INTRODUCTION TO TRANSFER AND BUSINESS TAX generosity

Embodied in the last will

What is taxation? and testament
It is the donor's death that It took effect immediately
Taxation is the process inherent in every state to exercise determines the acquisition upon the donee's
the power to exact a proportional enforced contribution of, or the right to the acceptance thereof
on persons, property, or rights to raise revenue in order to property
defray the necessary expenses of the government. Transfer is revocable before It is subject to a resolutory
the transferor's death and condition if the donee did
the transfer would be void not fulfill certain conditions
What are the powers and duties of the Bureau of Internal
if the transferor survived the
Revenue? transferee
Never accepted by the Acceptance is a
1. the assessment and collection of all national internal donee during the donor's requirement
revenue taxes, fees and charges lifetime
Subject to estate tax Subject to donor's gift tax
2. the enforcement of all forfeitures, penalties and fines
connected therewith
ESTATE TAXES
3. the execution of judgments in all cases decided in its
favor by the CTA and the ordinary courts (Nature and Object)

4. the Bureau shall give effect to and administer the Define estate tax
supervisory and police powers conferred to it by the
Code or other laws This is a tax imposed upon the right of a person to
gratuitously transfer or transmit his property, tangible or
TRANSFER TAXES intangible, to the person called to succession that will
take effect upon his death
What are transfer taxes?
What are the justification of estate tax?
Transfer taxes are taxes imposed upon the gratuitous
disposition of private property Explain Benefit Received Theory

In transfer taxes, what is taxed is not the estate or the
donor but the right to gratuitously transmit or transfer
one's property to another
What are the kinds of transfer taxes?
1. Estate tax (donation mortis causa) - tax levied on the
transmission of properties from a decedent to his heirs
Estate - refers to the property and transmissible rights and
obligations of a person existing at the time of his death
and those which have accrued thereto since the
opening of succession
The transfer is called succession
2. Donor's tax (donation inter vivos) - tax levied on the
transmission of properties from a living person (donor) to
another living person (donee)
the inheritance, including all the property, rights and
obligations of a person is protected by the State. Hence,
in return, the government needs revenue to defray its
expenses
Explain the State Partnership Theory
State is a passive and silent partner of every individual in
its territory. In this view, the State, in giving protection and
safeguarding this wealth, has the right to collect in order
to compensate the effort or service it may render
Explain the ability to pay theory (redistribution of wealth
theory)
those who have more properties to transfer to their heirs
upon death shall pay more estate taxes
Who is the decedent?

The transfer is called donation It refers to a deceased person who is the source of the
hereditary property or estate which is to be disturbed. He
Distinguished estate and donor tax is called "testator" or "testatrix", if he/she left a will, and
"intestate", if he/she left no will
Donation Mortis causa - Donation Inter vivos - Donor
Estate Tax Tax Define inheritance
Made in consideration of Made without
death consideration of death but
out of the donor's
It refers to the mass of property, rights and obligations of
a person existing at the time of his death and which are
not extinguished by his death, including those which
have accrued from that time
For purposing of computing the estate tax, only property
and rights existing at the time of death shall be included
in the gross estate of the decedent
Who are the parties involved in the estate tax?
1. Decedent - the person who have died leaving behind
a mass of property that is the object of succession
2. Estate - refers to the properties and transmissible rights
left behind by the decedent. For tax purposes, an estate
is considered as a juridical person
3. Executor - a person called upon by the testator or one
appointed in the will to carry out its terms and provisions
4. Administrator - a person appointed by the court to
administer, settle, and distribute the estate of the
decedent
5. Heirs - persons entitled to receive the estate
6. Testators - refers to the decedent, if he died with a will
What are the reasons for taxability of transfers of
property?
The dominant purpose of the law is to reach such
transfers which are really substitutes for testamentary
dispositions and thus prevent the evasion of the estate
tax
What is the generating source of power in estate tax?
Death of an individual is the generating source from
which the taxing power takes its being, and that it is the
power to transmit or the transmission from the dead to
the living on which the tax is more immediately based
What law governs in payment of estate tax?
The law in force at the time of death of the decedent
governs. The tax may be made retroactive in its
operation, but legislative intent that a tax statute should
operate retroactively should be perfectly clear
The fair market value at the time of death of properties
left by the decedent to his or her heirs shall be used in
determining the amount of his gross estate
Does the collection of estate taxes conditioned upon any
outcome of a probate proceeding?
No. Estate tax being a national tax as provided for under
Sec 21(b) of the NIRC is collected by the BIR by virtue of
its mandate
There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate or
estate settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and
collected (Marcos vs. CA)
It is not the DOJ which is the government agency tasked
to determine the amount of taxes due upon the subject
estate, but the BIR, whose determinations and
assessments are presumed correct and made in good
faith. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be
disturbed
What are the safety measures to ensure the collection of
the estate tax?
1. payment before delivery by executor or administrator
The settlement of estate proceedings can only be made:
a. after all debts, funeral charges, expenses of
administration, allowance to the widow, and estate tax
have been paid; or
b. before payment of said obligations only if the
disributees or any of them gives a bond in a sum fixed by
the court conditioned upon the payment of said
obligations within such time as the court directs; or when
provision is made to meet those obligations (Estate of
Hilarion M. Ruiz)
2. non-registration for non payment of estate tax
3. bank disallowance
The bank shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified
that the estate taxes imposed thereon have been paid
a. certification requirement
1. if the bank has knowledge of the death of a person
2. the deceased maintained a bank deposit account
alone, or jointly with another
b. authorization requirement
the administrator of the estate or any one of the heirs of
the decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding 20K
without the said certification
4. administrative, civil or criminal case
When can the distribution of the estate properties be without
made? reciprocity
5. NRCAD Yes No No No
1. after all debts, funeral charges, expenses of with
administration, allowance to the widow, and estate tax reciprocity
have been paid; or Classifications of decedent:

2. before payment of said obligations only if the
disributees or any of them gives a bond in a sum fixed by
the court conditioned upon the payment of said
obligations within such time as the court directs; or when
provision is made to meet those obligations (Estate of
Hilarion M. Ruiz)
How does estate tax computed?
Estate tax due is computed based on the taxable net
estate, to wit:
Gross estate - Ordinary deductions = Net estate before
share of surviving spouse
1. Resident citizen decedent (RCD)
2. Nonresident citizen decedent (NCD)
3. Resident alien decedent (RAD)
4. Nonresident alien decedent without reciprocity clause
(NRAD without reciprocity)
5. Nonresident alien decedent with reciprocity clause
(NRAD with reciprocity)
What are the immovable and movable properties?
Art. 415. The following are immovable property:

Net estate - share of surviving spouse = net estate before (1) Land, buildings, roads and constructions of all kinds
special deductions adhered to the soil;

Net estate before special deductions - special
deductions = net taxable estate
What is the gross estate?
All properties and interest in properties of the decedent
at the time of his death shall be included in his gross
estate
It may either be real or personal, tangible or intangible
property valued at the time of death, wherever situated
Provided however, where the decedent was a
nonresident alien at the time of his death, his real and
personal property situated outside the PH shall not be
included as part of his gross estate
Residence - refers to the permanent home, the place to
which whenever absent, one intends to return
Two factors affecting the composition of the gross estate
1. Citizenship and residence of the decedent at the time
of death
2. Location of the property, whether within or without the
Philippines
(2) Trees, plants, and growing fruits, while they are
attached to the land or form an integral part of an
immovable;
(3) Everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration
of the object;
(4) Statues, reliefs, paintings or other objects for use or
ornamentation, placed in buildings or on lands by the
owner of the immovable in such a manner that it reveals
the intention to attach them permanently to the
tenements;
(5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs
of the said industry or works;
(6) Animal houses, pigeon-houses, beehives, fish ponds or
breeding places of similar nature, in case their owner has
placed them or preserves them with the intention to have
them permanently attached to the land, and forming a
permanent part of it; the animals in these places are
included;
(7) Fertilizer actually used on a piece of land;

Real and Tangible Intangible Personal (8) Mines, quarries, and slag dumps, while the matter
Personal Property Property thereof forms part of the bed, and waters either running
Within Without Within Without or stagnant;
1. RCD Yes Yes Yes Yes
2. RAD Yes Yes Yes Yes (9) Docks and structures which, though floating, are
intended by their nature and object to remain at a fixed
3. NRCD Yes Yes Yes Yes
place on a river, lake, or coast;
4. NRAD Yes No Yes No
(10) Contracts for public works, and servitudes and other
real rights over immovable property.
Art. 416. The following things are deemed to be personal
property:
(1) Those movables susceptible of appropriation which
are not included in the preceding article;
(2) Real property which by any special provision of law is
considered as personal property;
(3) Forces of nature which are brought under control by
science; and
(4) In general, all things which can be transported from
place to place without impairment of the real property to
which they are fixed.
Art. 417. The following are also considered as personal
property:
(1) Obligations and actions which have for their object
movables or demandable sums; and
(2) Shares of stock of agricultural, commercial and
industrial entities, although they may have real estate.
Decedent's Gross estate
1. Decedent's interest
2. Transfers in contemplation of death
3. Revocable transfers
4. Property passing under general power of appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers for insufficient consideration
8. Capital of the surviving spouse
A. Kinds of Property Embraced Under Decedent's Interest
1. Property owned - the decedent possesses all the
attributes of ownership
2. Interest in property possessed - any interest or right in
the nature of property, but less than title having value or
capable of being valued, transferred by the decedent at
his death.
If he owns only a proportionate share, only the value id
such share has to be included in the gross estate
If he is entitled only to the use of the property, it is the
value of that use that has to be included
Ex: Dividends declared by a corporation before death of
the stockholder although paid after death; right of
usufruct
3. Property or interest transferred
The properties of a resident alien decedent are taxable
wherever situated
Intangible Personal Property
GR: the situs of an intangible personal property is at the
domicile or residence of the owner
What is the principle of mobilia sequuntur personam?
it refers to the principle that taxation of intangible
personal property generally follows the residence or
domicile of the owner thereof
XPN:
1. when it is inconsistent with express provisions of statute
2. when justice does not demand that it should be
What are the intangible personal properties?
Sec 104, NIRC
1. franchise which must be exercised in the Philippines;
2. shares, obligations or bonds issued by any corporation
or sociedad anonima organized or constituted in the
Philippines in accordance with its laws
3. shares, obligations or bonds by any foreign corporation
eighty-five percent (85%) of the business of which is
located in the Philippines;
4. shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines;
5. shares or rights in any partnership, business or industry
established in the Philippines
Reciprocal Exemption as to Intangible Personal Property
A decedent's intangible personal property may be
subject to transfer taxes both In his place of domicile or
residence and in the place where such property has a
situs or is located
In order to prevent multiplicity of taxation, the tax Code
provides that tax imposed shall be credited with the
amounts of any estate tax imposed by the foreign
country
a. when the foreign country does not impose transfer tax
of any character in respect of intangible personal
property of citizens of PH not residing in that foreign
country; or
b. when the foreign country imposes transfer taxes but
grants similar exemption from transfer taxes in respect of
intangible personal property owned by citizens of the PH
not residing in that foreign country (Sec 104)
B. Transfer in Contemplation of Death
"in contemplation of death" - the thought of death, as
controlling motive, which induces the disposition of
property for the purpose of avoiding the tax
a. possession or enjoyment or the right to the income
from the property
b. the right, either alone or in conjunction with any
person, to designate the person who shall possess or
enjoy the property or the income therefrom
Circumstances taken into account:
1. age and state of health of the decedent at the time of
gift
2. length of time between the gift and the date of death
3. concurrent making of a will or making a will within a
short time after the transfer
Motives associated with life that precludes the category
of transfer
1. to relieve the donor from the burden of management
2. to save income or property taxes
3. to settle family litigated and unlitigated disputes
4. to provide independent income for dependents
5. to see the children enjoy the property while the donor
is alive
6. to protect family from hazards of business operations
7. to reward services rendered
To qualify as a transfer in contemplation of death, the
transfer must be either without consideration or for
insufficient consideration. Since the house and lit were
sold for valuable and sufficient consideration, there is no
transfer in contemplation of death for estate tax purposes
When the donor makes his will within a short time of, or
simultaneously with, the making of gifts, the gifts are
considered as having been made in contemplation of
death
C. Revocable transfers (transfer with retention
reservation of certain rights)
Revocable transfers cover transfers by trust or otherwise,
where the enjoyment thereof was subject at the date of
his death to any change through the exercise of a power
by the decedent alone or by the decedent in
conjunction with another person to alter, amend, revoke,
or terminate or where any such power is relinquished in
contemplation of the decedent's death (Sec 85 C)
Ex: donation mortis causa of a land but forbade the
registration of the deed until after her death
D. Transfer of Property Under General Power
Appointment
Power of appointment refers to a right to designate the
person or persons who shall enjoy or possess certain
property from the estate of a prior decedent
It is general when it gives to the donee the power to
appoint any person he pleases, including himself, his
spouse, his estate, executor or administrator, and his
creditor, thus having as full dominion over the property
as though he owned it
It is special when the donee can appoint only among a
restricted or designated class of persons other than
himself
Only property passing under a GENERAL power of
appointment is included in the gross estate of the
decedent
E. Proceeds of Life Insurance
Taxation of the proceeds of life insurance will depend on
the designated beneficiary, the manner of designation of
such beneficiary (whether irrevocable or revocable), and
the period and source of the funds used in paying the
premiums on the insurance contract. Thus,
The proceeds of life insurance are taxable in the following
cases:
(a) Beneficiary is the estate of the deceased, his executor
or administrator, irrespective of whether or not the insured
retained the power of revocation;
(b) Beneficiary is other than the decedent's estate,
executor or administrator, when designation of
beneficiary is not expressly made irrevocable or the
designation of the beneficiary is revocable (Sec. 85(EJ,
NIRC). Under P.D. 1460 (Insurance Code of 1978),
insurance proceeds are presumed to be revocable;
hence, includible in the decedent's gross estate.
The proceeds of life insurance are not taxable in the
following cases:
(a) Accident insurance proceeds. Tax Code specifically
or
mentions only life insurance policies
(b) Proceeds of a group insurance policy taken out by a
company for its employees. The law speaks of policies
"taken out by the decedent upon his own life"
(c) Amount receivable by any beneficiary irrevocably
designated in the policy of insurance by the insured.
The transfer is absolute and the insured did not retain any
legal interest in the insurance
(d) Proceeds of insurance policies issued by the GSIS to
of
government officials and employees (P.D. 1146) are
exempt from all taxes;
(e) Benefits accruing under the SSS law
(f) Proceeds of life insurance payable to heirs of
deceased members of military personnel (RA 360)
To determine the conjugal or separate character of
proceeds, the following factors are considered:
(a) Policy taken before marriage -source of funds
determines ownership of the proceeds of life insurance
(b) Policy taken during marriage
1. Beneficiary is estate of the insured - proceeds are
presumed conjugal; hence, one-half share of surviving
spouse is not taxable;
2. Beneficiary is third person proceeds are payable to the
beneficiary even if premiums were paid out of the
conjugal partnership
Under the Tax Code, proceeds of life insurance shall form
part of the gross estate of the decedent to the extent of
the amount receivable by the beneficiary designated in
the policy of insurance except when it is expressly
stipulated that the designation of the beneficiary is
irrevocable.
Exclusive Property
The following are the exclusive property of each spouse:
That which is brought to the marriage as his or her own;
Prior Interest
Prior interest applies to the transfers, trusts, estates,
interests, rights, powers and relinquishment of powers
either as:
1. Transfer in contemplation of death;
2. Revocable transfer; and
3. Proceeds of life insurance, whether made, created,
arising, existing, exercised or after the effectivity of the
Code.
Transfers for Insufficient Consideration
Transfers for insufficient consideration means that any one
of the transfers, trusts, interests, rights or powers either as
transfer in contemplation of death, revocable transfer or
property passing under the general power of
appointment is made, created, exercised or relinquished
for a consideration in money or money's worth but the
same is not a bona fide sale for an adequate and full
consideration in money or money's worth.
The value to be included in the gross estate shall only be
the excess of the fair market value of the property, at the
time of death, over the value of the consideration
received therefore by the decedent.
The procedures to determine whether there exists a
transfer for insufficient consideration are as follows:
1. The transfer is either:
A. in contemplation of death, or
B. revocable transfer, or
C. property passing under a general power of
appointment
2. The consideration in money or money's worth is not a
bona fide sale for an adequate and full consideration or
the consideration is less than the fair market value at the
time of transfer.
3. The difference between the fair market value at the
time of death and consideration shall be included in the
gross estate of the decedent.
Other Item of Gross Estate
1. Claims against insolvent person Sec. 86(A)(1)(d)
provides that, before a claim against an insolvent person
can be considered as deductible, its value must first be
included in the gross estate.
2. Unpaid mortgages under Sec. 86(A) (1) (e).
3. Property previously tax under Sec. 86(A)(2).
4. Family Home under Sec. 86(A)(4)
5. Amounts received under RA 4917 under Sec. 86(A)(7)
In this view, the foregoing is deductible only if it is
included in the gross estate. Simply put, the sine que non
condition for deductibility is that it must first be included in
the gross estate before claiming as such as a deduction.
Capital of the Surviving Spouse
The capital of the surviving spouse of a decedent shall
not be deemed part of his or her gross estate. (Sec.
86|HD
In computing the gross estate of the decedent, the
exclusive property of the decedent is included and in
case of married
individuals, the conjugal property of the spouses are
likewise included. Take note that the capital of the
surviving spouse, being exclusive in nature, is not
considered for purposes of determining the gross estate
of the decedent. However, insofar as the conjugal
property is concerned, the aliquot share of the surviving
 spouse is allowed as a deduction to arrive at the taxable Sec 86(A) and (B) states that the value of the net estate
net estate. shall be determined by deducting from the value of the
gross estate the deductions allowed to certain
Determination of the Value of the Estate decedents

The valuation of the property to be included in the gross For citizens or residents of the Philippines, the following are
estate is determined at the time of death, whether real or deductions allowed:
personal property. The estate shall be appraised as its fair
market value as of the time of death. (Sec. 88[B]) 1. Expenses, losses, indebtedness and taxes

Fair market value is the price that a seller is willing to 2. Property Previously Taxed (PPT or Vanishing Deductions)
accept and a buyer is willing to pay on the open market
and in an arm's-length transaction. (Blacks' Law 3. Transfers for Public Use
Dictionary, 7th Edition) However a distinction should be
4. The Family Home
made whether the subject property is real or personal, to
wit:
5. Standard deduction

1. Personal property- FMV at the time of death.

6. Medical expenses
2. Real property- FMV at the time of death. However, the
7. Amount received by heirs
appraised value of real property as of the time of death
shall be, whichever is higher of: For nonresident alien, the following are deductions
allowed to the gross estate
A. the fair market value as determined by the
Commissioner or 1. Expenses, Losses, Indebtedness and Taxes

B. The fair market value as shown in the schedule of 2. Property Previously Taxed
values fixed by the Provincial and City Assessors
3. Transfers for Public Use
In the case of shares of stocks, the fair market value shall
depend on whether the shares are listed or unlisted in the Classifications of Deduction
stock exchange.
1. Ordinary deductions
Unlisted shares
A. Unlisted common shares are valued based on 2. Special deductions
their book value.
B. Unlisted preferred shares are valued aft par Ordinary deductions
value
1. ELITE
Listed Shares
a. Funeral expenses - actual funeral expenses or in an
For shares listed in the stock exchange, the fair amount equal to 5% of the gross estate, whichever is
market value shall be the arithmetic mean between the lower, but in no case to exceed 200K
highest and lowest quotation at a date nearest the date
of death, if none is available on the date of death itself. The term "FUNERAL EXIPENSES" is not confined to its
ordinary or usual meaning, They include:
To determine the value of the right to usufruct, use
or habitation, as well as that of annuity, there shall be
A. The mourning apparel of the surviving spouse and
taken into account the probable life of the beneficiary
in accordance with the latest basic standard mortality unmarried minor children of the deceased bought and
table, to be approved by the Secretary of Finance, upon used on the occasion of the burial;
recommendation of the Insurance Commissioner. (Sec.
5, RR 2-2003) B. Expenses for the deceased's wake, including food and
drinks;
ALLOWED DEDUCTIONS
C. Publication charges for death notices;
Regardless of whether the decedent is a resident citizen,
nonresident citizen, resident alien, or nonresident alien, D. Telecommunication expenses incurred in informing
the tax base is always the net estate, the taxable net relatives of the deceased;
estate
E. Cost of burial plot, tombstones, monument or
mausoleum but not their upkeep, In case the deceased
owns family estate or several burial lots, only the value
corresponding to the plot where he is buried is
deductible;
F. Interment and/or cremation fees and charges; and
G. All other expenses incurred for the performance of the
rites and ceremonies incident to interment
2. The liability was contracted in good faith and for
adequate and full consideration in money or money's
worth;
3. The claim must be a debt or claim which is valid in law
and enforceable in court; and
4. The indebtedness must not have been condoned by
the creditor or the action to collect from the decedent
must not have prescribed.

Actual funeral expenses shall mean those which are
actually incurred in connection with the interment or
burial of the deceased, The expenses must be duly
supported by receipts or invoices or other evidence to
show that they were actually incurred. (Sec, JA] 1, RR 2-
2003)
D. Claims against insolvent persons - claims of the
deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the
gross estate.
E. Unpaid mortgages, taxes and casualty losses

b. Judicial expenses - for judicial expenses of the Requisites:

testamentary or intestate proceedings. The expenses
1. Not compensated for by insurance or otherwise
must be essential to the proper settlement of estate
2. At the time of the filing of the return such losses
Expenses allowed as deduction under this category are
have not been claimed as deduction for the income tax
those incurred in the inventory-taking of assets comprising
purposes in an income tax return
the gross estate, their administration, the payment of
debts of the estate, as well as the distribution of the
3. Such losses were incurred not later than the last
estate among the heirs
day for the payment of the estate tax which must be
within 6 months from the date of decedent's death
Claim against the estate-for claims against the estate to
be deductible the following must concur:
2. PPT or vanishing deductions
1. At the time the indebtedness was incurred the debt
To minimize the effect of taxing twice the same property
instrument was duly notarized; and
within a period of 5 years
2. If the loan was contracted within three (3) years
It is called vanishing deduction because the amount
before the death of the decedent, the administrator or
allowed as deduction in the long run is decreasing. The
executor shall submit a statement showing the disposition
longer the period of interval, the lower the rate or
of the proceeds of the loan.
percentage allowed
The word "claims" is generally construed to mean debts or
The vanishing deduction is the amount equal to the value
demands of a pecuniary nature which could have been
specified below of any property forming a part of the
enforced against the deceased in his lifetime and could
gross estate situated in the Philippines of any person who
have been reduced to simple money judgments. died within 5 years prior to the death of the decedent, or
transferred to the decedent by gift within 5 years prior to
Requisites for Deductibility of Claims against the Estate
his death
1. The liability represents a personal obligation of the
The rate is dependent upon the period of interval
deceased existing at the time of his death except:
between two incidents, namely:
A. Unpaid obligations incurred incident to his death such
1. The date of death of the present decedent and
as unpaid funeral expenses (i.e., expenses incurred up to
date of death of prior decedent if the property previously
the time of interment); and
taxed was acquired or received by inheritance
B. Unpaid medical expenses which are classified under a
2. The date of death of present decedent and the
different category of deductions pursuant to these
date of gift, if the property previously taxed was acquired
Regulations; (RR 2-2003) or received by donation

Requisites:
1. The property situated in the Philippines must be
part of the gross estate of the present decedent
2. The present decedent must have died within 5
years prior to the death of the prior decedent or the
property was transferred by donation to the present
decedent within 5 years prior to his death
3. The estate tax or donor's tax must have been
paid on the property transferred to the present decedent
4. Such property can be identified as having been
received by the present decedent from the donor by gift,
or from such prior decedent by gift, bequest, devise or
inheritance
Procedure for VD:
1. Determine the value to be taken or the lower amount
of the property previously taxed between the FMV at the
time of death of the present decedent and the FMV at
the time of death of prior decedent, or FMV at the time
of donation.
2. Deductions must be pro rated and subtracted from the
initial basis.
3. Multiply the rate by the final basis to arrive at the
vanishing deduction.
4. In case any mortgage or lien on the property previously
taxed was paid by the present decedent, this shall be
deducted from the value in No. 1 to arrive at the initial
basis.
5. Where the property referred to consists of two (2) or
more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
Transfers for public use or TPP
The amount of all the bequests, legacies, devises or
transfers to or for the use of the Government of the
Republic of the Philippines, or any political subdivision
thereof, exclusively for public purposes.
SPECIAL DEDUCTIONS
4. The family home
An amount equivalent to the current fair market value of
the decedent's family home: Provided, however, That if
the said current fair market value exceeds One million
pesos (P1,000,000.00), the excess shall be subject to
estate tax. As a sine qua non condition for the exemption
or deduction, said family home must have been the
decedent's family home as certified by the barangay
captain of the locality. (Sec. 861A/4])
Conditions for the Allowance of FAMILY HOME as
Deduction from the Gross Estate
1. The family home must be the actual residential home
of the decedent and his family at the time of his death,
as certified by the barangay captain of the locality
where the family home is situated;
2. The total value of the family home must be included as
part of the gross estate of the decedent; and
3. Allowable deduction must be in an amount equivalent
to the current fair market value of the family home as
declared or included in the gross estate, or the extent of
the decedent's interest (whether conjugal Community or
exclusive property), whichever is lower, but not
exceeding P1000.000.00. (Sec.2-2008)
Standard deduction (Sec. S6 A]5])
A deduction in the amount of One Million Pesos
(P1,000,000.00) shall be alllowed as an additional
deduction without need of substantiation. The full
amount of P1000,000.00 shall be allowed as deduction for
the benefit of the decedent. The presentation of such
deduction in the computation of the net taxable estate
of the decedent is properly illustrated in these
Regulations.
Medical expenses
Medical expenses incurred by the decedent within one
(1) year prior to his death which shall be duly
substantiated with receipts: Provided, That in no case
shall the deductible medical expenses exceed Five
Hundred Thousand Pesos (P500,000.00).
All medical expenses (cost of medicines, hospital bills,
doctors' fees, etc.) to be deductible must be:
1. Incurred (whether paid or unpaid) within one (1) year
before the death of the decedent shall be allowed as a
deduction
2. Duly substantiated with official receipts for services
rendered by the decedent's attending physicians
invoices, statements of account duly certified by the
hospital, and such other documents in support thereof
3. The total amount thereof, whether paid or unpaid,
does not exceed 500K
Benefits under RA 4917
Requisites:
1. The decedent-employee has been employed for at
least ten (10) years;
2. Not less than fifty (50) years old at the time of his 1. In all cases of transfers subject to tax, or
retirement;
2. Where, though exempt from tax, the gross value of the
3. Must have availed of this benefit only once. estate exceeds Twenty thousand pesos (P20,000.00).

4. The benefits granted must be in accordance with a
reasonable private benefit plan
Tax Credit for Estate Taxes Paid to a Foreign Country (Sec.
3198
The estate tax imposed or paid in a foreign country can
be
claimed as a tax credit or can be credited against the
estate tax due in the Philippines. For this matter, it is only
the citizen or
Time of Filing of Notice of Death
The executor, administrator or any of the legal heirs, as
the case may be:
1. Within two (2) months after the decedent's death, or
2. Within a like period after qualifying as such executor or
administrator, shall give a written notice thereof to the
Commissioner.
Estate Tax Returns

resident alien who can avail of this credit because their The filing of estate tax return is mandated under Sec.
properties located outside the Philippines are subjected 90(A) of the Code in the following cases:
to estate tax in this jurisdiction and may likewise be
1. In all cases of transfers subject to the tax herein, or
subjected to transfer taxes in that foreign country. Hence,
imposed
to minimize the indirect effect of double taxation, tax
credit for estate taxes paid to a foreign country is allowed
2. Where, though of the estate exceeds Two hundred
subject to certain limitations.
thousand pesos (P200,000.00), or exempt from tax, the
gross value

3. Regardless of the gross value of the estate, where the

Limitations on Credit
The amount of the credit taken under Sec. 86(E) shall be
subject to each of the following limitations:
A. The amount of the credit in respect to the tax paid to
said estate consists of registered or registrable property
such as real property, motor vehicle, shares of stock or
other similar property for which a clearance from the BIR
is required as a condition precedent for the transfer of
ownership thereof in the name of the transferee

any country shall not exceed the same proportion of the

tax against which such credit is taken, which the
decedent's net estate situated within such country
taxable under this Title bears to his entire net estate;

B. The total amount of the credit shall not exceed the

same proportion of the tax against which such credit is
taken, which the decedent's net estate situated outside
the Philippines taxable under this Title bears to his entire
net estate.

Returns and Payment of Estate Tax

Three (3) important points to remember, namely:

1. The filing of notice of death

2. The filing of estate tax return

3. The payment of estate tax due

Notice of Death

The filing of notice of death is mandated under Sec. 89 of

the Code in the following cases: