ESTATE TAX

Christopher de Guzman, CPA, CAT

 PRINCIPLES - ESTATE TAX
1. Benefits – Received Theory –
• Government services as to the distribution of the estate of the decedent;

2. Privilege or State Partnership Theory –

• The State is a silent partner as to the accumulation of property;
• Inheritance is a privilege; it acquired by another thru the protection of the State;

3. Ability to Pay Theory –

• The heirs and the beneficiaries must pay the tax;

4. Redistribution of Wealth Theory –

• The tax reduces the property received by the successor.
 RATE OF ESTATE TAX (SEC. 84)

• The tax rate is 6% of the net estate in excess

of P 5,000,000;
• Whether resident or non – resident
decedent;
 GROSS ESTATE INCLUSIONS (SEC. 85)
▪ All properties, including interest therein, at the time of
death of the decedent;
▪ Tax Situs:
Taxpayer Philippines Abroad

Resident Citizen Decedent Yes Yes

Non-resident Citizen Decedent Yes Yes

Resident Alien Decedent Yes Yes

Non – Resident Alien Decedent Yes No

w/ reciprocity – Intangible
asset (IA) are excluded
w/out reciprocity – IA
included
 GROSS ESTATE INCLUSIONS (SEC. 85)
▪ Properties Include:
1. Transfer in contemplation of death;
2. Revocable transfer
3. Property passing under general power of appointment
4. Proceeds of life insurance
5. Transfer for insufficient consideration
6. Capital of the surviving spouse
7. Claims against insolvent person
8. Undiminished mortgaged property
9. RA 4917
TRANSFER IN CONTEMPLATION OF DEATH

▪ The possession or enjoyment of the transferred

property, or the rights thereto will take effect ONLY at
or after death by the decedent;
▪ The compelling motive for the transfer is the death of
the decedent;
▪ Except transfer for full and adequate consideration.
 REVOCABLE TRANSFER

▪ A transfer of properties that is subject to the power of

the decedent to alter, amend, revoke, or terminate, or
where any such power is relinquished in contemplation
of the decedent’s death;
▪ Except transfer for full and adequate consideration
 GENERAL POWER OF APPOINTMENT

▪ It is the right to designate the person/ s who will succeed to

the property of the prior decedent;
▪ Authorizes the “donee-decedent” of the power to appoint
any person he pleases, including himself;
▪ Can be exercised thru: (1) will; or (2) by deeds.
▪ Except for transfer for full and adequate consideration.
 PROCEEDS OF LIFE INSURANCE

▪ When the beneficiary is the estate, the decedent’s

executor, or administrator, whether revocable or not;

▪ When the beneficiary is other than those mentioned,

provided the designation is revocable, otherwise,
excluded from the gross estate.
 TRANSFER FOR INSUFFICIENT
CONSIDERATION

▪ Insufficient when fair market value of the property at the

time of sale or transfer is greater than the consideration.

▪ Part of the gross estate is the excess of the fair market

value at the time of death over the consideration;
 INCLUSIONS

▪ Capital of the surviving spouse

• Half is part of the gross estate of the decedent; the other half is the
exclusive properties of the spouse.
▪ Claims against insolvent person
• Allowable deduction from the gross estate.
▪ RA 4917 – Retirement Benefits
• Allowable deduction from the gross estate.
 INTANGIBLE ASSETS SITUATED IN THE
PHILIPPINES (SEC. 104)

1. Franchise which must be exercised in the Philippines;

2. Shares, obligations, or bonds issued by any corporation or
sociedad anima organized or constituted in the Philippines in
accordance with its law;
3. Shares, obligations, or bonds by any foreign corporation 85% of
the business of which is located in the Philippines;
4. Shares, obligations, or bonds have acquired a business situs in
the Philippines;
5. Shares or rights in any partnership, business, or industry
established in the Philippines.
 DETERMINATION OF THE VALUE (SEC. 88)

▪ Usufruct
• Probable life of the beneficiary based on the latest basic mortality table,
to be approved by the secretary of finance, upon recommendation of the
insurance commissioner.
▪ Properties (Real)
• Fair market value at the time of death; the higher between the zonal
value or assessed value.
▪ Properties (Personal)
• Fair market value at the time of death.
 DETERMINATION OF THE VALUE (RR 12-2018)

Shares of stock:
▪ Listed – arithmetic mean between the lowest and
highest quotation at a date nearest the date of death;
▪ Unlisted common shares – book value of the share;
▪ Unlisted preference shares – par value of the share;
 ALLOWABLE DEDUCTIONS (SEC. 86)

Ordinary Deductions Special Deductions

1. Claims against the estate 1. Standard deduction
2. Claims against insolvent person 2. Family home
3. Unpaid mortgage 3. Share of the capital surviving
spouse
4. Unpaid taxes
4. RA 4917
5. Losses
6. Transfer for public use
7. Vanishing deductions
 ALLOWABLE DEDUCTIONS (SEC. 86)

A. FOR CITIZEN OR RESIDENT

1. Standard deduction – P 5,000,000
2. Claims against the estate
❑ Debt instrument is notarized;

❑ Executor or administrator to submit statement showing the

disposition of the proceeds of the loan, if it is contracted within 3
years before the death of the decedent.
❑ Ariseout of contract, tort or operation of law; Personal obligation;
Not condoned; Not prescribed.
 ALLOWABLE DEDUCTIONS (SEC. 86)
A. FOR CITIZEN OR RESIDENT
3. Claims against insolvent person
▪ Part of the gross estate;

4. Unpaid mortgage
▪ Property undiminished of mortgage shall be part of the gross
estate
5. Unpaid taxes EXCEPT (1) Income taxes after death; (2) Property taxes
not accrued before death; (3) estate tax.
 ALLOWABLE DEDUCTIONS (SEC. 86)

A. FOR CITIZEN OR RESIDENT

➢ Requisites
for claim against, unpaid mortgage or
indebtedness:
➢Founded upon promise or agreement;

➢Contracted bona fide

➢For adequate and full consideration.

 ALLOWABLE DEDUCTIONS (SEC. 86)
A. FOR CITIZEN OR RESIDENT
6. LOSSES
▪ Incurred during the settlement of the estate; and not later than the
last day of payment of estate tax;
▪ Arises from fire, storm, shipwreck, or other casualties, or from
robbery, theft, or embezzlement;
▪ Not compensated by insurance;
▪ Not claimed as deduction from income tax.
 ALLOWABLE DEDUCTIONS (SEC. 86)

A. FOR CITIZEN OR RESIDENT

7. Transfer for public use
 For government or political subdivisions’ use

8. Family home
 Equal to Current fair market value of decedent family home;

 Ifmore than P 10,000,000, then the excess shall be subject

to estate tax.
 ALLOWABLE DEDUCTIONS (SEC. 86)
A. FOR CITIZEN OR RESIDENT
9. Vanishing deduction (previously taxed), requisites
▪ Property must be situated In the Philippines;
▪ Part of the gross estate of the prior decedent;
▪ Decedent died within five (5) years prior to his death;
▪ Received as gift, bequest, devise, or inheritance, or acquired in
exchange for property so received;
▪ Donors tax or estate tax has been paid;
▪ Not part of the deduction of the prior decedent;
 VANISHING DEDUCTION

Vanishing deduction, deductible rate:

▪ 100%, within 1 year;
▪ 80%, more than 1 year but not more than 2 years;
▪ 60%, more than 2 years but not more than 3 years;
▪ 40%, more than 3 years but not more than 4 years;
▪ 20%, more than 4 years but not more than 5 years;
 VANISHING DEDUCTION

❑ Formula:
Value to take (lower amount) P xxx
Less: Assumed mortgage xxx
Initial basis P xxx
Less: proportionate deduction xxx (except special deduction)
Final basis P xxx
X Vanishing deduction rate xxx
Vanishing deduction P xxx
 VANISHING DEDUCTION

❑ Formula for proportionate deduction:

Initial basis/ gross estate x allowable deductions

Allowable deductions include (all ordinary deductions): (1) claims

against insolvent; (2) claims against the estate; (3) unpaid mortgage
or indebtedness; (4) unpaid taxes; (5) losses; (6) transfer for public
use.
 ALLOWABLE DEDUCTIONS (SEC. 86)

A. FOR CITIZEN OR RESIDENT

10. Ra 4917, amount received by heirs from the employer for the
death of the decedent; provided it shall be part of the gross
estate.
11. Share of the surviving spouse
 ALLOWABLE DEDUCTIONS (SEC. 86)
B. For non-resident decedent
1. Standard deduction – P 500,000
2. Proportionate deduction of claims against the estate, claims
against insolvent person, unpaid mortgage or indebtedness,
unpaid taxes and losses.
3. Vanishing deduction
4. Transfer for public use
5. Share of the surviving spouse
 TAX CREDIT (SEC. 86)
▪ Tax credit – estate tax imposed by foreign authority
1. Limitation A: Allowed tax credit
➢ Foreign net estate (each country)/ world net estate x Philippine estate
tax
2. Limitation B: Allowed as tax credit
➢ Foreign net estate (all countries)/ world net estate x Philippine estate
tax
▪ Select the lower amount between A, B and the actual estate tax.
 EXEMPTIONS (SEC. 87)
❑ The following shall not be taxed:

• The merger or usufruct in the owner of the naked title;

• The transmission or delivery of the inheritance or legacy by the fiduciary
heir or legatee to the commissary;
• The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor;
 All bequests, devises, legacies, or transfers to social welfare, cultural, and
charitable institutions; provided, that not more than thirty percent (30%)
of the said bequest. Devises, legacies, or transfers shall be used for
administration purposes.
 EXCLUSION UNDER SPECIAL LAWS

1. Proceeds of life insurance and benefits received by members of the GSIS (RA 728);
2. Accruals and benefits received by members from SSS by reason of death (RA
1792);
3. Life insurance proceeds on life insurance policy taken out by the decedent for
himself, upon his own life, where the beneficiary is a third person and is
irrevocably designated;
4. Life insurance proceeds on insurance policy (group insurance) taken out by his
employer on the employees life, whoever the beneficiary maybe , whether the
designation as beneficiary is revocable or irrevocable.
5. Amount received from the Philippines and the United States governments for war
damages (RA227);
 EXCLUSION UNDER SPECIAL LAWS

6. Payments from the Philippines of US government to the legal heirs of deceased of

World War II Veterans and deceased civilian for supplies/ services furnished to the
US and Philippine Army (RA136);
7. Amount received from United States Veterans Administration;
8. Transfer by way of bona fide sales;
9. Properties held in trust by the decedent;
10. Acquisition and/ or transfer expressly declared as not taxable;
11. Personal Equity and Retirement Account (PERA) assets of the decedent –
contributor (Sec. 14, RA9505 – Personal Equity and Retirement Act of 2008).
 ESTATE TAX RETURNS (SEC. 90)
❑ When to File?
• In all cases of transfers subject to estate tax; or
• When the gross estate, regardless of the value, consists of registered or registrable
property, motor vehicle, shares of stock or other similar property, which a clearance
from the BIR is required to transfer the ownership of the said properties.
❑ Requirements:
• The executor or administrator, or any of the legal heirs, shall file a return under oath in
duplicate, setting forth:
✓ The value of the gross estate;
✓ Allowable deductions;
✓ Other information necessary to establish the correct taxes.
 ESTATE TAX RETURNS (SEC. 90)
❑ Additional Requirements:

 When the gross estate exceeds P 5,000,000, the return shall

be supported with a statement duly certified to by a certified
public accountant containing the following:
 Itemized assets of the decedent;

 Itemized deductions;

 Tax due whether paid or still outstanding.

 ESTATE TAX RETURNS (SEC. 90)

❑ Time for filing

• Within 1 year from the decedent’s death;

• A certified copy of the schedule of partition and the order of the court
approving the same shall be furnished the commissioner within thirty
(30) days after the promulgation of such order.

❑ Extension of time

• In meritorious cases, a reasonable extension not exceeding thirty (30)

days
 ESTATE TAX RETURNS (SEC. 90)

❑ Place of filing

• Authorized agent bank, Revenue district officer, collection

officer, or duly authorized Treasurer of the city or municipality
in which the decedent was domiciled at the time of his death;
• If there be no legal residence in the Philippines, with the office
of the commissioner;
 PAYMENT OF TAX (SEC. 91)
❑ Time of payment

• Pay as you file system

❑ Extension of time

• Applicable it there would be undue hardship upon the estate or any of

the heirs;
• Judicial settlement – 5 years;
• Extra judicial settlement – 2 years;
• Statute of limitations as provided in sec. 203 (assessment) is suspended;
 PAYMENT OF TAX (SEC. 91)
❑ Extension of time

 No extension will be granted when there is negligence, intentional

disregard of rules and regulations, or fraud on the part of the taxpayer;
 When the extension is granted, a bond must be furnished by the
executor, administrator, or beneficiary;
❑ Payment by installment

 Within 2 years from the statutory date for its payment without civil
liability and interest.
 PAYMENT OF TAX (SEC. 91)

❑ Liability for payment

• The estate tax shall be paid by the executor or administrator before

delivery to any beneficiary of the distributive share of the estate.
• The beneficiary to the extent of his distributive share shall be subsidiarily
liable.
• If there are no executor or administrator, then any person in actual or
constructive possession of any property of the decedent.
 DISCHARGE OF EXECUTOR OR
ADMINISTRATOR (SEC. 92 )
• After payment of the estate tax due;
• Subject to 3 – year period assessment under sec. 203;
• Certification from the commissioner that the estate
tax has been paid is necessary before the judge
ordered the distribution of the property (sec. 94)
DUTIES OF CERTAIN OFFICERS AND DEBTORS
(SEC. 95)
• Register of deeds shall not register the transfer unless
a certification from the commissioner that the estate
tax due has been paid; also, they have to inform
revenue officers of the non payment of tax discovered
by them;
• Lawyer, notary public, or government who intervenes
shall furnish the BIR officers with copies of information
which will facilitate the collection of taxes.
DUTIES OF CERTAIN OFFICERS AND DEBTORS
(SEC. 95)

• The debtor of the deceased shall not pay the latter’s

heirs, legatee, executor, or administrator or his
creditor unless the certification has been issued;
• However, he may pay the executor or judicial
administrator without certification if the credit is
included in the inventory of the estate of the
deceased.
 RESTITUTION OF THE TAX UPON
SATISFACTION (SEC. 96)

• If after the payment of the estate tax, new obligation

of the decedent shall appear, and the person
interested shall have satisfied them by order of the
court, they shall have the right to the restitution of the
proportional part of the tax paid.
TRANSFER OF SHARES, BONDS OR RIGHTS
(SEC. 97)
• Can only be made after the certification (tax is paid)
has been issued by the commissioner;
• The heirs, executor, or administrator are allowed to
withdraw from the decedent’s bank account subject to
6% withholding tax;
• The withdrawn amount will be excluded from the
gross estate subject to estate tax.
 END OF PRESENTATION

 References:
• NIRC of the Philippines, as amended: Annotated, 5th edition, 2018;
• Transfer and Business Taxation, Tabag and Garcia, 2019;
• New Civil Code of The Philippines;
• Reviewer on Civil Law, Aquino, 2018;