) — with the Philippine Embassy or Consulate in the country where he is domiciled at the time of transfer; or directly with the Office of Commissioner (RDO No. 39). (©) In cases of “No Payment Ret .” — The returns shall be filed with the Revenue iurisdiction over the place of domicile of the donor at the time District Office having j of the donation, or if there is no legal residence in the Philippines, with the Office of the Commissioner (RDO No. 39 - South Quezon City).” Contents of the Donor’s Tax Return The return shall set forth:* 1) Each gift made during the calendar year which is to be included in computing net gifts; 2) The deductions clainied and allowable; 3) Any previous net gi'ts made during the same calendar year; can Guidel i Fe nd Instructions (BIR Form No, 1800 ~ Donor s Tax Retwn) Sec. 103(A), NIRC.October 2019 4) ‘The name of the donee; and 5) ‘Such further information as may be required, Notice of Donation. js . i In order to be exempt from the donor’s tax and to claim full deduction of the donati ive a Notice given to qualified donee institutions, the donor engaged in business shall give a Not the RDO of Donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the which has jurisdiction over his place of business i it after receipt The aforementioned notice shall be given to the RDO pit py Roose Tie ame of the donee’s duly issued Certificate of Donation (BI Sal ants hat aot fete than certificate shall be attached to the Notice of ee i acy aeteaiied ero: 30% of the donations for the taxable year shall be v y Susans to Scion non-profit, NGO-donee institution for administration purposes 101(A)(3) and B(2) of the Tax Code. 3, 12-2018,Transfer for Insufficlent Consideration Dowry Exemption Donor's tax rate PRE TRAIN Section 100: The amount by which the FMV of the property sold exceeds the consideration received shall be deemed a gift. Section 101(A)(1). Dowries or gifts made on account of mariage and before its celebration or within 1 year thereafter by parents to their children to the extent of the first 10,000. Note: Non-resident alien donors are not allowed any dowry deduction ‘Sec. 99 (A) and (B) Donor's tax rates are as follows: a. Not stranger — based on total net gift Over Butnotover This taxshalloe Plus Of the Excess Over Ps 100,000 Exempt Phy 100,000 200,000 Ox PH, 100,000 1,004,000 15% 10,000,000 Not a stranger means a person who Is a: (1) Brother or sister (whole or half-blood), s eestor pate aise ), spouse, ancestor, o lineal (2) Relative by consanguinity in the collateral line within the 4® degree, b. Stranger — 30% based on net gifts TRAIN However, if the sale or transfer is a bona fide arm’s length transaction, the same shall be considered as made for an adequate and full consideration. Therefore, any excess of the FMV over the selling price is NOT deemed a gift. Repealed Donor's tax rate fixed at 6% based on t of PHP250,000 exempt gift made during whether the donee is a stranger or not. I gifts in excess calendar year