NIRC

Title III – Chapter 1 Estate and Donor’s Tax

SEC. 84. Rate of Estate Tax. - There shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every
decedent, whether resident or nonresident of the Philippines, a tax at the rate of six percent
(6%) [69] based on the value of such net estate.

Succession
a. Mode of acquisition by virtue of which, the property, rights and obligations (PRO) to the
extent of the value of inheritance, of a person are transmitted through his death to
another or others either by his will or by operation of law.
b. includes all PRO which are not extinguished by his death
c. the rights to the succession are transmitted from the moment of death
a. The estate tax accrues immediately at the time of death irrespective of the
actual date of filing the estate tax return
NOTE: Filing of Estate tax return is within 1 yr. from the time of death
Kinds of Succession
a. Testamentary or testate succession – made in a will
b. Legal or intestate succession – did not execute a will
Causes:
1. Person died (a) without a will, (b) with void will, or (c) one which
subsequently lost its validity
2. Will does not institute an heir
3. Partial institution of heir, intestate as to undisposed portion
c. Mixed succession – effected partly by will and partly by operation of law

Elements of Succession
1. Decedent – person whose property is transmitted through succession
a. Executor – person designated in the last will to carry out its provision
b. Administrator – appointed by the court to perform the same function as the
executor
2. Estate (Inheritance) – PRO which are not extinguished by death
3. Successor – called to succession either by the provision of will or by operation of law
 a. Compulsory heirs – succeed by force of law, in an amount predetermined by
law (legitime)
i. Primary compulsory heirs – precedence over and exclude other
compulsory heirs (legitimate children and descendants)
ii. Secondary compulsory heirs – succeed only in the absence of primary
compulsory heirs (legitimate parents and ascendants)
iii. Concurring compulsory heirs – succeed together with primary or
secondary compulsory heirs (illegitimate children and surviving
spouse)
b. Voluntary Heirs – instituted by testator in his will for the free portion
i. Free portion = estate – legitime
ii. Legitime – part of testator’s property which he cannot dispose of
because the law has reserved it for certain heirs.
c. Legal or intestate heirs – those who succeed by operation of law (decedent
died without a valid will
Table of Legitimes
See table of Legitimes in page 12 of Transfer and Business Taxation by Tabag 2022 Ed.
Notes:
LC – always ½ distributed equally among themselves (Primary heirs)
SS – 1 LC -> ¼ (laki kuha mama); 2+LC -> =1 LC (onti kuha mama); with IC -> ¼ with preference
over LC (kuha muna mama bago anak labas)
LPA – ½ always; will inherit only in the absence of primary heirs (pag wala anak, kuha tanda)

Gross Estate

SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated: Provided, however, that in the case of a nonresident decedent
who at the time of his death was not a citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall be included in his taxable estate.
RC/NRC/RA – taxable within and without
 NRA – taxable only without

Justification for Estate tax

a. Benefit-received theory – as compensation for the service rendered by the
government in distribution of the estate
b. Privilege or State Partnership Theory – for privilege granted by the State; State as
passive silent partner and it just collects the share due to it.
c. Ability to pay Theory – inheritance creates an ability to pay the tax
d. Redistribution of wealth theory – imposition helps to reduce the inequality of
wealth
Composition of Gross Estate
a. RC/NRC/RA – Real, personal, and intangible property wherever situated
b. NRA – Real, personal property situs in the PH; Intangible property excluded if there is
reciprocity

SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include
real and personal property, whether tangible or intangible, or mixed, wherever situated:
Provided, however, That where the decedent or donor was a nonresident alien at the time of
his death or donation, as the case may be, his real and personal property so transferred but
which are situated outside the Philippines shall not be included as part of his 'gross estate' or
'gross gift’: Provided, further, That franchise which must be exercised in the Philippines;
shares, obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws; shares, obligations or bonds by any
foreign corporation eighty-five percent (85%) of the business of which is located in the
Philippines; shares, obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines; shares or rights in any
partnership, business or industry established in the Philippines, shall be considered as
situated in the Philippines:
Other Situs Rules:

Property Situs
Real and tangible personal property Where located
Shares, franchise, copyright, and the like Where exercised, regardless of where
certificate is stored
Receivables Where debtor’s residence
Bank deposit Where depositary bank
Subsections of Sec. 85 (Composition of Gross Estate)

(A) Decedent's Interest. - To the extent of the interest therein of the

decedent at the time of his death;

Decedent interest means extent of equity or ownership

participation on any property whether or not in his possession

(B) Transfer in Contemplation of Death. - To the extent of any

interest therein of which the decedent has at any time made a
transfer, by trust or otherwise, in contemplation of or intended
to take effect in possession or enjoyment at or after death, or of
which he has at any time made a transfer, by trust or otherwise,
under which he has retained for his life or for any period which
does not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from the property, or
(2) the right, either alone or in conjunction with any person, to
designate the person who shall possess or enjoy the property or
the income therefrom; except in case of a bona fide sale for an
adequate and full consideration in money or money's worth.

In other words,