TAXATION 2: BUSINESS AND TRANSFER TAXATION

Unit 1. Transfer Taxation

Chapter 1: Introduction to Transfer Taxation

TRANSFER – any transmission of property from one person to another person.

When we say person – not only pertains to NATURAL PERSON but also to JURIDICAL PERSON (Corporations or
partnerships)
A juridical person can transfer its properties to natural persons (vice versa)

TYPES of TRANSFERS:

1. Bilateral Transfers – exchanges (there are 2 persons exchanging their goods or properties)
Ex:
 Sale
 Barter

– “onerous transactions” (taxed under INCOME TAX)

meaning, before you can get the property of another person, you need to let go
of your property or give a consideration for that.
It is called ‘onerous’ because it is burdensome
It is taxed under income taxed because through this transfer, pwede tayong
mag-generate ng GAINS, w/c will be subjected (if realized) to income tax.

2. Unilateral Transfers – transfers alone

Ex:

 Succession (Inheritance)
 Donation
– “gratuitous transactions” (subjected under TRANSFER TAX)
Gratuitous - out of gratuity/ kabutihan ng loob (donating out of gratuity)
Succession – it is also out of gratuity because there is no consideration being
asked from the person you are giving the property to. (kung ikaw yung magta-
transfer, you will not ask for any consideration because it is out of kabutihan ng
loob)
It is called ‘unilateral transfer’ because there is no burden/consideration that
you need to get from the other end.

3. Complex Transfers – “transfers for less than full and adequate consideration” (inadequate yung
consideration na binigay – but still meron pa ring consideration)
– Subjected to INCOME TAX & TRANSFER TAX
Subjected to income tax, but because there is inadequacy or less than full
consideration, there is a portion na walang consideration and we are presuming
na kaya hindi pinabayad/walang kapalit – its’ because of out of gratuity – that’s
why we need to tax it under transfer tax.
The inadequacy of the consideration or the amount/value of the property that is
being given is relative to materiality. And sometimes we need to look at the
situation.

Example: Property – P1,000,000

Consideration received – P900,000

Question: Meron bang intention to donate or wala?

 if the problem is silent or doesn’t specify as to the 100,000 (inadequacy) if that is out of
gratuity or not, our PRESUMPTION is – yung 100,000 medyo malaki ng amount yun and
sometimes we cannot consider it as a discount. So, the DIFFERENCE is already
INADEQUATE.

Example: Property – P200,000

Consideration Received – 100,000

The difference is almost half (inadequacy) so, kahit hindi sabihin na inadequate yun –
we can be certain that this is inadequate because it’s almost 50%.

Example: Property – P2,000,000

Sold @ 1,950,000

The P50,000 difference maybe not inadequate kasi baka discount lang yan. It’s too little
or it’s only a bit portion of the total price or worth of the property.

ILLUSTRATION:
A taxpayer sold his car which was previously purchased for P100,000 and with a current Fair Value of
P180,000 for only P130,000.
The transaction will be analyzed as follows:

Fair value P 180,000

P 50,000 (Gratuitous) TRANSFER TAX
BUSINESS TAX Selling Price P 130,000
P 30,000 (Onerous) INCOME TAX
Cost P 100,000

P50,000 – almost 30% of the FV (this is inadequacy)

QUESTION: Ano ang gagawin sa SELLING PRICE P130,000?

 If the TAXPAYER is a REGISTERED BUSINESS – it will be tax under BUSINESS TAX

 If the TAXPAYER is NOT A REGISTERED BUSINESS – that taxpayer is NOT ALLOWED to COLLECT
BUSINESS TAX FROM ITS CUSTOMERS.

UNILATERAL TRANSFERS
 DONATION
 SUCCESSION
-

UNILATERAL TRANSFERS
DONATION SUCCESSION
- donation inter vivos (between REQUISITES OF A VALID DONATION - donation mortis causa (there’s
the living)  Donor must have the awareness that death is
capacity to donate (in legal approaching; related to death)
age of sound mind & owner
of the property/authorized
to transfer the property).

 Donative Intent (gusto talaga

niyang ibigay with no
 consideration)

 Delivery (this is already the

transfer of ownership

 Donee must accept or

consent to the donation

SITUS OF TRANSFER
- Location of property
Situs – place of taxation