October 2019 DONOR’S TAX Atty. C, Liamado + Also called Gift Tax + Imposed on the gratuitous transfer of real or personal, tangible or intangible property. + Imposed whether the transfer is in trust or otherwise. Purpo 1) To prevent avoidance of the estate tax 2) To compensate forthe loss or decrease of income taxes ‘when large estates are split. ‘Requis 1) Transfer is gratuitous or without considerstion. The transfer is made ou ‘of pure generosity ofthe donor (donative intent), 2) Both the donor andthe donee are living atthe time ofthe transfer (iter vivos). 3) There must bea completed gift Contract of Donation ‘When perfected? At the moment the donor knows ofthe acceptance of the git by the donee (Am. 734, Civil Code. ‘Who ean be donors? All persons who may contact end dispose oftheir property may make a onan (At 73, Civil Code) ‘Whoo can be donees? All those who aze not specially disqualified by law may accept donations (At. 738, Civil Code). ‘Minors and others who cannot enter into a contract may become donees, ‘but acceptance shall be done though their parents or legal representatives (Ar. 741, Civil Code). : Donations made to conceived and unborn children may be accepted by {hose persons who would legally represent them if they were already bor (An. 742, Civil Code). ‘Winat donations shall be void? s cad I! 1) Between spouses, whether director indineet, during the mariage, except modkcate gifts wich the spouses may give each other on the occasion of any fanly rejoicing (At 87, Family Code), | "Note: Indirect donations toa spouse are void, and include the following donations ofa spouse: 4) Tos stepchild who has no compulsory irs other than the other-spouse atthe time ofthe donation; . ') To. common child who bas po compulsory bers other than the other spouse at the time ofthe donation; i ©) To the parents of the other spouses 4) To the other spouse's atopted child in cases when, at the time ofthe donation, > the only surviving relatives of the adopted is the adopter-spouse, the iegitimate children ofthe adopted, and the surviving spouse of the adopted;October 2019 ©) Toa common adopted child who has no other surviving heirs (see Act. 190, Family Code) 2) Between persons living together as husband and wie without a valid marriage (Ar. 87, Family Code); 3) Been pons ily of contigs or ary ate tne of nation (A 73, Civil Code); al wa = 4) Berween persons found guilty of the same criminal offense, in consideration thereof (Art. 739, Civil Code}, 5) Those made toa public officer or hisher spouse, descendants, and ascendants, by reason ofhis or her office (Art. 739, Civil Code); 6) Donations made by persons to those who cannot inhect from them: (©) Donations tothe piest who heard the confession ofthe donor darag his last illness, cx the minister who extended spit sid him drag the same period; {b) Donations to the relatives of such priest or minister in (a) within the 4" degree; (©) Donation to the church, order, chapter, community, organization, or instiition to ‘Which such priest or minister in (a) belongs; (© Those made toa guardian with respect 10 donations made by a ward before the final accounts of the guardianship have been approved, except when the guardian is the ‘war's ascendant, descendant, brother, or sste, (© Any physician, surgeon, aus, health officer, or druggist who tok cae of the donor ‘daring hs lat illness (Art. 740, Ar. 1027, Civil Code) Donation of Movables (2) Donation may be oral or in writing. (@) I rally made, it requires the simultaneous representing the right donated. () Fin wring, it does nt requir simultaneous delivery of he thing donated. of the thing or the document (@) Acceptance may be oral, in writing, or tacit [value ofthe movable does not exceed 15,000, the donation may be oral or in writing, and the acceptance may be oral, in writing, or tait. he the value of the movable i exceeds 75,00, the donation andthe acceptance must be in witing, otherwise the donation is void. Without such writing, the donation would be | void, even if there is simultaneous delivery (Ar. 748, Civil Code) Donation of immovables Donston must bein writing and in a pubic instrument (notarized). ‘Acceptance may be made inthe same deed of donation or in seperate public instrument. ‘The aceptance must be done during the lifetime ofthe dono, and the later must be sotifid ofthe acceptance.October 2019 OTHER TRANSACTIONS SUBJECT TO DONOR'S TAX (4) Transfers for Insufficient Consideration (Sec. 100, NIRC) Requisites: (@) The propery transfered is real or personal property, except real propelty classified oy ah ae ae reared ra Sei | (© The transfer is ite vivos. | Purpose: To prevent escape fom the income tx by accepting a lower price forthe Property. ‘Tax Consequences: Gilt (abject tothe Donors Ta) Tacome (subject to Income Tax) TFA ofthe property wansfered rice (consideration received Less: Price (consideration) received Lass: Cost, In Transfers for Insufficient Consideration in the Sale of Domestic Shares of Stock + FMM of share ofetock sold, bartered or exchanged shall be as follows: (1) I the shares are Fisted, but are sold, bartered, or exchanged outside the local stock exchange, the FMV shall be: (@) The closing price on the day the shares are sold, bartered, or exchanged; () The losing price on the day nearest to the date of sale, barter, or exchange if there is no sales transaction of the shares in the local stock ‘exchange on the day it was sold, bartered, or exchanged. (2)1f the shares are not listed in the local stock exchange, the FMV shall be etermined using the Adiusted Net Asset Value Method. In such method, all assets and liabilities are adjusted to fai market values. The nct adjusted. ascot minus the adjusted Laity values isthe value ofthe equity. For real_| Froperes, te FMV sl be he highest ofthe ona valu, asestor's vale, | ‘or the independent appraiser's value (Rev. Regs. 6-2008, 6.2013). EXCEPTION: When the sale/exchange is bona de, at arm's length, and fee from any onatve intent, the same will be considered as made for an adequate and fall consideration in money or money's worth.' In such cases, these is 10 insufficient consideration, and therefore no gift. (2)Condonation or Remission of Debt + Where the debtor didnot ender any service in favor of the creditor, * Sec. 100, NIRC, as amended by R.A. No, 10963, iOctober 2019 Within | Witt | Witkin ‘GROSS GIFT ST sms iat mira ssdn = Sars — [RE - raitemy | ms Witia Cia 218 | © 2) 8 3 © reat TS Ole Lo ” Norma | O| 3] @ xeo f° ° * CF there is reoiprociy) Intangible personal property means incomporea! property which do not have any physical form, Dbutepresent rights and privileges. Examples inclade bank deposits, trademarks, shares of stock, patents, copyrights, bonds, nots, interest in a partnership, et. Tatangibie Ase Sina T)_Reseiatie(promiisry note) [Residence of he dobar 2) Bank depos: ‘Location of the bank 3)" Othe intangibie properties a) Franchises, peers, copyright, wadenan ‘Were propery is wed or exer ‘b] Investment in partersbip Where putserships exablished ©) Shares of sloek, bonds, carports obligations @) Dorwestic corporation ‘Within he Philippines @) Foreign corperation ‘Without the Philippines Bxoept ') Uz 85% ofbusiness isin te Pilippives | Within the Pilippines 4) IF shares ov bonds have acquired » bosness situs inthe Philippines _Winhin the Philippines Gross Gift of Husband and Wite Husband and wife may donate: (@) The conjugal or community properties. Esch spouse shal be considered a separate donor of his or ber interest in the propesty- ofthe conjugal property donated being gif ofthe husband. and the ther half tat of te wite. (®) Separate or exclusive property owned by only one spouse Valuation of Gifts ~ Properties shal be valued a the time the gift is madeOctober 2019 Property Valuation Real Property TEMAV which ithe higher of the zonal value orth asessor's value Personal Property FMV atthe time ofthe gif ‘Stocks listed inthe sock Average ofthe lowest and highes!quoies oa the valuation de (aie of xchange if) or day nearest othe valston date. ‘Siooks noi sed Ta any” | For common shares: Book Valu local exchange For preferred shares, pa value. ‘Notes accounts "PMY isthe discounted amount of te wnpld principal plas ines. ()_Atiie tine of dono, te FU of ie dosk opin @) Upon exerts ofthe apo, the diferece beeen the bighe fhe BV or FMY ofthe uderying shares athe tre of exercise andthe cure pie ‘BIG price nearest the die of the git published Ta any SeWwipaper or publication of general circulation. * in determining th book vale, appraisal surplus andthe valuo assigned to preferred ehares call not be considered. sOctober 2019 EXEMPTIONS (EXCLUSIONS) FROM GROSS GIFT A) Gits made to the National Government or to any political subdivision ofthe National Government or to any entity created by the goverament whlch is not conducted for profit. B) Gifs made to educational, charitable, religious, cultural, social welfare Institutions, accredited NGOs and trusts, philanthropic organizations, and research institutions. Provided: 1) The non-profit institution isa non-stock entity that pays no dividends, is governed by trustees who do not receive any compensation, and devotes all ofits income to ‘the accomplishment ofits purposes; and 2) [Not more than 30% ofthe git shall be used for administrative purposes. 3) The non-profit institution must be accredited by the designated accrediting goverment agency, and repistered with the BIR. © Campaign contributions in cash or in kind to any candidate which are duly reported to the COMELEC (RA. 7166) However, donations made by corporations in violation of Section 36(9) of the CCorperation, Code are subject to donor's tax, and may not be deducted by the douor- ‘corporation >" D) Other donations which are exempted from the donor’s tax under special laws: (2) Donation made forthe operation ofthe Dual Training System under R.A. No. 7686. (@) Donations of cooperatives to duly accredited charitable, research, and educational institutions, and t socio-economic projets within their area of operations; (@) Donations of lands certified by the LGU to have been donated for socialized housing purposes; (4) Donation tothe Philippine Red Cross; (G) Donations to state universities and colleges. i DEDUCTIONS FROM GROSS GIFT A) Mortgage or encumbrance on the property which obligation is assumed by the donee (RR 2-2003). B) Those specifically provided by the donor as a diminution of the property donated. . ©) The first ¥250,000, *RMCNo. 38-2018,October 2019 COMPUTATION OF DONOR'S TAX | Beginning January 1, 2018, the tax shall be six percent (6%) computed on the basis ofthe total gifts jm excess of Two Hundred Fifty Thousand Pesos (F250,000) exempt gift made during, the calendar year | Te enmi fte ors on B en of() cee es ‘The donor's or gift tax is computed on the net gift of the first donation. In case there are subi doaon nie se ealenat ya the tax s computed one camlaive bs, Le, the por gos ifn te same calendar yer are ae oh Cre goss gi fo ares he teal goss gis Te ill exenpions or dttons stall be subincd fom te tll Boss sits. The doors tx sal be based on te totale its (2) On the first donation during the vear: Gross gift P xx Less: Exemption or deduction, Net gift Gift tox (6%) ie a (&) On subsequent donations within the same calendar vear: Gross gift Add: Prior gross gift Total gross gifts Less: Exemptions and deductions Total net gifts vax a Pox oo be « | Gisttax (6%) Less: Gift tax on prior net gifts in the same calendar year Gift tax on subsequent gift ” “Seo, 9A), NIRC; Rev. Reg. No, 122018, * Rev. Reg, No. 122018, ‘October 2019 : CREDIT FOR FOREIGN DONOR’S TAXES PAID + Available only to Resideat Donors (citizens or resident alien denors) ~ Subject to Limits Limits: (A) NetGiftper Foreign Country) x Philippine Donot's Tax Total Net Gifts (B) Net Gifts (in ll Foreign Counties). x Philippine Donor’s Tax Total Net Gifts Rules: 1) Iftaereis only one (1) foreign country, only Limit (A) is use. 2) Tf there are > two (2) foreign counties, use both Limits Formula: Donors ax pid in County 1 Liisa Comp) Howe + Donors tx paid in Country 2.7) Limit A (Couey 2) a Lower = Credit Sum of donor’s taxes paid in Counties 1 and 2 Lowr= Limit ®) | Limit B JOctober 2019 Donor’s Tax Return Who files? ‘Any individual who makes any transfer by gift Notes: (@) No retum is required ifthe transfer is exempt from donor's ta, like donstions to the National Governmeat orto non-profit institutions. (A separate return shall be filed by each donor for each gift or donation made on different dates during the year. Any previous gifts made in the same calendar year shall be reflected in each retum. (© Only one return shall be filed for several gifts or donations by a donor made on the same date to different donees. @ lft gif or donation involves conjugaVcommunity property, each spouse shal file a separate return corresponding to hisher respective share inthe conjugal/community property. This rule shall ikewise apply in the case of co-ownership over the property ‘being donated,® Time offing? a ‘Within thirty (30) days from the date the gift is made. ‘Time of payment: At the time of fling the return, Where filed? (@) If donor is a resident donor (ie. citizen ot resident alien) - with the Authorized ‘Agent Bank (AAB), RDO, collection officer or duly authorized treasurer of the city ‘of municipality where donor is domiciled atthe time of transfer, or with the Office of the Commissioner if donor has no legal residence, (H)If donor is a non-resident donor (Le, non-resident alien) ~ with the Philippine Embassy or Consulate inthe country were he is domiciled atthe time of transfer, ot Aiectly with the Office of Commissioner (RDO No. 39) (©) In cases of “No Payment Retum” ~ The retums shall be filed with the Revenue District Office having jurisdiction over the place of domicile of the donor at the time of the donation, o if there is no legal residence in the Philippines, with the Office of the Commissioner (RDO No, 39 South Quezon City)” Contents of the Donor's Tax Return ‘The return shall set fet" 1) Each gift made during the calendar year which is to be inchuded in compating net sits; 2) The deductions claimed and allowable: 3) Any previous net gis made during the same calender yee, ‘ Guidelines and Instruction (BIR Form No, 1800 Donor's Tax Return). TRMC No. 542019, * Sec. 103(A), NIRC.(October 2019 ' 4) The name of the donee; and 5) Such further information as may be required. Notice of Donation? In order to be exempt from the donor's tax and to claim full deduction of the donation sven to qualified donee institutions, the donor engaged in business shall give a Notice ‘of Donation on every donation worth atleast Fifty Thousand Pesos (P50,000) tothe RDO hich has jurisdiction over hs place of business. ‘The aforementioned notice shal be given fo the RDO within thirty (30) days aftr receipt ‘of the donee's duly issued Certificate of Donation (BIR Form No. 2322). The same certificate shall be attached tothe Novice of Donation, and shall state that not more than 130% of the donations forthe taxable year shall be used by such accredited non-stock, or-prof, NGO-donee institution for administation purposes pursuant to Section. 101(A)G) and B(2) of the Tax Code. * Rev. 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