2016 Golden Beacon – DONOR’S TAX

Donation to candidate for elective positions shall not be subject of donor’s tax but under
Omnibus Election Code.

Donated lot shall be based on the acquisition cost as a basis for deduction from gross
income.

Sale of shares of stock below the fair market value is considered a donation.

For the purpose of the donor’s tax, a stranger is a person who is not:

a. Brother, sister (whether by whole or half-blood), spouse, ancestor, and

lineal ascendant, or

b. A relative by consanguinity in the collateral line within the fourth degree of

relationship.

Gift Splitting is spreading the gift over numerous calendar years in order
to avail of lower donor’s tax.

In order that donations to non-stock, non-profit educational institution may

be exempt from the donor’s tax, it is required that not more than
30% of the said gift shall be used by the donee-institution for
administration purposes.

PRE-WEEK NOTES TAXATION LAW Atty. Rizalina V. Lumbera – DONOR’S TAX

a. donative intent is required;

b. in case of waiver of inheritance which is generic,

NO DONOR’S TAX, but if specific as to a co-heir, or specific as to the share, DONOR’S TAX IS
IMPOSED;

c. if net gift does not exceed P 100,000.00, the same shall be exempt from DT, thus, as long
as the gifts per year do not exceed P 100,000.00 no DT; This rule, however, applies only if
the donor and the donee are “NOT STRANGERS”; If donor and donee are STRANGERS, any
amount of gift ( below or more than P 100,000.00) is subject to 30% DT;

d. The following are not strangers:

(i) Ascendants (without limit) 15
(ii) Descendants ( without limit)
(iii) Relatives in the collateral line within the 4th degree of relationship)
VERY IMPORTANT CASES: Does CTA have the power to issue injunction against BIR tax
collection cases. What is the requirement for CTA to fix the bond? Tridmaha Marketing
Corporation vs CTA et al; GR 215950 20 June 2016; SPOUSES EMMANUEL D. PACQUIAO
AND JINKEE J. PACQUIAO vs. THE COURT OF TAX APPEALS - FIRST DIVISION AND CIR G.R.
No. 213394, April 06, 2016

CTA has power to fix the surety bond posted by the TX as a condition precedent to suspend
the collection case filed by BIR. Fixing the bond five times more than the net worth of TX
without conducting a preliminary hearing to ascertain whether there were grounds to
suspend the collection of the deficiency assessment is not proper.

CTA Division must consider other factors like whether or not the assessment would
jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in
determining the liability of the taxpayer was legal and valid. In the earlier case of Manny
Pacquiao, Supreme Court deems it best to remand the matter involving the petitioner's plea
against the correctness of the deficiency assessment to the CTA for the conduct of a
preliminary hearing in order to determine whether the required surety bond should be
dispensed with or reduced. Absent any evidence and preliminary determination by the
CTA, the Court cannot make any factual finding and settle the issue of whether the
petitioners should comply with the security requirement under Section 11, R.A. No. 1125.
The determination of whether the methods, employed by the CIR in its assessment,
jeopardized the interests of a taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of evidence which would serve as basis. In this
regard, the CTA is in a better position to initiate this given its time and resources. The
remand of the case to the CTA on this question is, therefore, more sensible and proper. 43.

In claims for refund of local taxes which was denied by the Treasurer, which court has
jurisdiction? Chinabanking Corporation vs City Treasurer of Manila GR 204117 July 1 2015
Follow jurisdictional amount of first level court and RTC: In claim for refund of local taxes
and after the Treasurer denies the claim for refund, where the amount sought to be
refunded is below the jurisdictional amount of the RTC, the Metropolitan, Municipal, and
Municipal Circuit Trial Courts are clothed with ample authority to rule on such 21 claims;
Under R.A. No. 9282, the authority to exercise either original or appellate jurisdiction by
the MTC or the RTC over local tax cases depended on the amount of the claim.

ATENEO CENTRAL BAR OPERATIONS – DONOR’S TAXATION

UP Pre-Week Taxation Law – DONOR’S TAX

Q70. Mrs. Angelina Smith owned several parcels of land, one of which, valued at 50M pesos,
she donated to her daughter Shiloh. At the time of donation, the FMV of the land as per the CIR
was 51M pesos. The FMV of the land however, according to the City Assessor, was 52M pesos.
Which is the correct valuation for purposes of computing the donor’s tax on the gift?

A70. The valuation given by the City Assessor is correct. This is because Section 102 of the
NIRC provides that the FMV at the time of the gift shall be considered the amount of the gift,
and in case of real property, the provisions of Section 88 (B) shall apply. Section 88 (B) in
relation to Section 102 provides that the appraised value of the real property as of the time of
death or donation, shall be the value of the estate or the gift whichever is the higher of the FMV
as determined by the Commissioner of Internal Revenue or the FMV as shown in the schedule of
values fixed by the Provincial and City Assessors.
Q71. When does an incomplete gift because of the donor’s reservation of power become
complete?

A71. When either: (1) the donor renounces the power or (2) this right to exercise the reserved
power ceases because of the happening of some event or contingency of the fulfillment of some
condition, other than because of the donor’s death

Q72. How is donor’s tax applicable to an exchange of shares of stock not traded through a local
stock exchange?

A72. In case the FMV of the shares of stock sold, bartered, or exchanged is greater than the
amount of money and/or fair market value of the property received, the excess of the fair market
value of the shares of stock sold, bartered or exchanged over the amount of money and the FMV
of the property, if any, received as consideration shall be deemed a gift subject to the donor’s tax
under Sec. 100 of the Tax Code, as amended.

Q73. Who is a “stranger” in relation to donor’s tax?

A73. A person who is not a brother, sister (whether by whole or half-blood), spouse, ancestor
and lineal descendant or relative by consanguinity in the collateral line within the 4th civil
degree. Note: donations between business organizations and those made between an individual
and a business organization will be treated as donations to strangers.

Pointers in Taxation Law 2017 Bar Examinations - Professor Victoria V. Loanzon

Q. How do you determine the value of estate to be taxed?

A. Only the net value of the estate is liable to tax. A schedule of brackets of amount of net value and the
corresponding rate schedule per bracket are imposed.

Q. Who are liable to pay estate taxes?

A. Residents and citizens covering all properties, real or personal, tangible or intangible, wherever
situated; and non-resident aliens covering only properties in the Philippines provided, that, with respect to
intangible personal property, its inclusion in the gross estate is subject to the rule on reciprocity.

Q. What is gross estate?

A. Decedent’s interest at the time of his death, transfer in contemplation of death, property transfers
subject to revocation, property passing under a general power of appointment, proceeds of life insurance;
and property transfers for insufficient consideration

Q. What may be deducted from the estate?

A. The following may be deducted from the estate:
1. Expenses, losses, indebtedness and taxes (funeral expenses, judicial expenses, claims against the estate,
claims against insolvent persons, unpaid mortgages, taxes and casualty losses); and
2. Property previously taxed (transfers for public use, family home, standard deduction, medical expenses
and amounts received by heirs under R.A. 4917 on Retirement Benefits of Private Employee). Please
review the concept of vanishing deduction and the corresponding holding period and the tax rate based on
the value of the property under Section 86(A) (2) of the NIRC.
Q. Who are considered strangers for purposes of donor’s tax?
A. Read on definition, transactions covered and schedule of payment based on brackets as to the value of
the donation (Section 16 of the NIRC); for the “stranger”, a flat rate of 30% is imposed; the following are
NOT “strangers”- brother, sister (whether by whole or half blood), spouse, ancestor and lineal
descendant; and relative by consanguinity in the collateral line within the fourth civil degree of
relationship.

Q. What items are not subject to donor’s tax?

A. Dowries or gifts made on account of marriage, gifts made or for use of the national government or
entity created by any of its agencies which is not conducted for profit, or to any political subdivision of
said government; and gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited non- governmental organization, trust or philanthropic
organization or research institution or organization.

University of Santo Tomas Faculty of Civil Law TAXATION LAW Pre-week Notes 2017

1. In 2011, Solar Computer Corporation (Solar) purchased a proprietary membership share

covered by Membership Certificate No. 8 from the Mabuhay Golf Club, Inc. for P500,000.00.
On December 27, 2012, it transferred the same to David, its American consultant, to enable him
to avail of the facilities of the Club. David executed a Deed of Declaration of Trust and
Assignment of Shares wherein he acknowledged the absolute ownership of Solar over the share;
that the assignment was without any consideration; and that the share was placed in his name
because the Club required it to be done. In 2013, the value of the share increased to P800,000.00.
Is the said assignment a "gift" and, therefore, subject to gift tax? Explain. (2016 BAR)

NO. The transfer is not a taxable donation because there is no divestment of ownership by the
transferor. The purpose of the transfer is simply to allow David to avail of the facilities of the
Club. The execution of a “Deed of Declaration of Trust and Assignment of Shares” where the
absolute ownership by Solar of the share is acknowledged would show that there is no
relinquishment of ownership by Solar. The transfer being merely a transfer in form but not in
substance, the same is not subject to gift tax.

Alternative Answer: The assignment is a “gift” subject to gift tax. The absence of donative
intent does not exempt the sales 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 (Philam Life and General Insurance
Co. v. of finance and CIR, 741 SCRA 579 [2014]).

2. Jennifer is the only daughter of Janina who was a resident in Los Angeles, California, U.S.A.
Janina died in the U.S. leaving to Jennifer one million shares of SunLife (Philippines), Inc., a
corporation organized and existing under the laws of the Republic of the Philippines. Said shares
were held in trust for Janina by the Corporate Secretary of Sun Life and the latter can vote the
shares and receive dividends for Janina. The Internal Revenue Service (IRS) of the U.S. taxed
the shares on the ground that Janina was domiciled in the U.S. at the time of her death. Can the
CIR of the Philippines also tax the same shares? Explain. (2016 BAR)
YES. The property being a property located in the Philippines, it is subject to the Philippine
estate tax irrespective of the citizenship or residence of the decedent (Sec. 85, NIRC). However,
if Janina is a nonresident alien at the time of her death, the transmission of the shares of stock
can only be taxed applying the principle of reciprocity (Sec. 104, NIRC).

Q. What is a judicial expense for purposes of deductions from the gross estate of the decedent?

Judicial expenses are expenses of administration which include all expenses “essential to the
collection of the assets, payment of debts or the distribution of the property to the persons
entitled to it.” In other words, the expenses must be essential to the proper settlement of the
estate. However, it does not include the following:

1. Expenditures incurred for the individual benefit of the heirs, devisees, legatees;
2. Compensation paid to a trustee of the decedent’s estate when it appeared that such trustee was
appointed for the purpose of managing the decedent’s real property for the benefit of the
testamentary heir;
3. Premiums paid on the bond filed by the administrator as an expense of administration since
the giving of a bond is in the nature of a qualification for the office and not necessary for the
settlement of the estate; and
4. Attorney’s fees incident to litigation incurred by the heirs in asserting their respective
rights(CIR v. CA, G.R No. 123206, Mar. 22, 2000).

Q. May the notarial fee paid for the extrajudicial settlement and the attorney's fees in the
guardianship proceedings be allowed as deductions from the gross estate of decedent in order to
arrive at the value of the net estate?

YES. Administration expenses, as an allowable deduction from the gross estate of the decedent
for purposes of arriving at the value of the net estate, have been construed to include all expenses
essential to the proper settlement of the estate. The notarial fee paid for the extrajudicial
settlement is clearly deductible expense since such settlement effected the distribution of estate
to lawful heirs. Similarly, the attorney's fees paid to the guardian of property of the deceased
during his lifetime should also be considered as a deductible administration expense. (CIR v.
CA, G.R No. 123206, Mar. 22, 2000).

Q. BIR issued an Estate Tax Assessment Notice demanding payment of the deficiency estate tax
against Jose Fernandez’s estate. The administrator claims that in as much as the valid claims of
creditors against the estate are in excess of the gross estate, no estate tax was due. May the actual
claims of the creditors be fully allowed as deductions from the gross estate of Jose despite the
fact that the claims were reduced or condoned through compromise agreements entered into by
the Estate with its creditors?

YES. Under the date-of-death valuation rule, claims existing at the time of death should be made
the basis of the determination of allowable deductions. Thus, postdeath developments, such as
condonation in this case, are not material in determining the amount of the deduction (Dizon, et.
al v. CA, G.R. No. 140944, April 30, 2008).
IMPORTANT CASES:

REV. FR. CASIMIRO LLADOC, petitioner, vs. The COMMISSIONER OF INTERNAL

REVENUE and The COURT of TAX APPEALS, respondents.

The exemption provided under Section 22 (3), Art. VI of the Constitution of the Philippines
is only from the payment of taxes assessed on such properties enumerated, as property
taxes, as contra distinguished from excise taxes. In the present case, what the Collector
assessed was a donee's gift tax; the assessment was not on the properties themselves. It did
not rest upon general ownership; it was an excise upon the use made of the properties,
upon the exercise of the privilege of receiving the properties. A gift tax is not a property tax,
but an excise tax imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution.

SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners, vs. COURT OF
APPEALS and MERCEDES DANLAG y PILAPIL, respondents.

Was the revocation valid? No. A valid donation, once accepted, becomes irrevocable,
except on account of officiousness, failure by the donee to comply with the charges
imposed in the donation, or ingratitude. The donor-spouses did not invoke any of these
reasons in the deed of revocation. The deed merely stated Mercedes' vehemence in
prohibiting the donor to gather coconut trees and her filing of instant petition for quieting
of title. There is nothing on record, however, showing that private respondent prohibited
the donors from gathering coconuts. Even assuming that Mercedes prevented the donor
from gathering coconuts, this could hardly be considered an act covered by Article 765 of
the Civil Code. Nor does this Article cover respondent's filing of the petition for quieting of
title, where she merely asserted what she believed was her right under the law. Finally, the
records do not show that the donor-spouses instituted any action to revoke the donation in
accordance with Article 769 of the Civil Code. Consequently, the supposed revocation on
September 29, 1979, had no legal effect.

MARIA CARLA PIROVANO, etc., et al., petitioners-appellants, vs. THE COMMISSIONER

OF INTERNAL REVENUE, respondent-appellee.

When a person gives to another a thing on account of the latter's merits or of the services
rendered by him to the donor, provided they do not constitute a demandable debt, there is
also a donation. The fact that his services contributed in a large measure to the success of
the company did not give rise to a recoverable debt, and the conveyances made by the
company to his heirs remain a gift or donation. The true consideration for the donation
was, therefore, the company's gratitude for his services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation, instead of a
remuneratory one as it was declared to be in our previous decision, is but an innocuous
error; whether remuneratory or simple, the conveyance remained a gift, taxable under
Chapter 2, Title III of the Internal Revenue Code.
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner, vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE

The price difference is subject to donor's tax: Petitioner's substantive arguments are
unavailing. The absence of donative intent, if that be the case, does not exempt the sales 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. Moreover, Sec. 7(c.2.2) of RR 06-08
does not alter Sec. 100 of the NIRC but merely sets the parameters for determining the "fair
market value" of a sale of stocks. Such issuance was made pursuant to the Commissioner's
power to interpret tax laws and to promulgate rules and regulations for their
implementation.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F. GOODRICH PHILS., INC.

(now SIME DARBY INTERNATIONAL TIRE CO., INC.) and THE COURT OF APPEALS

True, the factual findings of the CTA are generally not disturbed on appeal when supported
by substantial evidence and in the absence of gross error or grave abuse of discretion.
However, the CTA's application of the law to the facts of this controversy is an altogether
different matter, for it involves a legal question. There is a question of law when the issue is
the application of the law to a given set of facts. On the other hand, a question of fact
involves the truth or falsehood of alleged facts. In the present case, the Court of Appeals
ruled not on the truth or falsity of the facts found by the CTA, but on the latter's application
of the law on prescription.

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V. CRUZ,

petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS,
respondents.

Petitioners maintain that the definition of an electoral contribution under the Omnibus
Election Code is essential to appreciate how a political contribution differs from a
taxable gift. Section 94(a) of the said Code defines electoral contribution as follows: The
term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money
or anything of value, or a contract, promise or agreement to contribute, whether or not
legally enforceable, made for the purpose of influencing the results of the elections but shall
not include services rendered without compensation by individuals volunteering a portion or
all of their time in behalf of a candidate or political party. It shall also include the use of
facilities voluntarily donated by other persons, the money value of which can be assessed
based on the rates prevailing in the area.

Since the purpose of an electoral contribution is to influence the results of the election,
petitioners again claim that donative intent is not present. Petitioners attempt to place
the barrier of mutual exclusivity between donative intent and the purpose of
political contributions.
The fact that petitioners will somehow in the future benefit from the election of the
candidate to whom they contribute, in no way amounts to a valuable material
consideration so as to remove political contributions from the purview of a donation.
Senator Angara was under no obligation to benefit the petitioners. The proper performance
of his duties as a legislator is his obligation as an elected public servant of the Filipino
people and not a consideration for the political contributions he received. In fine, the
purpose for which the sums of money were given, which was to fund the campaign of
Senator Angara in his bid for a senatorial seat, cannot be considered as a material
consideration so as to negate a donation.

URSULINA GANUELAS, METODIO GANUELAS and ANTONIO GANUELAS, petitioners,

vs. HON. ROBERT T. CAWED

Donation inter vivos differs from donation mortis causa in that in the former, the act is
immediately operative even if the actual execution may be deferred until the death of the
donor, while in the latter, nothing is conveyed to or acquired by the donee until the death of
the donor-testator. If the donation is made in contemplation of the donor's death,
meaning that the full or naked ownership of the donated properties will pass to the donee
only because of the donor's death, then it is at that time that the donation takes effect, and
it is a donation mortis causa which should be embodied in a last will and testament.

But if the donation takes effect during the donor's lifetime or independently of the donor's
death, meaning that the full or naked ownership (nuda proprietas) of the donated
properties passes to the donee during the donor's lifetime, not by reason of his death but
because of the deed of donation, then the donation is inter vivos.

The distinction between a transfer inter vivos and mortis causa is important as the validity
or revocation of the donation depends upon its nature. If the donation is inter vivos, it must
be executed and accepted with the formalities prescribed by Articles 748 and 749 of the
Civil Code, except when it is onerous in which case the rules on contracts will apply. If it is
mortis causa, the donation must be in the form of a will, with all the formalities for the
validity of wills, otherwise it is void and cannot transfer ownership.