October 2019 DONOR’S TAX Atty. C, Llamado = Also called Gift Tax = Imposed on the gratuitous transfer of real or personal, tangible or intangible property. - Imposed whether the transfer is in trust o otherwise. Purpose: 1) To prevent avoidance of the estate tax 2) To compensate for the loss or decrease of income taxes when large estates are split. Requisites: 1) Transfer is gratuitous or without consideration. The transfer is made out of pure generosigy of the donor (donative intent). 2) Both the donor and the donee are living at the time of the transfer (inter vivos). 3) There must be a completed gift. Contract of Donation When perfected? At the moment the donor knows of the acceptance of the gift by the donee (Art. 734, Civil Code). Who can be donors? All persons who may contract and dispose of their property may make a donation (Art. 735, Civil Code). Who can be donees? All those who are not specially disqualified by law may aecept donations (Art. 738, Civil Code). Minors and others who cannot enter into a contract may become donees, but acceptance shall be done through their parents or legal representatives (Art. 741, Civil Code). Donations made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already born (Art, 742, Civil Code). What donations shall be void’ eh 1) Between spouses, whether direct or indirect, during the marriage, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing (Art. 87, Family Code); Note: Indirect donations to a spouse are void, and include the following donations of a spouse: : a) Toa stepchild who has no compulsory heirs other than the otherspouse at the time of the donation; : b) To a common child who has no compulsory heirs other than the other spouse at the time of the donation; . ©) To the parents of the other spouse; 4) To the other spouse’s adopted child in cases when, at the time of the donation, the only surviving relatives of the adopted is the adopter-spouse, the ilegitimate children of the adopted, and the surviving spouse of the adopted;October 2019 ©) Toa common adopted child who has no other surviving heirs (see Art. 190, Family Code) 2) Between persons living together as husband and wife without a valid marriage (Art. 87, Family Code); 3) Between persons guilty of concubinage or adultery at the time of donation (Art. 739, Civil Code); 4) Between persons found guilty of the same criminal offense, in consideration thereof (Art. 739, Civil Code); 5) Those made to a public officer or his/her spouse, descendants, and ascendants, by reason of his or her office (Art. 739, Civil Code); 6) Donations made by persons to those who cannot inherit from them: (@) Donations to the priest who heard the confession of the donor during his last illness, or the minister who extended spiritual aid to him during the same period; (b) Donations to the relatives of such priest or minister in (a) within the 4" degree; (© Donations to the church, order, chapter, community, organization, or institution to which such priest or minister in (a) belongs; (@ Those made to a guardian with respect to donations made by a ward before the final accounts of the guardianship have been approved, except when the guardian is the ward’s ascendant, descendant, brother, or sister; (©) Any physician, surgeon, nurse, health officer, or druggist who took care of the donor during his last illness (Art. 740, Art. 1027, Civil Code) Donation of Movables (1) Donation may be oral or in writing. (@) If orally made, it requires the simultaneous delivery of the thing or the document representing the right donated. (b) If in writing, it does not require simultaneous delivery of the thing donated. (2) Acceptance may be oral, in writing, or tacit. If value of the movable does not exceed P5,000, the donation may be oral or in writing, and the acceptance may be oral, in writing, or tacit * If the value of the movable is exceeds P5,000, the donation and the acceptance must be in writing, otherwise the donation is void. Without such writing, the donation would be void, even if there is simultaneous delivery (Art. 748, Civil Code) Donation of Immovables Donation must be in writing and in a public instrument (notarized). Acceptance may be made in the same deed of donation or in a separate public instrument, The acceptance must be done during the lifetime of the donor, and the latter must be notified of the acceptance.October 2019 OTHER TRANSACTIONS SUBJECT TO DONOR’S TAX (4) Transfers for Insufficient Consideration (Sec. 100, NIRC) Requisites: (a) The property transferred is real or personal property, except real property classified a capital asset referred to in Section 24(D) of the Tax Code; (b) The transfer is for less than a full price; (©) The transfer is inter vivos. Purpose: To prevent escape from the income tax by accepting a lower price for the property. Tax Consequenc (Gift (subject to the Donor’s Tax) I Income (subject to Income Tax) | FMV of the property transferred Price (consideration) received 1 | Les: Price (consideration) received Less: Cost | In Transfers for Insufficient Consideration in the Sale of Domestic Shares of Stock: FMV of share of stock sold, bartered or exchanged shall be as follows: (1) If the shares are listed, but are sold. bartered, or exchanged outside the local stock exchange, the FMV shall be: (a) The glosing price on the day the shares are sold, bartered, or exchanged; or (b) The closing price on the day nearest to the date of sale, barter, or exchange if there is no sales transaction of the shares in the local stock exchange on the day it was sold, bartered, or exchanged. (2) If the shares are not listed in the focal stock exchange, the FMV shall be determined using the Adjusted Net Asset Value Method. In such method, all assets and liabilities are adjusted to fair market values. The net adjusted asset minus the adjusted liebility values is the value of the equity. For real properties, the FMV shal! be the highest of the zonal value, assessor's value, or the independent appraiser’s value (Rev. Regs. 6-2008, 6-2013). When the sale/exchange is bona fide, at arm’s length, and free from any donative intent, the same will be considered as made for an adequate and full consideration in money or money's worth.' In such cases, there is no insufficient consideration, and therefore no gift. (2) Condonation or Remission of Debt - Where the debtor did not render any service in favor of the creditor. Sec. 100, NIRC, as amended by R.A. No. 10963October 2019 GROSS GIFT - Depends upon the citizenship and/or residence of the donor: | Taneibie Personal Intangible Personal | Donor Real Property | eo | Property Within | Without [~ Within Without Within Without | iN chase ©| oe 2) Resident Alien ©1080. : ; = yNoaumaa | O | ee) @ | Be | © 9 © se Gf there is | i | __| reciprocity) Intangible personal property means incorporeal property whick do not have any physical form, but represent rights and privileges. Examp'es include bank deposits, tredemarks, shares of stock, patents, copyrights, bonds, notes, interest in a pertnership, ete Tntangibie Asset 1) Receivable (promissery note) 2) Bank deposit 3) Other intangible properties: ‘a) Franchises, patents, copyrights, trademarks ‘T Where property is used or exercised ’b)_Invesament in partnership | Where partnership is established ¢) Shares of stock, bonds, corporate obligations tT (2) Domestic corporation tne Philippines @) Foreign corporation Except: i) If> 85% of business is in the Philippines ii) If shares or bones have acquired a business lip Gross Gift of Husband and Wife Husband and wife may donate: (a) The conjugal or community properties Each spouse shall be considered a seperate donor of kis or her interest in the prope: a gift of the husband, and the other he! (b) Separate or exclusive property owned by oxly one soase Valuation of Gifts + Properties shall be velved er the time the gift is modeOctober 2019 ‘Property Valuation Real Property FMV which is the higher of the zonal value or the assessor’s value Personal Property FMV at the time of the gift ‘Stocks listed in the stock | Average of the lowest and highest quotes on the valuation date (date of exchange sift) or day nearest to the valuation date. Stocks not listed in any | For common shares: Book Value local exchange For preferred shares, par value. ‘Notes; accounts FMV is the discounted amount of the unpaid principal plus interest. receivable ‘Stock options (1) Atthe time of donation, the FMV of the stock option (2) Upon exercise of the option, the difference between the higher of the BY or FMV of the underlying shares at the time of exercise, and the exercise price. Units of participation in any association, recreation, or amusement club ‘Bid price nearest the date of the gift published in any newspaper or publication of general circulation. 7 In determining the book value, appraisal surplus and the value assigned to preferred shares shall not be considered,October 2019 EXEMPTIONS (EXCLUSIONS) FROM GROSS GIFT A) Gifts made to the National Government or to any political subdivision of the National Government or to any entity created by the government which is not conducted for profit. B) Gifts made to educational, charitable, religious, cultural, social welfare institutions, accredited NGOs and trusts, philanthropic organizations, and research institutions. Provided: 1) The non-profit institution is a non-stock entity that pays no dividends, is governed by trustees who do not receive any compensation, and devotes all of its income to the accomplishment of its purposes; and 2) Not more than 30% of the gifts shall be used for administrative purposes. 3) The non-profit institution must be accredited by the designated accrediting government agency, and registered with the BIR. C) Campaign contributions in cash or in kind to any candidate which are duly reported to the COMELEC (R.A. 7166) However, donations made by corporations in violation of Section 36(9) of the Corporation Code are subject to donor's tax, and may not be deducted by the donor- corporation.? D) Other donations which are exempted from the donor's tax under special laws: (1) Donation made for the operation of the Dual Training System under R.A. No, 7686, (2) Donations of cooperatives to duly accredited charitable, research, and educational institutions, and to socio-economic projects within their area of operations; (3) Donations of lands certified by the LGU to have been donated for socialized housing purposes; (4) Donation to the Philippine Red Cross; (5) Donations to state universities and colleges, DEDUCTIONS FROM GROSS GIFT A) Mortgage or encumbrance on the property which obligation is assumed by the donee (RR 2-203). B) Those specifically provided by the donor as a diminution of the property donated. . C) The first #250,000. * RMC No. 38-2018.October 2019 COMPUTATION OF DONOR’S TAX Beginning January 1, 2018, the tax shall be six percent (6%) computed on the basis of the total gifts in excess of Two Hundred Fifty Thousand Pesos (P250,000) exempt gift made during the calendar year, The computation of the donor’s tax is on a cumulative basis over a period of one (1) calendar oo | The donor's or gift tax is computed on the net gift of the first donation. In case there are subsequent donations in the same calendar year, the tax is computed on a cumulative basis, ic, the prior gross gifts in the same calendar year are added to the current gross gift to arrive at the total gross gifts. The total exemptions ot deductions shall be subtracted from the total gross gifts. The donor's tax shall be based on the total net gifts. (a) On the first donation during the year: Gross gift Px Less: Exemption or deduction (008) Net gift P xx Gift tax (6%) P xx (b) On subsequent donations within the same calendar year: Gross gift Pox Add: Prior gross gift 0x | Total gross gifts Pox Less: Exemptions and deductions xxx) Total net gifts P xox Gift tax (696) P oxox Less: Gift tax on prior net gifts in the same calendar year 0x) Gift tax on subsequent gift P xxx * Sec, 99(A), NIRC; Rev. Reg. No. 12-2018. * Rev. Reg. No. 12-2018.October 2019 CREDIT FOR FOREIGN DONOR’S TAXES PAID > Available only to Resident Donors (citizens or resident alien donors) - Subject to Limits Limits: (A) Net Gift (per Foreign Country) x Philippine Donor’s Tax Total Net Gifts (B) Net Gifts (in all Foreign Countries). x Philippine Donor’s Tax Total Net Gifts Rules: 1) Ifthere is only one (1) foreign country, only Limit (A) is used. 2) If there are > two (2) foreign countries, use both Limits Formula: Donor’s tax paid in Country 1 aoa Limit A (Country 1) J u + Donor’s tax paid in Country 2] f Lower (2) Limit A (Country 2) zs 7 | Limit (A) | Lower = Credit ‘Sum of donor's taxes paid in | Countries 1 and 2 Lower = Limit (B) | Limit B eOctober 2019 Donor’s Tax Return Who files? Any individual who makes any transfer by gift. Notes: (a) No return is required if the transfer is exempt from donor's tax, like donations to the National Government or to non-profit institutions. (b) A separate return shall be filed by each donor for each gift or donation made on different dates during the year. Any previous gifts made in the same calendar year shall be reflected in each return. (c) Only one return shall be filed for several gifts or donations by a donor made on the same date to different donees. @) If the gift or donation involves conjugal/eommunity property, each spouse shall file a separate return corresponding to his/her respective share in the conjugal/community property. This rule shall likewise appiy in the case of co-ownership over the property being donated.® Time of filing? Within thirty (30) days from the date the gift is made. Time of payment: At the time of fling the return, Where filed? (@) If donor is a resident donor (ie. citizen or resident alien) — with the Authorized ‘Agent Bank (AAB), RDO, collection officer or duly authorized treasurer of the city or municipality where donor is domiciled at the time of transfer, or with the Office of the Commissioner if donor has no legal residence. (b) If donor is a non-resident donor (i.e., non-resident alien) — with the Philippine Embassy or Consulate in the country where he is domiciled at the time of transfer; or directly with the Office of Commissioner (RDO No. 39). (©) In cases of “No Payment Retum” — The returns shall be filed with the Revenue District Office having jurisdiction over the place of domicile of the donor at the time of the donation, or if there is no legal residence in the Philippines, with the Office of the Commissioner (RDO No. 39 - South Quezon City).” Contents of the Donor’s Tax Return ‘The return shall set forth:* 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 gits made during the same calendar year; © Guidelines and Instructions (BIR Form No. 1800 —_Donor's Tax Return). 7RMC No. 54-2019. * Sec. 103(A), NIRC.October 2019 4) The name of the donee; and 5) Such further information as may be required. Notice of Donation.? In order to be exempt from the donor’s tax and to claim full deduction of the donation given to qualified donee institutions, the donor engaged in business shall give a Notice of Donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the RDO which has jurisdiction over his place of business, The aforementioned notice shall be given to the RDO within thirty (30) days after receipt of the donee’s duly issued Certificate of Donation (BIR Form No. 2322). The same Certificate shall be attached to the Notice of Donation, and shall state that not more than 30% of the donations for the taxable year shall be used by such accredited non-stock, non-profit, NGO-donee institution for administration purposes pursuant to Section 101(A)G) and BQ2) of the Tax Code. ° Rev. Reg. Nos. 2-2003, 12. 10PRETRAN : TRAN Transfer for ‘Section 10 The amount by which the FAN of the ‘However, F the sale or transfer is 2 bone fide arm's length Insutfictent property sold exceeds the consideration recelved shall ‘Transaction, the sare shall be considered as mace for an Consideration be deemed a git ‘adequate and full consigeration. Therefore, ary excess of ‘the FAN over the selling price is NOT deemed & gift Downy Exemption Section 104(AX'1). Dowries or gifts made on account of Repealed. maniage and before its celebration or within 1 year thereafter by parents to their chikéren to the extent of the first 10,000. Note: Non-resident alien donors are not allowed any dowry deduction Donor's tax rate ‘Sec. 99 (A) and (B) Donor’s tax rates are as follows: Donor’s tax rate fixed at 6% based on total gifts in excess ‘of PHR250,000 exempt gift made during the calendar year 4. Not stranger ~ based on total net gift whether the donee is a stranger ornot + Over Banatone — Thstaxehallbe Pluk Of he Excoee ‘Over Pie Ton Erampt Pie 100000 200,000 Bi, 100000 ’ a ee sae i ts 500,000 1,000,000 000 500.000 000,000, 3,000,060 00 960,000 900,000 5,000,000 204.000 10 000,000 5:00 600, 10,000,000 404,000 12 590 960 10,000,000 1,004,000 19% 10,000,000 Not a stranger means a person who Is a: (1) Brother or sister (whole or half-blood), spouse, ancestor, or lineal descendant; or (2) Relative by consanguinity in the collateral line within the 4" degree. b, Stranger — 30% based on net gifts