GROSS ESTATE
ESTATE TAX
 Estate tax is the tax on the right to transmit property at death
and on certain transfers by the decedent during his lifetime
which are made by the law equivalent of testamentary
dispositions
 Accrues upon the death of the decedent
 A transmission by inheritance is taxable at the time of the
predecessor’s death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary.
 Tax is measured by the value of the property transmitted at the
time of death, regardless of depreciation/appreciation
o Value taken into consideration when tax is being
paid
 Accrual of tax is different from the obligation to pay the tax
RULES
RATE OF ESTATE TAX
 Estate tax now has a flat rate of 6% based on net estate
 Guidelines in accordance with Section 85 and 86 of the tax
code
DETERMINATION OF THE VALUE OF THE ESTATE
 Properties comprising the estate shall be determined based on
the FAIR MARKET VALUE at the time of death
o REAL PROPERTY
 FMV as determined by the Commissioner
or the FMV as determined in the schedule
of values fixed by city assessors whichever
is HIGHER
o PERSONAL PROPERTY
 Recently acquired: based on the purchase
price
 Not recently acquired: evidence to show
FMV must be shown
o SHARES OF STOCK
 Listed (registered in stock exchange)
 Mean between the highest and
lowest quotation on the date of
the death
 If none, the nearest to death
 Unlisted (not registered in any stock
exchange)
 COMMON SHARES - based on
book value
 PREFERRED SHARES – based
on their par value
o Book value – net
equity/total number
of shares which may
be more or less than
par value
o Par Value – character or description in respect of intangible
price/unit share of
stock
o USUFRUCT – taken into account the probable life of
the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the
secretary of finance
 If RC, NRC, RA the value of the gross estate shall include
o All property real/personal
o Tangible/intangible
o Wherever situate
o VALUE AT THE TIME OF DEATH of the decedent is
what is taken in to account in this case
 If NRC - only that part of the gross estate which is situated in
the Philippines shall be included in the taxable estate
 “Gross estate and gifts”
o Include real and personal property
o Tangible/intangible, or mixed wherever situated
 NRA (decedent/donor) at the time of death/donation
o Only property situated in the Philipines are included
in the GROSS estate
o Property situated outside the Philippines are NOT
part of the GROSS estate/gross gift
 Residents and Citizens: gross properties shall include all
properties real or personal, tangible/intangible wherever
situated
 WHAT ARE INTANGIBLE PERSONAL PROPERTIES
CONSIDERED “SITUATED IN THE PHILIPPINES”
o Franchise which must be exercised in the
Philippines
o Shares, obligations, bonds issued by any corporation
or sociedad anonima organized or constituted in the
Philippines in accordance with its laws
o Shares, obligations or bonds by any foreign
corporation 85% of the business is located in the
Philippines
o Obligations or bonds which have acquired business
situs in the Philippines
o Shares or rights of any partnership, business or
industry established in the Philippines
 NO TAX SHALL BE COLLECTED UNDER THIS TITLE IN
RESPECT OF INTANGIBLE PERSONAL PROPERTY:
o Decedent/donor at the time of his death/donation
was a citizen of a foreign country & resident which
country did not impose a transfer tax of any
character in respect of intangible personal property
of citizens of the Philippines not residing in that
foreign country
o If the laws of the foreign country of which the
decedent or donor was a citizen and resident at the
time of the death or donation allows a similar
exemption from the transfer or death taxes of every
personal property owned by citizens of the
Philippines not residing in that foreign country
 if any of the two conditions based on the
rule of reciprocity are met the non-
resident alien here are exempt from
estate tax
o Reciprocity must be total
 Gross estate includes any interest or right in the nature of COMMON CHARACTERISTICS (1-4)
property, but less than title, having value or capable of having
value like  They are ostensible transfer, usually with the purpose to evade
o Dividends declared, but paid after the death tax
o Partnership profits  They are extension of interests; and
o Right to usufruct  If the transfers are in fact for a bona fide consideration then
they will not form part of the gross estate
 Properties not in the estate but included in the GROSS
ESTATE
1. Transfers in contemplation of death
5. Proceeds of Life Insurance
 Transfer motivated by the thought of
 Proceeds of life insurance taken out by the decedent upon his
death, although it may not be imminent
life shall form part of the gross estate if the beneficiary is
 Transfers, by trust or otherwise, in
1. The estate of the decedent, his
contemplation or intended to take effect
executor/administrator as such or
(in possession or enjoyment) at or after
 Regardless if revocable/irrevocable, still
death
part of the gross estate
 Transfers, by trust or otherwise, under
2. A third person (not those in #1) and the designation
which the decedent has retained for his
of the beneficiary is revocable
life (or for any period which does not in
 If the beneficiary is a third person, other than those mentioned
fact end before his death)
in number one and the designation is irrevocable, it will not
 If the transfer was for valuable and
form part of the estate of the deceased.
sufficient consideration, it shall not form
 It must be life insurance. Hence, if it is an accident insurance, it
part of the estate
is not included in the gross estate. Company policies, GSIS or
SSS are also not included in the gross estate because the
2. Revocable Transfers
insurance must be taken out by the DECEDENT, meaning he
 A revocable transfer is a transfer where
was the one who applied for it.
the terms of enjoyment of the property
may be altered, amended, revoked or
6. Capital of the surviving spouse
terminated by the decedent - does not form part of the GROSS estate
 It is sufficient that the decedent had the - Some donations will be considered as advances if the donees become
power to revoke, thought he did not legatees in the will or the donees are compulsory heirs
exercise the power to revoke
3. Transfers under general power of appointment;
and D. COMPUTATION OF NET ESTATE
 A power of appointment refers to the
DEDUCTIONS FROM THE GROSS ESTATE ARE
right to designate the person or persons
who will succeed the property of a prior 1. Standard Deduction
decedent 2. Claims against the estate
 It must be a general power of 3. Claims against insolvent persons
appointment 4. Unpaid mortgages or indebtness of property
 Carles donated property to 5. Accrued taxes and losses
6. Vanishing Deductions
Andres, with a provision that
7. Transfers for public use
Andres can transfer the 8. Family Home and
property to anyone. Andres 9. Amounts received by heirs under R.A. 4917
transferred the property to
Iker. The property is included CLASSIFICATION OF DEDUCTIONS
in the gross estate of Andres. 1. Ordinary Deductions
a. Expenses, losses, indebtness, taxes etc.
4. Transfers for insufficient consideration
i. Claims against the estate
 If the transfer is for contemplation of ii. Claims against insolvent persons
death, revocable transfer, or transfer iii. Unpaid mortgage or indebtness on property
under GPA, the value to include in the iv. Taxes
gross estate will be determined under the v. Losses
following rules b. Transfers for public Use
 If the transfer was a bona fide c. Vanishing deductions
sale under sufficient
2. Special Deductions
consideration, no value will be i. Family Home
included in the gross estate ii. Standard Deduction of 5,000,000.00
 If the consideration received iii. Amounts received by heirs under R.A. 4917
on the transfer was less than
adequate and full, the value to NOTE: These deductions are allowed for a citizen or resident of the
Philippines.
include in the gross estate will
be the excess of the fair market E. DEDUCTIONS FOR CITIZENS/RESIDENTS OF THE PHILIPPINES
value of the property at the
time of the decedent’s death 1. ORDINARY DEDUCTIONS
 i. Claims against the estate
 Claims means debts or demands of pecuniary nature which
could have been enforced against the estate of the deceased in
his his lifetime and could have been enforced by the deceased
in his lifetime and could have been reduced to simple money
judgments
o Must be enforceable against him when he was alive
o Liability was contracted in good faith and for
adequate and full consideration
o Claim must be valid and enforceable in court
o Must not have been condoned by the creditor
o Must not have prescribed
 Claims against the estate or indebtness in respect of property
may also arise out of contract, tort, or operation of law
 Requirements for loans
o Debt instruments must be notarized at the time the
indebtness was incurred
 XPN: loans granted by financial
institutions where notarization is not part
of the business practice
o Duly notified certification from the creditor as to the
unpaid balance of the debt, including interest as of
the time of death
o Proof of financial capacity of the creditor to lend
o Statement under oath by the administrator or
executor of the state reflecting the disposition of the
proceeds of the loan if said loan was contracted
within three years prior to the death of the decedent
 Requirement for unpaid obligations from purchase of goods or
services
o Documents evidencing purchase of goods or service
(like official receipts etc) or contracts of service
o Duly notarized certification from the creditor as to
the unpaid balance of the debt, including interest as
of the time of death; and
o Certified true copy of the latest audited balance
sheet of the creditor with a detailed schedule of this
receivable showing unpaid balance
 For settlements made through court, the documents filed in
court and the court order approving such claims, in addition to
the documents above
ii. Claims against insolvent persons
 The full amounts of the receivables are first included in the
gross estate
 Deduction from the gross estate will be the uncollectible
portion
 INSOLVENT PERSONS, under FRIA
o  Insolvent shall refer to the financial condition of a
debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of
business or has liabilities that are greater than its or
his assets.
iii. Unpaid mortgage or indebtness on property
 The mortgage or indebtness will be claimed as a deduction
from the gross estate
 If the loan is merely an accommodation loan, where the
proceeds of the loan went to another person, the values of the
unpaid loan must be included in the receivable of the estate
 In cases of claims against insolvent persons and unpaid
mortgage/indebtness on property, it is imperative that the
valued of each are first added to the gross estate
iv. Taxes
 Taxes are deductions if accrued prior to the decedent’s death
 If accrued after the decedent’s death, not deductions
 These taxes cannot be deducted
o Income tax on income received after death
o Property taxes not accrued before death
o Estate Tax
v. Losses
 Arising from fire, storm, shipwreck or other casualty, robbery,
theft or embezzlement
 Not compensated by insurance or otherwise
 Not claimed as a deduction in an income tax return of the
estate subject to income tax
 Occurring during the settlement of the estate
 Losses must have occurred before the last day for the payment
of the estate tax which is now one year after the decedent’s
death
b. Transfers for public use
- the amount of all the bequests, legacies or devises or transfers to or for
the use of the government of the Republic of the Philippines or any
political subdivision thereof, for exclusively public purposes
c Vanishing deductions
- In instances when an owner of the property died (within 5
years) from receiving the property from inheritance/donation
[which was previously taxed]
- Requisites
o The present decedent died within five years from
receipt of the property from a prior decedent or
donor
o The property on which the vanishing deduction is
being claimed must be located in the Philippines
o The property must have formed part of the taxable
estate of the prior decedent, or of the taxable gift of
the donor
o The estate tax on the prior succession or the donor’s
tax on the gift must have been finally determined
and paid
o The property must be identified as the one received
from the prior decedent or donor, or something in
acquired in exchange therefore
o No vanishing deductions was allowable to the estate
of the prior decedent
2. Special Deductions
i. Family Home
- Amount of the family home must be included in the gross
estate
- Deduction will be allowed when the family home is certified as
such by the barangay captain of the locality where it is located
- Maximum amount to be deducted is 10,000,000
- Person may only constitute one family home
REQUISITES
 Must be the actual home of the decedent and his family at the
time of his death, as certified by the barangay captain if the
locality
 Total value of the Family home must be included in the gross
estate
 Deduction’s equivalent to current FMV, or the extent of the
decedent’s interest (whether conjugal/community or exclusive
property) whichever is lower but not exceeding 10,000,000)
ii. Standard Deduction of 5,000,000.00
 Deducted every time this is standard
iii. Amounts received by heirs under R.A. 4917
- Covers retirement benefits received by employees of private
firms in accordance with reasonable benefit plan maintained
by the employer are EXEMPT from all taxes, provided that the
retiring employee has been in the services of the same
employer for at least 10years and is not less than 50 years old
at the time of retirement
- The amount must :
o Have been received by the heirs of the decedent-
employee as a consequence of the latter’s death, and
o Included in the gross estate of the descendent
F. DEDUCTIONS FOR NON-RESIDENTS/ NON-CITIZENS OF THE
PHILIPPINES
  Train has given non-resident estates a standard deduction of premiums were paid out of
500,000 (Previously, no standard deduction was allowed to exclusive funds
NRAs)  They will be community
 A non-resident decedent who was not a citizen of the property if the premiums were
Philippines at the time of death, with properties within and paid out of community funds
outside the Philippines, is subject to tax only on his estate o A claim against an insolvent person will be included
within the Philippines in the gross estate as exclusive or community
property depending on whether the claim is for
1. Standard deduction of 500,000 exclusive or community property
2. The proportion of the total losses and indebtedness which the
value of such part bears to the value of his entire gross estate COMPUTATIONS
wherever situated. This includes
o Claims against the estate (1) Decedent is unmarried, family home more than 10,000,000
o Claims against insolvent persons
o Unpaid mortgages, taxes and casualty losses; Real and personal properties 14,000,000
Family Home 30,000,000
Gross estate, Philippines/Gross estate, World x world expenses, losses,
indebtedness GROSS ESTATE = 44,000,000

Less: Deductions
NOTE: It does not matter where the expenses are paid or incurred. On the Ordinary Deductions
total of items, the formula provided for by law will be applied Unpaid Real Estate Tax (2,000,000)

3. Vanishing deductions and Special Deductions

4. Transfers for public use Family Home (10,000,000)
Standard Deduction (5,000,000)
F. NET ESTATE COMPUTATION OF MARRIED PERSONS
NET TAXABLE ESTATE 27,000,000
 Capital of the surviving spouse
o The capital of the surviving spouse of a decedent
shall not, for the purpose of this chapter be deemed (2) Decedent is married, the family home is conjugal property
a part of his/her gross estate more than 10,000,000.00

 Share in the conjugal property Conjugal Properties

o The net share of the surviving spouse in the conjugal Family Home 30,000,000
partnership property as diminished by the Real and personal properties 14,000,000
obligations properly chargeable to such property
shall, for the purpose of this section, be deducted Exclusive Properties
from the net estate or decedent 5,000,000

G. GROSS ESTATE Gross Estate

 The gross estate of the decedent who was married and who For EP 5,000,000
was under the system of absolute community of property or For CP 44,000,000
conjugal property of gains during the marriage consists of: TOTAL GROSS ESTATE (EP&CP) 49,000,000
o The exclusive properties of the decedent, and
o Community properties Less:
Ordinary Deductions
 The exclusive properties are: Conjugal and ordinary deductions (2,000,000)
o Property acquired during the marriage by gratuitous Net conjugal estate 42,000,000
title (inheritance or donation) by either spouse, and
the fruits as well as income thereof Special Deductions
 XPN: When the donor/testator states that Family Home (10,000,000)
they will be a part of the community Standard deduction (5,000,000)
property
o Property for exclusive use of either spouse Total deductions (17,000,000)
 But jewelry will form part of community NET ESTATE 32,000,000
property Less: ½ share of surviving spouse (21,000,000)
o Property acquired BEFORE the marriage by either Gross Estate 44,000,000
spouse who have legitimate descendants by a Conjugal deductions (2,000,000)
former marriage, and the fruits as well as the NET CONJUGAL ESTATE = 42,000,000
income of such property
 Community property will consist of all 42,000,000/2
properties owned by the spouses at the
time of the celebration of marriage or NET TAXABLE ESTATE = 11,000,000
acquired thereafter (presumed to belong
to the community) * First, you get the GROSS estate by adding all conjugal and exclusive
 The family home constituted by the properties
husband and wife is the community * Less deductions (ordinary deductions an special deductions) to get the
property NET ESTATE
 Proceeds of life insurance * then subtract the ½ share of surviving spouse which is ½ of net conjugal
taken out by the decedent on estate which is all conjugal properties – conjugal deductions
his own life when includible in
the gross estate, will be
exclusive property if the H. EXEMPTION FROM ESTATE TAX
The following are exempt from estate tax
1. Merger or usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicomissary
 Fiduciary heir only holds it in trust for the fidecomissary
3. Transmission from the 1 st heir, legatee or done in favor of
another beneficiary in accordance with the desire of the
predecessor
 Second transmission is already NOT taxable, but I guess the
first one is obviously taxable
4. All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income
inures to the benefit of an individual provided that not more
than 30% of said bequests, devises, legacies or transfers shall
be used by such institutions for administration purposes
5. Irrevocable life insurance to someone other than estate,
administrator/executor
6. GSIS/SSS benefits
7. Retirement benefits of private firms approved by the BIR
8. Separate property of the surviving spouse
Tax credit of foreign estates
 A tax credit for Philippine Estate tax is allowed for estate taxes
paid to foreign countries
Two formulas
 Limitation A: (paid to one foreign country)
o Tax credit limit = Net foreign estate/entire net
estate x Tax here in the Philippines
 Limitation B : (paid to two or more foreign countries)
o Tax credit limit = total foreign net estate/entire net
estate x Tax here in the Philippines
NOTE: you choose whichever is lower between limitation A and
Limitation B.
I. ESTATE TAX RETURNS
An estate tax return is required to be filed when the estate is
1. Subject to estate tax
2. Exempt from estate tax but the gross estate exceeds 200,000
pesos
3. Regardless of the amount of the gross estate, where the gross
estate has registered or is registrable property such as real
property, cars and shares of stock that require a certificate
authorizing registration from the BIR as a condition precedent
to the transfer
The return shall be under oath and shall include the ff
 Value of the gross estate at the time of the decedent (for non-
resident aliens, the value of the gross estate here in the
Philippines)
 Deductions allowed from the gross estate
 Whatever is necessary to establish correct estate tax
 If the estate tax return shows that the gross estate exceeds
5,000,000 it should be accompanied by a statement certified by
a CPA
Time for filing – The estate tax return should be filed within 1 year after
the decedent’s death
 BIR can extend, but for not more than 30 days
Place of filing
 The return shall be filed with an authorized agent bank, RDO,
collection officer or duly authorized Treasurer of the City or
municipality in which the decedent was domiciled at the time
of his death or if there be no legal residence in the Philippines,
with the office of the commissioner
NOTES
 A return need not be complete in all particulars. It is sufficient
if it complies substantially with the law. There is substantial
compliance when:
o The return is made in good faith and is not false or
fraudulent
o It covers the entire period involved; and
o It contains information as to the various items of
income, deductions and credits with such
definiteness as to permit the computation and
assessment of estate tax
 Where the return was made in the wrong
form, it was held that the filing thereof
did not stop the period of limitations, and
where the return was very deficient, there
was not return at all
 Approval of the probate court is not mandatory in collection of
estate taxes
J. Payment of Tax
Time of Payment
 Shall be paid at the time the return is filed by the executor,
administrator or heirs
Extension of Time
The commissioner can extend that payment on the due date of
estate tax for
o 5 years in case of judicial settlement
o 2 years in case of extrajudicial settlement
 Statute of limitations for assessment is
suspended during extension
 Meaning govt can still collect
 It shall be paid on or before the date of
expiration of the period of extension
o Where taxes are assessed by reason of negligence,
intentional disregard of rules and regulations, or
fraud on the part of the taxpayer, no extension shall
be granted by the commissioner
o If extension is granted, commissioner MAY require a
bond not exceeding double the amount of the tax
conditioned upon the payment of the tax in
accordance with the terms of the extension
Liability of payment
 GR: Estate tax shall be paid at the time the return is filed
XPN: If there is insufficient funds for payment
instalment payment is allowed within 2 years from the
statutory date from its payment & upon extension allowed by
the commissioner
NOTES
 The estate tax shall be paid by the executor/administrator
before delivery to any beneficiary of his distributive share of
estate
o If there are two/more executors, all of them are
severally liable for the payment of estate tax
o Such beneficiary shall be subsidiarily liable for the
payment of such tax to the extent of his share
 The government in collecting unpaid taxes accruing before the
death of the decedent has two ways of collecting the said taxes:
o By going after all the heirs and collecting from each
one of them the amount of the tax in proportionate
to the inheritance received
o By subjecting said property of the estate which is in
the hands of an heir or transferee to the payment of
the tax due the estate
 Or go against one heir for the entire tax,
subject to the heirs right of contribution
from his co-heirs
K. MISCELLANEOUS PROVISIONS
 Discharge of Executor or administrator from personal
liability
 o The executor/administrator shall make a written way of gift inter vivos or mortis causa, legacy or
application to the commission for the determination inheritance
of amount of estate tax and discharge from personal  Unless a certification from the
liability commissioner that the taxes fixed in this
o The commissioner should answer as soon as title (estate tax) has been paid
possible, within 1 year of making the application or o Train now allows the withdrawal of bank deposits of
within 1 year when the return is filed dead folks subject to FWT 6% provided that
o The commissioner should can no longer answer withdrawal is made 1 year from the death of the
after the expiration of the period prescribed for the decedent
assessment of tax in section 203
 Within three years of filing of return
o The executor/administrator upon payment of the
amount of which he is notified, shall be discharged
from personal liability for any deficiency in the tax
thereafter found to be due and shall be entitled to
the receipt of such writing showing such discharge

 Definition of deficiency
o The amount of tax imposed exceeds what’s stated in
the taxpayer’s tax return
o Amount in tax return is increased and then
o Decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax
o If not amount is shown as the tax by the
executor/administrator or any of the heirs upon his
return, or if no return is made by the executor,
administrator/heir then the amount by which the
tax exceeds the amounts previously assessed (or
collected without assessment) as deficiency; but
such amounts previously assessed or collected
without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise
repaid in respect of such tax

 Payment before delivery by executor or administrator

o Judicial administrator and executor shall not deliver
a distributive share to any part interested in the
estate
 xpn: certification from the commissioner
that the estate tax has been paid is shown

 Duties of officers and debtors Restitution of tax upon

satisfaction of outstanding obligations
o A certification from the commissioner that the tax
fixed in this title (estate tax) due thereon such
property has been paid
o If no certification, the register of deeds shall not
register in the registry property any document
transferring real property or real rights therein or
any chattel mortgage, by way of gifts inter vivos or
mortis causa, legacy or inheritance
o No debtor shall pay his debts to the heirs, legatee,
executor/administrator of his creditor, unless the
certification of the commissioner that the tax fixed
in this chapter has been paid is shown; but he may
pay the executor or judicial administrator without
said certification if the credit is included in the
inventory of the state of the deceased

 Restitution of Tax upon satisfaction of outstanding

obligations
o If after payment of the estate tax, new obligations of
the decedent shall appear, and the persons
interested shall have them satisfied by order of the
court, they shall have the right to the restitution of
the proportional part of the tax paid

 Payment of Tax Antecedent to the transfer of shares,

bonds or rights
o No transfer to any new owner in the books of any
corporation, sociedad anonima, partnership,
business or industry organized or established in the
Philippines any share, obligation or bond or right by

DONOR’S TAX
A. In General
 Donor’s tax will be levied, assessed, collected and paid upon
the transfer by any person, resident or non-resident of
property by gift
o The property can be real or personal, tangible or
intangible
o Transfer can be in trust or otherwise
o The gift can be direct or indirect
 Applicable only if there is a completed gift
o Meaning, the transfer of property by gift is perfected
from the moment the donor knows of such delivery,
either actually or constructively, of the donated
property to the donee
o Thus the law in force at the time of the
perfection/completion of the donation shall govern
the imposition of the donor’s tax
 A gift that is incomplete because of reserved powers becomes
complete when
o The donor renounces the power; or
o His right to exercise the reserved power ceases
because of the happening of some event or
contingency or the fulfilment of some condition,
other than because of the donor’s death
IMPLICATIONS OF RENUNCIATION
 Renunciation by the SS of his/her share in the CP or AC after
dissolution of the marriage in favor of the heirs – subject to
donor’s tax
o Kasi clear and definite yung tao na pinagbigyan sa
case na to
 General Renunciation by an heir, including the ss of share in
the hereditary estate left by the decedent - not subject to
donor’s tax
o Wala kasi pinuntahan na tao, bumalik lang sa estate
 Renunciation by an heir, including the ss of share in the
hereditary estate to a specified and identified heir to the
exclusion or disadvantage of co-heirs – subject to donor’s tax,
same rationale
B. Gross Gifts
DEFINITIONS
 Gross gifts - include real and personal property whether
tangible or intangible, mixed, wherever situated
o If the donor was a NRA at the time of his donation,
his real and personal property included in gross gifts
are only property considered “within the
Philippines”
 WHAT ARE CONSIDERED “WITHIN THE PHILIPPINES”
o Franchise which must be exercised in the
Philippines
o Shares, obligations, bonds issued by any corporation
or sociedad anonima organized or constituted in the
Philippines in accordance with its laws
o Shares, obligations or bonds by any foreign
corporation 85% of the business is located in the
Philippines
o Obligations or bonds which have acquired business
situs in the Philippines
o Shares or rights of any partnership, business or
industry established in the Philippines
 NO TAX SHALL BE COLLECTED UNDER THIS TITLE IN
RESPECT OF INTANGIBLE PERSONAL PROPERTY:
o Decedent/donor at the time of his death/donation
was a citizen of a foreign country & resident which
country did not impose a transfer tax of any
character in respect of intangible personal property
of citizens of the Philippines not residing in that
foreign country
o If the laws of the foreign country of which the
decedent or donor was a citizen and resident at the
time of the death or donation allows a similar
exemption from the transfer or death taxes of every
character or description in respect of intangible
personal property owned by citizens of the
Philippines not residing in that foreign country
 if any of the two conditions based on the
rule of reciprocity are met the non-
resident alien here are exempt from
estate tax
o Reciprocity must be total
TWO KINDS OF DONORS
i. Resident or Citizens of the Philippines
ii. Non-resident, not citizen of the Philippines
WHAT GROSS GIFTS CONSISTS OF FOR THE TWO DONORS
i. Resident/Citizens of the Philippines
a. Real estate regardless of location
b. Tangible personal property regardless of location
c. Intangible personal property, regardless of location
ii. Non-resident, not citizen of the Philippines
a. Real estate located in the Philippines
b. Tangible personal property located in the
Philippines
c. Intangible personal property located in the
Philippines, subject to the reciprocity clause
BADGES OF DONATION INTERVIVOS
 Made out of love and affection
 Reservation of usufruct in favor of the donor (naked ownership
is with the donee)
 Donor reserved certain properties for himself (so he still had
something to live by)
 The donee accepted the donation (no need for acceptance if
donation mortis causa)
ALSO TO BE CONSIDERED AS GIFTS ARE THE FOLLOWING
 Transfers for insufficient consideration
 Cancellation of indebtness
C. TRANSFERS FOR INSUFFICIENT CONSIDERATION
 A transfer of real/personal property will be considered a
donation/gift subject to the donor’s tax when:
1. The transfer was for less than adequate and full consideration
2. Such transfer was effective during his lifetime
3. Other than real property in in Section 24 (D), the property was
not subject to CGT (not a capital asset)
  The amount by which the value of the property exceeded the
consideration received shall be considered a donation
 Contributions to candidates or political parties duly reported
What are the implications if the real property sold was a capital asset
or an ordinary asset?
 For example, the real property had a cost of 100K, a FMV of
200K but sold only for 170k
o If it was classified as a capital asset, it will be taxed
6% of the FMV (remember the base is neither the
consideration or the FMV, whichever is higher)
o If it were classified as an ordinary asset it will be
taxed twice.
 INCOME TAX (base of 70k)
 DONOR’S TAX (tax base 30k)
 Donations to qualified foster care agencies are exempt from
donor’s tax
to the BIR are not subject to donor’s tax
o The money given to the candidate will NOT go into
his taxable income, as long as it is utilized in his
campaign
o Utilized/excess campaign funds shall be subject to
income tax
o Any candidate, winner or loser must file with the
COMELEC his/her statement of expenditures. If not,
he/she will be precluded from using such
expenditures as deductions from his/her campaign
contributions. As such, the entire amount of such
contributions will be directly subject to income tax

Train law gives an exception

 When the transfer is made in the ordinary course of business,
it will be considered as made for an adequate and full J. Tax Rates Payable by Donor
consideration  The tax for each calendar year shall be 6% computed on the
o Bona fide transaction basis of the total gifts in excess of 250,000 pesos exempt gift,
o Arm’s length; and made during the calendar year
o Free from any donative intent  Any contribution in cash or in kind to any candidate, political
party or coalition of parties for campaign purposes shall be
D. CANCELLATION OF INDEBTNESS governed by the election code as amended
 If a creditor desires to benefit a debtor, and without any  No more distinction between strangers and non-strangers
consideration, therefore, cancels the debt (and the debtor  250,000 counts as a deduction from total gifts because the 6%
“accepts” the amount of the debt is a donation by the creditor rate is imposed on the total gifts in excess of 250,000
to the debtor.

E. Valuation of the gifts K. Donor’s tax return

 The fair market value of the property donated/given at the  Any individual who makes any transfer by gift (except those,
time of the donation shall be the value of the gross gifts who are exempted under section 101) shall for the purpose of
o Application: If the CIR and the City assessor has two said tax make a return under oath in duplicate. The return shall
different valuations, it is the HIGHER one which will set forth:
be used (1) Each gift made during the calendar year which is to be included
in computing net gifts;
F. Deductions from Gross Gifts Resident or Citizen Donors (2) The deductions claimed and allowable
 These “exemptions on certain gifts” should be taken to mean (3) Any previous net gifts made during the same calendar year;
the deductions allowed by law to arrive at the taxable net gifts (4) The name of the donee; and
 Deductions allowed for a resident or citizen donor: (5) Such further information as may be required by rules and
o Gifts made to or for the use of the National regulations made pursuant to law
Government or any entity created by any of its
agencies which is not conducted for profit  Time and Place of Filing and payment
o Gifts in favor of educational and or charitable, o The return of the donor required in this section shall
religious, cultural or social welfare corporations, be filed within 30 days after the date the gift is made
institutions, accredited NGOs, trust or philantrophic and the tax due thereon shall be paid at the time of
organizations, research institutions or filing
organizations, provided that not more than 30% of o It shall be filed with the authorized agent bank, RDO,
said gifts shall be used by such done for Revenue collection officer or duly authorized
administration purposes treasurer of the city or municipality where the
 ENTITY MUST BE donor was domiciled at the time of transfer
 Non-stock  If donor has no legal residence in the
 Paying no dividends Philippines, it should be with the office of
 Governed by trustees who the Commissioner
receive no compensation; and o If the donor is a NON-RESIDENT
 Devoting all its income to the  Return in filed with the Philippine
accomplishment of the purpose Consulate Embassy in the country where
enumerated in its AOI he is domiciled at the time of transfer, or
directly with the office of the
G. Deductions for a Non-resident, Not citizen donor commissioner
 SAME with F.
L. Donor’s Tax Credit
 Only resident or citizen donors are allowed donor’s tax credit
H. Other deductions o Because they are the only one’s taxed world wide
 Encumberance on the property donated, if assumed by the  Foreign donor’s tax paid to a foreign country, a credit is
donee allowed to reduce the Philippine donor’s tax pay
 Those specifically provided by the donor as a diminution of the o Net foreign gifts/net gifts, worldwide x Philippine
property donated donor’s tax
o Foreign tax paid
I. Exemption under special laws  Allowed tax credit is whichever is lower
 Gifts and donations to the UP is exempt from donor’s tax of the foreign donor’s tax paid and the
 Contributions to the National Book trust fund is exempt from limit
donor’s tax  If two foreign countries
 o LIMITATION A: Foreign donor’s tax paid to the
foreign country
 Net gifts, foreign country/net gifts, world
x Philippine donor’s tax
 Allowed tax credit: whichever
is lower
o LIMITATION B: (totals)
 Total of foreign donor’s taxes paid to
foreign countries
 Net gifts, outside the Phil/ Net gifts, world
x Philippine donor’s tax
 Allowed tax credit, whatever’s
lower
o Tax credit to apply is whatever is lower between
Limitation A and Limitation B

VALUE ADDED TAX