1.

Estate Tax
a. tax imposed on the privilege that a person is given in controlling, to a certain extent, the
disposition of his property to take effect upon death
b. excise tax imposed on the act of passing the ownership of property at the time of death
and NOT on the value of the property or right
c. transfer mortis causa
d. accrues instantly at the time of death
i. its accrual is different from the obligation to pay it

2. Justifications for the imposition of estate tax

the law considers the service rendered by
Justification Benefits Received the government in the distribution of the
for the Theory estate of the decedent

Imposition Privilege or State Inheritance is NOT a right but a privilege

granted by the State, and legatees have
of Estate Partnership Theory been acquired only with the protection of
the State.
Tax Ability to Pay Theory Receipt of inheritance creates an ability
to pay the tax and thus contribute to
government income.

The receipt of inheritance is a

Redistribution of contributing factor to the inequalities in
Wealth Theory wealth and incomes. The imposition of
estate tax reduces the said inequality.
3. Composition of Gross Estate based on Citizenship

RC, NRC, RA NRA-ETB/NETB

• Real property wherever situated • Real property situated in the PH
• Tangible personal property wherever situated • Tangible personal property situated in the PH
• Intangible personal property wherever • Intangible personal property with situs in the
situated PH, unless excluded on the basis of
reciprocity

4. Situs of intangible property

a. Domicile of the owner (mobilia sequntur personam)
i. This rule is not applicable if the intangible property has situs elsewhere or where the
intangible property has acquired a business situs in another jurisdiction
ii. Mobilia sequntur personam is only used for convenience and must yield to the actual
situs of the property

5. Intangible assets with situs within the Philippines (Section 104 of the Tax Code)
a. Franchise which must be exercised in the PH
b. Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws
c. Shares, obligations, or bonds issues by any foreign corporation, 85% of the business of
which is located in the PH
d. Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations, or
bonds have acquired a business situs in the PH
e. Shares or rights in any partnership, business or industry established in the PH

6. Situs of tangible and intangible property

TYPE OF GROSS ESTATE PROPERTY SITUS

Real (immovable) Location of the property
Tangible Personal (movable) Location of the property
Property
 Shares Where the intangible is exercised
regardless of where the corresponding
certificate is stored
Intangible
Franchise, Copyright, etc. Where the intangible is exercised
Personal regardless of where the corresponding
Property certificate is stored
Receivables Residence of the debtor
Bank deposits Location of the depository bank

7. Reciprocity clause
a. Definition
i. The Tax Code excludes intangible personal property (Shares, Intangible assets,
Receivables, and Bank Deposits) with situs in the PH from the gross estate of an NRA
decedent if there is reciprocity
b. Indicators of reciprocity
i. The decedent at the time of his death was a resident citizen of a foreign country
which at the time of his death did not impose an estate tax of any character in
respect of intangible personal property of PH citizens not residing in that foreign
country; OR
ii. The laws of the foreign country of which the decedent was a resident citizen at the
time of his death allow a similar exemption from estate taxes of every character, in
respect of intangible personal property owned by citizens of the PH not residing in
that foreign country

8. Valuation of Gross Estate

a. In general: FMV @ time of death

b. Real Property
ZONAL VALUE vs ASSESSED VALUE

whichever is HIGHER
 • For real property improvement
Construction cost FMV per latest
per building permit vs tax declaration

whichever is HIGHER

c. Personal Property
FMV @ time of death

d. Shares of stock
i. Unlisted Common Shares

𝑁𝑜.𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

(𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑖𝑠𝑠𝑢𝑖𝑛𝑔 𝑐𝑜𝑟𝑝. 𝑥 𝑝𝑎𝑟 𝑣𝑎𝑙𝑢𝑒) + 𝑅𝐸 𝑁𝑜.𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠
Book Value = 𝑁𝑜.𝑜𝑓 𝑡𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 x 𝑜𝑤𝑛𝑒𝑑
𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑖𝑠𝑠𝑢𝑖𝑛𝑔 𝑐𝑜𝑟𝑝.

Book Value/share

ii. Unlisted Preference Shares

Par value of shares

iii. Listed Shares

ℎ𝑖𝑔ℎ𝑒𝑠𝑡 𝑞𝑢𝑜𝑡𝑎𝑡𝑖𝑜𝑛 𝑙𝑜𝑤𝑒𝑠𝑡 𝑞𝑢𝑜𝑡𝑎𝑡𝑖𝑜𝑛

𝑎𝑡 𝑑𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ
+ 𝑎𝑡 𝑑𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ 𝑁𝑜.𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠
FMV = x 𝑜𝑤𝑛𝑒𝑑
2

!!!: if none is available at the date of death, use the quotations at the date nearest
the date of death

e. Units of participation in any association, recreation or amusement club

BID PRICE on the date of death or nearest the date of death published in any newspaper
of publication for general circulation
 f. Right to usufruct or habituation, and annuity
In accordance with the latest Basic Standard Mortality Table taking into account the
probable life of the beneficiary, to be approved by the Secretary of Finance upon
recommendation of the Insurance Commissioner

9. Exemptions and exclusions from Gross Estate

a. Exclusions under Sections 85 and 86 of the Tax Code
i. Exclusive Property of the Surviving Spouse
ii. Property outside the PH of a non-resident alien decedent
iii. Intangible personal property in the PH of a non-resident alien decedent under the
Reciprocity Law

b. Exclusions under Section 87 of the Tax Code

i. Merger of usufruct in the owner of the naked title
ii. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
(1st heir) to the fideicommissary (2nd heir)
iii. Special Power of Appointment (SPA) transfers
 Transmission from 1st heir/legatee/donee in favor of another beneficiary, in
accordance with the desire of the predecessor
iv. All bequests, devises, legacies, or transfers to social welfare, cultural, and charitable
institutions, no part of the net income of which inures to the benefit of any individual
PROVIDED that: not more than 30% of the said bequest, devises, legacies, or transfers
shall be used by such institution for administration purposes → MUST BE INCLUDED
FIRST IN THE GROSS ESTATE, THEN TAKEN UP AS AN ORDINARY DEDUCTION

c. Exclusions under Special Laws

i. Proceeds of life insurance and benefits received by members of the GSIS (RA 728)
ii. Accruals and benefits received by members from the SSS by reason of death (RA1792)
iii. Life insurance proceeds on life insurance policy taken out by the decedent himself
upon his own life where the beneficiary is a third person and is irrevocably designated
iv. Life insurance proceeds on insurance policy (group insurance) taken out by the
employer on the employees’ life, whoever the beneficiary may be, whether the
designation as beneficiary is revocable or irrevocable
v. Amounts received from the PH and US governments for war damages (RA227)
vi. Payments from the PH and US government to the legal heirs of deceased WW2 veterans
and deceased civilian for supplies/services furnished to the US and PH Army (RA126)
vii. Amounts received from US Veterans Administration
viii. Transfer by way of bona fide sales
ix. Properties held in trust by the decedent
x. Acquisition and/or transfer expressly declared as not taxable
 xi. Personal Equity and Retirement Account (PERA) assets of the decedent-contributor
(Sec. 13, RA9505)

10. Inclusions in the Gross Estate

a. Property owned by the decedent actually and physically present in his estate at the time of
his death
Example:
• Land
• Buildings
• shares of stock
• vehicles
• bank deposit

b. Decedent’s interest
 Extent of equity or ownership participation of the decedent on any property physically
existing and present in the gross estate, whether or not in his possession, control, or
dominion
 Also refers to the value of any interest in property owned by the decedent at the time of his
death (interest having value or capable of being valued or transferred)
o Example:
▪ Dividends declared before death of decedent but received after death
▪ Partnership profit which have accrued before decedent’s death
▪ Usufructuary and rights

c. Property NOT physically in the estate

i. Transfer in contemplation of death

 Disposition of property prompted by the thought of death

Examples:
• Transfer of property in favor of another person, but the transfer was intended
to take effect only upon the transferor’s death
• Transfer by gift intended to take effect at death or after death or under
which the donor reserved income or the right to designate the persons who
should enjoy the income
 NOTE: there is no transfer in contemplation of death when the transfer is a bona
fide sale for an adequate and full consideration in money or money’s worth

ii. Transfer with retention or reservation of certain rights

 Decedent transferred his property during his lifetime BUT retained for himself
beneficial enjoyment of the thing or the right to receive income from the same

iii. Revocable transfers

 Transfer where the terms of enjoyment of the property may be altered, amended,
revoked, or terminated by the decedent
o it sufficient that the decedent has the power to revoke even though he
did NOT exercise the power

iv. General Power of Appointment (GPA) transfers

POWER OF APPOINTMENT
→ right to designate the person or persons who will succeed to the property of the
prior decedent

General Power of ✓ When the power of appointment authorizes the

Appointment donee of the power to appoint any person he
(GPA) pleases
✓ The power may be exercises in favor of anybody Incl.
including the donee-decedent
✓ Donee of GPA holds the property with all the
attributes of ownership
Special Power of ✓ Donee of SPA can appoint only from a restricted
Appointment or designated class of persons OTHER THAN
Excl.
(SPA) HIMSELF
✓ Donee-decedent only holds the property in trust

Modes of Exercise of the Power of Appointment

➢ By will
➢ By deed to take effect in possession or enjoyment at or after his death
➢ By deed under which has retained for his life or any period not ascertainable w/o
reference to his death or for any period which does not in fact end before his
death
➢ The possession or enjoyment of, or the right to the income from the property
➢ The right, either alone or in conjunction with any person to designate the persons
who shall possess or enjoy the property or income therefrom
 v. Transfer for insufficient consideration
STEP 1: determine if the transfer is for insufficient consideration

FMV @ transfer date ≤ Consideration Bona fide sale. EXCL

FMV @ transfer date > Consideration
Sale was made in the ordinary course of
business
No consideration received
Insufficient consideration. INCL
Bona fide sale regardless of the amount
of consideration. EXCL
Either donation mortis causa (subject to
estate tax) or donation inter vivos (subject
to donor’s tax)

STEP 2: (if transfer for insufficient consideration) determine the amount to be

included in the gross estate

Value = 𝑡𝑖𝑚𝑒𝐹𝑀𝑉 @
𝑜𝑓 𝑑𝑒𝑎𝑡ℎ
— 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛
𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑

vi. Claims against insolvent persons

FULL AMOUNT OF CLAIM MUST BE INCLUDED FIRST IN THE GROSS ESTATE, THEN THE
UNCOLLECTIBLE PORTION BE TAKEN UP AS AN ORDINARY DEDUCTION

𝑝𝑟𝑜𝑝𝑒𝑟𝑡𝑖𝑒𝑠 𝑎𝑛𝑑
𝑟𝑖𝑔ℎ𝑡𝑠 𝑜𝑓 𝑑𝑒𝑏𝑡𝑜𝑟 𝑎𝑚𝑜𝑢𝑛𝑡 𝑑𝑢𝑒 𝑡𝑜
Uncollectible Portion = x 𝑐𝑟𝑒𝑑𝑖𝑡𝑜𝑟 − 𝑑𝑒𝑐𝑒𝑑𝑒𝑛𝑡
𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑜𝑓 𝑑𝑒𝑏𝑡𝑜𝑟

vii. Proceeds of life insurance (except from) GSIS

BENEFICIARY DESIGNATION GROSS ESTATE

Estate Revocable or Irrevocable Included
Executor Revocable or Irrevocable Included
Administrator Revocable or Irrevocable Included
3rd party (e.g., wife) Revocable Included
3rd party (e.g., wife) Irrevocable Excluded
11. Tax rate
 6%

12. Filing of Estate Tax Return and Payment of Estate Tax Due
a. Who must file and pay?
i. Executor/administrator/any of the legal heirs
b. When shall an estate tax return be filed under oath?
i. In cases of transfer subject to estate tax
ii. Where the estate consists of registered or registrable property for which a Certificate
Authorizing Registration from the BIR is required (regardless of the gross value of the
estate)
c. Additional requirement for estate tax returns with gross value exceeding P5 million
i. Must be supported by a statement duly certified by a CPA containing the following:
(1) Itemized assets of the decedent with corresponding gross value at the time of death
(for residents and citizens)
(2) Itemized assets with situs in the PH of the decedent with corresponding gross value
at the time of death (for non-resident alien)
(3) Itemized deductions allowed from the gross estate
(4) Amount of tax due (whether paid or unpaid)
d. Timing for Filing the estate tax return
i. Generally, 1 year from the date of death
(1) The court approving the project of partition must furnish the CIR with a certified
copy of the estate tax return and its order within 30 days after promulgation of the
order
e. Extension for filing
i. The CIR or any Revenue Collection Officer authorized by the Commissioner shall have
the authority to grant a reasonable extension not exceeding 30 days for filing the return
(1) 30-day extension will start after the 1 year period has elapsed
ii. Application for extension of time to file for the estate tax return must be filed within the
Revenue District Office (RDO) where the estate is required to secure its Taxpayer
Identification Number (TIN) and file the tax return
f. Timing for Paying the estate tax due
i. At the time the estate tax return is filed – pay as you file
g. Extension for payment
i. In cases where the CIR finds that the payment of the estate tax due would impose undue
hardship upon the estate or any of the heirs
(1) Extension of not more than 5 years – for judicial settlement
(2) Extension of not more than 2 years – for extrajudicial settlement
 ii. If granted, the CIR or his duly authorized representative may require the executor or
administrator or beneficiary (as the case may be) to furnish a bound in an amount not
exceeding double the amount of the tax bond

13. Payment of estate tax by installment

a. Requisites
i. Cash installments must be made within 2 years from the date of filing the estate tax
return using payment form BIR Form 0605 or a form dedicated for this transaction
ii. Estate tax return must be filed within 1 year from the date of death
iii. The frequency of payment (monthly, quarterly, semi-annually, annually) and amount of
each installment shall be indicated in the estate tax return, subject to BIR’s approval
iv. If 2 years has elapsed and the entire tax due has not been paid yet, the remaining
balance shall be due and demandable subject to applicable penalties and interest
v. No civil penalties or interest may be imposed on the estates permitted to pay the
estate tax due by installment
(1) Interest will start after the lapse of the 2-year period and the principal will
be the unpaid balance

14. Partial disposition of estate and application of proceeds to estate tax due
a. Requisites
i. The disposition shall refer to conveyance of property (real, personal, or intangible)
with the equivalent cash consideration
ii. Estate tax return must be filed within 1 year from the date of death
iii. Written request for partial disposition must be approved by BIR
iv. Computed estate tax due shall be allocated in proportion to the value of each
property
v. The estate shall pay to the BIR the proportionate estate tax due of the property
intended to be disposed of
vi. An electronic Certificate Authorizing Registration (eCAR) shall be issued upon
presentation of the proof of payment of the proportionate estate tax due of the
property intended to be disposed of
vii. In case of failure to pay the total estate tax due out from the proceeds of the said
disposition, the estate tax due shall be immediately due and demandable subject to the
applicable penalties

15. Place of filing the return and paying the estate tax
a. For resident decedent (RC, NRA)
 i. Accredited Agent Bank (AAB), Revenue District Officer, Revenue Collection Officers
having jurisdiction on the place where the decedent was domiciled at the time of his
death
b. For non-resident decedent (NRC, NRA)
i. With executor or administrator in the PH
(1) Registered executor or administrator
a. RDO where the executor/administrator is registered
(2) Unregistered executor or administrator
a. RDO having jurisdiction on the legal residence of the
executor/administrator
ii. Without executor or administrator in the PH
(1) Office of the Commissioner through RDO No. 39 South Quezon City

16. Liability for the payment of estate tax

a. Executor or Administrator – primary obligation
b. Heir or Beneficiary – subsidiary obligation

 If there are 2 or more executors or administrators:

All of them are severally liable for the payment of estate tax

 If there is no executor or administrator:

Any person in actual or constructive possession of any property of the decedent must file
the return and shall have primary obligation to pay the estate tax due

17. Civil Penalties and Interest

a. Any amount paid after the statutory due date of the tax (i.e., 1 year from date of death)
but within the extension period shall be subject to interest but not to surcharge
b. Amount of penalty
i. Penalty of 25% - if there is no false or fraudulent intent on the taxpayer
ii. Penalty of 20% - if there is false, malicious, or fraudulent intent on the taxpayer
c. Amount of interest
i. Unpaid amount balance x 12%
Sdsefrd