TAXATION 2-CADC 1

Donors TAX
A donors tax is levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift. [ Sec. 98(A), NIRC]. It
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. 98(B), NIRC].
NATURE OF DONORS TAX
Donors tax is not a property tax but a tax imposed on the transfer of property by way of gift inter vivos. [Sec 11, RR 2-2003 citing Lladoc v. CIR (1965)]
BASIC PRINCIPLE
The donors tax is imposed on donations inter vivos or those made between living persons to take effect during the lifetime of the donor. It supplements the
estate tax by preventing the avoidance of the latter through the device of donating the property during the lifetime of the deceased.
It shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected from the moment the donor knows of the acceptance
by the donee; it is completed by delivery, either actually or constructively, of the donated property, to the donee. Thus, the law in force at the time of the
perfection/completion of the donation shall govern the imposition of the donors tax. [Sec. 11, RR 2-2003]
PURPOSE OR OBJECT
(1) To supplement estate tax;
(2) To prevent avoidance of income tax through the device of splitting income among numerous donees, who are usually members of a family or into
many trusts, with the donor thereby escaping the effect of the progressive rates of income tax.
REQUISITES OF VALID DONATION
(1) A donation is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in favor of another (donee) who accepts it. [Art. 725,
NCC]
(2)In order that the donation of an immovable may be valid, it must be made in a public document specifying therein the property donated. The acceptance
may be made in the same Deed of Donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If
the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.
[Sec. 11, RR 2-2003]
Art. 725, Civil Code. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
The requisites of a valid donation are:
(1) Donative intent of the donor
(2) Capacity of the donor
(3) Delivery of the donated property
(4) Acceptance of the donee
(5) Donation must be in the proper form
(a) Movable: orally or in writing if value is equal to or less than P5,000. Otherwise, it shall be in writing.
(b) Immovable: must be made in a public document.
A gift that is incomplete because of reserved powers becomes complete when either:
(1) the donor renounces the power OR
(2) his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition, other
than because of the donors death. [Sec. 11, RR 2-2003]
Note: Renunciation by a surviving spouse of his/her share in the CPG or ACP after the dissolution of marriage in favor of the heirs or any other person is
SUBJECT to donors tax. General renunciation by ANY heir is NOT subject to donors tax UNLESS it is specifically and categorically done in favor of IDENTIFIED
heirs to the exclusion of other co-heirs. [Sec. 11, RR 2- 2003]
TUZON V CA
Public officers not personally liable for injuries occasioned by performance of official duty within scope of official authority; erroneous interpretation of

[TYPE THE DOCUMENT TITLE] 2

ordinance does not constitute bad faith.
Facts:
In 1977, the Sangguniang Bayan of Camalaniugan, Cagayan thought of fund-raising scheme to help finance the construction of a Sports and Nutrition Center.
They adopted Resolution No. 9 whereby all thresher operators who will apply for a permit to thresh will be required to donate 1% of all the palay threshed by
them.
Private respondent Jurado tried to pay the P285.00 license fee for thresher operators but Municipal Treasurer Mapagu refused to accept payment and required
him to first secure a mayors permit. Mayor Domingo Tuzon, on the other hand, said that Jurado should first comply with Resolution No. 9 and sign the
agreement before the permit could be issued.
Jurado filed an action for mandamus with the CFI Cagayan to compel the issuance of the mayors permit and license. He filed another petition for declaratory
judgment against the resolution for being illegal either as a donation or as a tax measure. Named defendants were the same respondents and all the members
of the Sangguniang Bayan of Camalaniugan
The trial court upheld the challenged measure. Jurado appealed to the Court of Appeals which affirmed the validity of Resolution No. 9 and the implementing
agreement. Nevertheless, it found Tuzon and Mapagu liable to pay actual and moral damages for acting maliciously and in bad faith when they denied Jurado's
application for the mayor's permit and license. As for the Resolution, it was passed by the Sanggunian in the lawful exercise of its legislative powers granted
by Article XI, Section 5 of the 1973 Constitution which provided that each LGU shall have the power to create its own source revenue and to levy taxes, subject
to such limitation as may be provided by law. And also under Article 4, Sec. 29, PD 231: The barrio council may solicit money, materials, and other
contributions from private agencies and individuals.
Issues:
1. WON a resolution imposing a 1% donation is a valid exercise of the taxing power of an LGU.
2. WON petitioners are liable in damages to private respondent Jurado for having withheld from him the mayor's permit and license because of his refusal to
comply with Resolution No. 9.
Held:
1. NO. While it would appear from the wording of the resolution that the municipal government merely intends to "solicit" the 1% contribution from the
threshers, the implementing agreement seems to make the donation obligatory and a condition precedent to the issuance of the mayors permit. This goes
against the nature of a donation, which is an act of liberality and is never obligatory.
If, on the other hand, it is to be considered a tax ordinance, then it must be shown in view of the challenge raised by the private respondents to have been
enacted in accordance with the requirements of the Local Tax Code. These would include the holding of a public hearing on the measure and its subsequent
approval by the Secretary of Finance, in addition to the usual requisites for publication of ordinances in general. .
2. NO. Petitioners acted within the scope of their authority and in consonance with their honest interpretation of the resolution in question. It was not for them
to rule on its validity. In the absence of a judicial decision declaring it invalid, its legality would have to be presumed. As executive officials of the municipality,
they had the duty to enforce it as long as it had not been repealed by the Sangguniang Bayan or annulled by the courts. xxx As a rule, a pubic officer,
whether, judicial, quasijudicial or executive, is not personally liable to one injured in consequence of an act performed within the scope of his official authority,
and in line of his official duty. xxx It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith, that
would entitle an aggrieved party to an award for damages. (Philippine Match Co. Ltd. v. City of Cebu)
The private respondent anchors his claim for damages on Article 27 of the New Civil Code, which reads:

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken.
In the present case, it has not even been alleged that the Mayor Tuzon's refusal to act on the private respondent's application was an attempt to compel him
to resort to bribery to obtain approval of his application. It cannot be said either that the mayor and the municipal treasurer were motivated by personal spite
or were grossly negligent in refusing to issue the permit and license to Jurado.
It is no less significant that no evidence has been offered to show that the petitioners singled out the private respondent for persecution. Neither does it
appear that the petitioners stood to gain personally from refusing to issue to Jurado the mayor's permit and license he needed. The petitioners were not
Jurado's business competitors nor has it been established that they intended to favor his competitors. On the contrary, the record discloses that the resolution
was uniformly applied to all the threshers in the municipality without discrimination or preference.
The private respondent complains that as a result of the petitioners' acts, he was prevented from operating his business all this time and earning substantial
profit therefrom, as he had in previous years. But as the petitioners correctly observed, he could have taken the prudent course of signing the agreement
under protest and later challenging it in court to relieve him of the obligation to "donate." Pendente lite, he could have continued to operate his threshing
business and thus avoided the lucrocesante that he now says was the consequence of the petitioners' wrongful act. He could have opted for the less obstinate
but still dissentient action, without loss of face, or principle, or profit.
PIROVANO V CIR
FACTS:
De la Rama Steamship Co. insured the life of Enrico Pirovano, who was then its President and General Manager until the time of his death. The Company then
received the total sum of P643,000.00 as proceeds of the said life insurance policies. The Company renounced all its rights on the money in favor of the
decendent's children.
After a case that marred Estefania Pirovano, the guardian and the Company (see Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.), the Company paid in
favor of the children.
The CIR then assessed donees' gift tax against Pirovano and donor's tax against the Company. Pirovano contested with the CIR which she lost and thus
appealed with the CTA.
The CTA held that donees' gift tax were correctly assessed.
ISSUE: Whether Pirovano should pay the donees' gift tax.
RULING:
YES. Pirovano contends that the Court itself declared that the donation was renumenatory and not simple and it was made for a full and adequate
compensation for the valuable services by decedent to the Company; hence, the donation does not constitute a taxable gift under the provisions of Section
108 of the National Internal Revenue Code (old law).
The Court states that it is a donation; that the consideration for the donation was, therefore, the company's gratitude for his services, and not the services
themselves and whether the donation was simple or renumenatory, it was still a gift taxable under the law.
TANGHO V BOARD OF TAX APPEALS
FACTS:
The BIR found that petitioners had an investment in shares issued to them from their family corporation. The CIR regarded these transfers as undeclared gifts
made in the respective years, and assessed against petitioners. After paying the basic tax, petitioners asked for the reassessment stating that each of them
received by way of gift inter vivos, that those who got married were given additional money as propter nuptias and those who did not received it by inter
vivos. Petitioners also contend that the cash donated came from conjugal funds, claiming for exemption.
The CIR refused to revise his original assessment. Upon petition to the CTA, the CTA still upheld the CIR's assessment.
ISSUE: Whether petitioners are liable for tax.
Whether petitioners can claim tax exemptions twice from the conjugal funds.
RULING:
YES. As petitioners failed to pay taxes for the past ten years they are now scarcely in a position to complain if their contentions are not accepted as truthful
without satisfactory corroboration. Any other view would leave the collection of taxes at the mercy of explanations concocted ex post facto by evading
taxpayers, drafted to suit any facts disclosed upon investigation, and safe from contradiction because the passing years have erased all
trace of the truth.

TAXATION 2-CADC

NO. The Court took a look at the Spanish Civil Code of 1889, which was the governing law in this case. The provisions state that the donations of property "by
the husband" from the "donations by both spouses by common consent" differs. The lawful donations by the husband to the common children are valid and
are chargeable to the community property, irrespective of whether the wife agrees or objects thereof. To be a donation by both spouses, taxable to both, the
wife must expressly join the husband in making the gift; her participation therein cannot be implied.
A donation by the husband alone does not become in law a donation by both spouses merely because it involves property of the conjugal partnership.
A donation of property belonging to the conjugal partnership, made during its existence, by the husband alone in favor of the common children, is taxable to
him exclusively as sole donor.
LLADOC V CIR
Facts: Sometime in 1957, M.B. Estate Inc., of Bacolod City, donated 10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish priest of Victorias, Negros
Occidental, and predecessor of Fr. Lladoc, for the construction of a new Catholic church in the locality. The donated amount was spent for such purpose.
On March 3, 1958, the donor M.B. Estate filed the donor's gift tax return. Under date of April 29, 1960. Commissioner of Internal Revenue issued an
assessment for the donee's gift tax against the Catholic Parish of Victorias of which petitioner was the parish priest.
Issue: Whether or not the imposition of gift tax despite the fact the Fr. Lladoc was not the Parish priest at the time of donation, Catholic Parish priest of
Victorias did not have juridical personality as the constitutional exemption for religious purpose is valid.
Held: Yes, imposition of the gift tax was valid, under Section 22(3) Article VI of the Constitution contemplates exemption only from payment of taxes assessed
on such properties as Property taxes contra distinguished from Excise taxes The imposition of the gift tax on the property used for religious purpose is not a
violation of the Constitution. A gift tax is not a property by way of gift inter vivos.
The head of the Diocese and not the parish priest is the real party in interest in the imposition of the donee's tax on the property donated to the church for
religious purpose
ABELLO V CIR
FACTS:
During the 1987 national elections, petitioners, who are partners in the ACCRA law firm, contributed P882,661.31 each to the campaign funds of Senator
Edgardo Angara, then running for the Senate. The BIR then assessed each of the petitioners P263,032.66 for their contributions. Petitioners questioned the
assessment claiming that political or electoral contributions are not considered gifts under NIRC therefore, not liable for donors tax. The claim for exemption
was denied by the Commissioner.
The BIR denied their motion. They then filed a petition with the CTA, which was granted.
On appeal, the CA again held in favor of the BIR.]
ISSUE: Whether the contributions are liable for donor's tax.
RULING:
Yes. The NIRC does not define transfer of property by gift. However, the Civil Code, by reference, considers such as donations. The present case falls squarely
within the definition of a donation. There was intent to do an act of liberality or animus donandi was present since each of the petitioners gave their
contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and unambiguous, thereby leaving no room for construction.
Petitioners contribution of money without any material consideration evinces animus donandi. The fact that their purpose for donating was to aid in the
election of the donee does not negate the presence of donative intent.
Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988 the BIR never attempted to subject political contributions to donors
tax.
This Court holds that the BIR is not precluded from making a new interpretation of the law, especially when the old interpretation was flawed. It is a wellentrenched rule that "erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute" (PLDT v.
Collector of Internal Revenue, 90 Phil. 676), "and that the Government is never estopped by mistake or error on the part of its agents" (Pineda v. Court of First
Instance of Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724)

DONORS TAX RATES

The applicable donors tax rate is dependent upon the relationship between the donor and the donee.(1) If the donee is a stranger to the donor, the tax rate is

equivalent to 30 % of the net gifts.

A stranger for purposes of the donors tax
(1) a person who is not a brother, sister (whether by whole or half-blood), spouse, ancestor or lineal descendant, or
(2) a person who is not a relative by consanguinity in the collateral line within the fourth degree of relationship. [Sec. 99(B)]
Note: Donations made between business organizations and those made between an individual and a business organization shall be considered as donations
made to a stranger. [Sec. 10(B), RR 2-2003]
If the donee is not a stranger to the donor, the tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year
[Sec. 99(A), NIRC]:
Note: A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, a donation to him shall not be
considered as a donation made to a stranger. [Sec 10B, RR 2-2003]
OVER
BUT NOT OVER
TAX IS
PLUS
OF THE EXCESS OVER
O
100,000
EXEMPT
100,000
200,000
0
2%
100,000
200,000
500,000
1M
3M
5M
10M

500,000
1,000,000
3M
5M
10M

2000
14,000
44,000
204,000
404,000

4%
6%
8%
10%
12%

200,000
500,000
1M
3M
5M

1,0004,000

15%

10M

TRANSFERS FOR LESS THAN OR ADEQUATE CONSIDERATION

Sec. 100, NIRC. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION. Where property, other than real property referred to in Sec. 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
exceed 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.
In order for the rule to apply, there must be
1) a transfer of property, other than real property classified as a capital asset and subject to capital gains tax under Sec. 24 (D) and
2) the transfer was for less than an adequate and full consideration in money or moneys worth.
In this case, the amount by which the fair market value of the property exceed the value of the consideration shall be considered a gift.
SALE/EXCHANGE/TRANSFER OF PROPERTY FOR INSUFFICIENT CONSIDERATION
Where property is transferred for less than an adequate and full consideration in money or moneys worth, then the amount by which the FMV of the property
at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the
agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.
[Sec. 11, RR 2-2003]
However, where the consideration is fictitious, the entire value of the property shall be subject to donors tax.
Real property considered as capital assets under the Tax Code are excepted from this rule because the taxable value taken into account in the computation of
tax is the higher of either the zonal value or the assessors value; not the consideration. Therefore, the insufficiency and inadequacy of the consideration paid
would not affect the computation of the tax due and payable [Sec. 100 in relation to Sec. 24(d), NIRC]
Under Section 24(d), the fair market value itself, if higher than the gross selling price, is the basis for computing the capital gains tax imposed upon the sale of
such capital assets.
Thus, what the seller avoids in the payment of the donors tax, it pays for in the capital gains tax.
CIR V BF GOODRICH
Facts: Private respondent BF Goodrich Philippines Inc. was an American corporation prior to July 3, 1974. As a condition for approving the manufacture of tires
and other rubber products, private respondent was required by the Central Bank to develop a rubber plantation. In compliance therewith, private respondent
bought from the government certain parcels of land in Tumajubong Basilan, in 1961 under the Public Land Act and the Parity Amendment to the 1935
constitution, and there developed a rubber plantation.

TAXATION 2-CADC

On August 2, 1973, the Justice Secretary rendered an opinion that ownership rights of Americans over Public agricultural lands, including the right to dispose
or sell their real estate, would be lost upon expiration on July 3, 1974 of the Parity Amendment. Thus, private respondent sold its Basilan land holding to
Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21, 1974. Under the terms of the sale, Siltown would lease the property to private respondent for 25
years with an extension of 25 years at the option of private respondent.
Private respondent books of accounts were examined by BIR for purposes of determining its tax liability for 1974. This examination resulted in the April 23,
1975 assessment of private respondent for deficiency income tax which it duly paid. Siltowns books of accounts were also examined, and on the basis
thereof, on October 10, 1980, the Collector of Internal Revenue assessed deficiency donors tax of P1,020,850 in relation to said sale of the Basilan
landholdings.
Private respondent contested this assessment on November 24, 1980. Another assessment dated March 16, 1981, increasing the amount demanded for the
alleged deficiency donors tax, surcharge, interest and compromise penalty and was received by private respondent on April 9, 1981. On appeal, CTA upheld
the assessment. On review, CA reversed the decision of the court finding that the assessment was made beyond the 5-year prescriptive period in Section 331
of the Tax Code.
Issue: Whether or not petitioners right to assess has prescribed.
Held: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which provides a 3-year prescriptive period for making assessments), it is clean that the October
16, 1980 and March 16, 1981 assessments were issued by the BIR beyond the 5-year statute of limitations. The court thoroughly studied the records of this
case and found no basis to disregard the 5-year period of prescription, expressly set under Sec. 331 of the Tax Code, the law then in force.
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in
the collection of taxes. Thus, the law or prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary,
the exceptions to the law on prescription should perforce be strictly construed.
EXEMPT GIFTS
In the case of gifts made by a RESIDENT [Sec. 101(A), NIRC]:
(1)Dowries or gifts made on account of marriage and before its celebration or within one year thereafter.
(a) Must be given by parents to their child/children (legitimate, illegitimate, adopted)
(b) ApplicableonlyforthefirstP10,000.
(2) Gifts to or for the use of:
(a) National Government or any entity created by any of its agencies which is not conducted for profit, or
(b) Any political subdivision of the said Government
(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.
The donee shall be:
(a) a non-stock entity,
(b) paying no dividends,
(c) governed by trustees who receive no compensation, and
(d) devoting all its income, whether students fees or gifts, donations, subsidies or other forms of philanthropy, to the accomplishment and promotion of
the purposes enumerated in its Articles of Incorporation.
A condition for the exemption is that no more than 30% of the gifts shall be used by the donee for administration purposes. In BIR Ruling no. 097-2013 (March
20, 2013), the condition shall be annotated at the back of the TCT/OCT, in case of donation of real property. Failure to comply with this condition will result in
the application of donors tax.
In the case of gifts made by a NONRESIDENT [Sec. 101(B), NIRC]:
(1) Gifts made to or for the use of the
(a) National Government or any entity created by any of its agencies which is not conducted for profit, or
(b) any political subdivision of the said government
2)Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust
or philanthropic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration
purposes
Note: Donations made to entities exempted under special laws, e.g.:

(1) Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines
(2) Development Academy of the Philippines
(3) Integrated Bar of the Philippines
(4) International Rice Research Institute
(5) National Museum
(6) National Library
(7) National Social Action Council
(8) Ramon Magsaysay Foundation
(9) Philippine Inventors Commission
(10)
Philippine American Cultural Foundation
(11)
Task Force on Human Settlement on the donation of equipment, materials and services
PERSONS LIABLE
Every person, whether natural or juridical, resident or non-resident, who transfers or causes to transfer property by gift, whether in trust or otherwise, whether
the gift is direct or indirect and whether the property is real or personal, tangible or intangible. (Sec. 98, NIRC
RETUNS AND PAYMENT OF TAX
Contents of the Donors Tax Return, which shall be made under oath, in triplicate [Donors tax return, BIR Form no. 1800]:
(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;
(5) Relationship of the donor to the donee;
(6) Such further information as the Commissioner may require.
When Filed [Sec. 103(B), NIRC]
(a) Filed within thirty (30) days after the date the gift is made or completed.
(b)The tax due thereon shall be paid at the same time that the return is filed.
.
Where Filed and Paid (Sec. 103(B), NIRC)Unless the Commissioner otherwise permits, it shall be filed and the tax paid to any of the following having
jurisdiction over the place where the donor was domiciled at the time of the transfer:(a) An authorized agent bank(b) The Revenue District Officer(c)
Revenue Collection Officer or(d)Duly authorized Treasurer of the city or municipality, or If there be no legal residence in the Philippines, with the Office
of the Commissioner (presently RDO no. 39 South Quezon City).
In the case of gifts made by a non-resident, the return may be filed with:
(a) The Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or
(b) Directly with the Office of the Commissioner.
TAX BASIS
.
The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar. (Sec. 99, NIRC