TAX 2
tax, reciprocal exemption of the inheritance tax in both countries, leaving
ESTATE TAX – excise tax on the right of transmitting property at the time of death
and on the privilege that a person is given in controlling to a certain extent the
disposition of his property to take effect upon death
Gross Estate – Rule for Imposition
RESIDENT
• To the extent of his interest
• The value AT THE TIME OF DEATH
• Of all real & personal property, tangible & intangible
o Regardless of any subsequent increase or decrease in value
NON-RESIDENT ALIEN
• Value AT THE TIME OF HIS DEATH
• Of all real & tangible personal property
o Situated IN THE PHILIPPINES
• And intangible personal property
o With a situs in the Philippines
o Unless exempted based on reciprocity
RECIPROCITY OF EXEMPTION
Collector v. Fisher:
• Section 122 of the National Internal Revenue Code exempts payment of
both estate and inheritance taxes on intangible personal properties
o if the laws of the foreign country of which the decedent was
a resident at the time of his death
o Allow a similar exemption from transfer taxes or death taxes
of every character
o In respect of intangible personal property owned by citizens
of the Philippines not resident of that foreign country.
• On the other hand , Section 13851 of the California Law exempts the
payments of inheritance tax
o If the laws of the country in which the decedent resided
o Allow a similar exemption from legacy, succession, or death
taxes of every character
• It is clear from these provisions that the reciprocity must be total, that is,
with respect to transfer or death taxes of any and every character, in the
case of the Philippines law, and to legacy, succession, or death tax of any
and every character, in the case of the California law.
• Therefore, if any of the two states collects or imposes and does not
exempt any transfer, death, legacy, or succession tax of any
character, the reciprocity does not work
• This is the underlying principle of the reciprocity clauses in both laws.
Since in the Philippines two taxes are collectible from the decedent’s
estate (inheritance and estate taxes) and in California, only inheritance
payable the estate tax in the Philippines, will not work as that would
violate the California law that authorizes exemption only when there is in
the other country an exemption from legacy, succession or death taxes of
every character. Held: There could not be partial reciprocity. It would
have to be total or none at all.
RULE OF RECIPROCITY
• With reciprocity
o Shall not be included in the gross estate if
§ The laws of the foreign country to which the decedent
was a citizen and resident at the time of his death did
not impose a transfer tax of any character in respect
of intangible personal property of citizens of the PH not
residing in that country
§ If the foreign country allows a similar exemption from
transfer or death taxes of every character owned by
citizens of the PH not residing in that foreign country
• Without reciprocity
o Shall be included in the gross estate
VALUATION OF GROSS ESTATE
• The value of the gross estate of the decedent shall be determined by
o Including the value at the time of death
o Of all property, real or personal, tangible or intangible wherever
situated
• Sec 88. Determination of the Value of Estate
• Usufruct – To determine the value of the right of usufruct, use or
habitation, as well as that of annuity
o There shall be taken into account the probable life of the
beneficiary in accordance with the latest Basic Standard
Mortality Table
o To be approved by the Sec. of Finance
o Upon recommendation of the Insurance Commissioner
• Properties – The estate shall be appraised at its fair market value
as of the time of death.
o However, the appraised value of real property as of the time
of death shall be, whichever is the higher of
§ FMV as determined by the Commissioner
§ FMV as shown in the schedule of values fixed by
the Provincial and City Assessors
DECEDENT’S INTEREST – includes any interest having value or capable of being
valued, transferred by the decedent at the time of his death
• Transfers in contemplation of death
• Revocable transfers
 • Property passing under general appointment
• Proceeds of life insurance
• Prior interest
• Transfer for insufficient consideration
Transfers in contemplation of death
• Transfer shall be considered as transfer in contemplation of death if,
during the lifetime of the decedent, he still retained in the property the ff:
o Possession or enjoyment, or the right to the income from the
property
o 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
§ Except in case of a bona fide sale for an adequate and
full consideration in money or money’s worth
• It is contemplation of death not contemplation of imminent death
• Not confined to disposition of property or property rights made by the
last will and testament or to gifts mortis cause, which are made in
anticipation of impending death, are revocable and are defeated if the
donor survives the apprehended peril
Revocable transfers
• Transfers (except in case of bona fide sale or an adequate & full
consideration) by trust or otherwise
• Where the enjoyment was subject at the date of his death to any change
through the exercise of a power by
o The decedent alone or
o By the decedent in conjunction with any other person to alter,
amend, revoke or terminate or
o Where any such power is relinquished in contemplation of the
decedent’s death
Property passing under general appointment
• Any property passing under a general power of appointment exercised
by the decedent by
o Will
o Deed executed in contemplation of, or intended to take effect in
possession or enjoyment at, or after his death
o Deed under which he has retained for his life or any period not
ascertainable without reference to his death or for any period
which does not in fact end before his death:
§ Possession or enjoyment of, or the right to the income
from, the property
§ Right either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the
property or the income therefrom
• Except: bona fide sale for an adequate and full consideration
• Power of appointment: right to designate the person who shall enjoy or
possess certain property from the estate of a prior decedent
Proceeds of life insurance
• Will depend on the depend on the designated beneficiary, manner of
designation, period and source of the funds used in paying the premiums
on the insurance contract
• Proceeds of life insurance taxable in ff cases
o Beneficiary is estate of the deceased, executor or administrator
§ Whether or not the insured retained the power of
revocation
o Beneficiary is other than the decedent’s estate, executor or
administrator
o `When designated as revocable
• Not taxable
o Accident insurance proceeds
o Proceeds of a group insurance policy taken out by a company
for its employees
o Amount receivable by a beneficiary irrevocably designated in
the policy of insurance by insured
o Proceeds issued by the GSIS to government officials
o Benefits under SSS
o Proceeds of life insurance payable to heirs of deceased
members of military personnel
• To determine the conjugal or separate character of proceeds the ff
factors considered:
o Policy taken before marriage – source of funds determines
ownership of the proceeds of life insurance
o Policy taken during marriage
§ Beneficiary is the estate of the insured
• Proceeds are presumed conjugal; 1/2 of share
of SS not taxable
§ Beneficiary is 3P
• Payable to beneficiary even if premiums were
paid out of conjugal partnership
Transfer for insufficient consideration
• Transfer, trusts, interests, rights or powers made, created, exercised or
relinquished for a consideration in money or money’s worth but is not a
bona fide sale for an adequate and full consideration
• Value to be included: excess of the FMV of the property @ time of
decedent’s death over the consideration received
EXCLUSION FROM GROSS ESTATE: CAPITAL OF SURVIVING SPOUSE
• Should be taken to mean the property of the spouses brought to the
marriage
• CIVIL LAW: capital – property brought by the husband to the marriage
while that brought into marriage by wife: paraphernal prop
• Capital of the SS of a decedent shall NOT be deemed a part of gross
estate

DEDUCTION FROM GROSS ESTATE
• Funeral expenses
• Judicial expenses
• Claims v. the estate
• Claims v. insolvent persons
• Unpaid mortgages & losses
• Property previously taxed – vanishing deductions
• Transfer for public use
Funeral expenses
• Actual funeral expenses
o Or amount equal to 5% of gross estate; whichever lower
o No case to exceed 200K
• Actual funeral expenses – those which are actually incurred in connection
with the interment or burial of deceased
o Must be duly supported by receipts
o Expenses after interment – not deductible
Judicial expenses
• Allowed only if the settlement of the estate has been the object of
testamentary or intestate proceedings – expenses incurred during the
settlement of the estate but not beyond the last day prescribed by law
• Expenses of administration – essential to the collection of assets,
payment of debts or distribution of the property to the persons entitled to
it; expenses must be essential to the proper settlement of the estate
• Compensation paid to a trustee of the decedent’s estate when it
appeared that such trustee was appointed for the purpose of managing
the decedent’s real estate for the benefit of the testamentary heir – not
included
• Attorney’s fees incident to litigation incurred by heir by asserting their
respective rights – not included
• Notarial fee paid for EJ settlement which effected distribution of the
decedent’s estate to his lawful heirs and the attorney’s fees paid to a
bank for acting as guardian of the decedent’s property during his lifetime
– deductible
• In case estate settled extra judicially, reasonable amount for legal fees &
accounting expenses may be allowed
Claims v. the estate
• Debts or demands of a pecuniary nature
o Which could have been enforced against the deceased in his
lifetime
o And could have been reduced to simple money judgments
• Requisites for deductibility
o Must be a personal obligation of the deceased existing @ time
of death
§ Except unpaid obligations incurred incident to his
death
o Must be incurred in good faith & for adequate consideration
o Must be valid in law & enforceable in court
o Must not have been condoned by the creditor or action must
not have prescribed
• Substantiation requirement
o If claim arose out of a debt instrument
§ Must be notarized
§ If contracted within 3 years before the death of the
decedent
• Administrator or executor shall submit a
statement under oath showing the disposition
of the proceeds of the loan
Claims v. insolvent persons
• Requisites for deductibility
o Amount has been initially included as part of gross estate
o Incapacity of debtors to pay obligations is proven
• In case the claim is the exclusive property of the deceased
o Same is not considered in determining the share of the SS
Unpaid mortgages & losses
• Requisites for deductibility
o FMV of the mortgaged property w/o deducting the mortgage
indebtedness has been initially included as part of the GE
o Mortgage indebtedness was contracted in GF and for an
adequate and full consideration
• In case unpaid mortgage payable claimed by estate
o Verification muse be made as to who was the beneficiary of loan
proceeds
• If loan found to be accommodation loan
o Value of unpaid load must be included as a receivable of the
estate
Property previously taxed – vanishing deductions
• Operates to ease the harshness of successive taxation of the same
property within a relatively short period of time – up to 5 years
o Occasioned by untimely death of the transferee
o After receipt of property prior decedent or donor
• Requisites
o Prior decedent must have died or the donation must have been
made within 5 years before the decedent’s death
o Property subject of vanishing deduction must be same property
inherited or donated from prior decedent
o Vanishing deduction is based on value of property @ time of
donation or death of prior decedent or @ time of death of the
present decedent, whichever lower
 o Donor’s or estate tax due of prior decedent must have been
faith
Value of property previously taxed – mortgage debt paid = initial basis
Initial basis/value of gross estate of present decedent x Expenses, etc & transfers
for public purposes = 2nd deduction
Initial basis – 2 deduction = final basis
nd
Final basis x rate of deduction = vanishing deduction
Transfer for public use
• Tax code allows deduction from the GE, the amount of all bequests,
legacies or transfers, to or for the use of gov’t or any political subdivision
thereof for exclusively public purposes
• Transfer must be testamentary in character or donation mortis causa
FAMILY HOME
• Current FMV of the family home
• Limit is 1M – any amount in excess is subject to estate tax
• Must have been the decedent’s family home as certified by the barangay
captain of the locality
• Requisites for deductibility
o Must be the actual residential home of the decedent & his
family, as certified by the Barangay Captain of the locality where
the family home is situated
o Total value of family home must be included as part of GE of a
person who died on or after 7/28/1992
o 1/2 of share of SS is deducted from the total GE to arrive at the
total net estate of the decedent
o 1/2 share of the family home is allowed as a deduction from the
net estate in an amount equivalent to the current FMV or zonal
value of that 1/2 postion not exceeding 1M – excess subject to
estate tax
SHARE IN CONJUGAL PROPERTY
• Where the decedent was married
o Conjugal property shall first be determined
o All obligations properly chargeable to it shall be deducted
therefrom
o From the balance, the net share of the SS shall be deducted
from the net estate of the decedent for purposes of imposing
the estate tax
• Special deductions are not taken into account in determining the net
conjugal estate
• Ordinary deductions properly chargeable to the conjugal estate are not
to be deducted from the separate property of the deceased spouse
STANDARD DEDUCTION
• Deduction in the amount of 1M
• Shall be allowed as an additional deduction
• Without need of substantiation
• Full amount of 1M shall ne allowed as deduction for the benefit of the
decedent
TAX CREDIT FOR ESTATE TAXES
• Tax credit against PH estate tax is allowed for the estate tax or taxes
paid to a foreign country or countries
• Limitations
o 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 the NIRC
bears to his entire net estate
o 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 PH taxable under
the NIRX bears to his entire net estate
• If decedent is a non-resident alien, the value @ time of death of that part
of his gross estate situated outside the PH must be included in the estate
tax return – to be entitled to deductions
• Paid to one foreign country
• 2 or more foreign countries
EXEMPTION OF CERTAIN ACQUISITIONS
• FF shall not be taxed
o Merger of usufruct in the owner of the naked title
o Transmission/delivery of the inheritance or legacy by fiduciary
heir or legatee to fideicommissary
o Transmission from first heir, legatee or done in favor of another
beneficiary, in accordance with the desire of the predecessor
o All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of
which inures to the benefit of any individual
 • Provided, that not more than 30% of said bequests, devices, legacies or o Executor or administrator – ensure that payment shall be made of the
transfers shall be used by such institutions for administration purposes amount of which he is notified before he shall be discharged from
• In addition to 200K exemption personal liability
o Judge – will not issue authorization to deliver distributive share until
TAX RETURNS certification of payment is shown
o ROD – shall not register in Registry of Prop any document without
Filing of notice of death certification from the Commissioner that the tax had been paid
• When filed o Lawyer, notary public, or any gov’t officer – intervening in the preparation
o Transfer is subject to tax or acknowledgment of documents, regarding partition or disposal of
o Although exempt from tax, the gross value of the estate donation, legacy or inheritance shall the duty of furnishing the
exceeds 200K Commissioner, Regional Director, Revenue District Officer or Revenue
• Period of filing Collection officer
o Must be filed with the Commissioner within 2 months after the o Debtor – not pay his debts to the heirs, legatee, executor or administrator
decedent’s death or within a like period after qualifying as unless certification of the Commissioner that tax has been paid is shown
executor or administrator o Corporation – will not transfer to new owners of shares, bond, obligation
or rights without certification from Commissioner
Filing of tax return o Bank – when bank has knowledge of a death of a person who maintained
• When filed a joint account, it shall not allow any withdrawal by the surviving
o When GE exceeds 200K depositor without certification
o Regardless of value of GE, where the estate consists of
registered or registerable properties for which a clearance from DONOR’S TAX – An excise tax imposed on the privilege to transfer property by
BIR is required as condition precedent for the transfer of way of gift inter vivos based on a pure act of liberality without any or less than
ownership adequate consideration and without any legal compulsion to give

Period of filing IMPOSITION OF TAX

• GR: within 2 months from the decedent’s death o There shall be levied, assessed, collected & paid upon the transfer by
• XPN: In meritorious cases, Commissioner may grant extension not any person, resident or nonresident
exceeding 30 days o Of the property by gift, a tax, computed as provided in Sec. 99
o The tax shall apply whether the transfer is in trust or otherwise
PAYMENT OF TAX o Whether the property is real or personal, tangible or intangible
• “pay-as-you-file” system
o Time for paying is @ the time the return is filed by executor, • Donor’s tax imposed on donations inter vivos or those made between
administrator or heirs living persons to take effect during lifetime of donor
• Installment
o In case insufficient cash, estate may be allowed to pay tax by Purposes
installment • Supplements the estate tax by preventing the avoidance of the latter
o Clearance shall be released only with respect to the property through the device of donating the property during the lifetime of
which has been paid deceased
• Persons liable to pay • Prevents avoidance of income taxes
o Executor or administrator before delivery to any beneficiary of
his distributive share of the estate Requisites
o 2 or more executors or admin – severally liable for payment • Capacity of donor
o Beneficiary – subsidiarily liable • Donative intent, or intent on part of donor to make a gift
§ shall in no case exceed the value of his share • Delivery, whether actual or constructive, of the subject matter of the gift
• Acceptance by done
OBLIGATIONS
Completed gift – Donor’s tax shall not apply unless there is a completed gift
 • Transfer by gift perfected from the moment the donor knows of donee’s
acceptance
• Completed by delivery
• Gift incomplete because of reserved powers becomes complete when
o Donor renounces the power; or
o His right to exercise the reserved power ceases because of the
happening of some event or contingency or fulfillment of some
condition, other than because of donor’s death
TRANSFER FOR LESS THAN ADEQUATE & FULL CONSIDERATION
• Where property, other than real property referred to in Section 24 (D),
• Is transferred for less than adequate & full consideration in money or
money’s worth
• Then the amount by which the FMV of the property exceeded the value
of the consideration shall, for the purpose of the tax imposed by this
Chapter
• Be deemed a gift &
• Shall be included in computing the amount of gifts made during the
calendar year
Transfer constitutes a gift & is subject to donor’s tax although there is no
donative intent
EXEMPTION OF CERTAIN GIFTS
In case of gifts made by a resident
• Dowries/gifts made on account of marriage & before its celebration or within
1 year thereafter by parents to the extent of first 10K
o Gift was made on acct of marriage
o Made before or w/in 1 year after celebration of marriage
o Donor is a parent
o Donee is a legitimate, recognized natural or adopted child
o Amt exempted only to the extent of first 10K
• Gifts made to or for the use of the Nat’l Gov’t or any entity created by any of
its agencies – not conducted for profit or to any political subdivision of said
gov’t
• Gifts in favor of an educational/charitable, religious, cultural or social welfare ,
corp, institution, accredited non-gov’t org, trust or philanthropic org or
research institution or org Provided that not more than 30% of gifts shall be
used for administration purposes
o Not more than 30% used for admin purposes
o Donee must b non-stock, non-profit organization
o Donee should be governed by trustees who do not receive
compensation
o Donee not authorized to receive dividends
o Donee devotes all of its income to the accomplishment and
promotions of its purposes enumerated in its Articles of Incorp
o NGO must be accredited by PH Council for NGO certification
o Donor engaged in business shall give notice of fonation on every
donation at least 50K to the RDO of place of business within 30 days
after receipt
• Athlete’s prizes & awards
• Encumbrances on the property donated if assumed by the done
• Donations made to the ff entites exempted under special laws
Gifts made by Nonresident not a citizen of PH
• Gifts made to or for the use of the Nat’l Gov’t or any entity created by any of
its agencies – not conducted for profit or to any political subdivision of said
gov’t
• Gifts in favor of an educational/charitable, religious, cultural or social welfare ,
corp, institution, accredited non-gov’t org, trust or philanthropic org or
research institution or org
o Provided that not more than 30% of gifts shall be used for
administration purposes
TAX CREDIT FOR DONOR’S TAX PAID TO FOREIGN COUNTRY
• Donor’s tax imposed upon a citizen or resident
• @ the time of the donation
• Shall be credited with the amount of any donor’s tax,
• Of any character and description
• Imposed by the authority of a foreign country
Limitations
• Amount of credit shall not exceed the same proportion of the tax against
such credit is taken
o Which the net gifts situated within such country taxable under
donor’s tax bears to entire net gifts
• Amount of tax credit shall not exceed the same proportion of the tax
against such credit is taken
o Which the donor’s net gifts situated outside the PH taxable
under donor’s tax bears to his entire net gifts
TAX RETURN
• Filing of return – under oath in duplicate
o Each gift made during the calendar year which is included in
computing net gifts
o Deductions claimed & allowable
o Any previous net gifts made during the same calendar year
o Name of done
o Relationship of or to ee
o Further info as commissioner may require
• Time of filing
o Within 30 days after date gift is made or completed
o Tax due shall be paid @ same time return is filed
• Place of filing
o Authorized Agent Bank
 o Revenue District Officer
o Revenue Collection Officer
o Duly authorized treasurer of the city or municipality where donor
was domiciled @ time of transfer
o If no legal resident – office of Commissioner
o In case non resident – may be filed with PH embassy or
consulate in country where he is domiciled or directly with
Office of Commissioner

POLITICAL CONTRIBUTIONS
• Any contribution to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code
• RA 7166: any provision of law to the contrary notwithstanding, any
contribution in cash or kind to any candidate, or political party or
coalition of parties for campaign purposes, duly reported to the
Commission, shall NOT be subject to the payment of any gift tax
• Contributions made prior to passage of RA 7166 were subject to donor’s
tax