1 Page J.A.

Villanueva, CPA

INTRODUCTION TO TRANSFER TAXES: The transaction will be analyzed as follows:

Fair Value P180,000.00 The difference of P50,000 is
Selling Price P130,000.00 subject to transfer tax
What is transfer? Selling Price P130,000.00 The difference of P30,000 is
Transfer refers to any transmission of property from one Cost P100,000.00 subject to Income Tax
person to another.
Types of Transfer Taxes:
Types of Transfers: 1. Donor's Tax- imposed on gratuitous transfer of property
1. Bilateral Transfers:
from a living person to another living person (donation inter
Bilateral transfers involve transmission of property for a vivos)
consideration. They are referred to as onerous transactions or
2. Estate Tax- imposed on gratuitous transfer of property
exchanges. from the deceased person to a living person. (donation mortis
Ex:
causa)
1. Sale
2. Barter
Rationale of Transfer Taxation:
1. Tax Evasion or Minimization Theory:
2. Unilateral Transfers:
Exchanges may be structured in a way to defeat income
Unilateral transfers involve the transmission of property by a taxation. This may be true specially when the seller and
person without consideration. They are commonly referred to the buyer are related taxpayers.
as gratuitous transactions or simply, transfers.
Ex:
Illustration:
1. Donation
Assume that a property with a fair value of P4,000 and
2. Succession
tax basis of P1,000 is sold for P2,000.
3. Complex Transfers:
Complex Transfers are transfers for less than full and adequate
Under Income Taxation, only the P1,000 is the actual
consideration.
gain that is subject to tax.
Illustration:
A taxpayer sold his car which was previously purchased The P2,000 difference between the fair value and selling
for P100,000 and with current value of P180,000 for only price is given free to the seller that should have been part
P130,000.

Business and Transfer Taxation: Banggawan Transfer and Business Taxation: Tabag National Internal Revenue Code as Amended

Business and Transfer Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws
2 Page J.A. Villanueva, CPA

of the taxable gain. As a remedy, the government subject The benefit received theory is the most dominant
the P2,000 to transfer taxes. rationalization of transfer taxation.

2. The Tax Recoupment Theory: 4. The State Partnership Theory:

Even without a deliberate intent to evade income tax, State ensures a civilized and orderly society where
transfers have a natural effect of decreasing future commercial undertaking and wealth accumulation
income tax collections of the government. flourish.

The government therefore is an indirect partner behind

Illustration: all forms of wealth accumulation by any person within
Alison has P5,000,000 properties which earn 10% of the state. Thus, when a person transfers part or the
P500,000 annual income. He wanted to see her 5 children whole of his wealth, the government should take its fair
become financially independent. He distributed his entire share by taxing the transfer of the wealth to the other
properties to them. Each child received P1,000,000 persons.
properties. Each child earns roughly P100,000 on
donated properties. 5. Wealth Redistribution Theory:
Equitable distribution of wealth is widely accepted as an
The split of properties and spread of income resulted to element of social progress and stability. Societies with
lower future tax collection to the government. Note that high inequities in wealth distribution are normally
taxation of the total P500,000 income to Alison will yield associated with social unrest, chaos, lawlessness, and
greater amount of tax than the accumulated tax from the wars.

five children. Hence, to recoup in future losses in income

tax, the government must tax the transfer of properties. 6. Ability To Pay Theory:
No one could gratuitously give what he could afford. The
3. The Benefit Received Theory: ability to transfer property is an indication of an ability to
When a person transfers property, the government is a pay tax. Hence, the transfer is subject to tax.
party in the orderly transfer of the property to the done
or heir. This is made possible by government laws.
The transferor is exercising a privilege to transfer
property under security of an effective and orderly
transmission under its laws.

Business and Transfer Taxation: Banggawan Transfer and Business Taxation: Tabag National Internal Revenue Code as Amended
Business and Transfer Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws
3 Page J.A. Villanueva, CPA

Nature of Transfer Taxes: (PENDAF) Properties Located in the Philippines

1. Proportional Tax: The following properties are considered located in the Philippines:
Transfer tax rate is fixed. 1. Interest in domestic business:

2. Excise Tax/Privilege Tax: a. Shares, obligations, or bonds issued by any corporation

Tax on the right or privilege to transfer property from or Sociedad anonima organized or constituted in the
one person to another. Philippines in accordance with its laws.
3. National Tax: b. Shares or rights in any partnership, business or industry
Imposed by the national government. established in the Philippines.
4. Direct Tax: 2. Foreign securities, under certain conditions:
Cannot be shifted from one person to another. a. Shares, obligations, or bonds issued by any foreign
5. Ad Valorem: corporation, 85% of the business of which is located in
The amount of transfer tax is dependent on the value of the Philippines.
the properties transferred. b. Shares, obligations, or bonds issued by any foreign
6. Fiscal/General/Revenue Tax: corporation if such shares, obligations, or bonds have
Imposed to raise revenue for the support of the acquired business situs in the Philippines.
government. 3. Franchise exercisable in the Philippines.
4. Any personal property, whether tangible or intangible,
Classification of Transfer Taxpayers: located in the Philippines.
1. Residents or Citizens: Taxable on global transfers of
property. Reciprocity Rule on Non-resident Aliens:
2. Non-resident Aliens: Taxable on Philippine transfers of The intangible personal properties of non-resident aliens are
property. not subject to Philippine transfer taxes provided that the country in
which such alien is a citizen also exempts the intangible personal
Situs of Transfer: properties of Filipino non-residents therein from transfer taxes.
Transfers occur in the location of the property.
Properties are transferred mortis causa in the place where they Classifying Donation as Inter-Vivos or Mortis Causa:
are located at the point of death. The motive of transfer/donation is the determining factor.
Properties are transferred inter-vivos in the place where they
are located at the date of donation.

Business and Transfer Taxation: Banggawan Transfer and Business Taxation: Tabag National Internal Revenue Code as Amended
Business and Transfer Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws
4 Page J.A. Villanueva, CPA

Incomplete Transfers: 2. Transmission of the property by the trustee to the real

Incomplete transfers involve the transmission or delivery of owner.
properties from one person to another, but ownership is not 3. Transmission of the property from the first heir to the
transferred at the point of delivery. second heir in accordance with the desire of the predecessor.

Types of Incomplete Transfers:

1. Conditional Transfers
2. Revocable Transfers
3. Transfers with reservation of title to property until death

Non-taxable Transfers:
These are transfers of properties which are not actually
donations and hence, not subject to transfer taxes, such as:
1. Void Transfers
2. Quasi-transfers

Void Transfers:

Those that are prohibited by law or those that do not conform

to legal requirements for their validity.
Ex:

1. Donations of property not owned by the donor

2. Donation between spouses.

Quasi-transfers:
These are transmissions of property which will never involve
transfer of ownership.
Ex:

1. Transmission of the property by the usufructuary to the

owner of the naked title.

Business and Transfer Taxation: Banggawan Transfer and Business Taxation: Tabag National Internal Revenue Code as Amended
Business and Transfer Taxation: Valencia and Roxas Relevant Revenue Regulations Related Laws