MODULE 1: DONOR’S TAXATION

Lesson 3 – Donor’s Tax Credit

Overview:
Donor’s Tax Credit refers to the amount of donor’s taxes imposed by the Philippine
government and / or by foreign country, upon the donor’s net gift situated therein, that are allowed
by law as a direct deduction from the Philippine’s Donor’s tax due.
Tax credit are computed and allowed as direct deduction to the Donor’s tax due in
order to arrive at Donor’s tax still due or payable. Tax credits are as follows: Philippines donors’
tax due paid in the original tax return, Philippine Donor’s tax due paid in the same calendar year
and foreign donor’s tax paid.
Under this module, it will discuss the related provision on tax credit under section
101 of the Tax Code and its application. This module will illustrate how to compute the limits of
foreign donor’s tax paid as tax credit and the computation of donor’s tax payable.

Module Objectives:
After successful Completion of this module, you should be able to:
1. Understand the provision of the law that governs imposition of Donor’s Tax and Donor’s tax
Credit
2. To know he components of Donor’s Tax Credit
3. To summarize the Donor’s Tax credit available for different taxpayers/ donors.
4. To compute the taxable net gift and the corresponding donor’s tax still due based on the Old
Tax Code and new Tax Code.
5. To understand and compute the limitations on Donor’s Tax Credit for donor’s tax paid on
foreign country by a resident or citizen donor.

Course Materials:

Tax Credit for Donor's Taxes Paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a
resident at the time of donation shall be credited with the amount of any donor's tax of any
character and description imposed by the authority of a foreign country.

(2) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the
same proportion of the tax against which such credit is taken, which the net gifts situated within
such country taxable under this Title bears to his entire net gifts; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the donor's net gifts situated outside the Philippines taxable
under this title bears to his entire net gifts

COMPUTATION OF DONOR’S TAX;

Beginning Jan 1, 2018, the tax shall be 6% computed on abasis pf total net gift in excess
of P 250,000 exempt gift made during the calendar year.
The computation of donor’s tax is on a cumulative basis over a period of 1 (one) calendar
year.

DONOR’S TAX CREDIT

The component of Donor’s tax Credit are as follows:

1. Philippine donor’s tax paid on the original donor’s tax return filed (in the case of amended
Donor’s tax return only)
2. Philippine Donor’s Tax paid in prior donor’s Tax return on the SAME calendar year. (in case
there are subsequent donations only)
3. Foreign donor’s tax paid- This refers to any donor’s tax of any character and description,
imposed by the authority of the foreign countries upon the donor’s net gift located therein. This is
subject to limits according to SEC 101 paragraph C.

Donor’s Tax Credit available for Different Taxpayer / Donors

Tax Credit *RC, Non-resident
NRC, RA Alien
Philippine donor’s tax paid on the original donor’s tax OK OK
return filed (in the case of amended Donor’s tax return
only)
Philippine Donor’s Tax paid in prior donor’s Tax return on OK OK
the SAME calendar year. (in case there are subsequent
donations only)
Foreign donor’s tax paid OK NA☹
*Resident Citizen, Nonresident Citizen and Resident Alien
Foreign donor’s tax paid, as tax credit, is not applicable to Non resident Alien
donors.

TAX CREDIT FOR FOREIGN DONOR’S TAXES PAID:

-It is available only to resident or Citizen Donors
-This type of tax Credit is subject to limit.

LIMITS:
A. (Net Gift per Foreign Country divided by Total Net Gift) x Philippine Donor’s Tax
B. (Net Gift in ALL Foreign Country divided by Total Net Gift) x Philippine Donor’s Tax

RULE:
1. If there is only one foreign country, only LIMIT A is used.
2. If there are more than two foreign countries, use BOTH LIMITS.
*Foreign donor’s tax credit is not applicable to donor who is a nonresident alien. Also, if the donor
is nonresident alien, he is taxable for donations made within the Philippines only.

LIMIT A:
Donor’s Tax paid in Country 1 versus LIMIT A (Country 1) = whichever is lower
PLUS (+)
Donor’s Tax paid in Country 2 versus LIMIT A (Country 2) = whichever is lower
EQUALS = LIMIT A

LIMIT B:
Donor’s Tax paid in Country 1 and 2 versus LIMIT B (Country 1 and 2) = whichever is lower
(LIMIT B)
TAX CREDIT for FOREIGN DONOR’S whichever is lower between LIMIT A and
TAX PAID= LIMIT B

Illustration 1:
Mr Xin of Hi Shin, resident citizen had the following data related to his donations to relatives on
July 2016:
Wrong data in the original donor’s tax return filed (corresponding donor’s tax was paid by Xin).

Philippines Canada America

Gross Gift 85,000 150,000 40,000
Allowed deduction 50,000 90,000 25,000
Net Gift 35,000 60,000 15,000

Computation of Donor’s Tax paid on the Original Donor’s Tax return:

Total net Gift-World (35,000+60,000+15,000) 110,000
Donor’s tax due / paid at Graduated tax rate P 200
(110,000 less 100,000) times 2%

Correct data in the amended Donor’s tax return:

Philippines Canada America
Gross Gift 180,000 120,000 70,000
Allowed deduction 50,000 30,000 40,000
Net Gift 130,000 90,000 30,000
Gift tax paid 8,600 300

Computation of Donor’s Tax due on the Amended Donor’s Tax return:

Total net Gift-World (130,000+90,000+30,000) 250,000
Donor’s tax due / paid at Graduated tax rate P 4,000
 (250,000 less 200,000) times 4% PLUS 2,000
Less: Tax Credits
Previous payment on the Original Donor’s Tax return 200
Foreign Tax Credit* (Pls see computation below) 1,740**
Donor’s tax Still Due / Payable 2,060

LIMIT A:
Canada:
Limit = (90,000 divided by 250,000) x 4,000 1,440
Versus actual payment of 8,600
Whichever is Lower (Canada) 1,440

America
Limit = (30,000 divided by 250,000) x 4,000 480
Versus actual payment of 300
Whichever is Lower (America) 300

Tax Credit under Limit A 1,740

LIMIT B:
Canada and America
Limit = ((90,000+30,000) divided by 250,000) x 4,000 1,920
Versus actual payment (8,600+ 300) 8,900
Whichever is Lower (ALL Countries) 1,920
Tax Credit under Limit B 1,920

Allowed Foreign tax Credit

LIMIT A 1,740
LIMIT B 1,920
Whichever is Lower (A vs B) 1,740**

Illustration 2:
Mr Xin of Hi Shin, resident citizen had the following data related to his donations to relatives on
July 2019:
Wrong data in the original donor’s tax return filed (corresponding donor’s tax was paid by Xin).

Philippines Canada America

Gross Gift 85,000 150,000 40,000
Allowed deduction 50,000 90,000 25,000
 Net Gift 35,000 60,000 15,000

Computation of Donor’s Tax paid on the Original Donor’s Tax return:

Total net Gift-World (35,000+60,000+15,000) 110,000
Donor’s tax due at 6% rate in excess of 250,000 P0

Correct data in the amended Donor’s tax return:

Philippines Canada America
Gross Gift 200,000 120,000 100,000
Allowed deduction 50,000 30,000 40,000
Net Gift 150,000 90,000 60,000
Gift tax paid 8,600 300

Computation of Donor’s Tax due on the Amended Donor’s Tax return:

Total net Gift-World (150,000+90,000+60,000) 300,000
Donor’s tax due / paid at 6% rate in excess of 250,000 P3,000
(300,000 minus 250,000) times 6%
Less: Tax Credits
Previous payment on the Original Donor’s Tax return 0
Foreign Tax Credit* (Pls see computation below) 1,200**
Donor’s tax Still Due / Payable 1,800

LIMIT A:
Canada:
Limit = (90,000 divided by 300,000) x 3,000 900
Versus actual payment of 8,600
Whichever is Lower (Canada) 900

America
Limit = (60,000 divided by 300,000) x 3,000 600
Versus actual payment of 300
Whichever is Lower (America) 300

Tax Credit under Limit A 1,200

LIMIT B:
Canada and America
 Limit = ((90,000+60,000) divided by 300,000) x 3,000 1,500
Versus actual payment (8,600+ 300) 8,900
Whichever is Lower (ALL Countries) 1,500
Tax Credit under Limit B 1,500

Allowed Foreign tax Credit

LIMIT A 1,200
LIMIT B 1,500
Whichever is Lower (A vs B) 1,200**