Tax II PDF Format

Transfer Taxes
Estate and Donor’s Tax

Summary of TRAIN Law Amendments
Estate Tax:
1. Deductions:
a. Deletion of Funeral, Judicial and Medical Expenses;

b. Increase of Standard Deduction to P5,000,000.00 for residents or
citizen decedents. Standard Deduction of P500,000.00 for nonresident
alien decedents; and,
c. Pro-rata deduction for nonresident alien decedent now a statutory
provision. Deletion of provision disqualifying a nonresident alien
decedent for failure to declared world wide gross estate. Nonresident
alient decent only required to declare gross estate situated in the
Philippines.
e. Increase of Family Home deduction to P10,000,000.00
Estate Tax:
2. Administrative Provisions:
a. Deadline for filing of the estate tax return and payment of the
estate tax extended to 1 year from the date of death of the decedent;
b. Notice of death requirement deleted;
c. P200,000.00 gross estate requirement for filing of estate tax return
deleted;
d. CPA Certification required if the gross estate has a value exceeding
P5,000,000.00; and,
e. Payment by installment within 2 years from deadline to pay the
estate tax.
Estate Tax:
3. Others:
a. New rate - 6% based on the net estate.

b. Withdrawal of bank deposits subject to a 6% final withholding tax.
Donor’s Tax:
1. New Rate – 6% of the net gifts in excess of P250,000.00 for all

donors. “Stranger rule” deleted;
2. Dowry Exclusion deleted; and,
3. Exception on deemed gift rule under Sec. 100.
Estate Tax
Secs. 84 to 97 and 104 of the NIRC
I. Preliminary Matters
II. Composition of the Gross Estate
III. Deductions allowable to the Gross Estate
IV. Administrative Provisions
V. Other Matters
Preliminary Matters
Definition of Estate Tax.
Is it an Excise Tax or a Property Tax?
Accrual of the Tax vs. Payment of Tax?

Composition of the Gross Estate
Kinds of Decedent for Estate Tax Purposes:
1. Resident or Citizen Decedent; and,

2. Nonresident Alien Decedent.
General Situs Rules for Estate Taxation:
1. Resident or Citizen – all property whether real or personal (tangible

or intangible) wherever situated; and,
2. Nonresident Alien - Only real or personal property (tangible or

intangible) situated in the Philippines. (Secs. 85 and 104)
Rules applicable only to a Nonresident Alien Decedent:
1. Rules or limitations on intangible personal property (Sec. 104); and,

2. Rule on reciprocity (Sec. 104).
Considered intangible personal property situated in the Philippines:
1. Franchise which must be exercised in the Philippines;

2. Shares, obligations or bonds (“SOB”) issued by any domestic
corporation;
3. SOB issued by any foreign corporation 85% of the business of which
is located in the Philippines;
4. SOB issued by any foreign corporation if such SOB have acquired a
business situs in the Philippines;
5. Shares or rights in any partnership, business or industry established
in the Philippines. (Sec. 104)
Rule on Reciprocity under Sec. 104:
No Estate tax shall be collected in respect of intangible personal

property:
(a) if the decedent at the time of his death was a citizen and resident
of a foreign country which at the time of his death 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 was a
citizen and resident at the time of his death 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.
Requisites:
1. Decedent is a Nonresident Alien;

2. Property involved is intangible personal property situated within the
Philippines; and,
3. Subsection (a) or (b) of Sec. 104 is present.
Sample Bar Exam Problem:
Miguel, a citizen and resident of Mexico, died leaving USD1,000.00

worth of stocks in Barack Motors Corporation, a Mexican company, to
his legitimate son, Miguelito. Mexico does not impose any transfer tax
of whatever nature on all transfers of property.
Is the rule on reciprocity applicable to exempt the Estate of Miguel

from Estate Tax?
CIR vs. Fisher, GR No. L-11622 dated January 28, 1961:
1. The Rule on Reciprocity would apply only if the law of the other
(country) grants an exemption from legacy, succession, or death taxes
of every character, there could not be partial reciprocity. It would have
to be total or none at all.
2. The Rule on Reciprocity does not apply to deductions. Only to

exemptions (exclusions).
Specific Inclusion Rules under Sec. 85:
1. Decedent’s interest – Sec. 85(A)

2. Transfer in Contemplation of Death – Sec. 85(B)
3. Revocable Transfer – Sec. 85(C);
4. Property Passing Under General Power of Appointment – Sec. 85(D)
5. Proceeds of Life Insurance – Sec. 85(E); and,
6. Transfers of Insufficient Consideration – Sec. 85(G)
Inter Vivos transfers included in the Gross Estate:
1. Transfer in Contemplation of Death – Sec. 85(B)

2. Revocable Transfer – Sec. 85(C);
3. Property Passing Under General Power of Appointment – Sec. 85(D)
Inter Vivos transfers included in the Gross Estate:
Why included?
1. Transferor has retained some control over the property;

2. Full attributes of ownership not transferred during the lifetime; and,
3. Possibility that the property can return to the transferor or his
estate.
Transfer in Contemplation of Death – Sec. 85(B):
Two kinds of Transfer in Contemplation of Death:
1. Transfer in Contemplation of Death Proper; and,

2. Transfer with Retained Powers.
Transfer in Contemplation of Death Proper (First Kind):
1. Decedent made a transfer during his lifetime;

2. Transfer is via trust or otherwise; and,
3. Transfer is made in “contemplation of death.”
What does “Contemplation of Death” mean?
1. It does not refer to the general expectation of death which (we) all
entertain. The words mean that it is the thought of death, as a
controlling motive, which induces the disposition of the property for
the purpose of avoiding tax.
What does “Contemplation of Death” mean?
2. The decedent’s motive or intention is, of course, a question of fact.

Thus, the imminence of death may afford convincing evidence of the
impelling cause of the transfer. However, it is contemplation of death
and not necessarily contemplation of imminent death to which the
statute refers. (US vs. Wells, 283 US 102)
Transfer in Contemplation of Death – Retained Powers (2nd Kind):
1. Transfer of property during the decedent’s lifetime;

2. Decedent retains an attribute of ownership (e.g., the right to
possess the property or the right to receive income) during his
lifetime.
3. Retained attribute of ownership transfers upon the death of the
decedent. – “under which he has retained for his life or for any period
which does not in fact end before his death.”
Revocable Transfer – Sec. 85(C):
1. Decedent made a transfer of property during his lifetime; and,

2. Enjoyment over the property by the transferee may be altered,
amended, revoked, or terminated by the decedent-transferor;
Property Passing under General Power of Appointment – Sec. 85(D):
1. Power of Appointment – The right to designate the person/s who

shall enjoy or possess certain property from the estate of a prior
decedent.
2. Kinds:
a. General – gives the decedent the power to appoint any person he

pleases, even himself.
b. Special – if he can appoint only a specified person or a restricted or
designated class of persons designated by the prior decedent.
Correlate with Sec. 87(C) of the Tax Code:
(C) The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor;
Sample Bar Exam Question:
In 1999, Xavier purchased from his friend, Wuri, a painting for

P500,000.00. xxx. In 2001, Xavier died. In his last will and testament,
Xavier bequeathed the painting, already worth P1,500,000.00 to his
only son, Yandro. The will also granted Yandro the power to appoint
his wife, Zilma, as successor to the painting in the event of Yandro's
death. Yandro died in 2007, and Zilma succeeded to the property.
Should the painting be part of the gross estate of Yandro?

Transfers of Insufficient Consideration – Sec. 85(G):
1. Provides for valuation rules under Secs. 85(B), (C) and (D):
a. Value not included if the transfer is a bona fide sale for an adequate
and full consideration in money or money's worth.
b. If the transfer is not a bona fide sale for an adequate and full
consideration in money or money's worth, the value included in the
gross estate is the difference between the Fair Market Value less
Consideration received.
2. Sample Bar Exam Problem:
Mr. Agustin, 75 years old and suffering from an incurable disease,

decided to sell for valuable and sufficient consideration a house and
lot to his son. He died one year later.
In the settlement of Mr. Agustin's estate, the BIR argued that the
house and lot were transferred in contemplation of death and should
therefore form part of the gross estate for estate tax purposes.
Is the BIR correct?

3. Examples:
a. X “transfers” to Y a parcel of land with a Fair Market Value (“FMV”)

at the time of death of P1,000,000.00 for P3,000,000.00. Right to
income to transfer after X’s death.
b. X “transfers” to Y a parcel of land with a FMV at the time of death

of P1,000,000.00 for P800,000.00. Right to income to transfer after X’s
death.
Proceeds of Life Insurance – Sec. 85(G):
1. Requirements for inclusion:
a. Insurance policy taken out by decedent upon his life; and,
b.1. Beneficiary is the Estate of the decedent, executor or

administrator and designation is irrelevant; or
b.2. Beneficiary is any person and designation is revocable;
Exclusions from the Gross Estate – Sec. 87:
Exemption of Certain Acquisitions and Transmissions:
a. The merger of usufruct in the owner of the naked title;

b. The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
c. The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the predecessor;
Exclusions from the Gross Estate – Sec. 87:
Exemption of Certain Acquisitions and Transmissions:
d. All bequests, devises, legacies or transfers to social welfare, cultural

and charitable institutions, no part of the net income of which insures
to the benefit of any individual: Provided, however, That not more
than thirty percent (30%) of the said bequests, devises, legacies or
transfers shall be used by such institutions for administration
purposes.
Valuation Rules:
1. General Rule - The estate shall be appraised at its fair market value
as of the time of death - Sec. 88(B).
Valuation Rules:
2. Rules for Real Property:
a. Land – Market Value (appearing on the Tax Declaration) or Zonal

Value (determined by the CIR), whichever is higher;
b. Building/Improvement – Market Value.
c. Condominium Unit – Market Value or Zonal Value, whichever is
higher.
Valuation Rules:
3. Rules for Shares of Stock:
a. Unlisted Common Stock – Book Value per latest Audited Financial

Statements nearest the date of death of the decedent;
b. Unlisted Preferred Stock – Par Value;
c. Listed Shares - arithmetic mean between the highest and lowest
quotation on the date of death or date nearest the date of death;
Valuation Rules:
4. Usufruct:
To determine the value of the right of usufruct, use or habitation, as

well as that of annuity, there shall be taken into account the probable
life of the beneficiary in accordance with the latest Basic Standard
Mortality Table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.
Deductions from the Gross Estate
Residents or Citizens Non-resident Alien
Gross estate: Gross estate:
Less: Deductions: Less: Deductions:
A. Ordinary A. Ordinary (subject to formula)
▪ Claims against the estate ▪ Claims against the estate
▪ Claims against insolvent persons ▪ Claims against insolvent persons
▪ Unpaid taxes, mortgages and casualty ▪ Unpaid taxes, mortgages and casualty
losses losses
B. Special B. Special
▪ Family home ▪ Standard deduction
▪ Standard deduction ▪ Properties previously taxed (vanishing
deduction)
▪ Properties previously taxed (vanishing
deduction) ▪ Transfers for public use
▪ Transfers for public use ▪ Share of the surviving spouse (50% of
net conjugal estate)
▪ Amount received by heirs under RA
4917, provided such amount is
included in the gross estate of Net Taxable Estate
decedent
▪ Share of the surviving spouse (50% of
net conjugal estate)
Net Taxable Estate

Deleted under the TRAIN law:
Sec. 86(D) Miscellaneous Provisions. - No deduction shall be allowed in

the case of a nonresident not a citizen of the Philippines, unless the
executor, administrator, or anyone of the heirs, as the case may be,
includes in the return required to be filed under Section 90 the value
at the time of his death of that part of the gross estate of the
nonresident not situated in the Philippines.
General Considerations:
1. Who is entitled?
2. How much deduction is allowed / Limitation as to amount?
3. Period within which to avail / Limitation as to time?
4. Other requirements / considerations to avail of the deduction?
Standard Deduction:
1. P5,000,000.00 – for residents or citizen decedents; and,

2. P500,0000.00 – for nonresident alien decedents.
Claims against the Estate:
1. Claims –
Debts or demands of a pecuniary nature which could have been

enforced against the deceased during his lifetime and could have been
reduced to simple money judgments arising out of: (1) Contract; (2)
Tort; or (3) Operation of Law.
2. Requisites for deductibility:
a. The liability represents a personal obligation of the deceased

existing at the time of his death;
b. The liability was contracted in good faith and for full and adequate
consideration in money or money’s worth;
c. The claim must be a debt or claim which is valid in law and
enforceable in court; and,
d. The indebtedness must not have been condoned by the creditor or
the action to collect from the decedent must not have prescribed.
3. Requirements under the Tax Code:
1. Notarized debt instrument;

2. If loan was contracted within three (3) years from death, statement
under oath by administrator or executor showing disposition of the
proceeds of the loan.
D obtained a loan from C in the amount of P100,000.00. Upon D’s

death the loan balance amounted to P20,000.00. During the
settlement of D’s Estate, D’s lawyer was able to negotiate a
compromise with C wherein the actual amount paid to settle D‘s loan
is only P5,000.00.
How much is the deductible “claims against the estate” for estate tax
purposes?
Claims against the estate:
Dizon vs. CTA, GR No. 140944 dated April 30, 2008:
1. The Date-of-Death Valuation Principle applies. Post-death

developments are not material in determining the amount of the
deduction. The net value of the property transferred should be
ascertained, as nearly as possible, as of the time of death.
2.a. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the Date-of-Death Valuation Principle and
particularly provides that post-death developments must be
considered in determining the net value of the estate. It bears
emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government. Any
doubt on whether a person, article or activity is taxable is generally
resolved against taxation.
2.b. Such construction finds relevance and consistency in our Rules on

Special Proceedings wherein the term "claims" required to be
presented against a decedent's estate is generally construed to mean
debts or demands of a pecuniary nature which could have been
enforced against the deceased in his lifetime, or liability contracted by
the deceased before his death.
3. Therefore, the claims existing at the time of death are significant to,
and should be made the basis of, the determination of allowable
deductions.
Claims against insolvent person:
1. Insolvent person – as defined under RA No. 10142 or other existing

laws; and,
2. Value of the claim must be included in the gross estate.
Unpaid Mortgages, Taxes and Casualty losses:
A. Unpaid Mortgage:
1. Limitation as to amount: None;

2. Limitation as to time: None;
Unpaid Mortgages, Taxes and Casualty losses :
A. Unpaid Mortgage:
3. Other requirements/considerations:
a. Value of the property subject to mortgage must be included in the

gross estate to the extent of the decedent’s interest.
b. If an accommodation mortgage – loan proceeds must be included as

receivable of the estate. If there is a legal impediment to recognize the
claim as a receivable of the estate then no deduction shall be allowed.
B. Taxes:
1. What is deductible? In general, taxes which have accrued as of the

death of the decedent which were unpaid as of the time of death.
3. Limitation as to time: None;
B. Taxes:
Non-deductible taxes:
a. Income tax upon income after the date of death;

b. Property taxes not accrued before his death;
c. Estate tax due.
C. Casualty Losses:

2. Limitation as to time: up to the deadline for payment of the estate
tax including its extension.;
C. Casualty Losses:
a. Incurred during the settlement of the estate arising from fires,

storms, shipwreck, or other casualties, or from robbery, theft, or
embezzlement;
b. Not compensated by insurance or otherwise; and,
c. Not claimed as deduction for income tax purposes.
Vanishing Deduction:
1. Requisites:
a. The property respecting which the deduction is sought must have

been received by the decedent as a gift within five (5) years from the
date of his death, or received by him by bequest, devise or inheritance
from a prior decedent who died within five (5) years from the date of
the decedent’s death.
1. Requisites:
b. The property with respect to which deduction is claimed must have

formed part of the Gross Estate situated in the Philippines of the prior
decedent or taxable gift of the donor.
c. The property must be the same property received from the prior
decedent or donor or the one received in exchange therefor.
1. Requisites:
d. Estate Tax and Donor’s Tax on the previous transfer must have been
paid; and,
e. No vanishing deduction on the property was allowed to the prior
estate.
2. Rationale for the grant of Vanishing Deduction:
To temper the harshness of double taxation of the same property

within a relatively short period of time.
Transfers for Public Use:
1. The property transferred by way of succession must be for use of

the Government of the Philippines, or any political subdivision thereof,
for exclusively public purposes.
2. Policy is based on the social need for such transfers, the consequent
benefit to the public generally, as they would provide means to
finance socially desirable activities which the government would
otherwise support by taxation.
Family Home:
1. Conditions for the allowance of family home as deduction from the

gross estate:
a. 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;
b. The total value of the family home must be included as part of the
gross estate of the decedent; and,
c. 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 P10,000,000.
Family Home:
2. Residential home at the time of death, as certified by the Barangay

Captain of the locality where the family home is situated.
But take note that actual occupancy of the house or house and lot
shall not be considered interrupted or abandoned in such cases as the
temporary absence from the constituted family home due to travel or
studies or work aboard, etc.
In other words, the family home is generally characterized by

permanency, that is, the place to which, whenever absent for business
or pleasure.
Family Home:
3. For purposes of availing a family home deduction to the extent

allowable, a person may constitute only one family home.
Amount received by heirs under RA No. 4917 – (separation pay):
The amount of separation pay must be included in the gross estate.

Net Share of Surviving Spouse:
To ensure that only the decedent’s interest in the estate is taxed.

Deductions entitled to a nonresident alien decedent:
1. Standard deduction – P500,000.00;

2. The proportion of the total losses and indebtedness which the value
of such part bears to the value of his gross estate wherever situated.
Losses and indebtedness shall include the following:
a. Claims against the estate.

b. Claims against insolvent person.
c. Unpaid mortgages, taxes and casualty losses.
3. Vanishing deduction.
4. Transfers for public use.
5. Net share of the surviving spouse.
Administrative Provisions
Filing of Estate Tax Return / Payment of Estate Tax:
1. Needed if – the Estate is subject to tax or regardless of gross estate

if the Estate consists of registrable properties where a Certificate
Authorizing Registration (“CAR”) is needed;
2. When? – Within one (1) year from the date of death;
3. Extendible?
i. Filing – In meritorious cases; extension of not exceeding thirty
(30) days.
ii. Payment – Payment will impose undue hardship upon the
estate or any of the heirs; not exceeding two (2) years
extension – if extrajudicially settled; and, not exceeding five
(5) years extension – if judicially settled. If granted,
prescriptive period to assess is suspended, liable for 20%
interest but not liable for 25% surcharge. Surety bond may be
required in an amount not exceeding double the amount of
tax.
4. Payment by installment?
In case the available cash of the estate is insufficient to pay the total
estate tax due, payment by installment shall be allowed within two (2)
years from the statutory date for its payment without civil penalty and
interest. (Sec. 91(C) of the NIRC)
a. Available cash of the estate is insufficient to pay the total estate tax
due
b. Cash installment shall be made within 2 years from date of filing of
the estate tax return;
c. The estate tax return shall be filed within 1 year from the date of
decedent’s death;
d. The frequency (i.e. monthly, quarterly, semi-annually or annually),
deadline and the amount of each installment shall be indicated in the
estate tax return, subject to the prior approval by the BIR;
e. In case of the lapse of two (2) years without the payment of the
entire tax due, the remaining balance thereof shall be due and
demandable subject to penalties and interest reckoned from the
prescribed deadline for filing of the return and payment of the estate
tax; and,
f. No civil penalties or interest if paid on time.
5. Who? – Executor, administrator or legal heir;

6. Where? – Revenue District Office (“RDO”) – residence at the time of
death; If a nonresident – RDO where Executor or Administrator is
registered; If not registered – RDO having jurisdiction over the legal
residence of the Executor or Administrator.
7. CPA Certification - necessary if gross value of the estate exceeds
P5,000,000.00.
8. The Estate Tax due is now based on a fixed rate of 6% of the net
estate;
9. Partial disposition of estate and application of its proceeds to the
estate tax due allowed. (RR No. 12-2018 dated January 25, 2018)
Example: X, a resident citizen, widow, died leaving a condominium

unit (Family Home) with a Fair Market Value (“FMV”) of
P10,000,000.00, cash worth P2,500,000.00 and a motorcycle with a
FMV of P2,500,000.00.
Is the Estate of X liable for Estate Tax?

Other Matters
Who pays the Estate Tax?
The Estate tax shall be paid by the executor or administrator before

delivery to any beneficiary of his distributive share of the estate. Such
beneficiary shall to the extent of his distributive share of the estate, be
subsidiarily liable for the payment of such portion of the estate tax as
his distributive share bears to the value of the total net estate. (Sec.
91(D) of the Tax Code)
Other Matters
Z died survived by his two (2) children. The estate was divided among
the heirs. X, the eldest child received property worth P2,000.00 as his
share. After estate proceedings were closed, the BIR assessed the
Estate for deficiency Estate tax amounting to P1,000.00.
May X be made liable for the entire P1,000.00 or only a proportionate

part (P500.00) thereof?
Other Matters
CIR vs. Pineda, GR No. L-22734 dated September 15, 1967:
1. The Government has two (2) ways of collecting the tax in question:
a. By going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received; or
b. Enforcement of the lien created by Section 219 of the Tax Code

upon all property and rights to property belonging to the taxpayer for
unpaid tax by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due the
estate.
Other Matters
2. As an heir he is individually answerable for the part of the tax

proportionate to the share he received from the inheritance. His
liability, however, cannot exceed the amount of his share;
Other Matters
3.a. As a holder of property belonging to the estate, X is liable for the

tax up to the amount of the property in his possession. The reason is
that the Government has a lien on the P2,000.00 received by him from
the estate as his share in the inheritance, for unpaid estate tax for
which said estate is liable, pursuant to the last paragraph of Section
219 of the Tax Code.
Other Matters
3.b. By virtue of such lien, the Government has the right to subject the
property in X's possession, i.e., the P2,000.00, to satisfy the estate tax
assessment in the sum of P1,000.00. After such payment, X will have a
right of contribution from his co-heir, to achieve an adjustment of the
proper share of each heir in the distributable estate.
Other Matters
Marcos II vs. CA, GR No. 120880 dated June 5, 1997:
Is approval of the probate court necessary in the assessment or

collection of estate taxes?
Other Matters
1. 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.
Other Matters
2. On the contrary, under Section 94 of the NIRC, it is the probate or

settlement court which is bidden not to authorize the executor or
judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is
shown a Certification by the CIR that the estate taxes have been paid.
This provision disproves the petitioner's contention that it is the
probate court which approves the assessment and collection of the
estate tax.
Other Matters
Payment of Estate Tax or issuance of “CAR” as a Condition
Precedent:
1. Register of Deeds shall not transfer real property – Sec. 95;

2. Debtor shall not pay debts. But the debtor may pay his debts even
without a CAR if the credit is included as part of the gross estate. –
Sec. 95;
3. Corporate Secretary shall not transfer shares – Sec. 97;
Other Matters
Withdrawal of Bank Deposit:
1. “If a bank has knowledge of the death of a person, who maintained

a bank deposit account alone, or jointly with another, it shall allow
any withdrawal from the said deposit account, subject to a final
withholding tax of six percent (6%). For this purpose, all withdrawal
slips shall contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any one of the
joint depositors and such statement shall be under oath by the said
depositors.” (Sec. 97 of the NIRC)
Other Matters
2. Rules under RMC No. 62-2018 and RR No. 12-2018, as amended:
a. Withdrawal must be made within one (1) year from the date of
death of the decedent subject to a 6% final withholding tax;
b. For joint accounts, the withholding tax shall be based on the share
of the decedent;
c. Bank shall require presentation of the estate’s TIN and BIR Form
1904 duly stamped received by the RDO;
d. Bank shall issue a withholding tax certificate (BIR Form No. 2306).
Executor, administrator or authorized legal heir shall submit the
duplicate copy of BIR Form No. 2306 to RDO where the decedent was
domiciled within five (5) days from receipt.
Other Matters
2. Rules under RMC No. 62-2018 and RR No. 12-2018, as amended:
e. The amount withdrawn from the deposit account of a decedent

subjected to 6% final withholding tax shall be excluded from the gross
estate for the purpose of computing the estate tax.
f. Bank deposits already declared for estate tax purposes shall no
longer be subject to the 6% final withholding tax.
g. Final tax withheld shall not be refunded. However, the same may be
credited from the tax due in instances where the bank deposit account
subjected to the final withholding tax has been actually included in the
gross estate declared in the estate tax return of the decedent.
Other Matters
Bank Deposit Withdrawal – Sample Problems:
1. X, a resident citizen, died leaving the following properties:
▪ Cash in Bank – P5,000,000.00;

▪ Commercial Real Property – P5,000,000.00;
Other Matters
Bank Deposit Withdrawal – Sample Problems:
2. X, a resident citizen, died leaving the following properties:
▪ Cash in Bank – P2,000,000.00;

▪ Commercial Real Property – P1,000,000.00;
Donor’s Tax
Secs. 98 to 104 of the NIRC
I. Preliminary Matters
II. Composition of the Gross Gifts
III. Other Matters
Preliminary Matters
Definition of Donor’s Tax.
Is it an Excise Tax or a Property Tax?
Accrual of the Tax vs. Payment of Tax?

Preliminary Matters
How to determine a gift for donor’s tax purposes?
1. The NIRC does not define transfer of property by gift. The deficiency
is supplied by the provisions of the Civil Code.
A donation has the following elements: (a) the reduction of the

patrimony of the donor; (b) the increase in the patrimony of the
donee; and, (c) the intent to do an act of liberality or animus donandi.
(Abello vs. CIR, GR No. 120721 dated February 23, 2005)
Preliminary Matters
How to determine a gift for donor’s tax purposes?
2. The Donor’s Tax is based on the net gifts or the net economic
benefit from the transfer received by the donee.
For onerous donations, consideration must be measurable in money

or money’s worth. Like "love and affection," gratitude has no
economic value and is not "consideration.” (Pirovano vs. CIR, GR No. L-
19865 dated July 31, 1965)
Composition of the Gross Gifts
Kinds of Donors for Donor’s Tax Purposes:
1. Resident or Citizen Donor;

2. Nonresident Alien Donor;
3. Domestic or Resident Foreign Corporation Donor; and,
4. Nonresident Foreign Corporation Donor.
General Situs Rules for Donor’s Taxation:
1. Resident or Citizen / Domestic and Resident Foreign Corporation –

all property whether real or personal (tangible or intangible) wherever
situated;
2. Nonresident Alien / Nonresident Foreign Corporation - Only real or
personal property (tangible or intangible) situated in the Philippines;
(Sec. 104)
Rules applicable only to a Nonresident Alien Donor or a Non-resident
Foreign Corporation Donor:
1. Rules or limitations on intangible personal property (Sec. 104); and,

2. Rule on reciprocity (Sec. 104).
Note that same rules on Estate Taxation applies.

Exemption of Certain Gifts under Sec. 101:
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.a. Gifts in favor of an educational and/or charitable, religious,

cultural or social welfare corporation, institution, accredited
nongovernment organization, trust or philanthrophic organization or
research institution or organization.
2.b. Other requirements:
a. Not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes;
b. Entity must be a non-stock non-profit corporation;
c. Pays no dividends;
d. Governed by trustees who receive no compensation; and,
e. Devotes all of 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.
3. Administrative Requirement - Certificate of donation (BIR Form No.

2322) shall be executed in three (3) copies:
a. Page 1 to be signed by the Donor and Page 2 will be signed by the

Donee. The Original Copy – Donor; Duplicate Copy – BIR; and,
Triplicate Copy – Donee. To be distributed within thirty (30) days from
the donation.
b. The donor engaged in business shall give a notice of donation on
every donation worth at least Fifty Thousand Pesos (P50,000.00) to
the Revenue District Office (RDO) which has jurisdiction over his place
of business within thirty (30) days after receipt of the qualified donee
institution's duly issued Certificate of Donation, which shall be
attached to the said Notice of Donation.
Transfer for Insufficient Consideration under Sec. 100:
1.a. If property 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 be deemed a gift for donor’s tax purposes.
Provided, however, That a sale, exchange, or other transfer of property
made in the ordinary course of business (a transaction which is a bona
fide, at arm’s length, and free from any donative intent), will be
considered as made for an adequate and full consideration in money or
money’s worth.
Exception: Transfer of Real Property subject to the 6% Capital Gains

Tax.
1.b. Sale, exchange, or other transfer of property made in the ordinary

course of business is considered as made for an adequate and full
consideration in money or money’s worth, if the transaction is:
a. bona fide;
b. at arm’s length; and,
c. free from any donative intent.
2. Clarification under RMC No. 30-2019 on shares of stock:
The determination of whether the sale of shares of stock not listed

and traded is at arms length is a question of fact and not of law. Since
an arm’s length transaction is a question fact, it therefore behooves
upon the party seeking to apply the exception to prove that indeed
the sale involves no irregularity between the unrelated and
independent parties. This would require presentation and reception of
reasonable evidence sufficient enough to convince that the sale of the
shares of stock for less than its Fair Market Value is without intent to
evade tax and defraud the government (of the tax due therein). The
evidence that should be presented should be viewed in accordance
with its relation and relevance to the transaction on a case to case
3. Doctrine in Philamlife Company vs. Secretary of Finance, GR No.

210987 dated November 24, 2014 considered abandoned:
Absence of donative intent, if that be the case, does not exempt the
sale of stock transaction from donor’s 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.
Other Matters
Considerations for Gift Splitting:
1. The Donor’s Tax is computed on a cumulative basis over a period of

one calendar year;
2. New Tax Rate is: 6% of the net gifts in excess of P250,000.00.

Other Matters
Considerations for Gift Splitting:
Sample Bar Exam Problem:
Your bachelor client, a Filipino, wants to give his girlfriend a gift of

P500,000.00. He seeks your advice, for purposes of reducing if not
eliminating the Donor’s Tax on the gift on whether to give all of
P500,000.00 on Christmas 2018 or to give P250,000.00 on Christmas
2018 and the other P250,000.00 on January 2019. Please explain your
advice.
Other Matters
Rules on Renunciation of the Community or Conjugal Share or Share
in the Inheritance under Revenue Regulations No. 2-2003:
1. Renunciation by the Surviving Spouse of his/her share in the

conjugal partnership or absolute community after the dissolution of
marriage in favor of the heirs of the deceased spouse or any other
person is subject to Donor’s Tax;
Other Matters
Rules on Renunciation of the Community or Conjugal Share or Share
in the Inheritance under Revenue Regulations No. 2-2003:
2. General Renunciation by an heir, including the surviving spouse, of

his/her share in the hereditary estate is not subject to donor’s tax,
unless specifically and categorically done in favor of identified heir/s to
the exclusion or disadvantage of the other co-heirs in the hereditary
estate.
Other Matters
Rules on Political Contributions:
1. Any contribution in cash or in kind to any candidate or political party

or coalition of parties for campaign purposes, duly reported to the
Commission shall not be subject to the payment of any gift tax. (Sec.
13 of RA No. 7166)
Other Matters
2. Unutilized/excess campaign funds, that is, campaign contributions

net of the candidate’s campaign expenditures, shall be considered as
subject to income tax.
Failure to submit statement of expenditures to the COMELEC subjects

the entire contributions to income tax. Since, the candidate will be
precluded from claiming expenditures as deductions from his
campaign contributions. (Revenue Regulations No. 7-2011 dated
February 16, 2011)
Other Matters
3. Political contributions which are not utilized during the campaign

period are subject to Donor’s tax.
Political contributions made by a foreign corporation is subject to

donor’s tax. (Revenue Memorandum Circular No. 30-2016 dated March
14, 2016)

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Transfer Taxes

Estate and Donor’s Tax

a. Deletion of Funeral, Judicial and Medical Expenses;

a. New rate - 6% based on the net estate.

1. New Rate – 6% of the net gifts in excess of P250,000.00 for all

Secs. 84 to 97 and 104 of the NIRC

Definition of Estate Tax.

Is it an Excise Tax or a Property Tax?

Accrual of the Tax vs. Payment of Tax?

1. Resident or Citizen Decedent; and,

1. Resident or Citizen – all property whether real or personal (tangible

2. Nonresident Alien - Only real or personal property (tangible or

1. Rules or limitations on intangible personal property (Sec. 104); and,

1. Franchise which must be exercised in the Philippines;

No Estate tax shall be collected in respect of intangible personal

1. Decedent is a Nonresident Alien;

Sample Bar Exam Problem:

Miguel, a citizen and resident of Mexico, died leaving USD1,000.00

Is the rule on reciprocity applicable to exempt the Estate of Miguel

CIR vs. Fisher, GR No. L-11622 dated January 28, 1961:

2. The Rule on Reciprocity does not apply to deductions. Only to

1. Decedent’s interest – Sec. 85(A)

1. Transfer in Contemplation of Death – Sec. 85(B)

1. Transferor has retained some control over the property;

Two kinds of Transfer in Contemplation of Death:

1. Transfer in Contemplation of Death Proper; and,

Transfer in Contemplation of Death Proper (First Kind):

1. Decedent made a transfer during his lifetime;

What does “Contemplation of Death” mean?

What does “Contemplation of Death” mean?

2. The decedent’s motive or intention is, of course, a question of fact.

Transfer in Contemplation of Death – Retained Powers (2nd Kind):

1. Transfer of property during the decedent’s lifetime;

1. Decedent made a transfer of property during his lifetime; and,

1. Power of Appointment – The right to designate the person/s who

a. General – gives the decedent the power to appoint any person he

Correlate with Sec. 87(C) of the Tax Code:

Sample Bar Exam Question:

In 1999, Xavier purchased from his friend, Wuri, a painting for

Should the painting be part of the gross estate of Yandro?

2. Sample Bar Exam Problem:

Mr. Agustin, 75 years old and suffering from an incurable disease,

Is the BIR correct?

a. X “transfers” to Y a parcel of land with a Fair Market Value (“FMV”)

b. X “transfers” to Y a parcel of land with a FMV at the time of death

1. Requirements for inclusion:

a. Insurance policy taken out by decedent upon his life; and,

b.1. Beneficiary is the Estate of the decedent, executor or

Exemption of Certain Acquisitions and Transmissions:

a. The merger of usufruct in the owner of the naked title;

Exemption of Certain Acquisitions and Transmissions:

d. All bequests, devises, legacies or transfers to social welfare, cultural

2. Rules for Real Property:

a. Land – Market Value (appearing on the Tax Declaration) or Zonal

3. Rules for Shares of Stock:

a. Unlisted Common Stock – Book Value per latest Audited Financial

To determine the value of the right of usufruct, use or habitation, as

Net Taxable Estate

Sec. 86(D) Miscellaneous Provisions. - No deduction shall be allowed in

1. P5,000,000.00 – for residents or citizen decedents; and,

Debts or demands of a pecuniary nature which could have been

2. Requisites for deductibility:

a. The liability represents a personal obligation of the deceased

3. Requirements under the Tax Code: