Kinds of Taxes Income tax, percentage tax

b. Special or regulatory – imposed for a special

As to subject matter or object purpose, to achieve some social or economic
a. Personal, Poll, Capitation Tax
 Fixed Amount – it is base where your
territory located.
Transfer Taxes
 Individuals residing within specified
objectives
territory
Example:
 Without regard to their property, occupation
Protective tariffs or customs duties
or business.
(to protect our local goods import)
Example:
Community Tax (Cedula) As to scope or authority to impose
b. Property Tax (amilyar) a. National – imposed by the national government
 Imposed on property, real or personal Example:
National Internal Revenue taxes,
 In proportion to its value or other reasonable
method of apportionment custom duties
Estate tax belongs to national
Example:
Real Estate Tax Internal Revenue Code Taxes
(NIRC Tax)
c. Excise/Privilege Tax
b. Municipal or local – imposed by the municipal
 Imposed upon performance of an act, the
corporation or local governments
enjoyment of a privilege or the engaging in
Example:
an occupation, profession or business
Real estate tax (amilyar),
Example:
occupation tax
VAT, Estate Tax, Donor’s
Tax As to graduation of rate
As to who bears the burden or incidence (The three system of taxation)
a. Direct – the tax imposed on the taxpayer who shifts a. Proportionate – based on a fixed percentage of the
the burden thereof. amount of the property, income or other basis to be
Example: taxed.
Income Tax, Community Tax, Example:
Estate Tax, Transfer Tax, and Donor Tax Real estate tax, VAT, percentage
b. Indirect – imposed on the taxpayer who shifts the tax, estate tax and donor’s tax
burden of the tax to another. Estate and Donor’s tax is a
Example: proportionate because it is fixed
VAT, specific tax, some percentage rate by 6%.
tax, customs duties. b. Progressive or Graduated – tax rate increases as
the tax base or bracket increase.
As to tax rates or determination of amount Example:
a. Specific – tax imposed and based on a physical unit Income Tax
of measurement, as by head, number, weight, length,
c. Regressive – tax rate decreases as the tax base
or volume
increases
Example:
Tax on distilled spirits, fermented
liquors, cigars
b. Ad Valorem – tax of fixed proportion of the value Transfer Taxes
of property with respect to which the tax is assessed; Transfer taxes are taxes imposed upon the
requires intervention of assessor. gratuitous disposition of private properties or rights.
Example: Gratuitous transfer is one that neither imposes
Cigarettes, gasoline, excise tax on burden nor requires consideration from transferee or receipt.
cars The transfer of ownership is free because of the absence of
As to purpose financial consideration.
Under the New Civil Code, ownership may be
a. General, fiscal or revenue – imposed for the
acquired through:
general purpose of supporting the government
 Occupation
(there’s no particular purpose but there’s a purpose
for everyone)  Intellectual Creation
Example:  Law
  Donation
 Tradition
 Contract
 Prescription
 Succession
Hence, gratuitous transfer are essentially donations.
The reverse side of gratuitous is onerous, one where the
transferee gives consideration in return for the property or
right(s) received.
Onerous transfer is subject to business taxes instead
of transfer taxes.
Gratuitous transfer or donation may take effect at the
of death of the donor or during the lifetime of both the donor
and the done.
o Mortis Causa – it is subject to estate tax (death)
o Inter Vivos – it is subject to donor’s tax or transfer
tax. (during life time)
Estate Tax
Estate tax (donation or mortis causa) is the tax
levied on the transmission of the estate or properties of a
decedent to his lawful heirs or beneficiaries.
A tax imposed on the privilege that a person is given
in controlling to a certain extent, the disposition of his
property to take effect upon death.
When Estate Tax Accrues
The transfer of ownership takes place at the time of
death, not the time when the certificate of title to real property
are transferred from the decedent to the transferee.
The transfer does
not also take Succession place when the
transferee takes physical
possession of the personal
property transferred by the decedent.
The estate tax accrues as of the decedent.
The accrual is distinct from the obligation to pay the
tax, which is 6 months after the death of the decedent.
Nature of Estate Tax
a. It is a privilege or excise tax
b. It is not a property tax because their imposition does
not rest upon general ownership but rather they are
imposed on the act of passing ownership of property
c. It is different from inheritance tax
Excise Tax
Excise tax is imposed on the privilege of
transferring a property upon the death of the owner.
Inheritance Tax
Inheritance tax is imposed on the legal right or
privilege to succeed to, receive or take property by or under a
will, intestacy law, or deed, or gift becoming operative at or
after death.
Succession
Succession is mode of acquisition by virtue of
which the property, rights and obligations to the extent of the
value of inheritance, of a person are transmitted through his
death to another or others either by his will or by operation of
law.
a. Succession clearly states that the inheritance is
transmitted either by his will (with last will and
testament) or by operation of law (in the absence of a
last will and testament, the provision of the civil code
on succession shall apply)
Kinds of Succession
 Testamentary Succession (testate)
- That which results from the designation of an
heir, made in a will executed in the form
prescribed by law.
Executor – a person or trust company
named the will by the testator to carry out its
provisions.
 Intestate Succession (legal)
- That which takes place when a person dies
without a will or with a void will or one which
has subsequently lost its validity, or if no one
succeeds under his will.
Administrator – a person or trust
company appointed by the court to
administer and distribute the estate of the
decedent if there is no will.
 Mixed Succession
- That effected partly by “will” and partly by
operation of law
 Legitime
- The part of the testator’s property that he cannot
dispose of because the law has reserved it for
certain heirs who are called compulsory heirs.
Elements of Succession
1. Decedent
- The person whose property is transmitted
through succession, whether or not he left a will.
He is also called a testator if he left a will.
Executor – is a person designated in the
last will and testament to carry out the
provisions of the decedent’s will. (assigned
by the decedent itself)
Administrator – is a person appointed by
the court and performs the same duty, (if the
decedent didn’t assign, so the court can)
2. Successor
- The person to whom the property of property
rights will pass.
3. Estate or Inheritance
- The subject matter of the succession
Kinds of Successors
1. Heir
- The person called to the succession either by the
provision of a will or by operation of law.
 2. Devisee
- A person to whom a gift of real property is given
by virtue of a will.
3. Legatee
- A person to whom a gift of personal property is
given by virtue of will
Kinds of Successors or Heirs
1. Compulsory Heirs
- Those who succeed by force of law to some
portion of the inheritance, in an amount
predetermined by law, known as the legitime.
They succeed whether the testator likes it or not.
2. Voluntary Heirs
- Those instituted by the testator in his will to
succeed to the inheritance of the portion thereof
of which the testator can freely dispose. (it is
indicated in the decedent’s last will and
testament)
3. Legal or Intestate Heirs
- Those who succeed to the estate of the decent by
operation of law (decedent died without a valid
will or his estate was not entirely disposed of by
will)
Classification of Successors
(Kinds of Compulsory Heirs)
a. Primary
- Those who have precedence over and exclude
other compulsory heirs.
Example:
Legitimate children, and their
legitimate descendants
Surviving spouse (legitimate)
Illegitimate children and their
descendants, legitimate or illegitimate
b. Secondary
- Those who succeed only in the absence of the
primary compulsory heirs
Example:
Legitimate parents and legitimate
ascendants
Illegitimate parents (no other
ascendant. They inherit only in default of
“primary compulsory”
NOTE: Brothers and sisters are neither compulsory heirs nor
strangers. However, they may be voluntary heirs.
Wills
A will is an act whereby a person is permitted, with
the formalities prescribed by law, to control to a certain degree
the disposition of his estate to take effect after his death.
It is a document whereby a person, called the
“testator”, disposes of his or her properties or “estate” to take
effect upon his on her death.
The making of a will is a strictly personal act. It
cannot be left in whole or in part at the discretion of a third
person or accomplished through the instrumentality of an
agent or attorney.
Kinds of Wills
1. Notarial or Ordinary or Attested Will – is
executed per the formalities prescribed by Articles
804 to 808 of the New Civil Code.
Requisites for a Valid Notarial Will
a. It must be in writing and executed in a
language or dialect known to the
testator
b. It must be subscribed at the end thereof
by the testator’s name written by some
other person in his presence and by his
express direction.
c. It must be attested and subscribed by
three or more credible witnesses in the
presence of the testator and of one
another.
Disqualified from being a witnesses
 Any person not domiciled in the
Philippines
 Those who have been convicted of
falsification of a document, perjury,
or false testimony.
2. Holographic Will – a written will that must be
entirely written, dated, and signed by the hand of the
testator himself.
Codicil – a supplement or addition to a
will, made after the execution of a will and
annexed to be taken as a part thereof, by
which any disposition made in the original is
explained, added to, or altered.
Probate of a will – a court procedure by
which a will is proved to be valid or invalid.
In the probate of a holographic will, it shall
be necessary that at least one witness who
knows the handwriting and signature of the
testator.
Composition of Gross Estate
The gross estate is divided into two main categories for
succession purposes, the legitime and free portion as shown
below
 Decedent’s Estate
Legitime – 75% of the estate
 To be inherited by
Compulsory Heirs
 Decedent’s Estate
Free portion – 25% of the estate
 To be inherited by
Compulsory Heirs and/or Voluntary Heirs
Example:
 ABC died leaving an estate valued at P12,000,000. a. Real property or immovable property
The surviving heirs were his spouse, 2 legitimate children, and located in the Philippines
1 illegitimate child. b. Tangible personal property located in the
Philippines
Required: Distribute his estate by applying the rules on c. Intangible personal property with situs in the
legitimes. Philippines subject to the rule of reciprocity
exemption
Answer: Kinds of Property
Legitimate Children 6,000,000
1. By nature
 LC #1 3,000,000
a. Real property or immovable property
 LC #2 3,000,000
b. Personal property, tangible or intangible
Illegitimate Children 1,500,000
(it should be 1/2 of one legitimate children) 2. By ownership
Surviving Spouse 3,000,000 a. Exclusive capital or paraphernal property
(1/4 of 12,000,000) b. Conjugal
Free portion (remainder) 1,500,000 Taxable Transfer or
Total: 12,000,000
community property
Properties Considered Situated in the
Estate Tax Philippines
Estate tax in the Philippines, it is a tax imposed on 1. Franchise which must be exercised in the Philippines
the privilege that a person is given in controlling to a certain 2. Shares, obligation or bonds issued by corporation or
extent, the disposition of his property to take effect upon sociedad anonima (joint stock company with limited
death. personal to shareholders) organized or constituted in
It is an excise tax the Philippines
imposed on the Gross Estate act of passing 3. Shares, obligations or bonds issued by a foreign
the ownership of the corporation 85% per centum of the business of,
property at the time of death and not on the value of the which is located in the Philippines.
property or right. 4. Shares, obligations and bonds issued by a foreign
corporation if such shares, obligations or bonds have
Gross Estate included value acquired a business situs in the Philippines.
a. The properties in the estate
5. Shares or rights in any partnership, business or
b. Properties not on the estate, under certain conditions
industry established in the Philippines.
Classification of Decedent/Composition of Composition of the Gross Estate
Gross Estate 1. Real and personal property, whether tangible or
 Resident and Citizens (within and without the intangible, or mixed. (resident and citizen in the
Philippines) Philippines)
- The gross estate of a decedent shall be comprised 2. Decedent’s interest in a property.
of all properties, real, or personal, tangible or 3. Proceeds of life insurance.
intangible, wherever situated and interest therein 4. Taxable transfers. (revocable transfer)
at the time of his death, including revocable 5. Transfer for insufficient consideration.
transfers and transfers for insufficient Proceeds of Life Insurance
consideration.
1. Includable in gross estate:
 Non-resident Aliens a. Revocable beneficiary (like co-owner)
- The gross estate of a decedent shall be comprised - Irrevocable is not movable or not changeable like
only of properties situated in the Philippines the revocable. And this is not taxable.
provided, that, with respect to intangible personal b. Appointed beneficiary is the estate, executor, or
property, its inclusion in the gross estate is administrator.
subject to the rule of reciprocity. 2. Not included in gross estate:
Properties Includable in Gross Estate a. Received from the GSIS and SSS
 Citizen or Resident Decedent or Donor
a. Real property or immovable property,
wherever located. Taxable Transfer
b. Personal property, tangible or intangible, 1. Transfer in contemplation of death (3-year
wherever located. presumption repealed by PD 1705, 8/1/80)
 Non-resident Aliens
 2. Transfer with retention or reservation of certain
rights.
3. Revocable transfer.
4. Transfer of property under general power of
appointment.
a. Existence of general power of appointment held
by the decedent.
b. Exercise of such power by the decedent by will
or by deed intended to take effect upon death.
c. Passing of property by virtue of such death.
5. Transfers for insufficient consideration. (fair market
value at the time of transfer)
a. Covers only the excess of the fair market value
over the value of the consideration.
 Capital Gain Tax – 6%

Example:
Case 1 2 3
FMV at the time of
transfer 100,000 100,000 100,000
Transfer considered
Received 100,000 60,000 0
FMV at the time of
Death 180,000 180,000 180,000
VALUE TO INCLUDE IN
GROSS ESTATE 0 120,000 180,000

b. Transfer was made in contemplation of death,

otherwise will be subject to donor’s tax.
Fair Market Values
 FMV of the property at the time of sale or transfer –
this is use to determine whether or not the
consideration was full and adequate.
 FMW of the property at the time of death – this is
used to determine the amount to be included in the
gross estate.