IC C T

COLLEGES

BUSINESS TAX
AND

TRANSFER
TAXATION
ERVIC VICENTE, LPT
CHAPTER 1
Succession and Transfer Taxes

ARTICLE 712 (NEW CIVIL CODE)

OWNERSHIP may be acquired through;

1. OCCUPATION
2. INTELLECTUAL CREATION
3. LAW
4. DONATION
5. TRADITION
6. CONTRACT
7. PRESCRIPTION
8. SUCCESSION
 TRANSFER TAX AND
SUCCESSION DEFINED
• TRANSFER TAX are tax imposed upon the gratuitious
disposition of private properties or rights.

• GRATUITIOUS tran sfer is on e that neither imposes a burden nor

requ ires consid eration from tran sferee or recipient

• ONEROUS tran sfer, one where th e transferee gives

con sid eratio nin retu rn fo r the prop erty or rig hts received.
(sub ject to b usiness tax n ot tranfer tax )

• mortis causa
• inter v iv os
 TRANSFER TAX AND
SUCCESSION DEFINED
• E st ate Tax. T he usual tax associat ed wi th death is the estate tax.
I t i s the t ax on t he for tune lef t by a deceased before this is
distr ibuted to t he hei r s which i s levied, assessed, collected and
paid upon t he tr ansfer of t he net est ate. T he present tax rate is
6% , which is imposed on t he val ue of t he net estate.

• DONOR’S TAX. This a tax that is impo sed on a gratu itous tran sfer of
property. It is levied, assessed, collected and paid up on th e transfer by any
person of a property by gift or donation. Prev iou sly, th e tax was impo sed at
the graduated rate of 0% to 15% and a higher rate o f 30% if th e beneficiary
is a stranger. The Tax Reform for Acceleration and Inclusion elimin ated the
graduated rate and the difference between the tax rate for strangers and no n-
strangers and replaced these with a u niform rate of 6%.
 TRANSFER TAX AND
SUCCESSION DEFINED
• SUCCE SSI ON i s a mode of acquisi ti on by virtue of which, the
propert y, r ights and obli gat ions t o the extent of the value of
inheri tance, of a per son ar e t ransmit ted t hr ough his death to
anot her or other s eit her by hi s will or by operation of law
S

• DONOR’S TAX. This a tax that is impo sed on a gratu itous tran sfer of
property. It is levied, assessed, collected and paid up on th e transfer by any
person of a property by gift or donation. Prev iou sly, th e tax was impo sed at
the graduated rate of 0% to 15% and a higher rate o f 30% if th e beneficiary
is a stranger. The Tax Reform for Acceleration and Inclusion elimin ated the
graduated rate and the difference between the tax rate for strangers and no n-
strangers and replaced these with a u niform rate of 6%.
ILLUSTRATION NO. 1

PEDRO HAS AN UNEXPECTED HEART ATTACK CAUSING HIS DEATH ON

NOVEMBER 1, 2024. HIS ESTATE COMPOSED OF THE FOLLOWING;

CASH IN BANK______1,000,000
COMMERCIAL BUILDING_____5,000,000
CARS_______________1,000,000
HOUSE AND LOT_______3,000,000

JUAN IS THE HEIR OF THE DECEDENT. PEDRO’S REMAINS WERE

CREMATED ON NOVEMBER 8, 2024. THE EXECUTOR OF PEDRO’S
ESTATE FILED THE ESTATE TAX RETURN AND PAID THE
CORRESPONDING ESTATE TAX ON JANUARY 15, 2025. THE PROPERTIES
LEFT BY THE DECEDENT WERE FINALLY DISTRIBUTED TO JUAN ON
FEBRUARY 14, 2025.

CAS
ANSWER THE FOLLOWING;

1.WHEN WILL THE TRANSFER OF OWNERSHIP

FROM DECEDENT TO HEIR TAKE EFFECT?
2.WHEN SHOULD THE ESTATE TAX ACCRUE?
3.ASSUME THAT PEDRO’S TOTAL LIABILITIES
AS OF THE TIME OF HIS DEATH AMOUNTED
TO 12,000,000. HOW MUCH OF THE
OUTSTANDING LIABILITIES OF THE
DECEDENT SHOULD BE ASSUMED BY
JUAN?
CAS
 KINDS OF SUCCESION
LEGAL
TESTAMENTARY SUCCESSION WHICH IS EFFECTED BY
MIXED
OPERATIONS OF LAW ( BASED ON THE
SUCCESSION THAT SUCCESSION WHICH IS
PROVISIONS OF THE CIVIL CODE
RESULTS FROM THE EFFECTED PARTLY BY
REGARDING SUCCESSION) SINCE THE
DESIGNATION OF AN “WILL” AND PARTLY BY
DECEDENTS DID NOT EXECUTE A WILLOR
HEIR,MADE IN A WILL OPERATION OF LAW.
IF THE LAST WILL EXECUTED BY HIM IS
EXECUTED IN THE
VOID
FORM PRESCRIBED BY
LAW.
CAUSES OF LEGAL SUCCESSION
OR INTESTACY
1.IF A P ERSON DIES WIT HOUT A WIL L, OR WIT H A
VOID WILL , OR ONE WHICH HAS A
S UBSE QUENT LY L OST ITS VAL IDIT Y.
2.WHE N T HE WILL DOE S NOT INST ITUT E AN HEIR.
3.PART IAL INST ITUT ION OF HE IR. Consequently,
intestacy takes place as to the UNDIS POSE D P ORTION
4.WHE N T HE HE IR INS TIT UTE D IS INCAPABL E OF
S UCCE E DING
5.OTHE R CAUSE S
 E L E ME NTS OF SUCCESSION
CAS

1.DECEDENT - g eneral t erm a ppl ie d t o th e p erso n

whose property i s tra nsmit t ed th roug h
su ccession, whet her or no t he le ft a wi l l.
2.INHERITANCE - inc lud e a ll p rope rt y, righ ts an d
obligatio n
3.SUCCESSORS - an hei r or succ essor is a
pe rson who is ca ll ed to t he suc cessio n e it her t he
provision of wi ll or by operati on of l aw.
(COMPULSARY, VOLUNTARY, LEGAL HEIRS)
 COMPULSARY HEIRS

• PR IM ARY C OM PULSARY
A. L E GI TAMAT E CHIL DRE N AND T HE I R L E GIT IMAT E
DE SCE NDANT S
B. SURVI VI NG SPOUSE
C. I L L I GI T I MAT E CHI L DRE N AND T HE I R DE SCE NDANT S,
L E GI T I MAT E OR I L L I GI T I MAT E

• SECONDARY COMPULSARY
A. LEGITIMATE PARENTS AND
LEGITIMATE ASCENDANTS.
B. ILLIGITIMATE PARENTS
LEGITIMES - IS PART OF A TESTATOR,S
PROPERTY WHICH HE CANNOT DISPOSE OF
BECAUSE THE LAW HAS RESERVED IT FOR A
CERTAIN HEIR’S WHO ARE, THEREFORE
CALLED COMPULSORY HEIRS.
CAS
 COL L ATERAL RELATIVES
CAS

CONSAGUINITY - IS THE RELATION OF

PERSON DESCENDING FROM THE SAME STOCK
OR COMMON ANCESTORS
DETERMINING BLOOD
RELATIONS
AB
CE DF

GK H I J
L

M N
 TABLE OF
LEGITIMES
SURVIVOR LEGITIME NOTES

LC 1/2 DIVIDE BY THE NUMBER OF LC, WETHER THEY SURVIVED ALONE OR WITH CONCURRING COMPULSORY HEIR (CH)

1 LC 1/2
SS 1/4

1/2
2 OR MORE LC
EQUAL TO ONE
SS
LC

LC 1/2
ALL THE CONCURRIING CH GET FROM THE HALF FREE PORTION, THE SHARE OF THE SS HAVING PREFERENCE OVER THAT
SS 1/4
OF THE IC, WHOSE SHARE MAY SUFFER REDUCTION PRO-RATA BEACUSE THERE IS NO PREFERENCE AMONG THEMSELVES
IC 1/2 OF 1 LC

LPA 1/2 WETHER THEY SURVIVE ALONE OR WITH CONCURRING CH

LPA 1/2
IC SUCCEED IN THE 1/4 IN EQUAL SHRES
IC 1/4

LPA 1/2
SS 1/8
IC 1/4
TABLE OF
LEGITIMES
SURVIVOR LEGITIME NOTES

IC 1/2 DIVIDE EQUALLY AMONG THE IC

SS 1/3
IC 1/3

SS 1/2 1/3 IF MARRIAGE IS IN ARTICULO MORTIS AND DECEASED SPOUSE DIES WITHIN 3 MONTHS AFTER MARRIAGE

IP 1/2

IP EXCLUDED
CHILDREN INHERIT IN THE AMOUNTS ESTABLISHED IN THE FOREGOING RULES
ANY CHILD IT DEPENDS

IP 1/4
ONLY THE PARENTS OF IC ARE INCLUDED GRANDPARENTS AND OTHER ASCENDANTS ARE EXCLUDED
SS 1/4
ILLUSTRATION 1:

NAMAALAM NHA DIED LEAVING AN ESTATE VALUED AT P12,000,000.

THE SURVIVING HEIRS WERE HIS SPOUSE, 2 LEGITIMATE CHILDREN
AND 1 ILLEGITIMATE CHILD.

DISTRIBUTE THE STATE BY APPLYING THE RULES ON LEGITIMES.

ANSWER:

THE DISTRIBUTION OF HIS ESTATE SHOULD BE FOLLOWS (BASED ON

THE TABLE OF LEGITIMES.)

LEGITIMATE CHILDREN (1/2) P6,000,000

*LEGITIMATE CHILD #1 P3,000,000
*LEGITIMATE CHILD #2 P3,000,000

ILLEGITIMATE CHILD (1/2 OF LC) P1,500,000

SURVIVING SPOUSE (1/4) P3,000,000

FREE PORTION (REMAINDER) P1,500,000

TOTAL P12,000,000
 WILL
IS AN ACT WHEREBY A PERSON IS PERMITTED, WITH THE
FORMALITIES PRESCRIBED BY LAW, TO CONTROL TOO A
CERTAIN DEGREE THE DISPOSITION OF HIS ESTATE TO
TAKE EFFECT AFTER HIS DEATH
KINDS OF WILLS

NOTARIAL OR ORDINARY OR ATTESTED WILL

IS ONE WHICH IS EXECUTED IN ACCORDANCE WITH THE FORMALITIES
PRESCRIBED BY ARTCLE 804 TO 808 OF THE NCC
HOLOGRAPHIC WILL
IS A WRITTEN WILL WHICH MUST BE ENTIRELY WRITTEN, DATED AND
SIGNED BY THE HAND OF THE TESTATOR HIMSELF.

CODICIL - IS A SUPPLEMENNT OR ADDITION TO A WILL,MADE

AFTER THE EXECUTION OF A WILL AND ANNEXED TO BE TAKEN AS
PART THEREOF, BY WHICH ANY DISPOSITION MADE IN THE
ORIGINAL WILL IS EXPLAINED, ADDED TO OR ALTERED

PROBATE OF A WILL - IS A COURT PROCEDURE BY WHICH A WILL IS

PROVED TO BE VALID OR INVALID
FOREIGN WILLS
REVOCATION OF
WILLS

INSTITUTION OF
HEIRS (ART. 840)
DISINHERITANCE

RIGHT OF
REPRESENTATIONS