ESTATE TAX

1. Lorenzo vs. Posadas

64 Phil 353

Facts:

On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real and
personal properties. Hanleys will provides the following: his money will be given to his nephew,
Matthew Hanley, as well as the real estate owned by him. It further provided that the property will only
be given ten years after Thomas Hanleys death. Thus, in the testamentary proceedings, the Court of
First Instance of Zamboanga appointed P.J.M. Moore as trustee of the estate. Moore took oath of office
on March 10, 1924, and resigned on Feb. 29, 1932. Pablo Lorenzo was appointed in his stead. Juan
Posadas, Collector of Internal Revenue, assessed inheritance tax against the estate amounting to
P2,057.74 which includes penalty and surcharge. He filed a motion in the testamentary proceedings so
that Lorenzo will be ordered to pay the amount due. Lorenzo paid the amount in protest after CFI
granted Posadas motion. He claimed that the inheritance tax should have been assessed after 10 years.
He asked for a refund but Posadas declined to do so. The latter counterclaimed for the additional
amount of P1,191.27 which represents interest due on the tax and which was not included in the
original assessment. However, CFI dismissed this counterclaim. It also denied Lorenzos claim for refund
against Posadas. Hence, both appealed.

Issue: Whether the estate was delinquent in paying the inheritance tax and therefore liable for the
P1,191.27 that Posadas is asking for?

Held: Yes. It was delinquent because according to Sec. 1544 (b) of the Revised Administrative Code,
payment of the inheritance tax shall be made before delivering to each beneficiary his share. This
payment should have been made before March 10, 1924, the date when P.J.M. Moore formally assumed
the function of trustee.

Although the property was only to be given after 10 years from the death of Hanley, the court
considered that delivery to the trustee is delivery to cestui que trust, the beneficiary within the meaning
of Sec. 1544 (b).

Even though there was no express mention of the word trust in the will, the court of first instance was
correct in appointing a trustee because no particular or technical words are required to create a
testamentary trust (69 C.J.,p. 711). The requisites of a valid testamentary trust are: 1) sufficient words to
raise a trust, 2) a definite subject, 3) a certain or ascertained object. There is no doubt that Hanley
intended to create a trust since he ordered in his will that certain of his properties be kept together
undisposed during a fixed period or for a stated purpose.
 2. Collector of Internal Revenue vs. Fisher

GR. No. L-11622

January 28, 1961

DOCTRINE:

Reciprocity must be total. If any of the two states collects or imposes or does not exempt any transfer,
death, legacy or succession tax of any character, the reciprocity does not work.

FACTS:

Walter G. Stevenson was born in the Philippines of British parents, married in Manila to another British
subject, Beatrice. He died in 1951 in California where he and his wife moved to.

In his will, he instituted Beatrice as his sole heiress to certain real and personal properties, among which
are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines).

Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate and
inheritance tax return. He made a preliminary return to secure the waiver of the CIR on the inheritance
of the Mines shares of stock.

In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher.

Statt filed an amended estate and inheritance tax return claiming ADDITIOANL EXEMPTIONS, one of
which is the estate and inheritance tax on the Mines shares of stock pursuant to a reciprocity proviso in
the NIRC, hence, warranting a refund from what he initially paid. The collector denied the claim. He then
filed in the CFI of Manila for the said amount.

CFI ruled that (a) the share of Beatrice should be deducted from the net estate of Walter, (b) the
intangible personal property belonging to the estate of Walter is exempt from inheritance tax pursuant
to the reciprocity proviso in NIRC.

ISSUE/S:

Whether or not the estate can avail itself of the reciprocity proviso in the NIRC granting exemption from
the payment of taxes for the Mines shares of stock.

RULING:

NO.

Reciprocity must be total. If any of the two states collects or imposes or does not exempt any transfer,
death, legacy or succession tax of any character, the reciprocity does not work.

In the Philippines, upon the death of any citizen or resident, or non-resident with properties, there are
imposed upon his estate, both an estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also, although the Federal Internal
Revenue Code imposes an estate tax, it does not grant exemption on the basis of reciprocity. Thus, a
Filipino citizen shall always be at a disadvantage. This is not what the legislators intended.

SPECIFICALLY:

Section122 of the NIRC provides 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 was a resident of a foreign country which at the time of his
death did not impose a transfer of tax or death 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 was a resident at the time of his death allow
a similar exemption from transfer taxes or death taxes of every character in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country."

On the other hand, Section 13851 of the California Inheritance Tax Law provides that intangible personal
property is exempt from tax if the decedent at the time of his death was a resident of a territory or
another State of the United States or of a foreign state or country which then imposed a legacy,
succession, or death tax in respect to intangible personal property of its own residents, but either:.

Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or

Had in its laws a reciprocal provision under which intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident resided allowed a similar exemption
in respect to intangible personal property of residents of the Territory or State of the United States or
foreign state or country of residence of the decedent."

DONORs TAX

1. Phil am Insurance vs Sec of Finance

PhilAm LIFE vs. Secretary of Finance, G.R. No. 210987, Case Digest

Philam Life sold its shares in Philam Care Health Systems to STI Investments Inc., the highest bidder.
After the sale was completed, Philam life applied for a tax clearance and was informed by BIR that there
is a need to secure a BIR Ruling due to a potential donors tax liability on the sold shares.

ISSUE on DONORS TAX:

W/N the sales of shares sold for less than an adequate consideration be subject to donors tax?

PETITIONERS CONTENTION:

The transaction cannot attract donors tax liability since there was no donative intent and, ergo, no
taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the shares
were sold at their actual fair market value and at arms length; that as long as the transaction conducted
is at arms lengthsuch that a bonafide business arrangement of the dealings is done in the ordinary
course of businessa sale for less than an adequate consideration is not subject to donors tax; and
that donors tax does not apply to sale of shares sold in an open bidding process.

CIR DENYING THE REQUEST:

Through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus
sold was lower than their book value based on the financial statements of Philam Care as of the end of
2008. The Commissioner held donors tax became imposable on the price difference pursuant to Sec.
100 of the National Internal Revenue Code (NIRC):

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 moneys 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.

RULING:

The price difference is subject to donors tax.

Petitioners substantive arguments are unavailing. The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from donors tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters
for determining the fair market value of a sale of stocks. Such issuance was made pursuant to the
Commissioners power to interpret tax laws and to promulgate rules and regulations for their
implementation.

Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being
applied retroactively in contravention to Sec. 246 of the NIRC.26 Instead, it merely called for the strict
application of Sec. 100, which was already in force the moment the NIRC was enacted.

ISSUE on TAX REMEDIES:

The issue that now arises is thiswhere does one seek immediate recourse from the adverse ruling of
the Secretary of Finance in its exercise of its power of review under Sec. 4?

Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is a taxable donation
under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely
questioned incidentally since it was used by the CIR as bases for its unfavourable opinion. Clearly, the
Petition involves an issue on the taxability of the transaction rather than a direct attack on the
constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition
properly pertains to the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a
quandary on what mode of appeal should be taken, to which court or agency it should be filed, and
which case law should be followed.

Petitioners above submission is specious (erroneous).

CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or
regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the
propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the
revenue regulation or revenue memorandum circular on which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only
contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the
validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioners arguments.

VAT