Transfer Taxes

Types of Transfer

Sale BUSINESS TAX

With
● Onerous transfer Barter
consideration
● Gratuitous transfer Exchange

Free Donation TRANSFER TAX

Nature of Transfer tax

Transfer taxes are called excise or privilege taxes. These taxes are imposed for gratuitous passing of
private owned properties to the heirs in case of death or to the donee in case of donation.

They are not imposed on the value or the property itself but on the gratuitous act of transmitting one’s
property to another
Distinction between Donor’s and Estate Tax

Donor’s Tax Estate Tax

Effectivity of transfer Lifetime of donor and donee Death of decedent

Liable to pay Donor Estate of the

deceased/decedent

Basis of tax Net gift Net estate

Exempt amount TRAIN - Php250K TRAIN - Php0.00

Before TRAIN - PHP100K Before TRAIN - Php200K

Filing and payment Within 30days from date of Within 1 yr from death of the
gift decedent
Estate Tax
Principles and definition
Gross Estate
Principles and definition

● Tax on the right to transmit property (1) at death and (2) on certain transfers by the decedent
during his lifetime which are made by the law equivalent of testamentary dispositions
● Accrues upon the death of the decedent
● Taxable at the time of predecessor’s death notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiaries
● Tax should be based on the value of the property transmitted at the time of death (regardless of
its appreciation or depreciation)
● Flat rate of 6% based on the value of the net estate
Gross estate ● Composition
● Valuation
● Additions to the gross estate
Deductions

Net estate
Gross Estate (SEC. 85 of NIRC)

● the value of the gross estate of the decedent shall be determined by including the value at the
time of his death of all property, real or personal, tangible or intangible, wherever situated:
Provided, however, that in the case of a nonresident decedent who at the time of his death was
not a citizen of the Philippines, only that part of the entire gross estate which is situated in the
Philippines shall be included in his taxable estate.
Q: Individual taxpayers are classified into (?)

Location of property
Resident citizen

Nonresident citizen Within and Without

Resident aliens

Non resident alien Within

 NOTES:
Classifications of
Properties ● GR: Situs of a property is the
domicile/residence of the owner

● For nonresident aliens, gross estate =

● Real property properties situated in the Phils except
● Tangible property intangible personal property (IPP)
● Intangible
property ○ Subject to the rule of reciprocity
○ If foreign county of nonres does not
impose/allows exemption transfer tax
of any character on the IPP of Filipinos
not residents of that foreign country
IPPs considered ● Franchise which must be exercised in the Phils
● Shares, obligations or bonds issued by:
located in the ● any corp or sociedad anonima organized
Philippines of or constituted in the Phils
● Foreign corp 85% if business is located in
Nonresident Aliens the Phils
● Foreign corp that acquired business situs
(Sec 104 of the NIRC) ●
in the Phils
Shares or rights in partnership business, or
industry established in the Phils
 FMV at the time of death

● Real property (whichever is higher between)

Valuation of Gross Estate ○ FMV determined by the CIR
(Sec.88 of the NIRC) ○ FMV as shown in the schedule of
values fixed by the Provincial and City
Assessors
● Personal property -
● Real property ■ Recent - acquisition cost
● Tangible property ■ Non recent - current market
● Intangible price
property ● Shares of stocks
○ Unlisted
■ book value (CS),
■ par value (PS)
○ Listed - mean between the highest and
lowest quotation on the date of death
■ If none, date nearest the death
Recap

Transfer tax

Estate tax

Gross estate

Valuation of gross estate

Additions to the Gross Estate

• There maybe properties, which at the time of the decedent’s death,

are not in the estate because they were transferred by him during his
lifetime
• The values of these properties will be included in the determination of
the gross estate
Additions to the Gross Estate

● Taxable transfers (transfers during the lifetime of the decedent)

1. Revocable transfers
2. Transfers in contemplation of death
3. Property passing under general power of appointment
4. Transfers for insufficient consideration

● Others:

1. Decedent's interest accrued at the date of death

2. Proceeds of life insurance with revocable beneficiary
3. Claims against an insolvent person
4. Amount received by heirs under RA No 4917
Revocable transfers

• A transfer where the terms of the enjoyment of the property may be

altered, amended, revoked, or terminated by the decedent
• It is sufficient that the decedent had the power to revoke, though he
did not exercise the power to revoke
Transfers in contemplation of death

• Transfer motivated by the thought of death, although death may not be imminent
• The following are examples of circumstances which may be taken into consideration in
determining whether the transfer was made in contemplation of death
• age and state of health of the decedent at the time of transfer (terminally ill?)
• length of time between the transfer and the date of death *
• the law does not specify the number of years prior to decedent’s death within which the transfer can
be considered in contemplation of death (BIR Ruling No.261 Sep 2, 1987)
• Concurrent making of a will or making of a will within a short period of time after the transfer
Transfers in contemplation of death (Sec 85 of NIRC)

● transferred the property while still alive, but the transfer was intended
to take effect only upon the former’s death

● by gift, intended to take effect at death, or after under which the

donor reserved the income or rights
Transfers under a General Power of Appointment

● A power of appointment refers to the right to designate the person (s)

who will succeed the property of a prior decedent

● As a rule, in order that the property passing under a power of

appointment may be included in the gross estate of the transferor, the
power of appointment must be a general power of appointment.
Proceeds of Life Insurance

Rules:

○ Include – (a) decedent’s estate, his administrator or his executor, (b) a

third person (not letter a) and designation is revocable

○ Exclude – (a) beneficiary is irrevocable (b) payable to beneficiary other

than the estate, executor, administrator
Claims against Insolvent Persons
Amounts Received by Heirs under RA No. 4917

Rules:

Must be reported in full amount

*However, claims against insolvent person/received under RA 4917 can be

allowed as part of the deductions
Transfers for Insufficient Consideration

Rules:
In transfers in contemplation of death, revocable transfer or under GPA, the value to
include in the gross estate will be determined under the following rules:
 If bonafide sale for an adequate and full consideration, not included
 If C < FMV, difference included in GE
 If C = 0, FMV included in GE
Exclusions from Gross Estate

● Section 87 of the NIRC

● Bequests to be used actually, directly, and exclusively for educational purposes (30% used for admin purposes)

● Proceeds of life insurance – irrevocable, under group insurance

● GSIS/SSS Benefits

● Retirement benefits of private firms approved by the BIR

● Separate property of the surviving spouse*

Separate Property of the Surviving Spouse

Property relations between husband and wife shall be governed by the following order:

1. By marriage settlement executed before marriage

2. Regime of absolute community (for marriage August 3 1988 and onwards)
3. Conjugal partnership of gains (for marriage prior to August 3 1988)
4. Local customs
Differences between CPG and ACP
Property Conjugal Absolute

Before the marriage or brought to the E C

marriage
Fruits or income due or derived during the C E
marriage coming from the exclusive
property
Similarities between CPG and ACP
Property Conjugal Absolute

Inherited or received as donation during E E

marriage
Acquired during marriage (other than C C
inheritance or donation)
Acquired from labor, industry work or C C
profession of the spouses
Fruits or income due or derived during the C C
marriage coming from common property
Recap

Additions to the gross estate

Separate property of the surviving spouse