TAXATION II

Maria Theresa San Pablo-Llamado

1st Semester AY 2019 – 2020
De La Salle University
College of Law
Part 1: ESTATE AND DONOR’S TAX

ESTATE TAX
References:

1. National Internal Revenue Code of 1997, as amended by Republic Act No. 10963 (TRAIN LAW)

2. Revenue Regulations No. 12-18, as amended by RR 17-18; RMC No. 62-2018

I. BASIC PRINCIPLES OF ESTATE TAX

A. Estate Tax Defined

B. Nature and Purpose of Estate Tax

C. Time of Transfer of Properties

Case(s):
Lorenzo v. Posadas (64 Phil. 353)

D. Governing Law
- Laws in force at the time of death of the decedent.

II. DETERMINATION OF GROSS ESTATE [Sec. 85, NIRC, as amended by the TRAIN LAW; Rev. Regulations No. 12-18
(RR 12-18); RMC 62-2018]
A. Classification of Decedent
1. Citizen and Resident – Resident and Non-resident Citizens and Resident Aliens
2. Non-resident Alien
B. Composition of Gross Estate, in General
1. Citizen and Resident – all properties, real or personal, tangible or intangible, wherever situated
2. Non-resident Alien – only properties situated in the Phil., except for intangible property which is
subject to the rule on reciprocity
1. Rule on Reciprocity
C. Concept of “Residence” for Estate Tax Purposes
D. Items to be Included in determining Gross Estate

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 1. Decedent’s Interest

2. Transfers in contemplation of death

3. Revocable transfers

4. Property passing under a general power of appointment

5. Proceeds of life insurance

6. Prior interests

7. Transfers for insufficient consideration

E. Specific Items to be included in Gross Estate

F. Valuation of the Gross Estate

III. DETERMINATION OF NET ESTATE/ALLOWABLE DEDUCTIONS FROM GROSS ESTATE

A. Net Estate of Decedent who is either Citizen or Resident of the Philippines

- Value of estate shall be determined by deducting from the value of gross estate:

1. Expenses, losses, indebtedness, and taxes

i. Funeral expenses -

ii. Judicial expenses of the testamentary and intestate proceedings

Rules 81 and 86, Revised Rules of Court

iii. Claims of deceased against insolvent persons

iv. Casualty losses

v. Claims against the estate

1. Requisites for deductibility

2. Substantiation requirements

vi. Unpaid mortgages

vii. Taxes

2. Property Previously taxed (Vanishing Deduction)

i. Requisites for Vanishing Deduction

3. Transfers for Public Use

4. Family Home

i. Ceiling on Value of Family Home

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 ii. Definition of family home/When deemed constituted

iii. Beneficiaries of a Family Home

iv. Conditions for deductibility

5. Standard Deduction

6. Medical Expenses

7. Amounts received by heirs under Republic Act No. 4917

8. Net Share of Surviving Spouse in the Conjugal Partnership or Community Property

B. Net Estate of Decedent who is a Non-resident Alien of the Philippines

1. Value of estate shall be determined by deducting from the value of gross estate:

i. Expenses, loses, indebtedness, and taxes

ii. Property Previously Taxed

iii. Transfers for Public Use

iv. Net Share of Surviving Spouse in the Conjugal Partnership or Community Property

2. Condition for deductibility

IV. EXCLUSIONS FROM GROSS ESTATE/EXEMPTIONS OF CERTAIN ACQUISITIONS AND TRANSMISSIONS

A. Capital of Surviving Spouse

Sec. 85(H) of NIRC, as amended by TRAIN LAW

Arts. 148, 150, 201, Civil Code
Arts. 91, 92, 109, Family Code

B. Proceeds of life insurance where designation of beneficiary is irrevocable

C. Exemptions of Certain Acquisitions/Transmissions

D. Exemptions under Special Laws

V. COMPUTATION OF ESTATE TAX

A. Tax Rate

1. Tax Credit for Estate Taxes paid to a Foreign Country

VI. Filing of Notice of Death/Filing of Returns/Payment of Estate Tax

A. Requirement of Filing for Notice of Death

- within 2 months after death of decedent

B. Estate Tax Returns

1. Requirements
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 2. Time for Filing
3. Extension of Time to File
4. Place of Filing Return

C. Payment of Estate Tax

1. Time for Payment
2. Extension of time to pay estate tax
3. Payment of estate tax by installment
4. Liability for payment

DONOR’S TAX

I. BASIC PRINCIPLES OF DONOR’S TAX

A. Concept of Donor’s Tax

Case:
Lladoc vs. CIR (145 SCRA 292)

B. Nature of Donor’s Tax

C. Purpose of Donor’s Tax

D. Requisites of a Valid Donation

1. Capacity of donor (Art. 735, New Civil Code)

2. Donative intent

3. Delivery

4. Acceptance (Art. 736, New Civil Code)

E. Transfers which may be constituted as donation

i. Sale / exchange / transfer of property for less than adequate and full consideration (Sec. 100, NIRC)

ii. Condonation / remission of debt

iii. Renunciation of Inheritance

- Exception

F. Law Governing Imposition of Donor’s Tax

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II. DETERMINATION OF GROSS GIFT

A. Classification of Donor

1. Citizens / Residents – Resident and Non-resident Citizens and Resident Aliens

2. Non-resident Alien

B. Composition of Gross Gift

1. Citizens / Resident – Real Property located in Philippines

a) Tangible personal property located within & without Philippines

b) Intangible personal property located within & without Philippines (See 104, NIRC)

2. Non-resident Alien – Real Property located within Philippines

a) Tangible personal property located within Philippines

b) Intangible personal property located within Philippines unless there’s reciprocity

c) Rule on Reciprocity

C. Exemptions of Gifts from Donation Tax

1. Gifts made by Residents

i. Services / gifts made on account of marriage by parents to children

ii. Gifts made to or for the use of national government

iii. Gifts in favor of educational / charitable institution

Condition: not more than 30% of the gift will be used by donee for admin purposes

2. Gifts Made by a Non-resident Alien

i. same as (ii) above

ii. same as (iii) above

3. Exemptions from donor’s tax under Special Laws

D. Valuation of Gifts made in Property

1. FMV at time of gift

2. Real Property = Higher of FMV determined by CIR or

FMV fixed by provincial and city assessors.

3. Valuation of Particular Gifts

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 i. Personal Property

ii. Real Property

iii. Cash

F. Computation of Donor’s Tax

1. Person liable

- Donors

2. Tax Basis

3. Tax Rates

4. Computation of Tax

5. Tax Credit for Donor’s Taxes Paid to a Foreign Country

G. Returns / Payment

1. Requirements

2. Time / Place of Filing & Payment

i. Time of Filing – 30 days after date of gift is made / completed

Payment coincides with the filing of return.

ii. Place of Filing /Payment

a. Residence / Domicile of donor – Resident / Citizen

b. Non-resident Alien – Philippine Embassy / Consulate where he is domiciled at the time of

transfer