ESTATE TAX RATE (SECTION 84)

There shall be levied, assessed, collected and paid upon the transfer of the net estate as
determined in accordance with Sections 85 and 86 of every decedent, whether resident or
nonresident of the Philippines, a tax at the rate of six percent (6%) based on the value of such
net estate. 
PREVAILING LAW APPLICABLE

The rate applicable shall be based on the law prevailing at the time of decedent’s death.

 Effective January 1, 2018 to present [Republic Act (RA) No. 10963]

There shall be an imposed rate of six percent (6%) based on the value of such NET
ESTATE determined as of the time of death of decedent composed of all properties,
real or personal, tangible or intangible less allowable deductions.

EXEMPTION OF CERTAIN ACQUISITIONS AND TRANSMISSIONS (SECTION 87);

TRANSMISSIONS EXEMPTED FROM PAYMENT OF ESTATE TAX:

1. The merger of usufruct in the owner of the naked title

E.g. Y died leaving a condominium unit, the naked title belongs to W and
usufruct to F for a period of 5 years, then F died after two years. Upon the death
of F, the usufruct will merge into the owner of the naked title W who shall
become the absolute owner of the said condominium unit. The transfer from F
to W is exempt from estate tax.

2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or

legatee to the fideicommissary

E.g. X dies and leaves in his will a lot to his brother, Y, who is entrusted with the
obligation to transfer the lot to Z, a son of X, when Z reaches legal age. Y is the
fiduciary heir and Z is the fideicommissary. The transfer from X to Y is subject to
estate tax. But the transmission or delivery to Z upon reaching legal age shall be
exempt from estate tax.

3. The transmission from the first heir, legatee or donee in favor of another beneficiary,
in accordance with the desire of the predecessor

4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, provided that no part of the net income of which inures to the benefit of
any individual and not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used for administration purposes (Sec. 87, NIRC).
 NOTE: Bequests, devises, legacies or transfers made to educational institutions are not
included.

11. ESTATE TAX RETURN (SEC. 90, NIRC)

NOTE: All cases with regard to TRAIN Law must be filed

A. DUE DATE

When estate tax return is filed (SEC 90 [B], NIRC)

It is filed within 1 year from the decedent’s death. Extension to file an estate tax
return is allowed in meritorious cases but not to exceed 30 days. 1

Who files estate tax return: (SEC 90 [A], NIRC)

The Estate Tax Return (BIR Form 1801) shall be filed in triplicate by:

1. The executor, or administrator, or any of the legal heir/s of the decedent, whether
resident or non-resident of the Philippines, under any of the following situations:

a. In all cases of transfers subject to estate tax;

b. Regardless of the gross value of the estate, where the said estate consists
of registered or registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a clearance from the BIR is
required as a condition precedent for the transfer of ownership thereof in
the name of the transferee; or

2. If there is no executor or administrator appointed, qualified, and acting within the

Philippines, then any person in actual or constructive possession of any property of the
decedent.

Taxpayers who are filing BIR Form 1801 are excluded in the mandatory coverage from
using the eBlRForm.2

1
Sec. 90 [B], NIRC
2
Section 2 of RR No. 9-2016
 NOTE: In case the estate tax return shows a gross value exceeding Two Million Pesos
(PhP2,000,000) it must be supported with a statement certified to by a Certified Public
Accountant.3

B. PLACE OF FILING (SEC 90 [D], NIRC)

WHERE ESTATE TAX RETURN IS FILED:

 If resident decedent
To an authorized agent bank, RDO, Collection Officer, or duly authorized Treasurer
in the city or municipality where the decedent was domiciled at the time of his
death, or to the Office of the CIR. 4

 If non-resident decedent
To the RDO or to the Office of the CIR. 5

CONTENTS OF ESTATE TAX RETURN

Must be under oath and shall contain the following:

1. The value of the gross state of the decent at the time of his death or in case
of a non-resident, not a citizen of the Philippines, the part of his gross estate
situated in the Philippines;
2. The deductions allowed from the gross estate in determining the estate;
3. Such part of the information as may at the time be ascertainable and such
supplemental data as may be necessary to establish the correct taxes. 6

NOTE: If the estate tax return shows a gross value exceeding P5 million, the return shall
be supported with a statement duly certified by a CPA containing the following:

1. Itemized assets at the time of his death;

2. Itemized deductions to the gross estate; and
3. Amount of tax due, whether paid or still outstanding.

THE TAXPAYER MUST PAY THE ESTATE TAX UPON FILING, UNDER THE “PAY AS
YOU FILE SYSTEM.”

Extension to pay estate tax may be granted if the Commissioner finds that such
payment would impose undue hardships upon the estate or any heir and shall:

3
Sec 90 (A), supra
4
RMC 34-2013, Clarification on the Proper Accomplishment and Filing of Estate Tax Returns, dated April 22, 2013
5
Ibid.
6
Sec 90, supra
 1. Not exceed 5 years in case of judicial settlement
2. Not exceed 2 years in case of extrajudicial settlement.
3. Payment by installment if and only if the available cash of the estate is insufficient

1. CONDITIONS FOR EXTENDED FILING

REQUISITES FOR GRANTING EXTENSION TO PAY ESTATE TAX:

1. The request for extension must be filed before the expiration of the original
period to pay which is within 6 months from death
2. There must be a finding that the payment on the due date of the estate tax
would impose undue hardship upon the estate or any of the heirs
3. The extension must be for a period not exceeding 5 years if the estate is settled
judicially or 2 years if settled extra-judicially
4. The Commissioner may require the posting of a bond in an amount not
exceeding double the amount of tax to secure the payment thereof

EFFECTS FOR GRANTING EXTENSION TO PAY ESTATE TAXES (SEC. 91 [B],

NIRC)

1. The amount shall be paid on or before expiration of the extension and running
of the statute of limitations for assessment shall be suspended for the period of
any of such extension.
2. The cir may require a bond not exceeding double the amount of the tax and with
such sureties as the cir deems necessary when the extension of payment is
granted.
3. Any amount paid after the statutory due date of the tax, but within the
extension period, shall be subject to interest but not to surcharge.

INSTANCES WHERE REQUEST FOR EXTENSION OF TIME TO PAY ESTATE TAX

SHOULD BE DENIED:

1. Negligence
2. Intentional disregard of rules and regulations
3. Fraud

C. PAYMENT (SEC. 91, NIRC)

Who shall pay the estate tax:

 1. The executor or administrator, before delivery to any beneficiary of his distributive
share.
2. The beneficiary, to the extent of his distributive share in the estate, shall be
subsidiarily liable for the payment of such portion of the estate tax as his
distributive share bears to the value of the total net estate.

NOTE: The Commissioner may grant extension of time not exceeding five (5) or two
(2) years depending on whether the estate was settled judicially or extrajudicially. 7

1. CONDITIONS FOR INSTALLMENT PAYMENT

 Provides for the payment by installment basis in case available cash is insufficient to
pay the estate tax due. Payment shall be allowed within 2 years from the statutory
date for its payment without civil penalty and interest.

 The estate tax can be paid in installment in case the available cash of the estate is
not sufficient to pay the total estate tax liability and the clearance shall be released
with respect to the property the corresponding/computed tax on which has been
paid.

NOTE: There shall, therefore, be as many clearances (Certificates Authorizing

Registration) as there are many properties releases because they have been paid for
by the installment payments of the estate tax. 8

ALLOWED DEDUCTIONS FROM GROSS ESTATE TO ARRIVE AT THE VALUE OF THE NET
ESTATE

Q: Private respondent was the guardian of the person of decedent. The property of

the decedent was put by the RTC- Dumaguete, under the guardianship of the
Philippine National Bank via special proceeding, wherein 50, 000 was spent therein
for payment of attorney's fees. When the decedent died, instead of filing a estate
tax return, PNB advised respondent to extra-judicially settle the estate of his
brother.  The decedent's estate was extra-judicially settled and the heirs paid an
amount of 60, 753 for the notarization of the deed of extra-judicial settlement of
estate.The respondent paid the estate tax, however, they were subsequently
assessed of deficiency taxes because the amount paid in the special proceeding [50,
000] and the notarization fee [60, 753] cannot be claimed as a deduction to the
decedent's estate. Private respondent paid the said taxes under protest. While the
case is under review by the BIR, she filed a claim for refund in the CTA which was
7
Sec 91, supra
8
Sec 9 (F), R.R. No. 2-2003
 granted. May the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorney's fees in the guardianship proceedings in the amount of
P50,000 be allowed as deductions from the gross estate of decedent in order to
arrive at the value of the net estate?

A: Yes. As to the deductibility of the amount spent for notarization of the deed of extra-
judicial settlement of estate- Explained the SC, administration expenses, as an
allowable deduction from the gross estate of the decedent for purposes of arriving at
the value of the net estate, have been construed by the federal and state courts of the
United States [which the law on allowable deductions from gross estate was copied!] to
include all expenses "essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it. In this case, it is clear that the
extrajudicial settlement was for the purpose of payment of taxes and the distribution of
the estate to the heirs. The execution of the extrajudicial settlement necessitated the
notarization of the same. It follows then that the notarial fee of P60,753.00 was incurred
primarily to settle the estate of the deceased Pedro Pajonar. Said amount should then
be considered an administration expenses actually and necessarily incurred in the
collection of the assets of the estate, payment of debts and distribution of the
remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for
the Extrajudicial Settlement should be allowed as a deduction from the gross estate. 9

APPLICABILITY OF THE RECIPROCITY PROVISO IN THE NIRC (SEC. 22, NIRC)

Q: WS was born in the Philippines of British parents. He married BS in another

British. He died in 1951 in California where he and his wife moved to. In his will, he
instituted Bas his so le heiress to certain real and personal properties, among which
are 210,000 shares of stocks in Mindanao Mines. Mr. S, the appointed ancillary
administrator of his estate filed an estate and inheritance tax return. He made a
preliminary return to secure the waiver of the CIR on the inheritance of the Mines
shares of stock. In 1952, B assigned all her rights and interests in the estate to the
spouses F. Mr. s filed an amended estate and inheritance tax return claiming
Additional Exemptions, one of which is the estate and inheritance tax on the Mines’
shares of stock pursuant to a reciprocity proviso in the NIRC, hence, warranting a
refund from what he initially paid. The collector denied the claim. He then filed in
the CFI of Manila for the said amount. CFI ruled that (a) the ½ share of BS should be
deducted from the net estate of WS, (b) the intangible personal property belonging
to the estate of Walter is exempt from inheritance tax pursuant to the reciprocity
proviso in NIRC. Can the estate avail itself of the reciprocity proviso in the NIRC
granting exemption from the payment of taxes for the Mines shares of stock?

A: No. Reciprocity must be total. If any of the two states collects or imposes or does not
exempt any transfer, death, legacy or succession tax of any character, the reciprocity
9
CIR vs. CA and Pajonar, GR No. 123206, 22 March 2000
 does not work. Under Section 22 of the NIRC, In the Philippines, upon the death of any
citizen or resident, or nonresident with properties, there are imposed upon his estate,
both an estate and an inheritance tax. But, under the laws of California, only inheritance
tax is imposed. Also, although the Federal Internal Revenue Code imposes an estate
tax, it does not grant exemption on the basis of reciprocity. Thus, a Filipino citizen shall
always be at a disadvantage. This is not what the legislators intended. 10

THE MEANING OF IN CONTEMPLATION OF DEATH"

Q: Respondent, a resident of Menominee, Michigan, began the making of

advancements of money and other property to his children.  In 1918, 1919, January
1, 1921, January 26, 1921, he transferred stocks to his children. In April 1921 after
been in and out of the hospital for the past 2 years for ulcerative colitis, he had a
recurrence and was advised for operation because he might have cancer. In June,
1921, he reentered hospital in Chicago as his viral infection failed to yield to
treatment. On August 17, 1921, he died at the age of 73 survived by his wife and 5
children. The Commissioner of Internal Revenue assessed additional estate taxes,
upon the ground that certain transfers by the decedent WITHIN 2 years prior to his
death, were made in contemplation of death and should be included in the taxable
estate.  The additional estate tax for the transfer in 1919, January 1, 1921, January
26, 1921 was paid by the executors and claim for refund was filed but rejected.
Court of Claims favored the executors since immediate and moving cause of the
transfers was the carrying out of a policy, long followed by decedent in dealing with
his children of making liberal gifts to them during his lifetime. Is this considered a
donation in contemplation of death?

A: NO. The best evidence of the state of the decedent's health at the time the transfers
were made is the statement of his doctor. The best evidence of the decedent's state of
mind at that time and the reasons actuating him in making the transfers are the
statements and expressions of the decedent himself, supported as such statements are
by all the circumstances concerning the transfers. Death must be "contemplated" --
that is, the motive which induces the transfer must be of the sort which leads to
testamentary disposition.  The natural and reasonable inference which may be drawn
from the fact that but a short period intervenes between the transfer and death is
recognized by the statutory provision creating a presumption in the case of gifts
WITHIN 2 years prior to death. The words "in contemplation of death" mean that the
thought of death is the impelling cause of the transfer, and, while the belief in the
imminence of death may afford convincing evidence, the statute is not to be limited,
and its purpose thwarted, by a rule of construction which, in place of contemplation of
death, makes the final criterion to be an apprehension that death is near at hand. 11

10
CIR vs. Fisher, GR No. L-11622, 28 January 1961
11
. US v. Wells, 283 US 102
LIABILITY FOR TAXES CORRESPONDING TO SHARE OD ESTATE

Q: BIR investigated the income tax liability of Anastacio Pineda’s estate for the
years 1945, 1946, 1947, and 1948 and it found that the corresponding income tax
return were not filed. This resulted to a P760.28 deficiency income tax for 1945 and
1946 and real estate dealer’s fixed tax for the 4 th quarter of 1946 and for the whole
year 1947. Manuel Pineda, eldest son of Anastacio, received the assessment. He
contested the same alleging that only a proportionate part should be his liability.
CTA ruled that Pineda is liable only for taxes corresponding to his share in the
estate. Can the Government require Manuel Pineda to pay the full amount of the
tax assessed?

A: Yes. As a holder of property belonging to the estate, Pineda is liable for the tax up to
the amount of the property in his possession. The BIR is given the discretion to avail of
the most expeditious way to collect the tax. This is, of course, without prejudice to
Pineda’s right of contribution for his co-heirs. Put simply, the Supreme Court held that
the rule on solidarity applies to taxes because it is not an ordinary contract. Two
persons liable for payment of estate tax: 1. Executor or administrator; 2. Heirs up to the
extent of their inheritance. 12

12
CIR vs. Pineda, GR No. L-22734, 15 September 1967