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GUIDE

NOTES ON DONORS TAX



DONORS TAX

Q: What is donors tax?

* Donors tax is a tax imposed upon the right or privilege to
gratuitously transfer property, real or personal, tangible or
intangible, between two or more persons who are living at the
time of transfer.

** In the 1940s, Enrico Pirovano was President and General
Manager of de la Rama Steamship Co. The corporation insured
the life of Pirovano with various insurance companies
designating itself as the beneficiaries of said policies. Pirovano
died. The corporation received a certain sum as proceeds of the
life insurance policies. Such amount was later donated by the
corporation to Pirovanos minor children. Ultimately, the issue
was whether the sum was subject to donors tax. According to
Pirovano v. CIR, a donation made by a corporation to the heirs of
a deceased officer out of gratitude for his past services is subject
to the donees gift tax. [Pirovano v. CIR, GR No. L-19865, 31 July
1965.]

Q: Differentiate between a donation inter vivos (subject to donors
tax) and a donation mortis causa (or a transfer in contemplation of
death, subject to estate tax).

* The case of Austria-Magat v. CA differentiated between a
donation inter vivos and donation mortis causa. Sometime in
1975, Basilisa Comerciante, mother of 5, executed a document
entitled Donation in favor of her 4 living children. The issue lies

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on the characterization of the Donation. Citing jurisprudence,


the Supreme Court laid out the characteristics of a donation
mortis causa, to wit:
(1) It conveys no title or ownership to the transferee before the
death of the transferor; or, what amounts to the same thing,
that the transferor should retain the ownership (full or naked)
and control of the property while alive;
(2) That before his death, the transfer should be revocable by
the transferor at will, ad nutum; but revocability may be
provided for indirectly by means of a reserved power in the
donor to dispose of the properties conveyed; and
(3) That the transfer should be void if the transferor should
survive the transferee.

Essentially ruling that all the above characteristics were not
present, the Supreme Court categorized the Donation as one
inter vivos, and stated that the prohibition to alienate in said
Donation did not necessarily defeat the inter vivos character of
the donation. [Austria-Magat v. CA, GR No. 106755, 1 Feb. 2002.]

** In del Rosario v. Ferrer, in August 1968, the Gonzales Spouses
executed a document entitled Donation Mortis Causa in favor
of their 2 children, Asuncion and Emiliano, and 1 granddaughter,
Jarabini covering a property. The deed specifically stated that the
donation was irrevocable and contained an acceptance clause. In
September 1968, the wife died. In December 1968, the husband
executed a deed of assignment of his rights and interests in the
subject property to their daughter Asuncion. The husband died
in June 1972.

The Supreme Court ruled that although the deed was
denominated as Donation Mortis Causa, irrevocability is a

quality absolutely incompatible with the idea of conveyances


mortis causa, where revocability is precisely the essence of the
act. Given that the donation in this case was irrevocable or one
given inter vivos, the husbands subsequent assignment of his
rights and interests in the property to Asuncion should be
regarded as void for, by then, he had no more rights to assign.
He could not give what he no longer had. Nemo dat quod non
habet. [del Rosario v. Ferrer, GR No. 187056, 20 Sept. 2010.]

*** In Puig v. Peaflorida, Doa Carmen Ubalde expressly and
consistently declared her conveyance to be one of donation
mortis causa and further forbade the registration of the deed
until after her death. The Supreme Court held that [a]all these
features concordantly indicated that the conveyance was not
intended to produce any definitive effects, nor to finally pass any
interest to the grantee, except from and after the death of the
grantor. [Puig v. Peaflorida, GR No. L-15939, 31 Jan, 1966.]

**** BIR Ruling No. 089-2011 addressed the issue of whether a
general renunciation made by the sole heir of the decedent,
which made the four grandchildren the heirs next in line as the
direct heirs, created a taxable event for which donors tax should
be paid. The BIR ruled that in the transaction above, there was
no donation to speak of. Hence, no donors tax could be
assessed on the transaction. [BIR Ruling No. 089-2011, 21 Mar.
2011.]

***** BIR Ruling No. 109-2011 interpreted certain provisions of
the Special Purpose Vehicle Act of 2002 in relation to the 1997
Tax Code. It ruled that the transfer of property from the
Philippine Distressed Asset Asia Pacific, Inc., pursuant to the SPV

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Law, as amended, was not subject to donors tax. [BIR Ruling No.
109-2011, 7 Apr. 2011.]

Q: What is the law that governs the imposition of donors tax?

* The gift is perfected from the moment of acceptance by the
donee, and it is completed at the time of delivery. The delivery
can either be constructive or actual. Hence, it is the law at the
time of the perfection and/or completion that will govern the
imposition of the donors tax.

** A gift that is incomplete because of reserved powers
becomes complete when either:
(i) The donor renounces the power; or
(ii) His right to exercise ceased because of the happening of
some event or contingency or the fulfillment of some
condition, other than the death of the donor. [RR No. 02-03]

Q: What transfer may be considered as donations?

* The following transfers may be treated as donations:
(a) debt condoned or remitted (in which case the amount of
the debt is a gift from the creditor to the debtor and need not
be included in the latters gross income) [Sec. 50, RR No. 02-
40];
(b) transfers made in trust for another person; and
(c) renunciation by the surviving spouse of his/her share in the
conjugal partnership or absolute community after the
dissolution of the marriage in favor of the heirs of the deceases
spouse or any other person.

** Further to item (c) above, note, however, that a general


renunciation by an heir, including the surviving spouse, of
his/her share in the hereditary estate left by the decedent is
not subject to donors tax, unless the renunciation is
specifically and categorically done in favor of identified heir/s
to the exclusion or disadvantage of the other co-heirs in the
hereditary estate. [RR No. 02-03]


Sec. 98, Imposition of Tax

(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the property by
gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is
real or personal, tangible or intangible.

Sec. 99, Rates of Tax Payable by Donor

99(A) In General - The tax for each calendar year shall be
computed on the basis of the total net gifts made during the
calendar year in accordance with the following schedule:
If the net gift is:

Over

P 100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000

But Not Over


P 100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000

The Tax Shall be


Exempt
0
2,000
14,000
44,000
204,000
404,000
1,004,000

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Plus

Of the Excess Over


2%
4%
6%
8%
10%
12%
15%

P100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000

Q: What are the factors that affect the determination/computation


of gross gift?

* These are:
(1) citizenship and residency of the donor at the time of
donation; and
(2) location of the property donated.

Q: How does one arrive at the valuation of a donation?

* The same rules apply as in valuation of a decedents gross
estate.

(1) Gross gifts is computed on a cumulative basis.
(2) Donors tax is based on the net gifts.

Net gifts is computed as follows: gross gifts minus allowable
deductions.

99(B) Tax Payable by Donor if Donee is a Stranger - When the
donee or beneficiary is stranger, the tax payable by the donor shall
be thirty percent (30%) of the net gifts. For the purpose of this tax,
a 'stranger,' is a person who is not a:

(1) Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the fourth
degree of relationship.

Q: Who is a stranger?

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* When the donee is a stranger, the tax payable by the donor


shall be 30% of the net gifts. Stranger shall be any person who
is not: (1) a brother, sister (whether by whole or half-blood)
spouse, ancestor and lineal descendant; or (2) a relative by
consanguinity in the collateral line within the fourth degree of
relationship.

99(C) Political Contributions - Any contribution in cash or in kind to
any candidate, political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as amended.

Q: Are political contributions considered gifts and therefore liable
for donors tax?

* In the case of Abello v. CIR, partners of the ACCRA law firm
contributed amounts to the 1987 senatorial campaign fund of
Angara. The issue at bar was whether such political contributions
were subject to donors tax. The Supreme Court found that all
the elements of donation were present, namely: (1) the
reduction of the patrimony of the donor; (2) the increase in the
patrimony of the donee; and (3) the intent to do an act of
liberality or animus donandi. Hence, the political or electoral
contributions were subject to donors tax. [Abello v. CIR, GR No.
120721, 23 Feb. 2005.]

Sec. 100, Transfer for Less than Adequate and Full Consideration

Where property, other than real property referred to in Section
24(D), is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by
which the fair market value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this

Chapter, be deemed a gift, and shall be included in computing the


amount of gifts made during the calendar year.

Q: Cite an example of a transfer for less than adequate and full
consideration.

* The case of CIR v. B.F. Goodrich Phils., Inc. dealt with the sale
by B.F. Goodrich to Siltown Realty of a rubber plantation in
Basilan for a price less than its declared fair market value. The
BIR wanted to assess BF Goodrich for deficiency donors tax
representing the difference between the fair market value and
the actual purchase price of the property. The BIR also
contended that BF Goodrich filed a false income tax return.
The Supreme Court said that real property may be sold for less
than adequate consideration for a bona fide purpose and that
in such event, the sale remains an arms length transaction.
On the issue of falsity of the return filed, the Supreme Court
ruled that although donors tax is different from capital gains
tax (as reported in the income tax return), the 1974 income tax
return was sufficient compliance with the legal requirement to
file a donors tax return. In other words, the fact that the sale
transaction may have partly resulted in a donation does not
change the fact that [BF Goodrich] already reported its income
for 1974 by filing an income tax return. [CIR v. B.F. Goodrich
Phils., Inc., GR No. 104171, 24 Feb. 1999.]

Sec. 101, Exemption of Certain Gifts

The following gifts or donations shall be exempt from the tax
provided for in this Chapter:

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* BIR Ruling No. 124-2011 ruled that the donation of lots by


Diamond Cement and Industrial Corporation Ayala
Corporation (DCIC-AC) to relocatees of the Department of
Transportation
and
Communications
Laguindingan
International Airport Project in Misamis Oriental was not
included among those donations exempt from donors tax
under Section 101 of the 1997 Tax Code. [BIR Ruling No. 124-
2011, 12 Apr. 2011]

101(A) In the Case of Gifts Made by a Resident

(1) Dowries or gifts made on account of marriage and before its
celebration or within one year thereafter by parents to each of
their legitimate, recognized natural, or adopted children to the
extent of the first Ten thousand pesos (P10,000):
(2) Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government; and
(3) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philanthropic organization
or research institution or organization: Provided, however, That
not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes. For the purpose of the
exemption, a 'non-profit educational and/or charitable
corporation, institution, accredited nongovernment organization,
trust or philanthropic organization and/or research institution or
organization' is a school, college or university and/or charitable
corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no
dividends, governed by trustees who receive no compensation, and

devoting all its income, whether students' fees or gifts, donation,


subsidies or other forms of philanthropy, to the accomplishment
and promotion of the purposes enumerated in its Articles of
Incorporation.

Q: What are the tax implications of a donation in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization,
trust or philanthropic organization or research institution or
organization?

* (1) Such donation is exempt from payment of donors tax
subject to the condition that not more than 30% of said
donation shall be used by the done for administration
purposes. In case of donation of real property, the Register of
Deeds shall annotate this condition at the back of the TCT/OCT
because failure to comply with said condition shall be a ground
for the revocation of the exemption from the payment of the
donors tax.

(2) The deed of donation is likewise not subject to
documentary stamp tax prescribed under Section 196 of the
1997 Tax Code (Stamp Tax on Deeds of Sale and Conveyances
of Real Property), but only to the documentary stamp tax of
PhP 15 imposed under Section 188 of the same code (Stamp
Tax on Certificates).

(3) If the donor is a VAT-registered person and the donation is
an ordinary asset, the donation is subject to VAT pursuant to
RR No. 16-2005, as amended, the same being considered a
transaction deemed sale. If the donor is not a VAT-registered
person, the donation is exempt from VAT.

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(4) If the same property acquired by donation is subsequently
conveyed by way of sale or exchange, the sale will be subject to
corporate income tax on the gain realized which is determined
by deducting from the gross selling price the historical cost or
the adjusted basis thereof, as it would be in the hands of the
donor, pursuant to Sections 27 and 101 of the 1997 Tax Code,
and consequently to creditable expanded withholding tax
under Section 2-98, as amended.

If the donee-institution donates the subject property to a non-
exempt done, it shall be liable for donors tax pursuant to
Section 98 of the 1997 Tax Code. [BIR Ruling No. 128-2013, 4
Apr. 2013.]

Q: What is the benefit derived by a donor in case the donee is
accredited by the Philippine Council for NGO Certification (PCNC)?

* Gifts, donations, and other contributions made by residents to
an educational institution or a foundation are exempt from
donor's tax, subject to the condition that not more than 30% of
said gift shall be used for administration purposes. [Sec.
101(A)(3), 1997 Tax Code.]
Moreover, for income tax purposes, an accreditation of the
educational institution or foundation by accrediting entities,
such as the PCNC, allows a donor to deduct the charitable
contribution as a business expense. [RR No. 13-98 dated 8 Dec.
1998; BIR Ruling No. 029-10, 12 Aug. 2010; BIR Ruling No. [NSNP-
(S30H-010)061-10], 5 July 2010; BIR Ruling No. 017-10, 1 July
2010]

The PCNC is a private, voluntary, non-stock, non-profit


corporation established by six of the country's largest NGO
networks.
"The PCNC, duly registered with the Securities and Exchange
Commission, shall be the government's partner in a system of
accreditation, to determine the qualification of domestic
corporations or associations or NGOs organized and operated
exclusively for religious, charitable, scientific, youth and sports
development, cultural or educational purposes, or for the
rehabilitation of veterans, or to NGOs for accreditation as donee
institutions." [EO No. 720, 11 Apr. 2008]
A PCNC accreditation endows an entity with a "donee institution
status" such that charitable contributions to these qualified
donee institutions are allowed as business deductions for income
tax purposes.
Q: What are the requirements for the above?
* A donor engaged in business shall give a Notice of Donation on
every donation worth at least PhP 50,000 to the Revenue District
Office which has jurisdiction over his place of business within 30
days after receipt of the qualified donee institutions duly issued
Certificate of Donation, which shall be attached to said Notice of
Donation.
On the other hand, the Certificate of Donation states that not
more than 30% of the donation/gifts for the taxable year shall be
used by the qualified donee institution for administration
purposes.

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** The Certificate of Donation must indicate/contain (1) donee


certification, and (2) donors certificate of values. (RMC No. 86-
14]

101(B) In the Case of Gifts Made by a Nonresident not a Citizen

(1) Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, foundation, trust
or philanthropic organization or research institution or
organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes.

101(C) Tax Credit for Donors Taxes Paid to a Foreign Country

101(C)(1) In General. - The tax imposed by this Title 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.

101(C)(2) Limitations on Credit. - The amount of the credit taken
under this Section shall be subject to each of the following
limitations:

(a) The amount of the credit in respect to the tax paid to
any country shall not exceed the same proportion of the
tax against which such credit is taken, which the net gifts
situated within such country taxable under this Title bears
to his entire net gifts; and

(b) The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the donor's net gifts situated outside the
Philippines taxable under this title bears to his entire net
gifts.


* The case of CIR v. Central Luzon Drug Corporation dealt with
the 20% discount required by law to be given to senior citizens.
The Supreme Court held that the 20% discount is a tax credit
for the establishment concerned. [NOTE: This was the old
doctrine. Today, the 20% discount is a tax deduction from the
gross income or gross sales of the establishment concerned.
However, the discussion on tax credit for donors taxes paid to
a foreign country remains instructive.] It stated:
While a tax liability is essential to the availment or use of any
tax credit, prior tax payments are not. On the contrary, for the
existence or grant solely of such credit, neither a tax liability
nor a prior tax payment is needed. The Tax Code is in fact
replete with provisions granting or allowing tax credits, even
though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E)
allows a tax credit -- subject to certain limitations -- for estate
taxes paid to a foreign country. Also found in Section 101(C) is
a similar provision for donors taxes -- again when paid to a
foreign country -- in computing for the donors tax due. The
tax credits in both instances allude to the prior payment of
taxes, even if not made to our government. [CIR v. Central
Luzon Drug Corporation, GR No. 159647, 15 Apr. 2005.]



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Sec. 102, Valuation of Gifts Made in Property



If the gift is made in property, the fair market value thereof at the
time of the gift shall be considered the amount of the gift. In case
of real property, the provisions of Section 88(B) shall apply to the
valuation thereof.

Sec. 103, Filing of Return and Payment of Tax

103(A) Requirements. - Any individual who makes any transfer by
gift (except those which, under Section 101, are exempt from the
tax provided for in this Chapter) shall, for the purpose of the said
tax, make a return under oath in duplicate. The return shall se
forth:

(1) Each gift made during the calendar year which is to be
included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and
regulations made pursuant to law.

103(B) Time and Place of Filing and Payment. - The return of the
donor required in this Section shall be filed within thirty (30) days
after the date the gift is made and the tax due thereon shall be
paid at the time of filing. Except in cases where the Commissioner
otherwise permits, the return shall be filed and the tax paid to an
authorized agent bank, the Revenue District Officer, Revenue
Collection Officer or duly authorized Treasurer of the city or
municipality where the donor was domiciled at the time of the
transfer, or if there be no legal residence in the Philippines, with

the Office of the Commissioner. In the case of gifts made by a


nonresident, the return may be filed with the Philippine Embassy
or Consulate in the country where he is domiciled at the time of
the transfer, or directly with the Office of the Commissioner.

Q: How and when are donors tax returns filed?

* The case of CIR v. B.F. Goodrich Phils., Inc. dealt with the sale
by B.F. Goodrich to Siltown Realty of a rubber plantation in
Basilan for a price less than its declared fair market value. The
BIR wanted to assess BF Goodrich for deficiency donors tax
representing the difference between the fair market value and
the actual purchase price of the property. The BIR also
contended that BF Goodrich filed a false income tax return.
The Supreme Court said that real property may be sold for less
than adequate consideration for a bona fide purpose and that
in such event, the sale remains an arms length transaction.
On the issue of falsity of the return filed, the Supreme Court
ruled that although donors tax is different from capital gains
tax (as reported in the income tax return), the 1974 income tax
return was sufficient compliance with the legal requirement to
file a donors tax return. In other words, the fact that the sale
transaction may have partly resulted in a donation does not
change the fact that [BF Goodrich] already reported its income
for 1974 by filing an income tax return. [CIR v. B.F. Goodrich
Phils., Inc., GR No. 104171, 24 Feb. 1999.]

** The case of Sumipat v. Banga discussed the time and place
of filing and payment of donors tax. Sumipat, with the consent
of his wife, executed a document entitled Deed of Absolute
Transfer and/or Quitclaim over three parcels of land, in favor
of his five illegitimate children with another woman. The

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Supreme Court found that the deed was actually a deed of


donation, but that it was patently void for non-compliance with
certain requirements. There was also no proof of filing of a
donors tax return and payment of the applicable donors
taxes, which the Supreme Court considered as mandatory. In
fact, the registrar of deeds is mandated not to register in the
registry of property any document transferring real property by
way of gifts inter vivos unless a certification that the taxes fixed
and actually due on the transfer has been paid or that the
transaction is tax exempt from the Commissioner of Internal
Revenue, in either case, is presented. [Sumipat v. Banga, GR
No. 155810, 13 Aug. 2004.]

Sec. 104, Definitions - For purposes of this Title, the terms 'gross
estate' and 'gifts' include real and personal property, whether
tangible or intangible, or mixed, wherever situated: Provided,
however, That where the decedent or donor was a nonresident
alien at the time of his death or donation, as the case may be, his
real and personal property so transferred but which are situated
outside the Philippines shall not be included as part of his 'gross
estate' or 'gross gift': Provided, further, That franchise which must
be exercised in the Philippines; shares, obligations or bonds issued
by any corporation or sociedad anonima organized or constituted
in the Philippines in accordance with its laws; shares, obligations
or bonds by any foreign corporation eighty-five percent (85%) of
the business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such
shares, obligations or bonds have acquired a business situs in the
Philippines; shares or rights in any partnership, business or
industry established in the Philippines, shall be considered as
situated in the Philippines: Provided, still further, that no tax shall
be collected under this Title in respect of intangible personal

property: (a) if the decedent at the time of his death or the donor
at the time of the donation was a citizen and resident of a foreign
country which at the time of his death or donation did not impose
a transfer tax of any character, in respect of intangible personal
property of citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the
decedent or donor was a citizen and resident at the time of his
death or donation allows a similar exemption from transfer or
death taxes of every character or description in respect of
intangible personal property owned by citizens of the Philippines
not residing in that foreign country.
The term 'deficiency' means: (a) the amount by which tax imposed
by this Chapter exceeds the amount shown as the tax by the donor
upon his return; but the amount so shown on the return shall first
be increased by the amount previously assessed (or Collected
without assessment) as a deficiency, and decreased by the
amounts previously abated, refunded or otherwise repaid in
respect of such tax, or (b) if no amount is shown as the tax by the
donor, then the amount by which the tax exceeds the amounts
previously assessed, (or collected without assessment) as a
deficiency, but such amounts previously assessed, or collected
without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such
tax.

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