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TRANSFER TAXATION

A.

Kinds of Transfers
a-1. Onerous Transfers
a-2. Gratuitous Transfers
a.
Donors Tax imposed on inter-vivos transfers
b.
Estate Tax imposed on mortis causa transfers

B.

DONORS TAX
b-1. Donation defined - is an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of another,
who accepts it [See Article 725, Civil Code]. The donation is
perfected from the moment the donor knows of the
acceptance by the done [See Article 734, Civil Code]
b-2. Donation for Tax Purposes
1.
Gratuitous transfers [See Section 98(A)(B)]
2.
Transfers for Inadequate Consideration [See Section
100]
3.
Gratuitous remission of debt
4.
Remuneratory donations - on account of merits or
services which do not constitute demandable debt;
imposes a burden less than the value of the thing
given [See Art. 726, Civil Code]
b-3. Basics
1.
Nature an excise tax imposed on the transfer of
property by way of gift inter vivos [See Lladoc vs.
Commissioner, 121 Phil. 1077]
2.
Purpose to prevent the escape from estate tax
3.
To Whom Imposed
4.
Situs of Taxation
b-4. Classification of Taxpayers
1.
Natural persons
a.
Citizens
1.
Resident citizens
2.
Nonresident citizens
b.
Aliens
1.
Resident aliens
2.
Nonresident aliens
2.
Juridical persons [Section 98(A)]
a.
Domestic
b.
Foreign
b-5. Tax Base, Sources of Taxable Gift, Tax Rates
1.
Tax Base
a.
Total Net Gifts donations to relatives [Section
99]
b.
Net Gifts donations to strangers [Section 98]
2.
Sources of Taxable Gift
a.
Within and Without
1.
Resident citizens
2.
Nonresident citizens
3.
Resident aliens
4.
Domestic corporations

b.

Within
1.
Nonresident aliens
2.
Foreign corporations [Bar, 1996]
3.
Tax Rates
a.
Schedular tax rates based on total net gifts for
donations to relatives
b.
30% Flat rate based on net gifts for donations to
strangers
b-6. Gross Gift Inclusions [Section 104]
1.
Citizens and Residents
a.
Real properties, within and without
b.
Tangible personal properties, within and without
c.
Intangible personal properties, within and
without
2.
Nonresident aliens and foreign corporations
a.
Real properties, within
b.
Tangible personal properties, within
c.
Intangible personal properties, within subject to
the rule on reciprocity
1.
Non-imposition of transfer tax
2.
Grant of exemptions from transfer tax
[Section 104]
b-7. Valuation
1.
Real properties
a.
FMV as determined by the Commissioner of
Internal Revenue or the FMV as shown in the
schedule of values fixed by the City or Provincial
Assessor, whichever is higher
b.
Fair market value refers to the price which any
seller will sell and any buyer will buy, both
willingly without any force or intimidation.
2.
Personal properties
a.
Cash face value
b.
Non-cash FMV as declared by the taxpayer
c.
Shares of Stocks
1.
Traded average of highest and lowest bid
2.
Not Traded use book value per share
b-8. Exemptions and Deductions
1.
Exemptions
a.
RC, RA, NRC
1.
Donations
propter
nuptias,
except
nonresident citizens [Section 101(A)(1)]
2.
Donations to Phil. Government or any of its
created agencies, or political subdivisions
for public purpose [Section 101(A)(2)]
3.
Donations to certain private institutions
a.
Educational,
charitable,
religious,
cultural
and
social
welfare
organizations
b.
Not more than 30% of said gifts is
used for administration purposes

c.

Incorporated as non-stock entity,


paying no dividends, governed by
trustees receiving no compensation
[Section 101(A)(3)]
4.
Donations of prizes and awards
a.
Given to athletes
b.
Whether in local or in international
sports competitions
c.
Whether held in the Philippines or
abroad
d.
Sanctioned
by
their
respective
national sports associations [See
Section 1, Republic Act 7549]
b.
NRA, DC, FC
1.
Donations to Phil. Government, agencies or
any political subdivisions
2.
Donations to certain private institutions
3.
Donations of prizes and awards
c.
Donations to a candidate or political party or
coalition of parties duly reported to the COMELEC
shall not be subject to donor's tax [See Section
13, Republic Act No. 7166].
2.
Deductions
a.
Encumbrance on the property donated if
assumed by the donee
b.
Those specifically provided by the donor as a
diminution of the property donated
b-9. Donors Tax Due and Payable
1.
Donations to Relatives
a.
Donor is RC, NRC, RA
1.
Tax due is determined by imposed the
schedular tax rates on the total net gifts.
Commulative computation
2.
Tax due and payable is determined by
deducting from the tax due the following:
a.
Tax paid on prior donations
b.
Tax paid on foreign donations subject
to limitations [Section 101(C)(2)]
b.
Donor is NRA
1.
Tax due is determined by imposing
schedular rates on total net gifts
2.
Tax due and payable is determined by
deducting from the tax due the tax paid on
prior donations
2.
Donations to Strangers
a.
Donors tax due and donors tax due and payable
are the same determined by applying a 30% flat
rate on net gifts [Section 99(B)]
b.
A stranger is a person who is not a:
1.
Brother, sister (whether by whole or halfblood), spouse, ancestor, and lineal
descendant, or

2.

A relative by consanguinity in the collateral


line within the 4th degree of relationship
[Section 99(B)]
h-10. Filing of Return and Payment of Tax [Section 103(B)]
1.
RC, RA, DC
a.
Return filed with BIR having jurisdiction of the
place of domicile of donor at the time of donation
b.
Tax paid to accredited banks, etc.
c.
Within 30 days after each donation
2.
Nonresidents
a.
Return filed and the tax thereon paid with the
Philippine embassy or consulate
b.
Within 30 days after each donation
C.

ESTATE TAX
c-1. Definition - Succession is a mode of acquisition by virtue of
which the property, rights and obligations to the extent of
the value of the inheritance, of a person are transmitted
through his death to another or others either by his will or
by operation of law [Article 774, Civil Code].
c-2. Nature of Estate Tax tax imposed on the privilege of
transferring property mortis causa
c-3. Inclusions
1.
All properties, rights and obligations at the time of
death to the extent of the decedents interest [Section
85(A)]
2.
Proceeds of life insurance policy [Section 85(E)]
a.
Revocable and/or
b.
Beneficiary
is
the
estate,
executor
or
administrator
3.
Non-Absolute transfers
a.
In contemplation of death [Section 85(B)]
1.
This is a transfer inter vivos made by the
decedent during his lifetime.
2.
What motivate the transferor to transfer his
property is the thought of death, although
death may not be imminent.
b.
Revocable transfers [Section 85(C)]
1.
This presupposes a transfer inter vivos
made by the decedent in favor of another.
The decedent retains the right to alter,
amend or altogether revoke the transfer.
2.
This transfer becomes absolute upon the
death of the decedent since his right to
alter, amend or revoke can no longer be
exercised
c.
Passing under the general powers of
appointment [Section 85(D)]
1.
Power of Appointment is the right to
designate the person or persons who will
succeed to the property of a prior decedent

2.

This presupposes two transfers: a prior and


a recent transfer
3.
There is general power of appointment if
the transferee is given the prerogative to
choose the recipient of the property at his
own volition. This is provided under the
Civil Code wherein the testator may entrust
to a third person the distribution of specific
property or sums of money that he may
leave in general to specified classes or
causes, and also the designation of the
persons, institutions or establishments to
which such property or sums are to be
given or applied [Article 786, Civil Code]
4.
There is special power of appointment if the
transferee has no prerogative to choose the
recipient of the property of the prior
decedent as this was already provided by
the latter.
d.
Transfers for insufficient consideration as to the
excess of FMV over the consideration [Section
85(G) in relation to Section 85(B)(C)(D)]
c-4. Estate Taxpayers
1.
Citizens
a.
Resident citizens
b.
Nonresident citizens
2.
Aliens
a.
Resident aliens
b.
Nonresident aliens
c-5. Gross Estate Determination
1.
Factors considered
a.
Estate taxpayer
b.
Status of taxpayer
2.
Estate Taxpayers
a.
RC, NRC, RA [Section 104]
1.
Real properties within and without
2.
Tangible personal properties within and
without
3.
Intangible personal properties within and
without
b.
NRA
1.
Real properties within
2.
Tangible personal properties within
3.
Intangible personal properties within
c.
Status of Taxpayer
1.
Single only exclusive properties
a.
All deductions are exclusive
b.
No deductions for share of surviving
spouse
2.
Married
a.
Exclusive properties

b.

Conjugal or community properties but


the share of the surviving spouse is
deductible]
c.
All expenses are presumed conjugal
or community
3.
NRA only the following are deductible:
a.
Vanishing deductions
b.
Transfers for public use
c.
Share of surviving spouse
d.
Ratable part of expenses, losses,
indebtedness and taxes [Section
86(A)(B)]
3.
Exempt Transfers
a.
Merger of usufruct in the owner of the naked title
[Section 87(A)]
b.
Transmission from fiduciary heir to the
fideicommissary [Section 87(B), NIRC; Art. 863,
Civil Code]
1.
Three parties: Decedent, First Heir or
Fiduciary and Fedeicommissary
2.
Fiduciary or first heir is entrusted with the
obligation to preserve and to transfer the
property to the second heir
3.
Conditions: Substitution does not go
beyond one degree from the heir originally
instituted and that both the first heir and
second heir are living at the time of the
death of the testator
c.
Transmission from the first heir to another
beneficiary [Section 87(C), NIRC; Art. 859, Civil
Code]
1.
Substitution of Heirs
2.
Pre-decease; renunciation; incapacity
d.
Transfers to social welfare, cultural and
charitable institutions [Section 87(D)]
c-6. Deductions
1.
Kinds of Deductions
a.
Expenses
1.
Funeral (actual, 5% of gross estate, or
P200,000, whichever is lower) [Section
86(A)(1)(e)]
2.
Judicial [Section 86(A)(1)(b)]
3.
Bad Debts [Section 86(A)(1)(d)]
4.
Medical Expenses [Section 86(A)(6)]
a.
Not exceeding P500,000
b.
Covering medical expenses one (1)
year prior to the death of the
decedent
b.
Losses [Section 86(A)(1)(e)]
1.
Arising from casualties, theft, robbery or
embezzlement

2.

Incurred after death, but before the last day


to file estate return
3.
Not
compensated
by
insurance
or
otherwise
4.
Not claimed for income tax purposes
c.
Indebtedness [Section 86(A)(1)(c)]
1.
Notarized debt instrument
2.
If incurred within 3 years from death, a
Statement of Disposition
d.
Taxes, except
1.
Estate tax
2.
Income tax on income after death
3.
Property tax accruing after death [Section
86(A)(1)(e)]
e.
Vanishing Deductions [Bar, 1994]
1.
Property
acquired
by
decedent
by
gratuitous transfer
2.
Within 5 years from death
3.
Include exchanged property where property
given is acquired gratuitously
4.
Always an exclusive deduction
f.
Transfer for Public Use [Section 86(A)(3)]
g.
Family Home [Section 86(A)(4)]
1.
Not exceeding P1,000,000
2.
Certified by the Brgy. Captain
h.
Standard Deduction [Section 86(A)(5)]
i.
Reasonable Private Benefit Plan [Section 86(A)
(7)]
1.
see Section 32(B)(6)(a), NIRC
2.
Amount is included in gross estate
j.
Share of the Surviving Spouse [Section 86(C)]
c-7. Requirements
1.
Notice of Death [Section 89]
a.
Two months
1.
After death or
2.
After the qualification of an executor or an
administrator
b.
Where the gross estate exceeds P20,000
2.
Filing of Estate Tax Return [Section 90(A)(B)]
a.
Within 6 months from death
b.
Extendible for 30 days
c.
Required when
1.
Transfer is taxable
2.
Exempt transfers where gross estate
exceeds P20,000
3.
Regardless of amount, if estate consists of
registered or registrable properties
a.
Real properties
b.
Motor vehicles
c.
Shares of Stocks
d.
Tax is paid upon filing of the return
e.
Consider tax credits [Section 86(E)]

3.

4.

CPAs Intervention [Section 90(A)(3)]


a.
Gross estate exceeds P2,000,000
b.
Statement showing
1.
Itemized assets
2.
Itemized deductions
3.
Tax due
Liability for Estate Tax
a.
Primary personal liability executor or
administrator prior to delivery to any beneficiary
of his distributive share of the estate [1 st
paragraph, Section 91, NIRC in relation to
Section 91]
b.
Subsidiary personal liability beneficiary to the
extent of his distributive share of such portion of
the estate as his distributive share bears to the
value of the total net estate [Ibid].