PERSONAL REVIEWER

ON
TRANSFER TAX

(TAX MADE LESS TAXING: A REVIEWER WITH CODALS AND CASES

BY IGNATIUS MICHAEL D. INGLES, 3RD EDITION (2021))
PAGES 271-322

SUBMITTED BY:
JOZIEL L. BELBES
JD-2A
SUBMITTED TO:
ATTY. IC JAPLIT
 ESTATE TAX

A. Principles and Definition

● It is the tax imposed in right to transmit property at death and on certain

by the decedent during his lifetime on testamentary dispositions made by
law.
● Accrues upon decedent’s death.
● A transmission by inheritance is taxable at the time of the predecessor’s
death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary.
● Tax is measured by the value of the property transmitted at the time of
death, regardless of its appreciation or depreciation.
● Accrual of tax is distinct from the obligation to pay the tax.

B. Rates and Value

● Estate Tax has a flat rate of 6% based on the value of the net estate.
● Properties comprising the gross estate shall be the value based on the
FMV as of the time of death.
● In real property, FVM shall be: (whichever is higher)
○ Determined by the Commissioner
○ Fixed by the Provincial and City Assessors
● In personal property, whether shares are listed or unlisted in the stock
exchange
○ If unlisted
■ Common shares- based on book value
■ Preferred shares- based on their par value
○ If listed
■ The mean between the highest and lowest quotation on the
date of death
■ If none, date nearest death

C. Gross Estate
● For estate tax purposes, residence refers to the domicile of the person.
● For residents and citizens, gross estate includes all properties (real or
personal), tangible or intangible, wherever situated.
● For nonresident aliens, gross estate includes only properties situated in
the Philippines.
■ Except: In intangible personal property (IPP), gross estate is
subject to the rule of reciprocity.
● Foreign country of the nonresident alien does not
impose a transfer tax on the IPP of Filipinos not
residents of that foreign country; or allows a similar
exemption from the transfer tax in respect of IPP
owned by Filipinos not residents of the foreign
country. Hence, nonresident aliens are estate tax
exempt.
● Reciprocity must be total. If any state does not impose tax exemption, no
reciprocity applies.
■ In exemption, foreign not required to possess international
personality.
● Gross estate includes interest or right in the nature of property, having
value or capable of having value like:
○ Dividends declared but paid after death
○ Partnership profits
○ Right of usufruct
● Intangible properties located in the Philippines:
 ○ Franchise
○ Shares, obligations, bond issued by corporation in accordance
with its laws
○ Shares, obligation, bonds issued by foreign corporation 85% of the
business located in the Philippines
○ Shares, obligations or bonds issued by a foreign corporation
acquired in a business situs
○ Shares or rights in partnership, business or industry
Properties not in the estates
● Properties not part of the estate of a decedent, as were transferred during
his lifetime
○ Transfers in contemplation of death
○ Revocable transfers
○ Transfers under general power of appointments
○ Transfers for an insufficient consideration
■ Value of the properties will be included in the determination
of gross estate for estate tax purposes.
■ They are extension of interests
● Except: if transfer is in bona fide consideration, not
anymore added in gross estate
Transfers in contemplation of death
● Transfer, by trust etc. intended to take effect after death
● Transfer, by trust etc. decedent retained for his life, the right to income
from property, or the right to designate to income therefrom.
○ Except: in case of bona fide sale, property transferred will not be
considered in determining gross estate.
Revocable transfers
● A transfer where the terms of the enjoyment of the property may be
altered, amended, revoked or terminated by the decedent.
● Decedent has the power to revoke, though did not exercise this power
○ Bona fide rule on sale applies

Transfer under a General Power of Appointment

● Refers to the right to designate person(s) to succeed the property of a
prior decedent.
● This forms part of the powerholder’s estate.
 ● Limited power of appointment is exercised only in favor of certain
person(s) designated by the prior decedent.
● Property passing under a power of appointment be included in the
transferor's gross estate, power of appointment should be General power
of appointment.
○ Bona fide rule on sale applies

Life Insurance Proceeds

● Proceeds of insurance of the decedent shall constitute part of the gross
estate, if the beneficiary:
○ The estate of the decedent, his executor or administrator as such
○ A third person, designation of the beneficiary is revocable
● In the Insurance Code, designation of a beneficiary is generally revocable.
○ Except: when policy states that it is irrevocable, proceeds are not
part of the decedent’s estate.
● Life insurance proceeds must be taken out by the decedent.
○ Not included in the computation of gross income if proceeds are
from
■ GSIS
■ Company policy
■ SSS
○ Must stem from life insurance to be included in the gross estate
■ Accident insurance, not included

TRansfers of Insufficient Consideration

● Transfers in contemplation of death, revocable transfer, gross estate
value determined by:
○ If bona fide sale, no value included in the gross estate
○ Consideration received on the transfer was less than the adequate
value, value included will be the excess of the FVM at the time of
decedent’s death
○ If no consideration is received on the transfer (donation on mortis
causa) value included in the gross estate will be the FVM of the
property at the time of the decedent’s death.
Capital of the Surviving Spouse
● It shall not form part of the decedent’s gross estate.
● Transfers during the lifetime of a decedent, there is a disputable presumption
that the transfer is upon death if the recipients are compulsory heirs.
● In summary, gross estate is made up of:
 1. Decedent’s interest ate the time of his death
2. Transfers made during lifetime
3. Life insurance proceeds
4. Others, required by law to be included in the gross estate in order to
allow deductions

D. Computation for the Net Estate

● Basic equation, in determining the net taxable estate
○ Gross estate – deductions
● Deductions for a citizen or resident
○ Standard deduction of P5 M
○ Claims against the estate
○ Claims against insolvent persons:
○ Unpaid mortgages or indebtedness on property
○ Accrued taxes and losses
○ Vanishing deductions
○ Transfer for public use
○ Family home to the extent of P10 M
○ Amounts received by heirs under RA 4917
○ Net share of the surviving spouse in the conjugal partnership, if any

Claims against the estate

● Claim means debts or demands of a pecuniary nature, could have been
enforced against the deceased in his lifetime and reduced to simple
money judgments.
○ Enforceable when he was alive and obligation will be claimed when
he dies.
● Claim against estate or indebtedness in respect of property may also
arise out of contract, tort, or operation of law.
○ Requisites:
1. Liability represent a personal obligation of the deceased at
the time of his death,
2. Liability was contracted in good faith and for adequate and
full consideration
3. Claim must be a debt, or claim is valid in law and
enforceable in court, and
4. Indebtedness must not have been condoned by the creditor
during the lifetime of the decedent, or actions collected
must not have been prescribed.
 ● If condoned AFTER the decedent’s death, debts are
deductible (date-of-death valuation rule)
● Direct Deduction- no requirement to add the amount to the gross estate.

Claims against insolvent persons

● They are deductible from gross estate
● Deduction from the gross estate will be the uncollectible portion.
● Insolvent persons are those defined under FRIA and other existing laws
Unpaid mortgage or indebtedness on property
● Mortgage or indebtedness will be claimed as a deduction from the gross
estate
● If accommodation loan, unpaid loan must be included in the receivable of
the estate.
Taxes
● These are deductions from the gross estate if such taxes accrued prior to
the decedent’s death
● Accrued after the decedent’s death are not deductions from gross estate
● Taxes that cannot be deducted
○ Income tax on income received after death
○ Property taxes not accrued before death
○ Estate tax

Losses
● Losses are deductible from the gross estate if:
1. Arising from fire, storm, shipwreck or other casualty, robbery,
embezzlement
2. Not compensated by insurance or otherwise
3. Not claimed as a deduction in an income tax return of the estate
subject to income tax
4. Occurring during the settlement of the estate
5. Occurring before the last day for the payment of the estate tax
Vanishing deductions
 ● Property may change owner by early demise of the owner who received it
by donation or inheritance
● Relief for taxpayer, vanishing deductions are allowed to reduce the gross
estate
● Vanishing deductions allowed when:
1. Decedent dies within 5 years from receipt of the property from
prior decedent or donor
2. Property claiming vanishing deduction is located in the Philippines
3. Property is taxable estate of the prior decedent,
4. Estate tax on prior succession or donor’s tax must have been
determined and paid
5. Property must be identified as the one received from the prior
decedent or donor, or something acquired in exchange therefore
6. No vanishing deduction on the property was allowable to the
estate of the prior decedent
Transfer for public use
● Transfer for public use are dispositions in a last will and testament, or a
transfer to take effect after death, in favor of the government or any
political subdivision
● Property transferred to the government can be deducted
Family Home
● Allowable deduction is the amount equivalent to the current FMV of the
family home
● Family home is the dwelling house, where husband and wife, head of the
family and members reside.
● It is characterized by permanency.
● Requisites for deducting the family home:
○ Actual home of the decedent and his family at the time of his
death, as certified by the Brgy. captain of the locality
○ Total value of the family home must be included as part of the
gross estate (zero-sum)
○ Deduction equivalent to current FMV, or the extent of the
decedent’s interest (whichever is lower but not exceeding P10
Million)
● Those married at the time of decedent’s death, under a conjugal
partnership or absolute community, deduction of family home is ½ of the
FVM, not exceeding P10 Million.
Amounts receivables under R.A. 4917
● Retirement benefits plans maintained by the employer are exempt from
all taxes, provided the retiring employee has been in the service for at
least 10 years and is not less than 50 years old at the time of his
retirement.
● The amount must have been received by the heirs of the
decedent-employee and included in the gross estate of the decedent.

Net share of the surviving spouse in the conjugal partnership, if any

● If the decedent was married, the share of the surviving spouse must be
removed to ensure that only the decedent’s interest in the estate is taxed.

Deductions for a Nonresident, not citizen of the Philippines

● Estate of the nonresident alien decedent at the time of death, is subject
to tax only on estate within the Philippines.
● Nonresident alien in the PH is allowed deductions for:
○ Standard deduction of P500,000
○ Proportion of total losses and indebtedness
○ Vanishing deductions
○ Transfer for public use
○ Net share of the surviving spouse in the conjugal partnership or
community property

E. Net Estate Computation of Married Persons

● Capital of the surviving spouse- not part of the decedent’s gross estate
● Share in the conjugal property- the net share of the surviving spouse in
the conjugal partnership of property be deducted from the net estate of
the decedent.
F. Gross Estate

● Gross estate of the married decedent consists of:

1. Exclusive properties of the decedent and
 Property acquired during the marriage by gratuitous title by
●
either spouse
● Property for personal and exclusive use of either spouse
● Property acquired before the marriage by either spouse who
has legitimate descendants by a former marriage
2. Community properties
○ All properties at the time of the celebration of the marriage
or acquired thereafter
○ Family home

G. Exemption from Estate Tax

● Those exempt from estate tax

1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance
3. Transmission from the 1st heir, legatee
4. All bequests, devises, legacies or transfers to social welfare,
provided that not more than 30% shall be used for the institutions
for the administration purposes
5. Life insurance
6. GSIS/SSS benefits
7. Retirement benefits of private firms approved by the BIR
8. Separate property of the surviving spouse
Tax credit for Foreign Estate Tax
● To minimize taxing the same property twice. Tax credit against Philippine
estate tax is allowed for estate taxes paid to foreign countries.
● Paid to foreign country and tax credit limit in the Philippines (whichever
is lower)

H. Tax Estate Returns

● Estate tax return must be filed when the estate is:

1. Subject to estate tax
2. Gross estate consists of registered or registrable property, for
which BIR clearance is required as a condition precedent for the
transfer of ownership thereof in the name of the transferee.
● Return shall be under oath and includes:
 ○ Value of the gross estate at the time of the decedent
○ Deductions allowed from the gross estate
○ Whatever is necessary to establish the correct estate tax
● Estate tax return exceeds P5 Million, requires a statement certified by a
CPA
● ETR should be filed within 1 year from the decedent’s death
● It is sufficient if complied substantially with the law. Substantial
compliance requires:
○ Return is made in good faith and is not false or fraudulent
○ Covers the entire period involved
○ Contain information as to items of income, deductions and credits
● Approval of probate court is not mandatory in collection of estate taxes.

I. Payment of Tax
● Estate tax shall be paid at the time the return is filed.
● Commissioner may extend the payment of estate tax
○ Should not exceed 5 years (judicial settlement); 2 years
(extrajudicial settlement)
● Estate tax shall be paid by the executor or administration before delivery
to the beneficiary
○ 2 or more executors: severally liable for the estate tax
○ Including inheritance tax
○ Beneficiary, subsidiarily liable for the payment of tax to the extent
of his share
● Claims for income tax need not be filed with the committee on claims and
appraisals in the course of testate proceedings, amount thereof may be
collected after the distribution of the decedent’s estate among his heirs,
liable in proportion to their share in the inheritance.
● Government has 2 ways in collecting unpaid taxes accruing before the
death of the decedent:
1. By going after all the heirs and collecting from each
proportionate amount to the inheritance received; or
2. By subjecting said property to the payment of the tax due of
the estate. (go against 1 heir for the entire tax)

J. Miscellaneous Provisions

● Discharge of Executor or administrator from Personal Liability

(Sec. 92)- if the executor makes a written application to the
 commissioner for determination of the amount of the estate tax and
discharge from personal liability therefore, within 1 YEAR shall notify the
executor or administrator of the amount of the tax. Upon payment of the
latter, he shall be discharged from personal liability for any deficiency
and be issued with receipt or writing showing such discharge.
● Definition of deficiency (Sec. 93)-
○ the amount exceeds the amount shown as the tax by the executor
or any heirs upon his return; increased by the amounts previously
assessed as a deficiency and decreased by the amount previously
abated, refunded or repaid
○ If no amount is shown upon his return, the amount tax exceeds
the amounts previously assessed as a deficiency
● Payment Before Delivery by Executor or Administrator (Sec. 94)-
No judge shall authorize the executor or judicial administrator to deliver
shares to interested parties in the estate without certification from the
Commissioner that the estate tax has been paid.
● Duties of Certain Officers and Debtors. (Sec. 95)- Registers of Deeds
shall not register in the Registry of Property any document transferring
property or rights, neither the debtor of the deceased shall pay his debts
to the heirs, unless there is a certification from the Commissioner that
the tax fixed has been paid.
● Restitution of Tax Upon Satisfaction of Outstanding Obligations.
(Sec. 96)- if after the payment of the estate tax, new obligations of the
decedent arise, persons interested shall have satisfied them by order of
the court, they shall have right to the restitution of the proportional part
of the tax paid.
● Payment of Tax Antecedent to the Transfer of Shares, Bonds or
Rights. (Sec. 97)- shall not transfer to the new owner in the books of any
corporation, sociedad anonima, partnership, business in the Philippines,
unless a certification from the Commissioner that tha taxes fixed due has
been paid.
 DONOR’S TAX

A. In General

● Donor’s Tax will be levied, assessed, collected and paid upon the transfer
by any person, resident or nonresident, of property by gift (Sec. 98)
○ Property can be real or personal, tangible or intangible
○ Transfer can be trust or otherwise
○ Gift can be direct or indirect
● Donor’s tax will not apply unless there is a completed gift
○ Perfected from the moment the donor knows of the acceptance by
the donee
● Gift is incomplete because of reserved powers becomes complete when
either:
○ Donor renounces the power; or
○ Right reserved ceases

B. Gross Gifts
● 2 Kinds of Donors
1. Resident or citizen of the Philippines, and
○ Real estate, regardless of location
○ Tangible personal property, regardless of location
○ Intangible personal property, regardless of location
2. Non resident, not citizen of the Philippines
○ Gifts consist of:
i. Real estate located in the Philippines
ii. Tangible personal property, located in the Philippines
iii. Intangible personal property, located in the
Philippines subject to reciprocity clause
● Donation made by a corporation to the heirs of a deceased officer out of
gratitude, subject to donor’s tax.
● Gifts are:
○ Transfer for insufficient consideration; and
○ Cancellation of indebtedness
 C. Transfer for Insufficient Consideration

● Transfer of real/personal property will be considered a donation/gift and

subject to the donor’s tax when:
1. Transfer was less than adequate and full consideration
2. Transfer was effective during his lifetime
3. Other than real property
● Requisite for this type of transfer:
○ Bona fide transaction
○ Arm’s length
○ Free from donative intent

D. Cancellation of Indebtedness

● If a creditor desires to benefit a debtor, and without any consideration

therefore, cancels the debt, the amount of the debt is a donation by the
creditor to the debtor.

E. Value of the GIfts

● Value of the gross gifts- the FVM of the property donated at the time of
the donation.

F. Deductions from Gross Gifts Resident or Citizen Donors

● Deductions allowed for a resident or citizen donor:

1. Gifts for the use of government/entity not conducted for profit
2. Gifts in favor of educational and/or charitable, religious, cultural
or social welfare corporations, provided not more 30% of said gifts
● Entity must be:
○ Non-stock
○ Paying no dividends
○ Governed by trustees w/ NO compensation
○ Devoting all income for the purpose of its AOI.

G. Deductions from the Gross Gifts by Husband and Wife

● Gifts out of community/conjugal property, each donor has their own

deductions.
■ Donations will be distributed equally among them (1/2)
● If only the husband signed the deed of donation, there is only one donor
for donor’s tax purposes without prejudice to the wife (in question of
validity)

H. Deductions for a Nonresident, Not Citizen Donor

● Similar with the resident or citizen donor

I. Other Deductions

● Deductions allowed by BIR:

○ Encumbrance on the property donated
○ Those specifically provided by the donor as a diminution of the
property donated.

J. Exemptions under Special Law (on Donor’s Tax)

● Gifts and donations to the University of the Philippines
● Contributions to the National Book Trust Fund
● Donations qualified foster care agencies
● Contributions to candidates or political parties

K. Tax Rates Payable by Donor

 ● Donor’s tax is reported by calendar year
● Donations not over P250,000 in a calendar year
○ Exempt from donor’s tax
● P250,000 counts as a deduction from total gifts, because the 6% rate is
imposed on the total gifts in excess of P250,000.

L. Donor’s Tax Return

● Donor’s tax return must be filed within 30 days after the date of the
donation.
● On all donations of one date, 1 donor’s tax is required
● Husband and wife as donors, the donor’s tax return of the husband is
apart to the wife’s
● Donor’s tax is paid at the time the return is filed, with the office where
the return is filed.
○ NOTE: in order to be:
■ Donor’s tax exempt,
■ Claim full deductions
● Donor engaged in business shall give notice of
donation on every donation worth at least P50,000 to
the RDO, within 30 days after receipt of the donee’s
Certificate of Donation, attaching the notice of
donation, stating not more than 30% of the
donations shall be accredited non-stock, non-profit
corporation/NGO institution

M. Donor’s Tax Credit

Tax Credit for Donor’s Taxes Paid to a Foreign Country
● In general: tax imposed upon a donor who was a citizen or a resident at the
time of 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.
○ Only resident or citizen donors are allowed donor’s tax credit
○ Foreigner’s donor’s tax paid to a foreign country, a credit is allowed to
reduce the PH donor’s tax to pay.