INTRODUCTION TO

TRANSFER
TAXATION

Rizza F. Welgas - Vardeleon, CPA, MBM

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What is Transfer?
• Transfers refers to any transmission of property from one person to
another.

• A person may be a natural person such as individuals or a juridical person

created by law such as corporation, partnership or joint ventures.

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Types of Transfers
1. Bilateral transfers
• involve transmission of property for a consideration.
• referred to as onerous transactions or exchanges
• examples: Sale, Barter

2. Unilateral transfers
• involve the transmission of property by a person without
consideration.
• referred to as gratuitous transactions or simply, transfers

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Types of Transfers
2. Unilateral transfers
Types of Unilateral Transfers
1. Donation – gratuitous transfer of property from a living donor to a
done. (donation intervivos)

2. Succession – gratuitous transfer of the properties of the

deceased person upon his death to his heirs. (donation mortis
causa)

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Types of Transfers
3. Complex transfers
• transfers for less than full and adequate consideration.
• Sales made at prices which are significantly lower than the fair value
of the property sold

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Comparison between Inter-vivos
and Mortis causa
Inter-vivos Mortis causa
Transferor Living donor Decedent
Nature Voluntary Involuntary
Reason Gratuity Death
Scope of the transfer of Only properties selected by the All properties of the decedent at
properties donor death
Property given Gift Estate
Transferee Donee Heir
Transfer tax Donor’s tax Estate tax
Timing of valuation of Date of donation Date of death
donation

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Tax Rules on transfers for
adequate consideration
• Transfers for adequate consideration are deemed pure
exchanges and are subject to income tax, not to transfer tax.

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Transfer for less than adequate
and full consideration
• Transfers for less than full and adequate consideration are split
into its components: transfer element and exchange element.

• The transfer element is subject to transfer tax while the realized

gain on the exchange element is subject to income tax.

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Transfer for less than adequate
and full consideration
• The transfer element is generally considered as an inter-vivos
donation, but it is a donation mortis-causa if:

a. the sale is made in contemplation of the death of the seller,

or
b. If title to the property is agreed to be transferred upon the
death of the seller.

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Rationale of Transfer Taxation
1. Tax evasion or minimization theory
2. Tax Recoupment theory
3. Benefit received theory
4. State partnership theory
5. Wealth redistribution theory
6. Ability to pay theory

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Comparison of the Two Types of
Transfer Tax
Donor’s tax Estate tax
Subject transfer Inter-vivos Mortis causa
Nature Annual tax One-time tax
Taxpayer Donor Decedent
Who actually pay the The donor himself Executor, administrator
tax? or heirs in behalf of the
decedent.

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Nature of Transfer Taxes
1. Privilege tax
2. Ad valorem tax
3. Proportional tax
4. National tax
5. Direct tax
6. Fiscal tax

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Classification of Transfer Taxpayers
and their extent of Taxation
1. Residents or Citizens – such as:
a. Resident citizens These are taxable on
b. Resident aliens global transfers of
c. Non-resident citizens property.

2. Non-resident Aliens – these are taxable on Philippine transfers of property

Note: Juridical persons that are organized in the Philippines are considered Philippine
citizens. Those organized abroad are considered aliens.
In donor’s taxation, the term resident citizen or alien includes domestic or resident foreign
corporation. Obviously, corporations are not subject to estate taxation.

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Situs of Transfer
Transfers occur in the location of the property.

• Properties are transferred mortis causa in the place where they

are located at the point of death.

• Properties are transferred inter-vivos in the place where they

are located at the date of donation.

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General Rule in Transfer Taxation
Taxpayers Inter-vivos Mortis causa
Resident or citizens Global donation Global estate
Non-resident aliens Philippine donation Philippine estate

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Properties Located in the
Philippines
1. Interest in a domestic business
a. Shares, obligations, or bonds issued by an corporation or
Sociedad anonima organized or constituted in the
Philippines in accordance with its laws

b. Shares or rights in any partnership, business or industry

established in the Philippines

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Properties Located in the
Philippines
2. Foreign securities, under certain conditions:
a. Shares, obligations, or bonds issued by any foreign
corporation 85% of the business of which is located in the
Philippines

b. Shares, obligations, or bonds issued by any foreign

corporation if such shares, obligations, or bonds have
acquired business situs in the Philippines

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Properties Located in the
Philippines
3. Franchise exercisable in the Philippines

4. Any personal property, whether tangible or intangible, located

in the Philippines

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Reciprocity Rule on Non-Resident
Aliens
The intangible personal properties of non-resident aliens are
exempt from Philippine transfer taxes provided that the country in
which such alien is a citizen also exempts the intangible personal
properties of Filipino non-residents therein from transfer taxes.

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Classifying Donation as
Inter-Vivos or Mortis Causa
The timing of the gratuitous transfer of ownership or legal title
over property to another determines the classification of the
transfer.

If gratuitous transfer of ownership occurs Type of

transfer
During the lifetime of the transferor Inter-Vivos
Upon death of the decedent Mortis causa

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Classifying Donation as
Inter-Vivos or Mortis Causa
Exceptional rules on Inter-Vivos Mortis Causa
transfers
1. Transfer in x ✔
contemplation of death
2. Transfer intended to x ✔
take effect at death
3. Incomplete ✔ ✔
transfers

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Types of Incomplete Transfers
1. Conditional transfers
2. Revocable transfers
3. Transfers with reservation of title to property until death

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How are incomplete transfers
completed?
1. Conditional transfers are completed inter-vivos upon the
happening of the following during the lifetime of the donor:

a. fulfillment of the condition by the transferee or

b. waiver of the condition by the transferor

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How are incomplete transfers
completed?
2. Revocable transfers are completed inter-vivos upon:

a. waiver by the transferor to exercise his right of revocation

or
b. the lapse of his reserved right to revoke

3. Transfers with reservation of title to property until death are

completed by the death of the decedent.

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Timing of Taxation of Incomplete
Transfers
• Revocable and conditional transfers that are completed during
the lifetime of the transferor constitute donations inter-vivos
subject to donor’s tax at the fair value of the property at the date
of their completion or perfection.

• Revocable transfers and conditional transfers that are

pre-terminated by the death of the transferor shall be subject to
estate tax at the point of death of the transferor.

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Complex Incomplete Transfers
• Incomplete transfers are sometimes made for less than full and
adequate consideration. Similar to complex transfers, the
gratuity component of the complex transfers is subject to the
appropriate type of transfer tax.

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Test of Taxability of Complex
Incomplete Transfers
1. The incomplete transfer must have been paid for less than full
and adequate consideration at the date of delivery of the
property.

2. At the completion of the transfer, the property must not have

decrease in value below the consideration paid.

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Valuation of Complex Incomplete
Transfers
Mortis causa Inter-vivos
Fair Value at death less consideration Fair Value at Completion or
upon transfer Perfection of Donation less
consideration upon transfer

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Non-taxable Transfers
1. Void transfers

2. Quasi-transfers

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Reference
Bureau of Internal Revenue. (n.d.). Tax Code
https://www.bir.gov.ph/index.php/tax-code.html

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