Transfer Taxes

Transfer taxes are taxes imposed upon the gratuitous disposition of private property. Under the Tax
Code, transfer taxes refer to:

1. Estate Tax (donation mortis causa) –Tax levied on the transmission of properties from a
decedent to his heirs. Estate tax is the tax on the privilege to transmit property at death and on
certain transfers which are made the equivalent of testamentary dispositions by the statute.
2. Donor’s Tax (donation inter vivos) – Tax levied on the transmission of properties from a living
person (donor) to another living person (donee).

Estate Tax

Nature and Object of Estate Tax

Estate tax is laid neither on the property nor on the transferor or the transferee. It is an excise tax or
privilege tax and its object is to tax the shifting of economic benefits and enjoyment of property from
the dead to the living (Gregg v. Commissioner, 315 Mass. 704).

Taxation of the transmission of the decedent’s estate and donations made by persons, natural or
juridical, whether citizens or aliens, residents or non-residents shall be governed by these regulations
promulgated to implement the provisions of RA 8424. For purposes of these regulations, the provisions
of the Family Code of the Philippines (EO 209) which took effect on August 3, 1988 shall govern the
property relations between husband and wife whose marriage was celebrated on or after such date. For
marriages celebrated prior to the effectivity of the Family Code of the Philippines, the Civil Code of the
Philippines shall govern the property relations between husband and wife in relation to the pertinent
provisions of the Family Code.

Donor’s Tax

Donation is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in
favour of another (donee) who accepts it (Art. 725, Civil Code). There is also donation when a person
gives to another a thing or right on account of the latter’s merits or of the services rendered by him to
the donor provided they do not constitute a demandable debt or when the gift imposes upon the done a
burden which is less than the value of the thing given (Art. 726, Civil Code).

Under the tax code, donation has a broader meaning. It extends to sales or exchanges of property, other
than real property classified as capital asset located in the Philippines, for less than adequate and full
consideration in money or money’s worth (Sec. 100, NIRC, as amended by R.A. 10963 (TRAIN), effective
January 1, 2018).

Nature of gift tax

Gift tax is not a property tax but an excise tax imposed on the privilege of the owner to give. It is not a
tax on property as such because the imposition does not rest upon general ownership (Bromley v.
McCaughn, 280 U.S. 124). Thus, the levy on the transfer by way of donation inter vivos of property used
exclusively for religious purposes does not infringe the provisions of the Constitution exempting from
taxation churches and parsonages and all lands, buildings, and improvements used actually, directly, and
exclusively for religious purposes (Lladoc v. CIR, 14 SCRA 292 [1965]). However, gifts in favour of
religious institutions are now exempt from donor’s tax.

Donor’s tax is imposed upon the transfer by any person, resident or non-resident, of the property by
gift. The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible (Sec. 98, NIRC).

Purposes of Donor’s Tax

1. To supplement estate tax;

2. To prevent avoidance of income tax through the device of splitting income among numerous
donees, who are usually members of a family or into many trusts, with the donor thereby
escaping the effect of the progressive rates of income tax.