Introduction to

Transfer Taxation
Pamantasan ng Lungsod ng Muntinlupa
Overview and Objectives
1. The concept of transfer and its types.
2. The different transfer taxes.
3. The concept of complex transfer.
4. The rationalizations of transfer taxation.
5. The nature of transfer taxes.
6. The types of transfer taxpayers and their scope of taxation.
7. The reciprocity rule on non-resident aliens.
8. The situs of properties for purpose of transfer taxation.
9. The rules on timing of valuation of transfers.
10.The difference between donation inter-vivos and mortis causa
11. The different non-taxable transfers and their nature.
12.The concept of completion of transfers and their taxation.
What is Transfer?
 Any transition of Property from one person to another.
A person maybe a natural person such as individuals or a
juridical person created by law such as corporation,
partnership and joint ventures.
Types of Transfer
1. Bilateral transfers.
2. Unilateral transfers.
3. Complex transfers.
Bilateral Transfers
Bilateral transfers involve transmission of property for a
consideration. They are referred to as onerous transactions
or exchanges.
Examples.
1. Sale – exchange of property and money.
2. Barter – exchange of property for another property
Comparison between inter-vivos and
mortis-causa
Inter-vivos Mortis-Causa
Transferor Living donor Decedent
Nature Voluntary Involuntary
Reason Gratuity Death
Scope of the transfer of Only properties selected All properties of the
properties by the donor decedent at death

Property given Gift Estate

Transferee Donee Heir
Transfer Tax Donor’s tax Estate Tax
Timing of valuation of Date of Donation Date of death
donation
Unilateral Transfers
Unilateral transfers involve the transmission of property by a
person without consideration. They are commonly referred to
as gratuitous transactions or simply, transfers.
Types of Unilateral Transfers.
1. Donation. Gratuitous transfer of property from a living
donor to a done. (Donation Inter Vivos)
2. Succession. Gratuitous transfer of the properties of the
deceased person upon his death to his heirs. (Donation
Mortis Causa)
Complex Transfers
Complex Transfers are transfers for less than full and adequate
consideration.

Tax rules on transfers for adequate consideration are deemed pure

exchange and are subject to income tax, not transfer tax.

Transfer for less than adequate and full consideration.

Illustration - Complex Transfers
Assume a property with a fair value of P 50,000 and tax basis of P
10,000 is sold for merely P 30,000.0

Fair Value P 50,000

Gratuity 20,000 (Subject to Transfer tax)
Consideration or Selling Price P 30,000
Tax basis 10,000
Realized gain P 20,000 (Subject to Income tax)
Illustration - Complex Transfers
Cont..
Note: The transfer element is generally considered as an
inter-vivos donation, but it is donation mortis-causa if :
a. The sale is made in contemplation of the death of the
seller; or
b. If title to the property is agreed to be transferred upon
the death of the seller.
Rationale of Transfer Taxation
1. Tax evasion or minimization theory.
2. Tax Recoupment theory.
3. Benefit Received theory. (Government laws).
4. State Partnership theory.
5. Wealth redistribution theory. Equitable distribution.
6. Ability to pay theory.
Comparison of the Two Types of
Transfer Tax
Donor’s tax Estate tax
Subject Transfer Inter-vivos Mortis-causa
Nature Annual tax One-time tax
Tax payer Donor Decedent
Who actually pay the The donor himself Executor,
tax? Administrator or
heirs in behalf of the
decedent
Nature of Transfer Taxes
1. Privilege Tax. Privilege Tax rathe than a form of
penalty tax.
2. Ad valorem Tax. The amount of tax is dependent on
the value of the properties transferred.
3. Proportional Tax. Transfer Tax under TRAIN are
imposed at 6% of the net estate or gift.
4. National Tax. Levied by the national government.
5. Direct Taxes. Transfer Taxes cannot be shifted.
6. Fiscal Tax. Levied to raise money for the support of
the government.
Classification of Transfer Taxpayers and
their Extent of Taxation.
1. Residents or Citizens – such as:
a. Resident citizens
b. Resident Aliens
c. Non- resident citizens
Note: These are taxable on global transfers of property.
2. Non-resident Aliens
Note: These are taxable on Philippine transfers of
property.
Classification of Transfer Taxpayers and
their Extent of Taxation.

Citizenship of Juridical Persons:

1. Juridical Persons that are organized in the Philippines are
considered Philippine citizens.
2. In Donor’s taxation, the term resident citizen or alien
includes domestic or resident foreign corporations.
Situs of Transfer
a. Properties are transferred mortis-causa in the place where
the property is located at the point of death.
b. Properties are transferred inter-vivos in the place where
they are located at the date of donation.
Illustration:
Illus#01. A Resident alien who has P 10 million properties
in the Philippines and P 40 million properties in Japan died
in an airplane crash in Malaysia.
Note: The P 10M is deemed transferred mortis-causa in the
Philippines while the P 40M is also deemed transferred
mortis-causa in Japan.
Illus#02. While in Korea, a non-resident Filipino donated
his car in Japan worth P 5,000,000 to his American best
friend.
Note: The P 5M is deemed transferred inter-vivos in Japan
General Rule in Transfer Taxation

Taxpayers Inter-vivos Mortis-causa

Resident or citizens Global donation Global estate
Non-resident aliens Philippine donation Philippine estate
Illustration:
Illus.#01. Mr. Mario an American residing in the Philippines,
donated a car in Mexico to a friend and a motorbike in the
Philippines to his brother in America.
Note: Since the taxpayer is a resident, both the donation of a car
abroad and the donation of motorbike in the Philippines is subject to
transfer taxes. Donation Inter-vivos (Donor’s tax)
Illus.#02. Mr Kounoman, a Japanese citizen residing in Japan,
donated a parcel of land in Japan to a resident Filipino friend. He also
donated his investment in the shares of stocks of a Philippine Corp to
his Japanese sister.
Note: Since the donor is neither a Philippine resident nor a citizen,
only the donation of domestic shares is subject to transfer taxes.
Donation Inter-vivos subject to Donor’s tax.
Reciprocity Rule on Non-Resident Aliens
Note: Intangible personal properties of non-resident aliens are
exempt from Philippine transfer taxes provided that the country
which such alien is a citizen also exempts the intangible
properties of Filipino non-residents therein from transfer taxes.
Examples of intangible properties:
1. Financial Assets 2. Accounting intangible assets
a. Cash a. Patent
b. Receivables or Credit b. Franchise
c. Investment in bonds c. Leasehold right
d. Shares of stock in corp. d. Copyright
e. Interest in Partnership e. Trademark
Illustration:
Illus. #01. Mr. Shino a Japanese citizen, donated the
following properties in the Philippines:
1. Car
2. Cash in Bank
3. Shares of Stock of a domestic corporation.
Under Japanese laws, a non-resident Filipinos are exempt on
transfers of Intangible properties in Japan.
Note: Since the reciprocity exemption applies, Mr. Shino is
subject to donor’s tax only on the donation of the car.
The donation of intangible personal properties such as cash
and shares of stock is excluded.
Illustration:
Illus. #02. Assuming the same data in the preceding
problem, except Mr. Shino died leaving those properties in
the Philippines. The Japanese government do not tax
intangible properties of non-resident Filipinos thereon to
estate tax.
Note: Only the tangible property – car would be subject to
estate tax.
Illustration:
Illus. #03. Mr Park a Korean citizen residing in the
Philippines, died leaving P 5 million cash, P 3 million
interest in a business and a P 10 million condo unit in the
Philippines. Under Korean laws, Filipino non-residents
therein are exempt from transfer taxation.
Note: All of these will be subject to estate tax since the
reciprocity exemption applies only to non-resident aliens.