HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K.

J-Culajara

ATENEO DE ZAMBOANGA in trust or otherwise, whether the gift is P250,000 exempt gift made during the
UNIVERSITY direct or indirect, and whether the calendar year.
School of Management and property is real or personal, tangible or
Accountancy intangible.1 SKS: Under the old law, donor’s tax is
Accountancy Department subject to the following scheduler
A. Purposes of donor’s tax rates:
I. INTRODUCTION TO  To supplement estate tax; Over But not Tax Plu Of the
DONOR’S TAX  To prevent avoidance of income over base s excess
over
tax through the device of
- P100,00 Exemp
Donation is an act of liberality splitting income among 0 t
whereby a person (donor) disposes numerous donees, who are P100,00 200,000 P0 2% P100,00
gratuitously of a thing or right in favor usually members of a family or 0 0
of another (donee) who accepts it. into many trusts, with the donor 200,000 500,000 2,000 4% 200,000
There is also donation when a thereby escaping the effect of 500,000 1,000,0 14,000 6% 500,000
person gives to another a thing or right progressive rates of income tax. 00
on account of the latter’s merits or of 1,000,0 3,000,0 44,000 8% 1,000,0
the services rendered by him to the 00 00 00
B. Rates of donor’s tax
donor provided they do not constitute a 3,000,0 5,000,0 204,00 10% 3,000,0
00 00 0 00
demandable debt or when the gift Schedular rates of donor’s tax 5,000,0 10,000, 404,00 12% 5,000,0
imposes upon the donee a burden imposable on donation made to a done 00 000 0 00
which is less than the value of the thing who is not a stranger 10,000, 1,004, 15% 10,000,
given. Under the TRAIN, the tax for each 000 000 000
Under the Tax Code, donation calendar year shall be 6% computed on
has a broader meaning. It extends to the basis of the total gifts in excess of Tax payable by the donor is donee is a
sales or exchanges of property, other stranger
than real property classified as capital When the donee or beneficiary is
asset located in the Philippines, for less
1
TRAIN introduced that Banks which has a stranger, the tax payable by the
knowledge of the death of a person, shall allow
than adequate and full consideration in donor shall be 30% of the net gifts. For
withdrawals from the decedent’s deposit
money or money’s worth. account subject to a final 6% final withholding purposes of donor’s tax, a stranger is a
Donor’s tax is imposed upon the tax. Before, there has to be a certificate from person who is not a:
transfer by any person, resident or non- the Commisisoner that estate tax had been  Brother, sister (whether by whole
resident, of the property by gift. The paid to allow any withdrawal or at least an
or half-blood), spouse, ancestor
authorization for an amount exceeding
tax shall apply whether the transfer is and lineal descendant; or
P20,000.

1
HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara
 Relative by consanguinity in the
collateral line within the fourth
(4th) degree of relationship.
 A legally adopted child, with
respect to donations between an
adopter and an adoptee, and vice
versa.
Contribution for election campaign
Section 94(a) of the Omnibus
Election Code provides that campaign
contributions in cash or in kind to any
candidate, duly reported to COMELEC,
are exempt from donor’s tax.
C. Taxable transfers
The term “transfer of property in
trust or otherwise, direct or indirect” is
used by the law in the most
comprehensive sense. It includes not
only the transfer of ownership in the
fullest sense but also the transfer of
any right or interest in property, but
less than title. A transfer becomes
complete and taxable only when the
donor has divested himself of all
beneficial interest in himself or his
estate. The law contemplates passage
of control over the economic benefits
of the property, rather than mere
technical changes in the title.
II. TRANSFER FOR LESS THAN
ADEQUATE AND FULL
CONSIDERATION
Where property, other than real
property subject to capital gains tax, is
transferred for less than an adequate
and full consideration in money or
money’s worth, then the amount by
which the fair market value of the
property exceeded the value of the
consideration shall be deemed a gift,
and shall be included in computing the
amount of gifts made during the
calendar year: Provided, however, That
a sale, exchange, or other transfer of
property made in the ordinary course
of business (a transaction which is a
bona fide, at arm’s length, and free
from any donative intent), will be
considered as made for an adequate
and full consideration in money or
money’s worth.
A. Other matters
 In case of donations of conjugal
property, remember that the
spouses are co-owners of
conjugal property. Thus, a gift
made by the spouses of conjugal
property shall be deemed
separate donations by the
husband and wife in proportion to
2
their respective interests. In
other words, there will be two (2)
donations made and two (2)
separate computations of donor’s
taxes. However, unless the wife
expressly joins in making the
donation of conjugal property, it
shall be deemed to have been
made by the husband alone.
 Inheritance by accretion does not
give rise to a taxable gift. SKS:
See the sample case below.
SAMPLE PROBLEM
In the settlement of the estate of Mr.
Babiera who died intestate, his wife
renounced her inheritance and her
share of the conjugal property in favor
of their children. The BIR determined
that there was a taxable gift and thus
assessed Mrs. Babiera as a donor. Was
the BIR correct?
Suggested answer: The renunciation of
the wife’s share in the inheritance from
her deceased husband is not a taxable
gift, considering that the property is
automatically transferred to the other
heirs by operation of law due to her
repudiation of her inheritance.
HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

III. ESSENTIALS OF A TAXABLE donor’s tax? ty Person Person

DONATION al al
Suggested answer: The first transaction Propert Propert
 Capacity of the donor where a lot was sold by A to his y y
 Donative intent brother-in-law for a price below its fair In Ou In Ou In Ou
 Delivery, whether actual or market value will not be subject to t t t
constructive, of the subject donor’s tax if the lot qualifies as a Resid Ok Ok Ok Ok Ok Ok
matter capital asset. The transfer for less than ent
 Acceptance of the gift by the adequate and full consideration which Filipin
donee. gives rise to a deemed gift, does not o
apply to a sale of property subject to Non- Ok Ok Ok Ok Ok Ok
SAMPLE PROBLEM capital gains tax (Sec. 100, NIRC). reside
However, if the lot sold is an ordinary nt
A, an individual, sold to B, his brother- asset, the excess of the fair market Filipin
in-law, his lot with a market value of value over the consideration received o
P1,000,000 for P600,000. A’s cost in shall be considered as a gift subject to Resid Ok Ok Ok Ok Ok Ok
the lot is P100,000. B is financially the donor’s tax. ent
capable of buying the lot. A also owns alien
X Co., which has a fast growing The sale of shares of stock below the Non- Ok Ok O
business. fair market value thereof is subject to reside k2
the donor’s tax pursuant to the nt
A sold some of his shares of stock in X provisions of Section 100 of the Tax alien
Co. to his key executives in X Co. These Code. The excess of the fair market
executives are not related to A. The value over the selling price is a An intangible property property
selling price is P3,000,000 which is the deemed gift. located outside in the Philippines
book value of the shares sold but with subject to the “reciprocity clause”:
a market value of P5,000,000. A’s cost IV. TAXABILITY OF GIFTS OR  If donor at the time of the
in the shares sold is P1,000,000. The DONATIONS DEPENDING donation was a citizen and
purpose of A in selling the shares is to UPON CITIZENSHIP OR resident of a foreign country
enable his key executives to acquire RESIDENCE OF DONOR which at the time of the donation
proprietary interest in the business and
Real Tangibl Intangi
2
Intangible personal property with a situs in
have a personal stake in its business. the Philippines, unless exempted on the basis
Are the sale of lot and shares subject to Proper e ble of reciprocity.

3
HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

did not impose a transfer tax of  Shares, obligations, or bonds stock entities, paying no
any character in respect of have acquired a business situs in dividends, governed by trustees
intangible personal property of the Philippines; who receive no compensation,
Filipino citizens not residing in  Shares or rights in any and devoting all its income
that country; or partnership, business or industry whether student’s fees or gifts,
 If the laws of the foreign country established in the Philippines donations, subsidies or other
of which the donor was a citizen forms of philantrophy, to the
and resident at the time of V. EXEMPTIONS UNDER accomplishment and promotion
donation allow a similar SPECIAL LAWS of the purposes enumerated in
exemption from transfer taxes of its Articles of Incorporation.
every character in respect of  Gifts made to or for the use of  Donations to the Philippine
intangible personal property the National Government or any government for scientific,
owned by the citizens of the entity created by any of its engineering and technological
Philippines not residing in that agencies which is not conducted research, invention and
country. for profit, or to any political development (R.A. 1606)
subdivision of the said  Donations to social welfare,
A. Properties considered by the law government, are exempt from cultural, and charitable
as situated in the Philippines gift tax with respect to both organizations (P.D. 507; R.A.
The following shall be considered residents and non-residents. 1916)
as situated in the Philippines:  Gifts in favor of an educational  Donations to the International
 Franchise which must be and/or charitable religious, Rice Research Institute (R.A.
exercised in the Philippines; cultural or social welfare 2707)
 Shares, obligations or bonds corporation, institution,  Donations to Ramon Magsaysay
issued by any corporation or accredited nongovernment Award Foundation (R.A. 3076)
sociedad anonima or constituted organization, trust or  Donations to the National
in the Philippines in accordance philantrophic organization or Museum, the National Library,
with its laws; research institution or and the archives of the National
 Shares, obligations or bonds by organization: Provided, however, Historical Institute (P.D. 373)
any foreign corporation 85% of That not more than 30% of said  Donations to the Southern
the business of which is located gifts shall be used by such done Philippines Development
in the Philippines; for administration purposes. SKS: Administration (P.D. 690)
The aforementioned insitutions
must be incorporated as non-

4
HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara
 Donations to the Intramuros
Administration (P.D. 1616)
A. Donations on account of
marriage (or dowries)
The TRAIN repealed the provision
on dowries or gifts made on account of
marriage.
SKS: Under the old law, gifts on
account of marriage may be exempted
within the first P10,000 of the value
thereof, provided that such gift should
have been given to a legitimate,
recognized natural or adopted child of
the donor, and that the donor must be
a resident of the Philippines.
VI. PROCEDURE FOR
COMPUTING NET GIFTS
The tax for each calendar year
shall be computed on the basis of the
total net gifts made during the
calendar year in accordance with the
schedule of tax rates prescribed in the
law.
The tax is imposed on the
cumulative basis during the calendar
year, i.e., the rates are applied on the
aggregate net gifts during the calendar
year, but donor’s taxes paid during the
calendar year are credited against the
donor’s tax due on the latest donation
during the same calendar year. Thus,
all donations made in one (1) calendar
year by a donor are taxed at the same
graduated tax rates as if they had been
made at one (1) time. A new
computation of donor’s tax is made for
gifts made by the donor in another
calendar year(s).
A. Valuation of gifts made in
property
If the gift is made in property, the
fair market value thereof at the time of
the gift shall be considered the amount
of the gift.
In case of real property, the basis
shall be whichever is higher of –
 The fair market value as
determined by the
Commissioner; or
 The fair market value as shown in
the schedule of values fixed by
the Provincial and City Assessors.
VII. TAX CREDIT FOR DONOR’S
TAXES PAID TO A FOREIGN
COUNTRY
The tax imposed by this Title
upon a donor who was a citizen or
resident at the time of donation shall
be credited with the amount of any
donor’s tax of any character and
5
description imposed by the authority of
a foreign country.
The amount of the credit taken
shall be subject to each of the following
limitations:
 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
 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.
VIII. FILING OF RETURN AND
PAYMENT OF TAX
A. Requirements
Any individual who makes any
transfer by gift (except those which,
under Section 101, are exempt from
the tax), shall make a return under
oath in duplicate setting forth:
HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara
 Each gift made during the
calendar year which is to be
included in computing net gifts;
 The deductions claimed and
allowable;
 Any previous net gifts made
during the same calendar year;
 The name of the done; and
 Such information as may be
required by the rules and
regulations pursuant to law.
B. Time and place of filing and
payment
The return of the donor required
in this Section shall be filed within 30
days after the date the gift is made
and the tax due thereon shall be paid
at the time of filing.
Except in cases where the
Commissioner otherwise permits, the
return shall be filed and the tax paid to
an authorized agent bank, the Revenue
District Office, Revenue Collection
Officer, or duly authorized Treasurer of
the city or municipality where the
donor was domiciled at the time of the
transfer, or if there be no legal
residence in the Philippines, with the
Office of the Commisisoner.
In case of gifts made by a non-
resident, the return may be filed with
the Philippine Embassy or Consulate in
the country where he is domiciled at
the time of the transfer, or directly with
the Office of the Commissioner.
C. Meaning of “deficiency”
 The amount by which the tax
imposed exceeds the amount
shown as the tax by the donor
upon his return; but the amount
so shown on return shall first be
increased by the amount
previously assessed (or collected
without assessment) as a
deficiency, and decreased by the
amounts previously abated,
refunded or otherwise repaid in
respect of such tax; or
 If no amount is shown as the tax
by the donor, then the amount by
which the tax exceeds the
amounts previously assessed (or
collected without assessment) as
a deficiency, but such amount
previously assessed, or collected
without assessment, shall first be
decreased by the amount
previously abated, refunded or
otherwise repaid in respect of
such tax.