TAXATION LAW REVIEWER

Donor’s Tax

The Law that governs the imposition of donor’s tax

 The donor’s tax is not a property, but a tax imposed on the transfer of property by way of gift inter vivos.
 The donor’s tax shall 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
done.
 It is completed by the delivery, either actually or constructively, of the donated property to the done.

Thus, the law in force at the time of the perfection/completion of the donation shall govern the imposition of the
donor’s tax.

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the
dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor’s
tax.

General Renunciation by an heir, including the surviving spouse, of his or her share in the hereditary estate left by
the decedent 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.

Note:

The general law is the donor’s tax of 30% of the net gift is imposed on donations made in a stranger.

A stranger is anyone 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 fourth degree of relationship)

Donation above P100 made to a “ non-stranger” is subject to a donor’s tax at rates provided in the Tax Code.

DONATIONS OR GIFTS AS TAX DEDUCTIONS

DONEES

 The Government of the Philippines or any of its agancies or any political subdivision therof exclusively for
public purposes; or
 Accredited domestic corporation or associations organized and operated exclusively for religious charitable
scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of
veterans, or to social welfare institutions, or to non-government organization (Sec 34 (H)(1) NIRC).

PARTIAL DEDUCTIBILITY

 An amount not in excess of ten percent (10%) in the case of an individual donor; and five percent (5%) in the
case of a corporate donor.

This is based on taxpayer’s taxable income derived from trade, business or profession.
 FULL DEDUCTIBILITY

DONEES

 Donations to Government of the Philippines or to any of its agencies or political subdivisions including
GOCC’s, exclusively to finance, to provide for, or to be used in the undertaking priority activities in education,
health, youth and sports development, human settlements, science and culture, and in economic
development according to National Priority Plan determined by National Economic and Development
Authority(NEDA), in consultation with appropriate government agencies, including its regional development
councils and private philanthropic persons and institutions.
 Donations to certain foreign institutions or international organizations in pursuance of or in compliance with
agreements, treaties, or commitments entered into the Government of the Philippines and the foreign
institutions or international organizations or in pursuance of special laws.

VATABILITY

 Donations in kind from abroad will be subjected to VAT upon arrival in the Philippines. Section 107(A) of the
NIRC of 1997, as amended states that there shall be levied, assessed and collected on every importation of
goods a VAT based on the total value used by Bureau of Customs.
 The tax to be paid by the importer prior to the release of such foods from customs custody. (e.g. Donations
to DSWD and NDRRMC, it is Philippine government who will pay the VAT)
 Donation of goods or properties originally intended for sale or for use in the course of trade or business.
Under Section 106(B) of the NIRC, transfer, use of consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of business is a transaction deemed sale. (e.g.
donation made by a manufacturing company of goods they manufactured for sale a subject 12% VAT)

EXEMPT DONATIONS

 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, including Government
Owned and/or Controlled Corporations (GOCC’s), National Disaster Risk Reduction and Management Council
(NDRRMC) and Department of Social Welfare and Development (DSWD).
 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 provided not more than 30% of the said gifts shall be used by the done for administrative
purposes.
 Gifts to other entities exempted under special laws like Philippine National Red Cross and International Rice
Research Institute.

“NET GIFT “ shall mean the net economic benefit from the transfer that accrues to the done. Accordingly, if a
mortgaged property is transferred as a gift but imposing upon the done the obligation to pay the mortgage liability,
then the net gift is measured by deducting from the fair market value of the property the amount of mortgage
assumed.

COMPUTATION OF THE DONOR’S TAX

 The computation of the donor’s tax is on a cumulative basis over a period of one (1) calendar
year.
 Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s tax
 If what was donated is a conjugal or community property and only the husband signed the deed of donation
there is only one donor for donor’s tax purposes, without prejudice to the right of the wife to question the
validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the
Philippines and the Family Code of the Philippines.
  The transfer of the total net gifts made during the calendar year not exceeding P 100, 000 shall not be
subject to tax.
 The entire value of the net gifts for each calendar year is divided into brackets pursuant to NIRC.

TIME AND PLACE OF FILING AND PAYMENT

 The donor’s tax return shall be filed within thirty (30) days after the date the gift is made of completed and
the tax due thereon shall be paid at the same time that the return is filed.
 Unless the Commission otherwise permits, the return shall be filed and the tax paid to an authorized agent
bank the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of the city or
municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence in
the Philippines, with the Office of the Commissioner.

REMEDIES

(Section 202-231)

Definition of terms

Assessment

 Is the official action or process undertaken by the BIR in determining the amount of tax due from a taxpayer
 A formal notice to the taxpayer stating that the amount thereon is due as a tax containing a demand for the
payment thereof.
 It contains not only a computation of the tax liabilities but also demands for payment within a prescribed
period.
 It should state the facts and the law on which the assessment is based, otherwise the same is void.
 Is deemed made when the notice to that effect is released, mailed or sent to te taxpayer for the purpose of
giving effect to the assessment.

JEOPARDY ASSESSMENT

 Is a tax assessmet made by an authorized Revenue Officer without the benefit of a complete or partial audit,
in light of the RO’s belief that the assessment and collection of a deficiency tas=x will be jeopardized by
delay caused by the Taxpayer’s failure to:
1. Comply with audit and investigation requirements to present his books of accounts and/or pertinent
records, or
2. Substantiate all or any of the deductions, exemptions or credits claimed in his return.

SELF-ASSESSMENT

 One in which the tax is assessed by the taxpayer himself. The amount of the tax assessed is reflected in the
tax return is filed by him and the tax assessed is paid at the time he files the return.

DEFIENCY ASSESSMENT
 An assessment made by the tax assessor whereby the correct amount of the tax is determined after an
examination or investigation is conducted. The liability is determined and is therefore assessed for the
following reasons:

1. The amount ascertained exceeds that which is shown as tax by the taxpayer in his return;
2. No amount of tax is shown in the return; or
3. The taxpayer did not file any return at all.

ILLEGAL AND VOID ASSESSMENT

 An assessment wherein the tax assessor has no power to act all.

ERRONEOUS ASSESSMENT

 An assessment wherein the assessor has the power to assess but errs in the exercise of that power

PROCEDURE IN THE ISSUANCE OF A DEFICIENCY TAX ASSESSMENT

PRELIMINARY ASSESSMENT NOTICE (PAN)

 Is a communication issued by the BIR (Regional Assessment Division), or any other concerned BIR Office
informing a Taxpayer who has been audited of the findings of the Revenue Officer following the review of
these findings.
 If after evaluation made by the Commissioner or his duly authorized representative, it is determined that
there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue
to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment.
 If the Taxpayer disagrees with the findings stated in the PAN he shall then have fifteen (15) days from his
receipts of the PAN to file a written reply contesting the proposed assessment or
 If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered
in default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued
calling for payment of the taxpayer’s deficiency tax liability, inclusive of the applicable penalties.
 Is mandatory and should be issued prior to the issuance of FLD/FAN except when any of the circumstances
enumerated under Section 228 of the NIRC is present. Non-observance of which would render any FLD/FAN
issued void for lack of due process

Exception to the Prior Issuance of a Preliminary Assessment Notice (PAN)

Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any of the following cases.

1. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
appearing on the face of the tax return filed by the taxpayer, or
2. When a discrepancy has been determined between the tax withheld and the amount actually remitted by
the withholding agent; or
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter r quarters of the succeeding taxable year, or
4. When the excise tax due on excisable articles has not been paid, or
5. When an article locally purchased or imported by an exempt person, such as, but not limited to vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons

In the above-cited cases, a Final Letter of Demand (FLD) Final Assessment Notice (FAN) shall be issued outright.

Final Assessment Notice (FAN)

The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the
Commissioner or his duly authorized representative.
The FLD/FAN calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law,
rules and regulations or jurisprudence on which the assessment is based, otherwise, the assessment
shall be void.
Is a declaration of deficiency taxes issued to a Taxpayer who fails to respond to a Pre-Assessment Notice
within a prescribed period of time, or whose reply to the PAN was found to be without merit

Requisites for Validity of Assessment (FLD/FAN)

1. There must have been issued a preliminary assessment notice (PAN) unless it excepted under Section 228 of
the NIRC, as amended,
2. It must have been issued within the prescriptive period set by law, and
 3. The letter demand calling for the payment of the tax deficiency shall state the facts, the law and regulations,
or jurisprudence on which the assessment is based

Protesting a Deficiency

A Taxpayer must be given an opportunity, if he/she/it so chooses, to explain his/her/his objection to an assessment
and present necessary document in support of his/her its objection, before a Final Decision on Disputed Assessment
(FDDA) is issued.

 Reply/Protest against the Preliminary Assessment (PAN) must be files within fifteen (15) days from receipt of
the PAN, however, the same is optional and not mandatory
 Within thirty (30) days from receipt of the FLD/FAN, the taxpayer shall either
1. Accept the assessment, fully or partially, and pay the amount due on the assessment accepted, or
2. Protest (Administrative Protest Proper) the assessment fully or partially by filing either of the following
remedy, and the filing of one precludes the filing of the other remedy
A. Request for Reconsideration if the taxpayer is not going to submit any other additional evidence
or documents and merely pleas for re-evaluation of an assessment, or
B. Request for Reinvestigation on the basis of newly discovered evidence or if the taxpayer intends
to present or submit additional evidence or documents.

Content of the Protest:

1. The nature of the protest (whether it is one for reconsideration or reinvestigation) specifying newly-
discovered or additional evidence he intends to present if it is for reinvestigation.
2. The date of the assessment notice; and
3. The applicable law, rules and regulations or jurisprudence on which his protest is based.

Protest by Way of a Request for Reinvestigation

 The taxpayer shall submit at the relevant supporting documents in support of his/her/its protest within sixty
(60) days from the date of the filing of the taxpayer’s letter of protest
 The term “relevant supporting documents” should be understood as those documents
necessary to support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit additional documents but it cannot
demand what type of supporting documents should be submitted. Otherwise, the BIR may
require the taxpayer to produce documents that a taxpayer cannot submit thus putting the
taxpayer at the mercy of the BIR

 Evaluation of the protest shall be based exclusively on the documents within this period, and no further
documents shall be accepted after the expiration of the said period.
 The assessment shall become final and executory fails to submit the relevant supporting documents within
this 60 days period, he/she/it shall be barred in disputing the correctness of the assessment issued, and
thereafter, a Collection Letter as well as other collection remedies such as but not limited to garnishment
warrant of distraint (personal property)and levy (real property) shall be issued against the taxpayer.