Bar Question (2014) Mr. De Sarapen is a candidate in the upcoming Senatorial elections. Mr. De Almacen, believing in the sincerity and ability of Mr. De Sarapen to introduce much needed reforms in the country, contributed P500,000 in cash to the campaign chest of Mr. De Sarapen. In addition, Mr. De Almacen purchased tarpaulins, ?As amended by R.A. No. 10963 (TRAIN), effective January 1, 2018.‘TRansrer Taxes: 469 Donor's Tax tshirts, umbrellas, caps, and other campaign materials that he also donated to Mr. De Sarapen for use in his campaign. Is the contribution of cash and campaign materials subject to donor's tax? Suggested answer: The Tax Code provides that any contribution in cash or in kind toany candidate, political party, or coalition of parties for campaign purposes shall be governed by the Election Code (Sec. 99{C], NIRC). On the other hand, the Omnibus Election Code provides, that any provision of the law to the contrary notwithstanding, any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to any payment of gift tax (Sec. 13, R.A. 7166). Hence, the contributions will be exempt from donor's tax if they are duly reported to the Commission. Otherwise, the contributions will be subject to donor's tax. Bar Question (2003, 1998) Are contributions to a candidate in an election subject to donor's tax? On the part of the contributor, is it allowable as a deduction from gross income? Suggested answer: No, provided the recipient candidate had complied with the requirement for filing of returns of contributions with the Commission on Elections as required under the Omnibus Election Code. The contributor is not allowed to deduct the contributions because the said expense is not directly attributable to, the development, management, operation, and/or conduct of a trade, business or profession (Sec. 34{AJ[1][a], NIRC). Furthermore, if the candidate is an incumbent government official or employee, it may ven be considered as bribe or a kickback (See. 34(AJf1J[e], NIRC).Bar Question (2015) Mr. L owned several parcels and he donated a parcel each to his two children. Mr. L acquired parcels of land in 1975 for P200,000. At the time of donation, the fair market value of the two parcels of land, as determined by the CIR, was P2,300,000; while the fair market value of the same properties as shown in the schedule of values prepared by the City Assessors was P2,500,000. What is the proper valuation of Mr. L’s gifts to his children for the purpose of computing donor’s tax? Suggested answer: The valuation of Mr. L’s gift to his children is the fair market value (FMV) of the property at the time of donation. The FMV is the higher of the FMV as determined by the Commissioner or the FMV as shown in the schedule of values fixed by the provincial and city assessors. In this case, for the Purpose of computing donor's tat, the proper valuation is the value prepared by the City AssessorsBar Question (2016) In 2011, Solar Computer Corporation (Solar) purchased a proprietary membership share covered by Membership Certificate No. 8 from the Mabuhay Golf Club, Inc. for P50, 000. On December 27,2012, it transferred the same to David, its American consultant, toenable him to avail of the facilities of the Club. David executed a Deed of Declaration of Trust and ‘Assignment of Shares wherein he acknowledged the absolute ownership of Solar over the share; that the assignment was without any consideration; and that the share was placed in his name because the Club required it to be done. In 2013, the value of the share increased to 800,000. fore subject to gift Is the said assignment a “gift” and, there! tax? Explain. Suggested answer: donation because there is : ta taxable eror. The purpose of th es i he transferor. The pul ee ivestment of ownership by the facilities of the Club. aster is si Ty David 10 avail of the Fence a Deed of Declaration Oo} Trust and Assignment °f Shares” where the absolute ownership by Solar of the share No. The transfer is no47 Reviewer ON TAXATION would show that there is no relinguishment of ‘The transfer being merely a transfer in form but ot subject to gift tax. is acknowledged ownership by Solar. 2 not in substance, the same is n Bar Question (1996) X,a multinational corporation doing businessin the Philippines, donated 100 shares of stock of said corporation to Mr. Y, its resident manager in the Philippines. (1) What is the tax liability, if any, of X corporation? (2) Assuming the shares of stocks were given to Mr. Y in consideration of his services to the corporation, what are the tax implications? Explain. Suggested answer: (1) Foreign corporations effecting a donation are subject to donor's tax only if the property donated is located in the Philippines. Accordingly, donation of a foreign corporation of its own shares of stocks in favor of resident employees is not subject to donor's tax (BIR Ruling No. 018-87, January 26, 1987). However, if 85% of the business of the foreign corporation is located in the Philippines or the shares donated have acquired business situs in the Philippines, the donation may be taxed in the Philippines subject to the rule of reciprocity. (2) Ifthe shares of stocks were given to Mr. Y in consideration of his services to the corporation, the same shall constitule taxable compensation income to the recipient because it is a compensation for services rendered in an employer employee relationship; hence, subject to income tax. dat 2 ne value or stated value of the shares issues also constitutes luctible expense to the corporation, provided it is subjected withholding tax on wages. , provided it is subjeBar Question (2013) In the settlement of the estate of Mr. Barbera who died Intestate, his wife renounced her inheritance and her share of the conjugal property in favor of their children. The BIR determined that there was a taxable gift and thus assessed Mrs. Barbera aS a donor. Was the BIR correct? Suggested answer: The BIR is correct that there was a taxable gift but only insofar as the renunciation of the share of the wife in the conjugal property is concerned. This is a transfer of property without consideration, which takes effect during the lifetime of the transfer /wife, and it thus‘Transren Taxes 475 Doner’s Tax qualifies as a taxable gift (Rev. Regs. No, 2-208, as amended by Rev. ‘Regs. No. 12-2018). But the renunciation of the wife’s share in the inheritance from her deceased husband is not a taxable gift, considering that the P is automatically transferred to the other heirs by operation Prlaw due to her repudiation of her inheritance (BIR Ruling No. DA- 933-07; Rev. Regs. No. 12-2018). Bar Question (2008) Spouses Jose San Pedro and Clara San Pedro, both Filipino citizens, are the owners of a residential house and lot in Quezon City. After the recent wedding of their son, Mario, to Maria, the spouses donated said real property to them. At the time of donation, the real property has a fair market value of P2 million. ‘Are Mario and Maria subject to income tax for the value of the real property donated to them? Explain. b. Are Jose and Clara subject to donor's tax? If so, how much is the taxable gift of each spouse and what rate shall be applied to the gift? Explain. a Suggested answers: Mario and Maria, donees, are exempt from income tax on the value of the real property received by them through donation of their parents. The value of property acquired by gift, bequest, devise, or descent, shall not be included in the gross income of the ‘donees. However, income from such property shall be included in their gross incomes during the year (Sec. 32[B][3]. IRC). b. Spouses Jose and Clara are the fair market value (P2 million) of the real property donated to their son, Mario, and on the donation made to Mario's wife, Maria. There are four taxable donations of 7500,000 made by the spouses. Donor Jose made P500,000 donation to his son, Mario, and another donation of 500,000 to his daughter-in-law, Maria. Donor Clara also ‘made P500,000 donation to her son, Mario, and another donation. of 500,000 to her daughter-in-law, Maria. Since the donations to their son, Mario, it7e made by the ‘Clara on account of his marriage, eee eta ‘each deduct P10,000 from his or a. subject to donor's tax onAs Reviewer on Taxarion her gift. Their net gifts of P490,000 (P500,009 10,000) willbe subject tothe graduated donor's ‘azn ranging from two percent to 15% (Sec. 99[A], NIRC) Wi, respect to their donations to their daughter-in-law, Maria their gross gifts of P500,000 shall be subject to the 3p: donor's tax rate, considering that the donee is a stranger in relation to the donors. A “stranger” is a person who , not a: (i) brother, sister (whether by whole or half: blood) ‘spouse, ancestor, and lineal descendant; or (ii) relative by consanguinity to the collateral line within the fourth degree of relationship (Sec. 99B], NIRC). [NOTE: A flat rate of 6% donor's tax is imposed on the total donations made during the calendar year in excess of P250,000 regardless of relationship of donor and donee, under R.A. 10963 (TRAIN), effective January 1, 2018.) Bar Question (1998) Ace Tobacco Corporation bought a parcel of land situated st Pateros and donated it to the Municipal Government of Pate! the sole purpose of devoting the said land as a relocation site the less fortunate constituents of said municipality. In accordanc® therewith, the Municipal Government of Pateros issued to the occupants/beneficiaries Certificates of Award giving to them the respective areas where their houses are erected. Through Ordinance No. 2, Series of 1998, the said municipal government ordained that the lots awarded to the awardees be finally transferred and donated to them. Determine the tax consequence of the foregoing dispositiot* with respect to Ace Tobacco Corporation, the Municipal Government of Pateros, and the occupants/beneficiaries, ‘Suggested answer: The donation by Ace Tobacco Corporation is exempt {70 the donor's tax because it qualifies as a gift to or for the use of 2°‘Twoeren Taxes Donor's Tex = National Economic Development Authority (Sec. 24(HI|2}[a), NIRC). iin utilisation i notin actordance with « National Prorty lon determined by the National Economie Development Authority, then ‘Ace Tobacco Corporation may deduct the value of the land donated ‘only to the extent of five percent of its taxable income derived from trade or business as computed without the benefit of the donation (Sec. 84{H)[2I{a] in relation to Sec. 34(HI[1), NIRC). The Municipality of Pateros is not subject to any donor's tax on the value of land it subsequently donated, it being exempt from taxes «sa political subdivision of the National Government. ‘The occupants/beneficiaries are subject to real property taxes because they now own the land. Transfer for Insufficient Consideration‘ Where property (i.e, ordinary asset), other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value af the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year: Provided, however, That a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at is lens we ive intent), will be considered as made for an adequate and full consideration in money or money's worth. Bar Question (1999) ‘A, an individual, sold to B, his brother-in-law, his lot with @ market value of P1,000,000 for P600,000. A’s cost in the lot is 100,000. B is financially capable of buying the lot. A also owns X Co., which has a fast growing business. i stock in X Co. to his key executives Giza some of is shares pat related to A. The selling price is \tX Co, These executives are not 3,000,000 which is the book value of the shares sold but with a ‘Market value of P5,000,000. A’s cast in the shares sold is P1,000,000. purpose of Ain gelling the shares isto enable his key executives Sa tye dam sons {52 100, NIRC, as amended by B.A, No, 10968 (TRAIN), effective January 1, OM: See. 16, Rev. Regs. No. 12-2018.478 REVIEWER ON TAXATION to acquire proprietary interest in the business and have a Persona] stake in its business. Explain if the above transactions are subject to donor's tax. Suggested answer: The first transaction where a lot was sold by A to his brother. in-law for a price below its fair market value will not be subject to donor's tax if the lot qualifies as a capital asset. The transfer for less than adequate and full consideration which gives rise to a deemed gift, does not apply to a sale of property subject to capital Sains tax (Sec. 100, NIRC). However, if the lot sold is an ordinary asset, the excess of the fair market value over the consideration received shall be considered as a gift subject to the donor’s tax. The sale of shares of stock below the fair market value thereof is subject to the donor's tax pursuant to the provisions of Section 100 of the Tax Code. The excess of the fair market value over the selling price is a deemed gift.Dowries or Gifts on Account of Marriage The exemption of dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first P10,000 under Section 101 of the NIRC was revoked by R.A. 10963 (TRAIN), effective January 1, 2018. Bar Question (1992) Mr. Bill Morgan, a Canadian citizen and a resident of Scarborough. Ontario, sends a gift check of $20,000 to his future Filipino daughter-in-law who is to be married to his only son in the Philippines. 1) Is the donation by Mr. Morgan subject to tax? Explain. Suggested answer: | While the gift has been made on account of marriage, to vine Ge the extent of the first P10,000 of the value ero vvoh aif should have been given to a legitimate, recognized natural, or adopted child of the donor. 2) What is the tax consequence, if any, to the donee (Filipino daughter-in-law of Mr. Morgan)? Suggested answer: The gift, with respect to the donee, is exuded ram rice and is exempt from income taxation. There ift that i from donor's snd of gift that is exempt from d © anyounane on na es cE spree of the Philippines? Include qui : if any.480 -RaviEWwER ON TAXATION Suggested answer: Gifts made to oF forthe use of the National Government or ay entity created by any ofits agencies which is not conducted for pag ar to any political subdivision of the said Government, are cxenp, from gift tax with respect to both residents and non-residents, Bar Question (2011) Celia donated P110,000 to her friend Victoria, who was getting married. Celia gave no other gift during the calendar year. What the donor's tax implication on Celia’s donation? Suggested answer: Celia shall pay a 30% donor's tax on the P100,000 cask donation, since Victoria, the donee, is a stranger to her. A “stranger’ is a person who is not a brother, sister (whether by whole or half- blood), spouse, ancestor and lineal descendant; or a relative by consanguinity in the collateral line within the fourth civil degree of relationship (Sec. 99[B], NIRC). Celia is not entitled to deduct the amount of P10,000 as dowry or gift on account of marriage becait that privilege is given only to parents of the donee who ts geting married (Sec. 101{A], NIRC). INOTE: The exemption of dowries sifis on account of marriage has been removed under R.A. 10962 (TRAIN)] Bar Question (2009) Miguel, a citizon and resi _ ot stork in Berg A esdont of Mexico, donated 81,00 7 Corporation, a Mexican company, 19 bit legitimate son, Miguelito, who i ilippines and about to be married to a Filipino giclee ne in. the Philippine ipino girlfriend. Mexico does not ine tled to the rule of reciprocity in ord be exempt from the Philippine donor's tex? ‘Why or why not? Suggested answers: a oUTe® 0” gifts made on account of marriage and belo tage bration (or within one year thereafter by pared Children to eBitimate, recognized natural, 0” Of extent (P10,000) is of the first Ten thous 1 00 os emo from done ee tia ‘0 the dowry exemption under the ‘NiRO. donat®‘Transren Taxes Donor's Tax tax law, the donor must be a resident of the Phili 8 X resident of the Philippines. Since Miguel is a non-resident alien, he does not qualify to claim such exemption. Miguel is not entitled to the rule of reciprocity in order to be exempt from the Philippine donor's tax. In the first place, the donation by Miguel, a non-resident Mexican citizen, of the shares of stocks of Barack Motors Corporation, a Mexican company, which has not acquired business situs in the Philippines, to his son, Miguelito, is exempt from donor's tax under Section 104 of the 1997 Tax Code, which provides that “... where the donor was a non-resident ‘alien at the time of his donation, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his ‘gross gift’ ” In other words, there is nothing to be subject to Gonor’s tax, and there is no reciprocity rule necessary to claim exemption. Exemptions under Special Laws L to Philippine government for scientific, Donations { I research, invention, and engineering, and technological development (R.A. 1606); Donations to social welfare, cultural, and charitable 2 organizations (P.D. 507; R.A. 1916); 3. Donations to the International Rice Research Institute (RA, 2707); ' 4, Donations to Ramon Magsaysay Award Foundation (RA a he National Lib: i National Museum, the National Library, 5. Donon te al Hil nite PD 373); 6. Donations to the Southern Philippines Development : (PD. 690): 7. Donations to the Intramuros ‘Administration (P.D. 1616). Dor Bar ie 017) Se non-profit corporation, donated CMI School, Inc., a non-stock: its three parcels of idle Cuyapo, Nueva Ecija to Hoek ated in the Municipality of ‘SLC University, another non-stock, non-um ON TaxaTION ie Rew poration, in recognition ofthe latter's contribution tog, eteipadon in the spiritual and educational development oft former. (@ Is CMI School, Ine. liable for the payment of donor's tap (©) Is SLC University later sells the three parcels of idle lang to Puregold Supermarket, Inc., a stock corporation, wil SLC University be liable to capital gains tax? Explis your answer (©) If SLC University donates the three parcels of idle land in favor of the Municipality of Cuyapo, Nueva Ecija, will SLC University be liable for donor’s tax? Explain your answer. Suggested answer: (0) No. Gifts made by a resident in favor of an educational corporation or institution shall be exempt from donor’ tax (Sec: 101(AlI3), 1997 NIRC, as amended). Considering that SLC University isa non-stock, non-profit corporation, and the property donated was made by a resident, then, ‘such exemption under the law applies to the present cas ©) Yes The gain presumed to have been realized on the sal exchange, or disposition of lan. hich Ore not octal tot of lands and/or buildings wl income from properties, real or persondl disposition ep conducted for profi, irrespective oft a 7 Hon ofthe income, by all tax exempt corporation atthe Naan Oa tesident to any political subdivision vernment shall be exempt from don0?’ (HA ore es Bar Question (2011) for the sn Wanted to donate PS milli monet wold en ional Dillard change ion as pris mate does not recognize the gueit"4 SPOrts Federation of the Philippines International, Profestionar Mi was held under the auspices of ! ‘edonors axon it donation "48 Attocaton, In. fe Levoestt™™‘Taavaren Taxes Donors Tax a Suggested answer: Yes, since the national sports as sociation for billiards does not sanction the event, and the donation is not included among the exempt donations under the law. Bar Question (2002) On December 6, 2001, LVN Corporation donated a piece of vacant lot situated in Mandaluyong City to an accredited and duly registered non-stock, non-profit educational institution to be used by the latter in building a sports complex for students. May the donor claim in full as deduction from its gross income for the taxable year 2001 the amount of the donated lot equivalent to its fair market value/zonal value at the time of the donation? Explain your answer. b. In order that donations to non-stock, non-profit ‘educational institution may be exempt from the donor's gift tax, what conditions must be met by the donee? a, Suggested answer: ‘a. No. Donations and/or contributions made to qualified once institutions consisting of property other than money ‘Shall be based on the acquisition cost of the proverts: The ‘laim as full deduction the fair donor is not entitled to cl oorwtet value/zonal value of the lot donated (Sec. 34/H}, IRC). b. Inorder that donations tonon-stock, non-profit educational se orrion may be exempt from the donors gift tax, i is required that 27 more than 30% of the said gifts shall be a ehe donee inatituion for administration Purposes (Sec. 101[AI{3}, NIRC)- Bar Question (1994) : In 1991, Imelda gave her parents * Ceres staan and a donation of P80,000 to her Pee, iding to the PUP Alumni ‘zation. Portions of the ve for the association, Astoiation, a non-stock, ilding shall be leased to ge” (@) Is the Christmas gift subject to tax?484 Revigwer ON TAXATION (2) How about the donation to the parish church? (3) How about the donation to the P.U.P. Alumni. Association? Suggested answer: ()) The Christmas gift of P100,000 given by Imelda to he parents is taxable up to P50,000 because under the lay (Sec. 92a) now See. 99(A], NIRC), net gifts not exceeding 50,000.00 are exempt. (NOTE: A flat rate of six percent donor's tax is imposed on the total donations made during the calendar year in excess of P250,000, regardless of relationship of donor and donee, under R.A. 10963 (TRAIN), effective January 1, 2018} (2) The donation of P80,000 to the parish church even assuming that it is exclusively for religious purposes is not tax-exempt because the exemption granted under Section 28(3), Article VI of the Constitution applies only to real estate taxes (Lladoc v. CIR, 14 SCRA 292 [1965]). INOTE: Gifts in favor of religious institutions are now exempt from donor's tax.] (3) The donation to the P.U.P. Alumni Association does not also qualify for exemption both under the Constitution and the oforecited law because it is not an educational Foungsearch organization, corporation, institution. foundation, or trust,‘Teansren Taxes Donor's Tax. i esstone time. ew cman of dna is made fr Sea by tho donor in another calendar year) de for gifts Bar Question (1995) Kenneth Yusoph owns a commercial lot which he bough ph wi yught many ago for P1 Million. It is now worth P20 Million although the ‘nal value is only P15 Million. He donates one-half pro indiviso interest in the land to his son Dino on December 31, 1994, and the other one-half pro indiviso interest to the same son on January 2, 1096. @ 2 @ (4) Suggested answer: @ @ How much is the value of the gifts in 1994 and 1995 for purposes of computing the gift tax? Explain. ‘The Revenue District Officer questions the splitting of the donations into 1994 and 1995. He says that since there were only two days separating the two donations they Should be treated as one, having been made within one year. Is he correct? Explain. Dino subsequently sold the land toa buyer for P20 Million. How much did Dino gain on the sale? Explain. Suppose, instead of receiving the lot by way of donation, Dine received it by inheritance. What would be his gain on the sale of the lot for P20 Million? Explain. ‘The value of the gifts for purposes of computing the gift tax sere P75 million in 1994 and P7.5 million in 1995. In setning @ real property for gift tax purposes the property eens ee appraised at the higher of two values as of the fine of donation which are (2) the fair market value as on or el by the Commissioner (which isthe zonal value Fact mureuant to See. 16fe) ofthe Tax Code) or () the fir te evalue as ahoun in the schedule of values fixed by the Fee eal and City Assessors. The fact thatthe property is worth P20 million a3 ime of donation is immaterial, aon an be shown that this value is one of the wo uniess i oom ned as provided under Section 81 of the Tax Code. enue District Ofer is not correct because the ean ‘gift tax is cumulative but only insofar‘Revaewen ow TAKATION 486 i rithin the same calendar year. = sete tit ty She arora : in income of P19 million from the sale, (in gained on cme of P19 milion fom the a wroperty in the hands of the donor or PI million. The gain from the sale or other disposition of property shall bei ‘excess of the amount realized therefrom over the basis or adjusted basis for determining gain (Sec. 34(a), NIRC) Since the property was acquired by gift, the basis for determining gain shall be the same as if it would be in the hhands of the donor or the last preceding owner by whom the property was not acquired by gift. Hence, the gain is computed by deducting the basis of PI million from the ‘amount realized which is P20 million. (Y Ifthe commercial lot was received by inheritance the gain from the sale for P20 million is P5 million because the basis is the fair market value as of the date of acquisition The stepped-up basis of P15 million which is the value for (at lax Purposes is the basis for determining the gain (Sec. 24f0j[2}, NIRC). Bar Question (2001) Your bachelor client, a Fi ‘wants to give his enue sister a gif of P200,000, He seeks your advice, fo whether tie not eliminating the donee ae sift, on Soar c eerie, him to give all of the P200,000 on Christmas ie ‘900 on Christmas 2001 and the other P100,000 "+2002. Please explain your advine Suggested answer: Twould adv ccaoment aati hin velgplt the donation. Giving the 200,000 tax bracket under the gould Mean that it will be subject to a higher ihePayment °f donor's tax. 6, es {hereby necessitating into we : On the other i i itl reiting 20.00 gen ein i dena donation in the grr from opr tax because the first P100,000 dean donors tania brackets ig ert (See. 99, NIRO! is one caer 2 donaion Pd On the cummins donations, the "ade by a donor is alowed only 0% ipino residing in Quezon City, one calendar year.[NOTE: A flat rate of six percont a: Trawsren Donors sr lonor’s tax is imposed on the donations made during the calendar i less of relationship of donor and donee, enloe a wey (HAIN), effective January 1, 2018] under R.A. 10963 Bar Question (2000) a) When the donee or beneficiar ‘iary is a stranger, the tax payable by the donor shall be 80% of the net wifts, For purposes of this tax, who is a stranger? b) What conditions must occur in order that all grants donations and contributions to non-stock, non-profit private educational institutions may be exempt from the donor's tax under Section 101(a) of the Tax Code? Suggested answer: (@) A “stranger” is a person who is not a: aM @) Brother or sister (whether by whole or half-blood), spouse, ancestor, and lineal descendant; or Relative by consanguinity in the collateral line within the fourth degree of relationship (Sec. 98/B), NIRC). INOTE: A flat rate of six percent donor's tax is imposed on the total donations made during the calendar year in excess of P250,000, regardless of relationship of donor and donee, under R.A. 10963 (TRAIN), effective January 1, 2018.] (&) The following are the conditions: » 2) Not more than 30% of said gifts shall be used by ‘such donee for administration purposes; ee Aan The educational institution 1s incorporatec nnon-stook entity, paying no dividends, governed by trustees who receive no compensation, and devoting i rhether students’ fees or gifts, ‘onatione,subeide er forms of philanthropy, donations, subsidies or othi h {onthe accomplishment and promotion of the purposes ‘enumerated in its Articles of Incorporation (Sec, 101/A]{3}, NIRC).