C.

Transfers which may be Constituted as Donation

i. Transfer of Property for Insufficient Consideration

General Rule: If the property transferred is for less than adequate and full consideration in money or
money’s worth, the amount by which the FMV exceeds the consideration shall be deemed a gift and be
included in computing the amount of gifts made during the year (Sec. 100, NIRC).

Reason: The NIRC considers the transfer as a donation since what motivated the transferor in
transferring the property is his generosity.

Exceptions: 1. Transfers made bona fide in the ordinary course of business and free from any donative
intent, even if the consideration is inadequate on account of bad bargain shall not be subject to donor’s
tax.

2. Where property transferred is real property located in the Philippines considered as capital asset, the
donor’s tax is not applicable but the Final Capital gains Tax of six percent (6%) of the fair market value
or gross selling price, whichever is higher. (SABABAN, supra at 154).

Where the consideration is fictitious, the entire value of the property transferred shall be subject to
donor’s tax (1 DE LEON, supra at 814).