MINDANAO STATE UNIVERSITY - GENERALSANTOS CITY

DEPARTMENT OF ACCOUNTANCY
ACCTG163: REVIEW IN TAXATION

ESTATE TAXATION

GROSS ESTATE

1. Gross estate

 The extent of property that will form part of the gross estate of the decedent is determined
by the classification of decedent and location of property:

Classification of Decedent Location of Property

Resident or Citizen All properties wherever situated

Nonresident alien Only properties situated in the Philippines

2. Situs of intangible personal property

Philippine situs of the following intangible personal property

A. Franchise - the franchise which must be exercised in the Philippines.

B. Shares, obligations or bonds issued by any corporation or sociedad anonima

organized or constituted in the Philippines

C. Share, obligations or bonds by any foreign corporation 85% of the business

which is located in the Philippines

D. Shares, obligations or bonds issued by any foreign corporation if such shares,

obligations or bonds have acquired a business situs in the Philippines

E. Shares or rights in any partnership, business or industry established in the

Philippines, shall be considered as situated in the Philippines

Reciprocity clause (for nonresident alien and intangible personal property.) No transfer tax is
imposed in respect of intangible personal property:

A. The foreign country has no estate tax law

B. The foreign country has an estate tax law but provides for exemption to NRA.

3. Composition of gross estate

 All properties registered under the name of the decedent at the time of his death shall be
considered on determining the gross estate depending upon the classification of the
decedent.

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 MINDANAO STATE UNIVERSITY - GENERALSANTOS CITY
DEPARTMENT OF ACCOUNTANCY
ACCTG163: REVIEW IN TAXATION

The gross estate is not only limited to properties registered under the name of the decedent, it
also includes the following according to the Tax Code:

A. Decedent’s interest To the extent of the interest of the decedent at the time of his
death;

B. Transfer in Contemplation of Death I. Transfers made in contemplation of death

II. Transfers intended to take effect in possession or

enjoyment at or after death (Donation mortis causa)

III. Transfer made by the decedent during his lifetime under

which he has retained for his life (1) the possession or
enjoyment of, or the right to income from the property, or (2)
the right, either alone or in conjunction with any person, to
designate the person who shall possess or enjoy the property
or the income therefrom.

C. Revocable transfer Transfer made by the decedent during his lifetime, which the
decedent has reserved the right to alter, amend, revoke, or
terminate the transfer.

D. Property passing under the Tranfer of property by the the decedent upon death, of
General Power of Appointment property which the decedent acquired by will wherein the
testator allows the present decedent to transfer the property to
any person

E. Proceeds of Life Insurance If the beneficiary designated is the executor, administrator or

the estate, the proceeds of life insurance taken by the
decedent during his lifetime will form part of his gross estate.

If the beneficiary designated is other beneficiary (other than

executor, administrator, or estate), the proceeds of life
insurance taken by the decedent during his lifetime will form
part of his gross estate if the beneficiary is revocably
designated.

F. Transfer for insufficient If the decedent transfers his property during his lifetime for
Consideration insufficient consideration, the excess of fair market value at

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 MINDANAO STATE UNIVERSITY - GENERALSANTOS CITY
DEPARTMENT OF ACCOUNTANCY
ACCTG163: REVIEW IN TAXATION

the time of his death over the consideration received will form
part of the gross estate

G. Capital of the surviving spouse The capital of the surving spouse of a decedent shall not form
part of his or her gross estate.

(Exclusive property of the Surviving Spouse)

EXERCISE 1: Determine the situs of each property and identify which of the following
properties will be included in the gross estate of the decedent under each assumptions.

PARTICULARS SITUS CITIZEN W/ WITHOUT

OR RECIPROCI RECIPROCITY
RESIDEN TY
T

Parcel of Land - Makati

Parcel of Land - Bali, Indonesia

House and Lot (family home) -

Taguig

Rest House - San Juan

Rest House - Palawan

Rest House - Malaysia

Cars - Philippines

Cars - Abroad

BPI Deposit - Philippines

BPI Deposit - US Branch

ABN Amro Bank (Foreign Bank)

- Philippine Branch

ABN Amro Bank ( Foreign Bank)

- London Branch

Receivables - debtors from

Philippines

Receivables - debtors from

Canada

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 MINDANAO STATE UNIVERSITY - GENERALSANTOS CITY
DEPARTMENT OF ACCOUNTANCY
ACCTG163: REVIEW IN TAXATION

Shares of Stocks of Domestic

Corporation. The certificates
were stored in the Philippines

Shares of Stocks of Domestic

Corporation. The certificates
were stored in the Abroad.

Shares of Stocks of Foreign

Corporation. The certificates
were stored in the Philippines

Shares of Stocks of Foreign

Corporation. The certificates
were stored in the Abroad

Shares of Stocks of Foreign

Corporation. 90% of its
operations is in the Philippines

Shares of Stocks of Foreign

Corporation. 80% of its
operations is in the Philippines

Shares of stock of foreign

corporation which acquired
business situs in the Philippines

Patents and copyrights

exercised in the Philippines

Patents and copyrights

exercised Abroad

Bond purchased from a

domestic corporation

Bond purchased from a foreign

corporation

Exercise 2: Determine whether or not the following is a taxable transfer for estate tax
purposes:

1. Property transferred, transferor is already 85 years old and thought of dying soon.

2. Property transferred, transferor wanted to reward service rendered by other person

3. Property transferred, transferor reserved the right to cancel the tranfer, but failed to
exercises the right before death.

4. Property transferred under power of appointment which can be exercised in favor of

anybody.

5. Property transferred under power of appointment which can be exercised in favor of a

person designated by the transferor of the power of appointment.

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 MINDANAO STATE UNIVERSITY - GENERALSANTOS CITY
DEPARTMENT OF ACCOUNTANCY
ACCTG163: REVIEW IN TAXATION

6. Property transferred, the transferror has the right to the income of the transferred property
while still alive.

7. Proceeds of life insurance, daughter of the insured was irrevocably designated as

beneficiary.

8. Proceeds of life insurance, daughter of the insured was revocably designated as

beneficiary.

9. Proceeds of life insurance, the beneficiary’s designation was not stated in the insurance
policy.

10. Proceeds of life insurance, the administrator if the insured was irrevocably designated as
beneficiary of the life insurance.

11. Proceeds of life insurance, the administrator if the insured was revocably designated as
beneficiary of the life insurance.

Exercise 3: Determine how much shall be included in the gross estate.

CASE FMV, time of Consideration FMV, time of Amoun

transfer death included in the
Gross Estate

1 P800,000 P500,000 P1,000,000

2 P1,300,000 P900,000 P1,100,000

3 P2,000,000 none P1,500,000

4 P2,200,000 P2,600,000 P3,100,000

5 P3,000,000 P2.400,000 P1,800,000