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INTRODUCTION TO TRANSFER AND ESTATE TAXES

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1. Nature of Transfer Taxes –Taxes levied on the 2. Gratuitous Transfer of Property - is a conveyance
transmission of private properties from prior of property without any consideration or no
decedent to his heirs in the case of estate tax, or performance of service involved in exchange for the
from a donor to a donee in the case of donor’s tax property received. In other words, it is a transfer of
1.1. These are imposed whether the property for free.
transfer is gratuitous or onerous; 2.1. Transfer taxes are imposed on gratuitous
1.2. They are not taxes on property transfer of property classified as estate tax and
because their imposition des not rest upon donor’s tax.
general ownership but on the transfer of 2.2. Estate tax is imposed at the time of transfer of
property. Transfer taxes are excise taxes or the properties left by the decedent to his heirs.
privilege taxes. These are taxes imposed for 2.3. Donor’s tax is imposed on the right to transfer
gratuitous passing of private owned gratuitously, directly or indirectly out of the
properties to the heirs in case of death, or to owner’s liberality in favor of another that
the donee in case of donation. The tax is accepts the gift.
imposed on the act of passing the ownership
of property and not a tax on the value of the
property itself.

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Distinction between Estate Tax and Donor’s Tax
Estate Tax Donor’s Tax
 It is imposed upon transfer of property made  It accrues at the time the gift or donation is
thru succession made
 It is relatively higher rate (5% - 20%)  It is lower in rate (2% - 15%)
 It has five brackets (5- 8 – 11 – 15 – 20%)  It has seven brackets (2 – 4 – 6 8 – 10 – 12
– 15%)
 The first sum exempted id P200,000  The first sum exempted is P100,000
 It is payable in 6 months from death that may  It is payable within 30 days from date of
be extended to 5 years if the estate is donation which may not be exceed in 6 months
judicially settled and in 2 years if extra from date of donation
judicially settled
 Notice of death to BIR is required  Notice of donation to BIR is not required
 Estate tax is imposed on the net estate at the  Donor’s tax is based on the net value of the
time of death gift itself without deduction
 It is made in consideration of death without the  Donation inter-vivos is made without such
decedent’s intention to lose the thing or its consideration but out of the donor’s generosity
free disposal in case of survival of liberality
 It is the transferor’s death that determines the  In donation inter-vivos, the effect is
acquisition or the right to the property produced while the donor is still alive
 Donations mortis-causa in the form of will is  Acceptance is a requirement for donation
never accepted by the donee during the inter-vivos given out of generosity
donor’s lifetime
 Transfer mortis-causa should be embodied in a  Donation inter-vivos are not embodied in a
valid will, otherwise the disposition is VOID will but in a deed of donation in case of real
property or of personal properties valued more
than P5,000
 Donations mortis-causa are subject to estate tax  Donation inter-vivos are subject to donor’s
tax
 Only natural persons are subject to estate  Natural and judicial persons are subject to
tax donor’s tax in case of donation

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3. Nature of Estate Tax – It is a tax on the right to to pay the tax and thus
transfer property at death and on certain transfers contributing to governmental
which are made by law the equivalent of income.
testamentary disposition and is measured by the 3.8. The reasons for the imposition of an estate
value of the property. tax are the following:
3.1. This is a privilege tax imposed on the act 3.8.1. To raise revenue for public
of passing ownership of property and not a purposes or for the support of the
direct tax on the property itself neither is it government; and
a capitation tax (a tax laid on the property 3.8.2. To avoid the undue
or transferor or transferee) accumulation or concentration of
3.2. it is an excise tax the object is the shifting wealth on some individuals.
of economic benefits and enjoyment of
property from death to the living. 4. Concept of Succession - is a mode of
3.3. It accrues as of the death of the decedent, acquisition by virtue of which the property,
notwithstanding the postponement of the rights and obligation to the extent of the value
actual possession or enjoyment of the estate of the inheritance, of a person are transmitted
by the beneficiary. through his death to another or others either by
3.4. It is imposed on the transfer of the will or by operation of law (Art. 774, Civil Code
decedent’s estate to his lawful heirs and of the Philippines).
beneficiaries based on the fair market value 4.1. Basis of Succession
of the net estate at the time of death of the 4.1.1. Family Relation- decedent’s
decedent. wealth which he acquired during
3.5. The taxpayer in the estate taxation is the his lifetime is presumed intended
estate of the decedent represented by the for the benefit of his love ones.
administrator, executor or legal heirs. Said 4.1.2. Implicit ownership- the doctrine
tax as imposed should therefore be paid by that as a consequence of death,
any of them before delivery of any heirs assumed ownership of
distributive share of the beneficiary, the Tax property left by the decedent
Code imposes upon beneficiary as subsidiary because they have the primary
liability for the payment of such portion of rights over the inheritance.
the estate as his distributive share bears to 4.1.3. Socio-economic- wealth left by
the value of the total net estate the decedent should be actively
(proportionate). used to provide economic benefit
3.6. Objectives of Estate Tax to the community.
3.6.1. Limiting fortunes by taxation 4.2. Will- an act whereby a person is permitted
3.6.2. State partnership theory with the formalities prescribed by law, to
3.7. Justification of Estate Tax control to a certain degree the disposition
3.7.1. Redistribution of wealth theory- of his estate, to take effect after his death
the tax is imposed to help reduce (Art. 783, CCP) from the moment of the
undue concentration of wealth the death of the decedent, the rights to the
receipts of inheritance is succession are transmitted, and the
contributing factor. Thus, the possession of the hereditary property is
imposition of death tax reduces the deemed transmitted to the heir(Art. 777,
property received by the successor, CCP).
helping bring about a more equitable
distribution of wealth in society. 5. Elements of Succession - every succession
3.7.2. Back tax theory – this theory has a decedent, an estate, and an heir or heirs.
looks to the death taxes as the 5.1 Decedent - the person whose property is
means of collecting taxes due from, transmitted through succession, whether
but evaded by the decedent during or not he left a will (Art. 775, CCP).
his lifetime. 5.2 Heir - the person called to the succession
3.7.3. Benefit-received theory- the tax is either by the provision of a will or by
in return for the services the operation of law (Art. 782, CCP).
government renders in the 5.3 Estate - refers to all the property, rights
distribution of the estate of the and obligations of a person which are not
decedent, either by law or in extinguished by his death (Art. 776, CCP).
accordance with his wishes, for the
performance of these services and 6. Kinds of Succession – testamentary, legal or
other benefits that accrue to the intestate, or mixed.
estate and heirs, the State collects 8.1. Testamentary - succession which
the tax. results from the designation of an heir,
3.7.4. Privilege or state partnership made in a will executed in the form
theory- the state is a passive and prescribed by law (Art. 779, CCP).
silent partner in the accumulation of 8.1.1. In a testamentary succession,
property, because it has provided there is a last will and testament.
taxpayer for protection, resources, The will may be one which is
incentives, proper climate and peace entirely written, dated and signed
and order. Thus, it has the right to by the testator himself, and not
collect its share which is properly subject to formalities, which is
due it. called a holographic will, or the
3.7.5. Ability to pay theory- the effect of will may be other than a
inheritance increases the wealth of holographic will, which is subject
the heir thereby creating an ability to legal formalities as to number
and qualification of witnesses, and

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signing by the testator and freely through written will
witnesses. irrespective of his
8.1.2. While the decedent may dispose of relationship to the
his properties in a last will and recipient. In other words,
testament, he must, however, this is a portion of the
reserve some for certain persons decedent’s estate in
who are called by law as compulsory excess of the legitime.
or forced heirs. 8.2. Legal or Intestate - transmission of
8.1.3. Kinds of successors in a properties where there is no will, or if
testamentary succession there is a will, the same is void or lost
8.1.3.1. Legatee, an heir to a its validity, or nobody succeeds in the
particular personal will.
property given by virtue 8.2.1. In intestate succession, the
of a will. entire estate of the decedent is
8.1.3.2. Devisee, an heir to a distributed to the heirs. The
particular real property compulsory heirs in
given by virtue of a will. testamentary succession are
8.1.4. Executor is the person nominated by also heirs in intestate
a testator to carry out the directions succession. However, intestate
and request in his will and to disposed heirs include, brothers and
of his property according to his sisters, collateral relatives within
testamentary provisions after his the fifth civil degree, and the
death. state.
8.1.5. The following are compulsory or 8.2.2. Administrator is a person
forced heirs: appointed by the court, in
8.1.5.1. legitimate children and accordance with the governing
descendants, with respect statute, to administer and settle
to their legitimate parents intestate estate and such testate
and ascendants; estate as no competent executor
8.1.5.2. In default of the designated by the testator.
foregoing, legitimate 8.3. Mixed - transmission of properties,
parents or ascendants, which is effected partly by will and partly
with respect to their by operation of law.
legitimate children and 8.3.1. He omitted certain properties so
descendants; that not all his properties were
8.1.5.3. Widow or widower; and disposed of in the last will and
8.1.5.4. Illegitimate children. testament; or
8.1.6. Under testamentary succession, the 8.3.2. He acquired properties after
mass of properties left by the executing his last will and
decedent may be classified into: testament, so that at the time of
8.1.6.1. Legitime is the portion of his death the after-acquired
the testator’s property which properties were not disposed by
could not be disposed of will.
freely because the law has
reserved it for the 7. Administrative Provisions of Estate Tax
compulsory heirs. 7.1 Notice of Death in all cases of
Specifically, the legitime is transfers subject to tax, or where,
ascertained to protect the though exempt from tax, the value of
children and the surviving the estate exceeds twenty thousands
spouse from unjustified (P20,000), the executor, administrator
distribution of properties or any of the legal heirs, as the case
(Art. 886, CCP). may be, within two months after the
decedent’s death, or within a like period
Legitime necessitates after qualifying as such executor or
compulsory heirs. The administrator, shall give a written notice
testator cannot deprive his thereof to the Commissioner (Sec. 89,
compulsory heirs of their NIRC).
legitime, except in cases
expressly specified by law. 8. Estate Tax return is required to be filed when
Neither can he impose upon the estate is
the same any burden, 8.1. Subject to estate tax;
encumbrance, condition, or 8.2. Exempt from estate tax, but the gross
substitution or any kind estate exceeds two hundred thousands
whatsoever (Art. 904, CCP). pesos (P200,000).
8.3. Regardless of the amount of the gross
Even if the testator does not estate, where the said gross estate
want to make a compulsory consists of registered or registerable
heir to inherit, he cannot do property, motor vehicle or share of
so because this limitation stocks, or other similar property, for
imposed upon him directly which clearance from the Bureau of
by law. Internal Revenue is required as a
8.1.6.2. Free portion is that part of condition precedent for the transfer of
the whole estate which the ownership thereof in the name of the
testator could dispose of transferee.

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8.4. Content of Estate Tax Return In all repudiated in favor of one or more of heirs, the
cases where the law requires an estate tax effect is, as if the inheritance was accepted, and
return, it shall be under oath, and shall set subsequently donated to the others in whose
forth the following: favor the repudiation was made. This will bring
8.4.1. The value of the gross estate of about the donor’s tax on the person who
the decedent at the time of death, repudiates the inheritance. When an inheritance
or in case of a non-resident alien, is repudiated in favor of nobody, the effect is,
of that of his gross estate situated the repudiated inheritance is still part of the
in the Philippines; estate of the decedent, and will be disposed of
8.4.2. The deductions allowed from the according to the rules on testamentary or
gross estate in determining the inheritance or intestate succession.
taxable estate;
8.4.3. Such part of information as may at 15. Disinheritance this refers to an act by which
the time be ascertainable and such the owner of an estate deprives a person, who
supplemental data as may be would otherwise be his heir, or the right to
necessary to establish the correct inherit it. Disinheritance can be effected only
estate tax . through a will wherein the legal cause therefor
shall be specified (Art. 916, CCP). It must be
9. Certification by a CPA when the estate tax expressed in a will (not implied), total in
return shows a gross value exceeding P2,000,000, application, and the heir whose share is
it shall be supported with a statement duly disinherited must be specifically identified.
certified to by a Certified Public Accountant.
The legal cause of disinheritance shall be one
10. Filing of Return the estate tax return shall be authorized by law or enumerated by the law,
filed within six (6) months after the decedent’s otherwise, the disinheritance is not operative
death. In meritorious cases, the Bureau of (Art. 918, CCP). The burden of proving the
Internal Revenue may give a reasonable extension truth of the cause for the disinheritance shall
of not exceeding thirty (30) days for the filling of rest upon the other heirs of the testator, if the
the return. disinherited heir should deny it (Art. 917,
CCP).
11. Place of Filing except in cases where the
Commissioner permits, the return shall be filed 15.1. Disinheritance of Children and
with an authorized agent bank, or Revenue Descendants the following shall be
District Officer, Collection Officer, or duly sufficient causes for the disinheritance
authorized Treasurer of the city of municipality in of children and descendants,
which the decedent was domiciled at the time of legitimate as well as illegitimate: (Art.
his death or if there be no legal residence in the 919, CCP).
Philippines, with the office of the Commissioner. 15.1.1. When a child or descendant
has been found guilty of an
12. Payment of Tax the estate tax shall be paid at attempt against the life of the
the time the return is filed by the executor, testator, his spouse,
administrator or the heirs. An extension is given descendants, or ascendants;
by the Commissioner when he finds that the 15.1.2. When a child or descendant
payment on the due date of the estate tax would has accused the testator for a
impose undue hardship upon the estate of any crime for which the law
heirs, he may extend the time for prescribes imprisonment for
payment of such tax or any part thereof not six years or more, if the
exceeding five (5) years, in case the estate is accusation has been found
settled judicially, or two (2) years in case the groundless;
estate is settled extra judicially. Where the 15.1.3. When a child or descendant
taxes are assessed by reason of negligence, has been convicted of adultery
intentional disregard of rules and regulations, or or concubinage with the
fraud on the part of the taxpayer, no extension spouse of the testator;
will be granted by the commissioner. 15.1.4. When a child or descendant by
fraud, violence, intimidation,
13. Liability for Payment the estate tax shall be or undue influence causes the
paid by the executor or administrator before to testator or make a will or to
any delivery to any beneficiary of his distributive change one already made.
share of the estate. Such beneficiary, shall to the 15.1.5. A refusal without justifiable
extent of his distributive share of the estate, be cause to support the parent or
subsidiarily liable for the payment of such portion ascendant who disinherits
of the estate tax as his distributive share bears to such child or descendant;
the value of the total net estate. 15.1.6. Maltreatment of the testator
by word or deed, by the child
14. Repudiation of inheritance any heir called to an or descendant;
inheritance may accept or refuse the inheritance. 15.1.7. When a child or descendant
Refusal of an inheritance is called repudiation of leads a dishonorable or
the inheritance. The repudiation must be made in disgraceful life; and
a public or authentic document, or by petition to 15.1.8. Convicted of a crime which
the court having jurisdiction over the carries with it the penalty of
testamentary or intestate proceedings. civil interdiction.
Repudiation of an inheritance may be in favor of
any one or more of the other heirs, or in favor of 15.2. Disinheritance of Parents and
nobody in particular. When an inheritance is Ascendants the following shall be

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sufficient causes for the disinheritance of another, it shall not allow any
parents or ascendants, whether legitimate withdrawal by a surviving depositor
or illegitimate: (Art. 920, CCP). from the said joint account unless
15.2.1. When the parents have abandoned the Commissioner has certified that
their children or induced their the estate tax has been paid:
daughters to live a corrupt or Provided, however, that the
immoral life, or attempted against administrator of the estate or
their virtue; anyone of the heirs of the decedent
15.2.2. When the parent or ascendant has may, upon authorization by the
been convicted of an attempt Commissioner of BIR, withdraw an
against the life of the testator, his amount not exceeding twenty
or her spouse, descendants, or thousand pesos (P20,000) without
ascendants; the certification. For this purpose,
15.2.3. When the parent or ascendant has all withdrawal slips shall contain a
accused the testator of a crime for statement to the effect that all of
which the law prescribes the joint depositors are still living at
imprisonment for six years or the time of withdrawal by any one of
more, if the accusation has been the joint depositors and such
found to be false; statement shall be under the oath of
15.2.4. When the parent or ascendant has the said depositor.
been convicted of adultery or 16.4. Any lawyer, notary public or any
concubinage with the spouse of government officer who, by reason
the testator; of his official duties, intervenes in
15.2.5. When the parent or ascendant by the preparation or acknowledgment
fraud, violence, intimidation, or of documents regarding partition or
undue influence causes the disposal of donations inter vivos or
testator to make a will or to mortis causa, legacy or inheritance
change one already made; shall furnish the BIR with copies of
15.2.6. The loss of parental authority for such documents and any information
causes specified in this Code; whatsoever which may facilitate the
15.2.7. The refusal to support the children collection of the estate tax.
or descendants without justifiable 16.5. A debtor shall not pay his debts to
cause; and the heirs, legatees, executor or
15.2.8. An attempt by one of the parent administrator of his creditor-
against the life of the other; decedent without a certification from
unless there has been a BIR that the estate tax has been
reconciliation between them. paid, but he may pay the executor
or judicial administrator without
16. Duties of Certain Officers and Persons such certification if the credit is
16.1. No judge shall authorize the executor included in the inventory of the
or judicial administrator to deliver a estate of the decedent: Provided,
distributive share to any party however, that the administrator of
interested in the estate, unless a the estate or any one of the heirs
certification from the Bureau of may, upon authorized by the
Internal Revenue that the estate tax Commissioner, withdraw an amount
has been paid is shown. exceeding twenty thousand pesos
16.2. Register of Deeds shall not register in (P20,000) without the said
the registry of property any transfer of certification.
real property or real rights therein, or 16.6. No transfer to any new owner in the
any mortgage, by way of donation books of any corporation, sociedad
mortis causa or inheritance, without a anonima, partnership, business or
certification from the Bureau of industry organized or established in
Internal Revenue of payment of estate the Philippines, of any shares,
tax, and they shall immediately notify obligations, bonds or rights by way
the BIR of non-payment of tax of donation inter vivos or mortis
discovered by them. causa, legacy or inheritance shall be
16.3. If bank has knowledge of the death of made, unless a certification from the BIR
a person who maintained a joint that the estate tax has been paid is shown.
account or deposit jointly with

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