CHAPTER 5: Estate Tax Credit and

Distributable Estate
Estate Tax Credit
1. Estate tax credit
a. What is it?
i. deduction from estate tax due
b. Particular example
i. Foreign estate tax (paid)
 allowed by law to lessen the harshness of international double taxation
where the same estate is being subject to both foreign estate tax and
Philippine estate tax
 the ONLY allowed estate tax credit
c. Who can avail?
i. RC
ii. NRC
iii. RA
d. Estate tax credit vs Estate tax deduction
i. Tax credit → deduction from PH estate tax due
ii. Tax deduction → deduction from Gross Estate

2. Computation of Philippine Estate Tax Payable

Estate Tax Due xxx
Tax credit for foreign estate taxes paid (xxx)
Philippine Estate Tax Payable Pxxx

 STEP 1: Calculate the PH estate tax due

 STEP 2: Calculate the net estate, world
 STEP 3: Calculate the estate tax credit(s)
 STEP 4: Calculate the PH estate tax payable
3. Computation of Estate Tax Credit
a. There is only 1 foreign country (LIMIT 1)
LIMIT = vs
𝑵𝒆𝒕 𝒆𝒔𝒕𝒂𝒕𝒆
(𝒇𝒐𝒓𝒆𝒊𝒈𝒏 𝒄𝒐𝒖𝒏𝒕𝒓𝒚)
x PH estate tax due
𝑵𝒆𝒕 𝒆𝒔𝒕𝒂𝒕𝒆
(𝒘𝒐𝒓𝒍𝒅) Actual Foreign Estate Tax Paid

whichever is LOWER

b. There is more than 1 foreign country (LIMIT 2)

 STEP 1: compute limit per foreign country as shown in Limit 1 above, and ADD THEM
ALL

 STEP 2: compute LIMIT 2 using the formula below:

LIMIT = vs Actual Foreign Estate Tax
𝑵𝒆𝒕 𝒆𝒔𝒕𝒂𝒕𝒆
(𝑨𝑳𝑳 𝒇𝒐𝒓𝒆𝒊𝒈𝒏 𝒄𝒐𝒖𝒏𝒕𝒓𝒊𝒆𝒔) Paid ( ALL foreign
𝑵𝒆𝒕 𝒆𝒔𝒕𝒂𝒕𝒆 x PH estate tax due
(𝒘𝒐𝒓𝒍𝒅) countries)

whichever is LOWER

 STEP 3: Choose the lower amount between Limit 1 and Limit 2 as the tax credit

Net Distributable Estate

1. Net Distributable Estate

a. Net distributable estate vs Net taxable estate
i. Net Distributable Estate
All properties possessed @ time of death – all actual expenses
ii. Net Taxable Estate
Gross Estate – allowable deductions
 NET TAXABLE ESTATE (NTE) vs NET DISTRIBUTABLE ESTATE (NDE)

NTE NDE
Gross Estate
Real or immovable property included included
Tangible personal property included included
Intangible personal property included included
Transfers in contemplation of death included included
Revocable transfers included included
Transfers under GPA included included
Proceeds of life insurance
(except irrevocable 3rd party beneficiary) included included
Exclusions such as SSS, GSIS, etc. not included included
Claims against insolvent persons (full) included included
Death benefit received from employer (RA 4917) included not included

Allowable Deductions
Funeral expenses no longer allowed actual
Judicial expenses no longer allowed actual
Unpaid taxes actual actual
Claims against the estate actual actual
Claims against insolvent persons
(uncollectible portion) actual actual
𝑖𝑓 𝑑𝑢𝑟𝑖𝑛𝑔
Losses actual (𝑠𝑒𝑡𝑡𝑙𝑒𝑚𝑒𝑛𝑡 ) actual
Transfer for public purposes actual actual
Vanishing deduction as computed not considered
Standard deduction 5M or 500T not considered
Family home with limit not considered
Medical expenses no longer allowed actual
Death benefit received from employer (RA 4917) actual not considered
Share of surviving spouse ½ of net conjugal ½ of net conjugal
NET TAXABLE ESTATE Pxxx
Estate tax %
ESTATE TAX DUE Pxxx (Pxxx)
NET DISTRIBUTABLE ESATE Pxxx