Business and Transfer Tax

Transfer taxation is a kind of national internal revenue taxes under the national internal revenue code. There
are so many changes now, in so far as, transfer taxes is concerned when you compare it to the original
national internal revenue code. Because the original internal revenue code, as you all know, is already
amended. Under RA 10963 or yung mas kilala sa tawag na train law (tax reform for acceleration and inclusion).
What is the difference or what are the main change/changes that have been affected to the old national
revenue code with respect to transfer taxes. The changes are in terms of the tax rate, some administrative
requirements whenever a person will file transfer taxes. It is so called transfer taxes because there will be a
benefit that will be received by a one person from another person. Take note that whenever a person is
receive a benefit the government must have a share in that benefit because there are some theories that
there are some foundations that will support why does the government needs to have a share from that
benefit.

What do you mean by taxation?

Taxation could be defined as a state power. It is called as a state power because every country has the power
to collect burden or proportional amount of money to its people, primarily, to support the legitimate things
that the government will do for its people. When you say power, it emanates from those people assigning
that authority. State power means also that even if the constitution does not provide that the government will
not collect taxes still the government has the ability to collect taxes. Kaya nga sya power eh kapangyarihan sya
ng state, maaari lamang yang tanggalin sa state if that state is already occupied by another sovereign state.
Since the Philippines have its own sovereignty (may sarili tayong kalayaan) therefore it is automatic that there
is a power of taxation like any other power or inherent power of the state. Taxation is a process because the
government cannot impose taxes without undergoing to a certain procedure, parliamentary procedure
particular. Why parliamentary procedure? Because as you all know, taxes cannot be imposed unless there are
tax laws. Originally, taxes are being imposed once there is already a tax law. Walang taxes kung walang batas
na gagawin tungkol sa taxes. Eh diba sir sabi mo state power? Yes it is a state power but the power will not be
operative unless there is enabling law. Kahit na may kapangyarihan ang state na mag pataw ng taxes pero
kung wala namang law na gagawin para i-implement yung power na ‘yon, useless ang power. There must be a
law so that the power of taxation could be realized. Lastly, it is a mode of cost distribution. As a matter of cycle
in the society the taxation is the proper way for the government to collect money from its people so that
this money will be used for the legitimate expenses of the government. So the cost is being distributed to the
people so that it can be in the form of benefit for the people. In short, taxation is the life blood of the
government, it is a life blood of a society, and it is the primary source of revenue of the government. Kaya nga
whenever the government wants to increase its revenue because they have so many projects ang unang
nakikita ng government is to increase the taxes. Kaya nga may mga reforms pertaining to taxes kasi may mga
legitimate na paggagamitan ang government para sa ikabubuti ng public.

Three inherent power of the state

There are three inherent power of a sovereign state you have the police power, the eminent domain and the
taxation. (The basic comparison, differences and similarity between these three inherent powers of the state
is in the power point). When you say inherent power of the state it is automatic as long as the sovereign state
exists these inherent power also exists. (for example: nung pagkapanganak sayo, automatically you have your
eyes, nose or you have the features of your face, ganun din si inherent power nung ipinanganak ang
sovereignty ng Philippines automatically these three inherent powers are already included in that sovereign
state, hindi sya binigay bagkus automatic na meron na nito yung state, kahit hindi sya nakasulat sa Philippine
constitution automatically there three inherent powers of the state will exists, as long as a sovereign state
exists, kaya sya tinawag na inherent power, kasi magtataka ka eh sir bakit po sya ineherent kasi diba when you
say inherent it is automatic it is already present as main part of a sovereign state, pwede po ba itong tanggalin
sir? Pwede kapag ininvade tayo, kapag wala na tayong soberanya, kapag hindi na tayo isang sovereign state,
pero as long as we are a sovereign state these three powers of the state cannot be eliminated) The first power
is the police power, police power is the power to protect citizens and provide for safety and welfare of the
society. The police power is regulates liberty and property and it is exercise by the government, the
property that is being taken is destroyed. The compensation for the destroyed property is an intangible and
there is a limit pertaining to the amount of imposition pertaining to the police power. A very good example
of police power is toll-fee, whenever you are using the Nlex or Slex nagbabayad ka ng toll-fee that is a license
to use the property. Paano ginawa ng government yon? Dinestroy nya yung mga properties na dadaanan non
tapos ang benefit na nakukuha natin is not in terms of tangible benefit but in terms of intangible benefit that is
convenience. Another example of police power is whenever a peson applies for a license to drive or yung
driver’s license. So ang makukuha mong benefit don is not tangible it’s intangible. Ang binabayaran mo don
kung magkano lang ang amount of the license hindi mo binabayaran yung buong LTO, hindi mo binabayaran
yung buong cost nung organization kung paano sila nag operate. Ang binabayaran mo lang don is yung amount
of license being given to you and it regulates your liberty. Kaya ka kumukuha ng driver’s license because there
are certain limitations on how are you going to exercise your liberty to drive along national highways. The
second one is eminent domain; the eminent domain is the power to take private property for a just
compensation for public purpose. Ito most of the time it is being exercise by the government whenever the
government wants to build a tangible property’s big ticket project. Kapag sinabing eminent domain, it is also
equivalent to expropriation when you say expropriation it is taking of the property from a private individual
for use for public purposes and that individual that has been taken or the property has been taken will be
paid with a just compensation. (Example: Project – extension of lrt 1 that will take down the STI building) The
government can exercise its power to take that property. May magagawa ba si owner ng blue building? Wala,
kasi eminent domain is an inherent power of the state. Ang magagawa lang ng owner ay himingi ng just
compensation. And next we have the taxation power which is our main focus. Taxation is the tax power to
enforce contribution sabi nga diba it is imposition of a burden to support government and other inherent
power of the state. It is the primary source of revenue of the government so that it can be able to realize
whatever function that the government will have for its people.

Transfer and Business Tax

Transfers is a mode or mechanism from which the ownership of a certain property is being transferred or
being given to another person. Meaning to say, the transfer should be absolute, all the rights, all the fruits
and all the privileges pertaining to the property that is to be transferred, when transferred is to be enjoyed
by the receiver. Transfers, as far as taxation is concerned, can be classified into two: it could either be a
unilateral transfer or in technical term in law we called it gratuitous transfer and we also have the bilateral
transfer or the onerous transfer. Unilateral transfer is so called unilateral because the benefit for transfer is
enjoyed only by a single party. While the bilateral transfer both the transferor and the transferee (transferor
– yung nag transfer & transferee – yung nakatanggap) enjoys the benefit of the transfer. So pag sinabi kong
gratuitous transfer unilater yon, kapag sinabi kong onerous transfer ang ibig kong sabihin ay bilateral. Ngayon
tatanungin mo, paano mo masasabing gratuitous and paano mo masasabing onerous? Kapag ang pag transfer
ay may hinihinging kapalit onerous yon, kapag ang pag transfer ay walang hinihinging kapalit o inaantay na
kapalit that is gratuitous meaning to say in simple terms it is what we called donation . Parang nagbigay ka
pero wala ka namang natanggap. Kapag onerous naman nagbigay ka pero binayaran ka, katulad halimbawa
nagbenta ka ng cellphone, binenta mo yung cellphone for 5000. Binigay mo yung cellphone sa bumili at the
same time nagkaroon ka ng 5K, meron bang bilateral transfer? Meron. Ibig sabihin there is a consideration
received from the transfer. Kapag unilateral transfer there is no consideration walang narereceive na
consideration, kapag naman bilateral transfer it is two way, there is a consideration received from the transfer
of the property.

Unilateral transfer has two types we have the donation mortis causa and donation inter vivos. Donation
mostis causa is simply transfer upon death. Ito yung pagtatransfer ng properties, rights and obligation upon
the death of an individual meaning to say mga pamana or inheritance. Bakit sya nagging unilateral transfer?
Sino ba nagpamana? Yung namatay. Once na namatay na yung nagpamana wala ng ineexpect na
consideration yung nagpamana therefore it is a unilateral transfer (DITO PAPASOK YUNG ESTATE TAX). Yung
pangalawang transfer is donation inter vivos when you say donation inter vivos this is also a donation or
transfer but this time the transfer happen during the life time. Nangyari ang pagdodonate habang
nabubuhay pa yung tao. This is simply called donation. Ito yung simpleng donation na walang inaantay na
kapalit kasi iba yung donation na may inaantay na kapalit liability yon, liability yon nung pinagbigyan mo. Kasi
for example: we donating 5M to a charity but the charity should only use the 5M for feeding the poor. May
condition ba yung pagdonate? Yes, kung may condition ang pag donate ibig sabihin yung nakatanggap ng 5M
hindi yon irerecognize as donation. Ano yon? Liability, bakit liability? Kasi mayroon munang ipeperform yung
nakatanggap ng donation bago mapasakanya yung 5M. Pero kung sinabi lang “I will be donating 5M.”
mayroong condition? Wala therefor that is donation one way – unilateral. Donation mortis causa pertains to
donation upon death. Yung second part ng topic natin (kasi dalawa yung topic natin ‘di ba transfer taxes and
business taxes – yung business taxes doon papasok yung bilateral transfer. It’s either sale or barter kasi diba
sa sale or barter mayroong consideration received may nagbebenta tapos may nagbabayad so therefor may
consideration received and that is onerous transfer.

Let us focus on unilateral transfer because this will be our first focus in our discussion. So there are two types
of unilateral: donation inter vivos (simply donation) and donation mortis causa (donation upon death). Let us
be familiar with some of technical terms as well as some of the things and ideas that you need to know. This is
a simple comparison between a donation intervivos and donation mortis causa. Para hindi ka malito ang ibig
sabihin ng mortis ay patay kaya donation mortis causa donation upon death. Intervivos naman ‘di ba viva that
is live kaya donation during the lifetime.

INTER-VIVOS MORTIS CAUSA

Transferor Living donor Decedent
Transferee Donee Heirs
Nature Voluntary Involuntary
Reason Gratuity Death
Property Given Only properties selected by the All properties of the decedent at
 donor death
Transfer to be paid Donor’s Tax Estate Tax
Tandaan mo upon the death, sa araw ng pagkamatay nung decedent don ka bibilang ng mga properties doon
magtetake effect yung partransfer ng properties from the decedent to the heirs. For example, namatay sya
ngayon so today kahit nagluluksa pa ang buong pamilya at sambayanan sa paningin ng batas lahat ng
properties ay itinansfer na simula ngayon. The law says that the transfers of properties takes effect at the
date of death of the decedent at ang pinaka mahalaga kung bakit tayo nag aaral ay because this are transfers
either inter-vivos transfers or mortis causa transfers maniningil ng tax ang government. Ang tawag sa tax na
babayaran kapag ang donation ay intervivos – donor’s tax. Ang tawag naman sa tax na babayaran kapag ang
transfers ay nangyari upon the death of the decedent ay estate tax. Our first topic is how to compute estate
tax and before you compute for the estate tax kailangan malaman muna what the properties na papatawan ng
estate tax. Bakit sya tinawag na estate tax? Because estate means properties, rights and obligations
transferred by a decedent to the heirs. Pag sinabing estate lahat ng ari-arian ng namatay so tax on the estate.
Diba sabi natin that there are two transfers: onerous transfers and gratuitous transfers. So gratuitous transfer
could be either due to death or due to gift or donation. Kapag due to death ang babayaran mo jan ay estate
tax kapag due to gift or donation ang babayaran ay donor’s tax. Kapag onerous transfers ito yung sinasabi
natin na bilateral transfers ang example nga natin is sale. Ang sale ay in the normal course of business or
transaction means lagi itong ginagawa ng company. For example, nagbebenta ang company ng bicycle ang
normal course nya is to sell bicycle, eh nagbenta sya ng aircon is that a normal course of business? Definitely
not because normally ang binebenta nya ay bicycle so kapag nakapag benta sya ng bicycle ang tax na ipapataw
don ay VAT/Percentage/Excise Tax. If it’s not a normal course of business ang tawag don ay casual transfers.
Ang casual hindi madalas, hindi normal kaya ang tax doon ay hindi vat/percentage/excise ang tax ay CGT or
Capital Gains Tax. Kapag casual transfers hindi sya parte nung normal na ibinebenta nung business pero
naibenta that is CGT that is Income Tax pero both sales and exchanges in the normal course of business and
casual transfers both of them falls under onerous transfers because there is a consideration received
regardless whether the sale is a casual or in the normal course of business. In the gratuitous transfer this is a
unilateral transfer, if the transfers could happen upon death the estate tax will prevail. If the transfers
happen upon a lifetime of a transferor or the donor the tax that should be impose is a donor’s tax.

Rationale (a set of reasons) why the government impose transfer taxation

We have six rationales for transfer taxation:

1. Tax evasion or minimization theory – in this rationale or theory exchanges may be structured in such a
way to defeat income taxation. There are some exchanges or there are some transfers that could occur
in order to evade from income taxation. May mga tao na gumagawa ng paraan para lang hindi
makapag bayad ng income tax, ang ginagawa nila ay idodonate nalang nila yung property so para hindi
yon makaligtas kay government nag impose sya ng transfer tax. Kaya nga rationale of transfer taxation
eh what are the reasons why the government imposes transfer taxation. Tax evation or minimization
theory is one. So hindi mo nga sya binenta para hindi ka makapag bayad ng business tax or hindi ka
maimpose-an ng income tax idinonate mo naman so wag ka mag alala kahit idinonate mo yan hindi ka
makakapag tax evade because we have the minimization or tax evation theory. Another example is
ganito, let us assume that a property na merong value na 4K at for tax purposes and value nya naman
ay 1K so ang fair value ay 4K pero for tax purposes ang value nya ay 1K. Ibinenta halimbawa sa
 halagang 2K. So under income tax na ang actual gain lang ay is 2K – 1K so that is 1K which is subject to
income tax. So as a principle, income measurement is based on selling price because it is the extend or
realization yung 2k na difference between the 4K and the 2K should have been part of the taxable gain
except that it is given free to the buyer. This 2K of the unrealized portion of the gain is not subject to
income taxation so ang remedy ng income taxation the government taxes disclose as a transfer tax. So
ang nangyari doon bale 4K ang fair value nung property eh ang tax basis nya lang is 1K naibenta yung
property sa halagang 2K so kung titignan mo ang nalagayan lang ng income tax is yung 2K minus 1K
pero ang fair value nung property 4K. 4K ang fair value nung property pero naibenta mo sya sa 2K ang
totoong loss ay magkano? 2K so therefor yung 2K minus 1K hindi naimpose ng taxes. Anong gagawin
don sa 1k? lalagyan yon ng transfer tax, donor’s tax to be exact.
2. Tax Recoupment theory – When you say recoupment this has something to do with the effect of
regaining. In this theory even without a deliberate intent to evade income tax transfer have a natural
effect of decreasing future income tax collection of the government. For example: Si A meron syang
5M worth of properties at kumikita ito ng 10% annually, so 5M times 10% = 500K. Mayroon syang
limang anak kaya ang ginawa nya dinistribute nya yung property worth 5M sa lima nyang anak habang
nabubuhay pa sya bale tig 1M sila. Kung tag 1M sila magkano yung kinikita dati nung property annually
na pag mamay ari pa ni A? 500K. Nung dinistribute na nya na tag 1M yung mga anak nya, magkano ang
expected na kikitain nung mga anak kada isa? Tig 100K. Ngayon i-compare mo, dati si A kumikita ng
500K nung dinistribute na nya sa limang anak nya ilan na ang kikita ng tig 100K? Lima na sila. Mag focus
ka muna bago i-distribute ni A yung property, ‘di ba kumikita si A ng 500K annually kung kumikita sya
ng 500K annually subject ba yon sa income tax? Yes. Mag babayad ba sya ng income tax? Yes. If you’re
familiar to tax table you will use it to compute the income tax for 500K. Ngayon, nung dinistribute na
yung properties sa mga anak ni A, magkano ang kikitain ng bawat isang anak? 100K kada isa, kapag
tinignan mo yung income tax table ang 100K ba ay taxable or exempt? Exempt. So ibig sabihin magiging
exempt yung mga anak. Yung limang anak maeexempt sa income tax pero kung hindi pa yan
dinistribute si A lang yung may hawak ng 500K na magbabayad ng tax. Kapag ganon ang nangyari
pwedeng tax evasion yon kasi para hindi na sya magbayad ng income tax idi-distribute nya nalang sa
mga anak nya which is exempt kapag nagkataon. Kaya ang ginawa ng law / government hindi mo
pwedeng gawin yan kasi malulusutan mo ako para ma recoup ko iyong tax para mabawi ko yung
income tax na dapat na meron kang babayaran sa government yung pagtransfer mo ng property sa
anak mo magbayad ka ng transfer tax. So in that way kahit hindi na magbabayad or maging exempt na
yung mga anak sa income tax marerecoup / mababawi iyon ng government by means of imposing
transfer tax.
3. Benefit received theory – In the benefit received theory when a person transfer property by donation
or thru death the government is a party in the orderly transfer of the property to the donee or to the
heirs. Sino ba ang nangangalaga sa property ng mga Pilipino citizens? The government. Kung wala ang
government wala tayong security and safety. Yun bang lupa mo sa tingin mo ay magiging lupa mo pa
rin yan without loss? Ofcourse not sino bang gumagawa ng mga batas? It’s the government. Kaya sabi
ni government binibigyan kita ng benefit so kapag itinansfer mo yang property mo bigyan mo din ako
ng benefit kaya magbayad ka ng transfer tax. The government gives benefit to its people therefore
whenever there will be a transfer of property that person should also give taxes or benefit to the
government by means of transfer taxes.
4. State partnership theory - The state ensures a civilized and orderly society where commercial
undertaking and wealth accumulation flourish. In short, the government therefore is an indirect
partner behind all forms of wealth accumulation by any person within the state. Ang sabi jan sa state
partnership ang government daw laging kapartner mo yan sa pag asenso mo. Silent partner daw sya /
indirect partner daw sya so kung ano mang meron ka ngayon hindi mo makukuha yan kung hindi ka
tinulungan ni government kaya ang sasabihin ni government oops meron kang idodonate na laptop
hindi yan mapapasayo kung wala ako so therefore kapag dinonate mo yan bigyan mo ko ng share ay
ang tawag don ay donor’s tax. Kung napapansin mo ang mga theories na ito ay ang mga dahilan kung
bakit naniningil ng transfer tax kung bakit nag i-impose ng tax.
5. Wealth redistribution theory – Under the wealth redistribution theory equitable distribution of wealth
is widely accepted as an element of social progress and stability. In short, societies with high inequities
in wealth distribution are normally associated with high social unrest, lawlessness, insurgencies, war
and chaos. Hindi pwede that the wealth should only contained to a person. It should be redistributed
to other persons by means of taxes.
6. Ability to pay theory – Ability to pay theory suggests that no one could give gratuitously what he could
not afford. The ability to transfer is an indication of the ability to pay taxes hence transfer tax is to be
imposed. Hindi ka naman magbibigay ng walang inaantay na kapalit kung wala kang kakayahang
magbayad ng tax. Meron bang taong nagbibigay ng walang kakayahan magbayad ng tax? sabi ni
government, ang sagot nya wala. Most of the time we give what is in excess of us. If it is in excess of us
therefore we have something to pay for that excess. Meron tayong kakayahang magbigay therefore
kung nagbigay ka meron kang kakayahang magbayad ng tax. Tatandaan mo ang person responsible to
pay for taxes or transfer taxes is the one who gives the property. Question: pag upon death ang
magbabayad ba ng tax yung namatay? Ofcourse not kasi hindi mo na masisingil yung namatay
obviously and magbabayad is yung mga property na naiwan doon kukunin yung tax pero kung ang
nagbigay ay buhay pa (donation) babayaran nung donor yung taxes. Hindi magiging effective or hindi
makukumpleto yung contract of donation whether intervivos or mortis causa kung hindi pa bayad ang
tax. Hindi mo masasabi na perfected yung contract of donation unless transfers has already been paid.

Nature of transfer taxes

Transfer taxes could be classified / could be categorized as privilege, ad valorem, proportional, national,
and direct taxes.

 Privilege Tax - When you say it is a privilege tax it is dominantly viewed as a form of privilege rather
than a form of penalty. So baka iniisip mo kase na ang transfer taxes ang donor’s tax or estate tax is
a penalty tax no it is a privilege tax. It is called privilege tax because the transferors (the one who
transfer the property, rights or obligation) have a privilege in a form of assistance rendered by the
government in effecting the transfers of properties by way of donation or succession. Since the
successor is exercising the privilege the transferor is subject to tax. Tandaan mo na ang
pagtatransfer ng properties is not a right it is a privilege. Katulad ng prankisa ng ABS-CBN kaya nga
may tinatawag na franchise tax. The franchises are privilege only at any rate at any moment it can
be recalled by the government. Katulad din dito sa pagtatransfer it is the exercise of your privilege
to transfer, nasasayo naman yon kung gusto mong ibigay kung kaninong tao so kapag inexercise mo
yung privilege na yon thereore the government will also imposed tax because you have exercise
 that privilege. If you do not want to be impose by a certain tax do not exercise that privilege.
Ngayon ang ABS-CBN ba nakakapag exercise pa ng kanyang privilege? Hindi na because it has been
recalled already by the government therefore wala na syang binabayarang franchise tax. Ganun din
dito sa transfer tax kung ayaw mong mag donate wag kang magdonate. Hindi ka sisingilan ng
transfer tax. Kung ang namatay naman ay ayaw masingilan ng tax edi wag nyang ibigay sa mga heirs
nya, wag syang gumawa ng last will. Ibigay nalang nya sa government para hindi sya mapatawan ng
tax. So it is a privilege rather than a penalty. Kapag penalty tax kasi ang pinag uusapan na don is
with regards to the rights. Magkaiba kasi yung privilege and rights, kapag nag violate ka ng rights
anong meron? Prosecution that is penalty. Kapag vinaiolate mo yung right ng isang tao that is again
subject to penalty and not subject to transfer tax.
 Ad valorem tax – ad valorem meaning to say added value so there is already a value and transfer
taxes is being added to that value kaya sya ad valorem tax parang value added tax na 12%. It is
being added to the value of the property being transferred.
 Proportional tax – Before the train law transfer taxes is not a proportional tax. Remember we have
3 tax system: proportional, regressive and progressive system. When you say progressive it’s the
typical application of tax laws in the Philippines as the tax base increases the tax rate increases.
Habang tumataas yung base ng pag compute ng tax tumataas din yung income na babayaran nya. A
very good example nyan is yung income tax diba sa tax table habang tumataas yung net taxable
income tumataas din yung amount ng tax na babayaran that is progressive. Kapag regressive
naman eto yung sa mga countries na mayayaman na katulad ng dubai, uk and any other states na
hindi naka dipende sa taxes yung kanilang income. So sa regressive habang tumataas yung tax base
bumababa naman yung income tax na babayaran nila kasi nga ineencourage nila don yung mga tao
na magtrabaho ng mag trabaho. Sa proportional naman or proportionate regardless of the tax base
the tax rate is fixed. Katulad halimbawa ng vat kahit magkano ang binili mo 12% pa din ang vat.
Regardless of the tax based under proportional tax system fixed and rate regardless of the tax base.
Ang transfer taxes bago mag train law tandaan mo bago mag effect ang train law progressive yan
before train law it is progressive meaning to say may tax table na gagamitin na habang tumataas
yung value nung property na dinodonate mo tumataas din yung transfer tax na babayaran mo but
because of the train law tandaan mo dahil ang gagamitin na natin ay train law because of train law
nag convert or nag iba yung system of transfer tax naging proportionate or proportional tax
system. Ibig sabihin simplified na, paanong simplified 6% na lamang ng tax based ang babayaran for
transfer tax. So before we are using the tax table, the progressive tax table and because of the
effectivity of train law that is starting January 01, 2018, we are now to use the proportionate tax
rate which is 6% of the tax based.
 National Tax - For the national tax transfer taxes is levied by the national government.
 Direct taxes - It cannot be shifted to other person the transferor – donor or transferor – decedent is
the one who is subject to tax. Hindi mo pwedeng ipaobligate yung pagbabayad ng tax sa mga heirs
and donee or doon sa makakatanggap kaya nga direct taxes hindi naman sya indirect taxes.