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    Donor's Tax

    Uploaded by

    Ryry Dims

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    © All Rights Reserved
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    May 2020 DONOR’S TAX Atty. C. Llamado Also called Gift Tax ~ Imposed on the gratuitous transfer of real or personal, tangible or intangible property. ~ Imposed whether the transfer is in trust or otherwise. Purpose: 1) To prevent avoidance of the estate tax 2) To compensate for the loss or decrease of income and estate taxes when large estates are split. Requisites: 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 viv0s), 3) There must be a completed gift, actually or constructively. Notes: a) Renunciation by the surviving spouse of his or her share in the conjugal or community properties after the dissolution of the marriage in favour of the heirs of the deceased spouse or any other person, is subject to donor's tax. b) However, a general renunciation by an heir (including a surviving spouse) of his share in the hereditary estate left by the decedent does not give rise to a donation. Therefore, it is not subject to donor's tax.' Such renunciation shall result to a donor’s tax only when the same is specifically and categorically done in favour of identified h rs to the exclusion of the other co-heirs of the state. Contract of Donation When perfected? At the moment the donor knows of the acceptance of the gift by the done.” Who can be donors? All persons who may contract and dispose of their property may make a donation: Who can be donees? All those who are not specially disqualified by law may accept donations.* Minors and others who cannot enter into a contract may become donees, but acceptance shall be done through their parents or legal representatives.® * Since there is no donation, there is also no Documentary Stamp Tax (“DST”) due (RMC No. 102-2019), ? Art. 734, Civil Code. * Art. 735, Civil Code, ‘ Art. 738, Civil Code. * Art. 741, Civil Code, May 2020 Donations made to conceived and unborn children may be accepted by those persons who would legally represent them iff they were already bom.‘ What donations shall be void? 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;” 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; 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; 4) 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; ©) Toa common adopted child who has no other surviving heirs. b} 2 Between persons living together as husband and wife without a valid marriage;? Between persons guilty of concubinage or adultery at the time of donation;'” Between persons found guilty of the same criminal offense, in consideration thereof;'! '5) Those made to a public officer or his/her spouse, descendants, and ascendants, by reason of his or her office;'* 6) Donations made by persons to those who cannot inberit from them:' (@) Donations to the priest who beard the confession of the donor during his last illness, or the minister who extended spiritual aid to him during the same period; (b) Donations to the relatives of such priest or minister in (a) within the 4" degree; (c) 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. 742, Civil Code. Aut. 87, Family Code. Art. 190. Family Code. ‘Art. 87, Family Code. Ast. 739, Civil Code. Ibid. Ibid. ‘Ants. 740-and 1027, Civil Code. May 2020 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." Donation of Immovables Donation must be in writing and in a public instrument (notarized). Acceptance may be made in the same deed of donation or in a separate public instrument. The acceptance must be done during the lifetime of the donor, and the latter must be notified of the acceptance. “* Art. 748, Civil Code. May 2020 OTHER TRANSACTIONS SUBJECT TO DONOR’S TAX (1) Transfers for Insufficient Consideration’ Requisites: (0) The property transferred is real or personal property, except real property classified r as.a capital asset subject to the 6% CGT upon its sale or transfer; (b) The transfer is for less than a full price; (c) The transfer is inter vivos. Purpose: To prevent escape from the income tax by accepting a lower price for the property. Tax Consequences: Gift (subject to the Donor’s Tax) Income (subject 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 an independent appraiser's value.'° 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 full 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. Sec. 100, NIRC, as amended by R.A. No. 10963, * Rev. Reg, Nos. 6-2008, 6-2013, "7 Sec. 100, NIRC, as amended by R.A. No, 10963. May 2020 I GROSS GIFT - Depends upon the citizenship and/or residence of the donor: ‘Tangible Personal Intangible Personal Donor Real Property Property _ Property Within | Without | Within Without Within Without oie elelele |e le | 2) Resident Alien ©!1® © © © © | em Telselo | se lo | x (if there is reciprocity) Intangible personal property means incorporeal property which do not have any physical form, but represent rights and privileges. Examples include bank deposits, trademarks, shares of stock, patents, copyrights, bonds, notes, interest in a partnership, etc. Intangible Asset Situs 1) Receivable (promissory note) Residence of the debtor 2) Bank deposit Location of the bank 3) Other intangible properties: | a) Franchises, patents, copyrights, trademarks ‘Where property is used or exercised b) Investment in partnership ‘Where partnership is established ©). Shares of stock, bonds, corporate obligations (1) Domestic corporation Within the Philippines (2) Foreign corporation Without the Philippines Except: If 85% of business is in the Philippines Within the Philippines If shares or bonds have acquired a business situs in the Philippines Within the Philippines Gross Gift of Husband and Wife Husband and wife may donate: (a) The conjugal or community properties. Each spouse shall be considered a separate donor of his or her interest in the property: % of the conjugal property donated being a gift of the husband, and the other half that of the wife. © property owned by only one spouse, (b) Separate or exclu: Valuation of Gifts - Properties shall be valued at the time the gift is mado, May 2020 Property ‘Valuation Real Property FMV which is the higher of the zonal value or the assessor's value Personal Property FMV at the time of the gift Stocks listed in the stock | Average of the lowest and highest quotes on the valuation date (date of exchange aift) 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) Atthe 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 association, recreation, or amusement club Bid price nearest the date of the gift published in any newspaper or publication of general circulation, "In determining the book value, appraisal surplus and the value assigned to preferred shares shall not be considered. 6 Peay as May 2020 EXEMPTIONS (EXCLUSIONS) FROM GROSS GIFT A) Gifts made to the National Government or to any political subdivision of the National Government or to any entity created by the government which {s not conducted for profit. 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 of its ineome 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. C) Campaign contributions in cash or in kind to any candidate which are duly reported to the COMELEC”® Notes: (1) Only those donations or contributions that have been utilized or spent during the campaign period as set by the COMELEC are exempt from the donor’s tax. Therefore, any donation utilized before or after the said campaign period shall be subject to the donor's tax.” (2) Section 35(i) of R.A. No, 11232 (the Revised Corporation Code of the Philippines) provides that no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political ectivity. Accordingly, because the provision only refers to foreign corporations, domestic corporations are now allowed to give such donations to any political party or candidate, and the same shall be exempt from the donor’s tax. (3) Campaign contributions are not deductible by either individuals or corporations for purposes of computing the income tax. Political candidates and parties are not one of, those entities defined by the Tax Code to which a contribution could be deductible. D) Other donations which are exempted from the donor's tax under special laws: (1) Donation made for the operation of the Dual Training System under R.A. No. 7686, (2) Donations of cooperatives to duly eccredited charitable, research, and educational institutions, and to socio-economic projects within their area of operations; (3) 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, ” R.A. No. 7166. 2 RMC No. 3-2016; RMC No, 34-2018; RMC No, 51-2019. May 2020 DEDUCTIONS FROM GROSS GIFT A) Mortgage or encumbrance on the property which obligation is assumed by the donee B) Those specifically provided by the donor as a diminution of the property donated. C) The first P250,000. COMPUTATION OF DONOR'S TAX Beginning January 1, 2018, the tax shall be six percent (6%) computed on the basis of the total gifts in excess of Two Hundred Fifty Thousand Pesos (P250,000) exempt gift made during the calendar year.” The Somputation of the donor's tax is on a cumulative basis over a period of one (1) calendar year. 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 a cumulative basis, i.e., the prior gross gifts in the same calendar year are added to the current gross gift to arrive at the total gross gifts. The total exemptions or deductions shall be subtracted from the total gross gifts. The donor's tax shall be based on the total net gifts. (a) On the first donation during the year: Gross gift Px Less: Exemption or deduction (0m) Net gift P 10x Gift tax (6%) P _ xx (b) On subsequent donations within the same ealendar year: Gross gift Prox ‘Add: Prior gross gift 200% Total gross gifts Pox Less: Exemptions and deductions (ox) Total net gifts Pox Gift tax (6%) Po xx Less: Gift tax on prior net gifts in the same calendar year (xxx) Gift tax on subsequent gift x 2! Rev. Reg. No. 2-203. 2 Sec, 99(A), NIRC; Rey, Reg. No. 12-2018. ® Rev, Reg, No, 12-2018, ea ee a May 2020 CREDIT FOR FOREIGN DONOR’S TAXES PAID - Available only to Resident Donors (citizens or resident alien donors) = Subject to Limits Limits: (A) Net Gift (per Foreign Count x Philippine Donor's Tax Total Net Gifts (B) Net Gifts (in all Foreign Countries) x Philippine Donor’s Tax Total Net Gifts Rules: 1) [there is only one (1) foreign country, only Limit (A) is used. 2) If there are > two (2) foreign countries, use both Limits Formula: Donor’s tax paid in Country 1 } ea Limit A (Country 1) ower (I) + Donor’s tax paid in Country 2 Lower (2) Limit A (Country 2) owes 2) Tate Lower = Credit Sum of donor's taxes paid in Countries 1 and 2 Lowmrsish

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