MODULE 3 – Donor’s Tax

Louis Malaybalay
4-BLM

1. Donation basic concepts (Articles 725-773, Civil Code)

• Article 725: Donation is an act of liberality whereby a person disposes gratuitously

of a thing or right in favor of another, who accepts it.
• Article 726. When a person gives to another a thing or right on account of the
latter's merits or of the services rendered by him to the donor, provided they do
not constitute a demandable debt, or when the gift imposes upon the donee a
burden which is less than the value of the thing given, there is also a donation.
• Article 728. Donations which are to take effect upon the death of the donor
partake of the nature of testamentary provisions and shall be governed by the
rules established in the Title on Succession.
• Article 729. When the donor intends that the donation shall take effect during
the lifetime of the donor, though the property shall not be delivered till after the
donor's death, this shall be a donation inter vivos. The fruits of the property from
the time of the acceptance of the donation, shall pertain to the donee, unless
the donor provides otherwise.
• Article 733. Donations with an onerous cause shall be governed by the rules on
contracts and remuneratory donations by the provisions of the present Title as
regards that portion which exceeds the value of the burden imposed.
• Article 734. The donation is perfected from the moment the donor knows of the
acceptance by the donee.

2. Donor’s tax, definition

• Donor’s Tax – An excise tax imposed on the privilege to transfer property by way
of gift inter vivos by any person, resident or nonresident, based on a pure act of
liberality without any or less than adequate consideration and without legal
compulsion to give.

3. Donor’s tax vs. Estate tax

Estate Tax Donor’s Tax

As to the Nature of Transfer
Tax on the privilege to transfer property Tax on the privilege to transfer property
upon death during one’s lifetime
Persons Liable
Individuals only Individuals and corporations
As to type of donations
Imposed on donations mortis causa Imposed on donations inter vivos
Rates Applicable
Fixed rate 6% Fixed Rate 6%
As to amount exempt (Standard)
No exemption Cumulative donations for the calendar
year to the extent of 250,000 pesos
As to grant of deductions
yes Yes
As to requirement of filing a return
Transfers subject to estate tax All transfers by gift except those by which
Estate consists of registered or registerable are exempt from tax
property
As to the time of filing a return
Within one year from the date of death Within 30 days after the gift is made
As to extension of filing a return
Not exceeding 30 days No extension is allowed
As to time of payment
At the time the return is filed. (Pay as you At the time the return is filed. (Pay as you
file) file)
As to extension of time for payment
May be extended if the payment of estate Not allowed
tax would impose undue hardship upon
the estate

4. Purpose of donor’s tax

a) Donor’s tax supplements the estate tax by preventing the avoidance of payment
of estate tax by donating the property during the lifetime of the decedent.
b) It also prevents the avoidance of income taxes since a gratuitous transfer is
exempt/excluded from an individual’s gross income.

5. Law that governs imposition of donor’s tax

The law in force at the time of the perfection/completion of the donation.

• Perfection – the transfer of property by gift is perfected from the moment the
donor knows of the acceptance of the donee.
• Completion – A gift is completed by delivery, either actually or constructively, of
the donated property of the done.

6. Donation inter vivos distinguished from donation mortis causa

In Donation inter vivos, the act is immediately operative even if the actual execution
may be deferred until the death of the donor. In donation mortis causa, nothing is
conveyed to or acquired by the donee until the death of the donor-testator.
 • A donation inter vivos is a gift between living people. The transfer takes place
immediately and irrevocably.
• A donation mortis causa is a gift made by someone because death seems
imminent. The goods or title would be transferred with the understanding that
ownership is contingent upon that death.

7. Simple vs. Remuneratory vs. Onerous donations

• Simple Donation - Donation is an act of liberality whereby a person disposes

gratuitously of a thing or right in favor of another, who accepts it. (Art. 725)
• Remuneratory Donation – A remuneratory donation is one where the done gives
something to reward past or future services or because of future charges or
burdens, when the value of said services, burdens or charges is less than the
value of donation.
o Remuneratory donations shall be governed by the provisions on donation
as regards that portion which exceeds the value of the burden imposed.
• Onerous Donations – It is a donation subject to burdens, charges or future
services equal or more than the value of the thing donated.
o Donations with an onerous cause shall be governed by the rules on
contracts and remuneratory donations as regards that portion which
exceeds the value of the burden imposed.
o These are in the nature of contracts and not donations since the amounts
are in a concept of a fee or price in exchange for the performance of a
service, use of properties or delivery of an object.

8. Progressive schedular rates

Tax Rates

(The rate applicable shall be based on the law prevailing at the time of donation)

• Effective January 1, 2018 and onwards (TRAIN Law)

• Former Tax Rate:
o If the donee is a relative, progressive schedular rate of 2% - 15%
o If the donee is a stranger, fixed rate of 30% of the net gifts.

Present Rate - The donor’s tax for each calendar year 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.

Notes:

1. When the gifts are made during the same calendar year but on different dates,
the donor's tax shall be computed based on the total net gifts during the year.
 2. The relationship between the donor and the donee(s) shall not be considered.
Republic Act No. 10963 (TRAIN Law) does not distinguish donations made to
relatives, or donations made to strangers.

9. Gifts of a resident citizen, non-resident citizen and resident alien, subject to donor’s
tax

Situs of Donor’s Taxation

The situs of donor’s taxation is where the transfer took place. Thus, only transfers that
take within the PH is subject to donor’s tax unless the donors are Filipino CITIZENS WHO
ARE RESIDENTS of a foreign country.

Gross gift includes:

• Real estate, wherever situated

• Tangible personal property, wherever located
• Intangible personal property, wherever located

10. Gifts of non- resident alien subject to donor’s tax

Gross gift includes:

• Real estate, but only those located in the Philippines

• Tangible personal property, but only those located in the Philippines
• Intangible personal property, but only those located in the Philippines but still
subject to reciprocity if to be included.
o Reciprocity Rule – No donor’s tax shall be collected for Intangible
personal property if:
▪ The donor at the time of donation was a citizen and resident of a
foreign country that does not impose a transfer tax of any
character with respect to intangible personal property of citizens of
the Philippines not residing therein.
▪ If the laws of the foreign country of the NRA donor allows a similar
exemption from transfer or death taxes of every character or
description in respect of tangible personal property owned by
citizens of the PH not residing in that foreign country
• fr

Anything else located outside the Philippines is not subject to computation of gross gifts.

11. Tax Payable by Donor if Donee is a Stranger

 • Still 6% - The relationship between the donor and the donee(s) shall not be
considered. Republic Act No. 10963 (TRAIN Law) does not distinguish donations
made to relatives, or donations made to strangers.

12. Transfer for Less Than Adequate and full Consideration.

• General Rule: if the property transferred is for less than adequate and full
consideration in money or money’s worth, the amount by which the FMV
exceeds the consideration shall be deemed a gift and shall be included in
computing the amount of gifts made during a calendar year.
• Requisites in order that excess of FMV over the value of consideration be
considered as donation:
1. The transfer was for less than adequate and full consideration
2. Such transfer was made/effective during his lifetime (transfer is inter vivos)
3. Property transferred is real or personal property except real property
considered as capital asset.

Notes:

• This rule does not apply to real property held as capital asset.
• Absence of donative intent does not exempt the sales of stock transaction from
donor’s tax.

[TRAIN Law] Exemption to the General Rule: Transfers made bona fide in the ordinary
course of business and free from donative intent, even if the consideration is
inadequate, is excluded and is not considered as donations. E.g., bad bargain

• Requisites for a transfer be considered as made in the ordinary course of

business and be exempted:
1. It must be a bona fide transaction
2. Made in Arm’s length
a. Parties are unrelated
b. They have equal bargaining power
c. They are acting in their own self-interest
3. Free from Donative Intent
 Donor’s Tax (Cont.)

13. Exempt Donations

• Dowries or Gifts - No longer exempt since TRAIN Law removed the exemption
therein.
▪ Dowries – Gifts on account of marriage. Since TRAIN Law removed the
exemption, dowries or gifts made on account of marriage regardless of
the amount are now subject to donor’s tax regardless of amount.
• Gifts made to or for the use of the National Government or any Entity created by
any of its agencies which is not conducted for Profit or to any Political Subdivision
of the said government.
• Gift in favor of an Educational and/or Charitable, Religious, Cultural or Social
Welfare Corporation, Institution, Accredited NGO or Philanthropic Organization or
Research Institution.
Requisites:
▪ Not more than 30% of the said gift should be used for Administrative
Purposes
▪ The donee must be a non-stock, non-profit organization or institution.
▪ The donee organization or institution should be governed by trustees who
do not receive any compensation
▪ The said donee should not be authorized to receive dividends
▪ The donee should devote all of its income to the accomplishment and
promotion of its purposes enumerated in its articles of incorporation.
▪ The NGO must be accredited by the Philippine Council for NGO
Certification
▪ The donor engaged in business shall give notice of donation on every
donation worth at least 50,000 pesos to the RDO which has jurisdiction
over his place of business within 30 days after receipt of the qualified
donee institution’s duly issued Certificate of Donation.

If the donor is a VAT-registered person and the donation involves ordinary

assets, the donation is subject to VAT since the same is deemed as a
transaction involving a sale.

• Athlete’s Prizes and Award

▪ Requisites:
▪ Awarded in local and international sports tournaments and
competitions.
▪ Held in the Philippines or abroad.
▪ Sanctioned by their respective national sports associations
 • National sports association shall mean those duly accredited
by the Philippine Olympics Committee
• Encumbrances on the Property Donated if Assumed by the Donee
▪ Those include claims or liabilities attached to the property such as
mortgage, security interests, cost of rights and unpaid taxes which are
allowed as a deduction once assumed by the donee.
▪ The net gift is measured by deducting the from the FMV of the property
the amount of mortgage assumed.
▪ The value of the mortgage is exempted from donor’s tax as it is
deducted from the FMV of the property to arrive as the net gift
subject to donor’s tax.
• Donations made to the following entities exempted under special laws
▪ Aquaculture Department of the Southeast Asian Fisheries Development
Center
▪ Aurora Pacific Economic Zone
▪ Development Academy of the Philippines
▪ Girls Scouts of the Philippines
▪ IBP
▪ International Rice Research Institute
▪ NCCA
▪ National Social Action Council
▪ National Water Quality Management Fund
▪ People’s Survival Fund
▪ PTV
▪ Philippine Investors Commission
▪ PNU
▪ Ph Red Cross
▪ Phil-American Cultural Foundation
▪ Ramon Mgasaysay Award Foundation
▪ Rural Farm School
▪ Task Force on Human Settlements
▪ Tubbataha Reefs Natural Park
▪ UP
▪ National Book Trust Fund
▪ Qualified Forster Care Agencies
▪ Contributions to candidates or political parties duly reported to the BIR
• Donations made by a foreign corporation
▪ The ff. gifts made by foreign corporations are exempt from donor’s tax.
▪ Gifts made to or for the use of National Government or any entity
created by any of its agencies which is not conducted for profit or
to any political subdivision of the said Government
 ▪ Gift in favor of an Educational and/or Charitable, Religious,
Cultural or Social Welfare Corporation, Institution, Accredited NGO
or Philanthropic Organization or Research Institution or organization
• Provided, however that not more than 30% of said gifts shall
be used by such donee for administrative purposes

14. Tax credits for foreign donor’s taxes

a. Requirements

This tax credit is allowed only for residents or citizens of the Philippines for the
donor’s taxes they paid in a foreign country.

b. Limitations

• Per Country Basis

The amount of credit 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 donor’s tax bears to entire net gifts
• Overall Basis
The amount of tax 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 donor’s tax bears to his entire net
gifts.

15. Administrative Requirements

a. Donor’s tax return

Description: Donor’s Tax Return

This return shall be filed in triplicate by any person, natural or juridical, resident or non-
resident, who transfers or causes to transfer property by gift, whether in trust or
otherwise, whether the gift is direct or indirect and whether the property is real or
personal, tangible or intangible.

i. Requirement (Sec. 103. Filing Return and Payment of Tax)

Any individual who makes any transfer by gift shall for the purpose of the
said tax, make a return under oath in duplicate. The return shall set forth:

1. Each gift made during the calendar year which is to be included in

computing net gifts.
2. Deductions claimed and allowable
3. Any previous net gifts made during the same calendar year
4. Name of the done
 5. Such other information as may be required by rules and regulations
made pursuant to law.

ii. Time and place of filing

When and where to pay? The donor’s tax will be paid at the time the
return is filed, and with the office where the return is filed.

Time of Filing: The return of the donor shall be filed within 30 days after the
gift is made and the tax due thereon shall be paid at the time of filing.

Place of Filing: Except in cases where the commissioner otherwise permits,

the return shall be filed, and the tax paid to:
▪ Authorized agent bank
▪ Revenue district officer
▪ Revenue collection officer
▪ Duly authorized treasurer if 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 commissioner.
o In case of gifts made by a nonresident, 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.

iii. Liabilities for non-filing

A donor’s tax return in the Philippines is required to be filed and paid not
later than 30th day following the date of every donation made. Failure to
file and pay donor’s tax is subject to penalties – 25% surcharge (50% if
fraudulent), 20% interest, and compromise penalties ranging from 200
pesos to 25,000 pesos.

16. Payment of Donor’s Tax

i. Time and place of payment

When and where to pay? The donor’s tax will be paid at the time the return is
filed, and with the office where the return is filed.

ii. Liabilities for non-payment

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