CHAPTER 1:

TRANSFER & BUSINESS TAXATION

 Definition of Terms

 Property- embraces everything which is or maybe the subject of ownership. It includes not
only ownership and possession but also the right of use and enjoyment for lawful purposes.

 Owner- the person in whom the ownership, dominion or title of property is vested.

 Ownership- is the exclusive right of possessing, enjoying, and disposing of a property.

Modes of Acquiring Ownership

1. Occupation. When the ownership is acquired by occupation, the property seized is without a
known owner.

2. Intellectual creation. The composer owns his musical composition while the author owns his
literary, legal, historical, scientific or other work.

3. Donation. It is an act of liberality whereby a person disposes gratuitously of a thing or right

in favor of another, who accepts it.

4. Succession. It is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death
to another.

5. Prescription. By prescription, one acquires ownership and other real rights through the
lapse of time in the manner and under the conditions lay down by law.

Concepts and Nature of Transfer Taxes

 In succession, estate tax is levied on the transmission of property from a prior decedents to
his heirs.

 Estate encompasses the totality of assets and liabilities a decedent owns at the time of his
death.

 In donation, donor’s tax is imposed as ownership of the property passes from the donor to
the donee.

 Estate tax and donor’s tax are the two transfer taxes under our laws.

 Transfer taxes are taxes imposed upon the gratuitous disposition of private property.

 A transfer is said to be gratuitous when there is no consideration for the transfer; it is

onerous when a consideration is received.

 Onerous transfers such as sale, barter or exchange are subject to business taxes.
CHAPTER 2:
BASIC CONCEPTS OF SUCCESSION

Succession- is a mode of acquisition, by virtue of which the property, rights and obligations
to the extent of the value of the inheritance of a person are transmitted through his death to
another or others either by his will or by operation of law.

The rights to the succession are transmitted from the moment of death of the decedent

KINDS OF SUCCESSION:

1. Testate/Testamentary- which results from the designation of an heir, made in a will

executed in the form prescribed by law

2. Legal/ Intestate- is that effected by operation of law since the decedent did not execute a
will.

3. Mixed- is that effected party by will, partly by operation of law

ELEMENTS OF SUCCESSION

1. Death of the decedent

Decedent - general term applied to the person whose property is transmitted through
succession, whether or not he left a will. If he left a will, heir also called the testator.

2. Inheritance- includes all the property, rights and obligations of a person which are not
extinguished by his death. The inheritance of a person includes not only the property and
the transmissible rights and obligations existing at the time of his death, but also those
which have accrued thereto since the opening of the succession.

3. Successors- heirs, devisees and legatees are all successors.

An heir is a person called to the succession either by the provision of will or by operation of
law. Devisees and legatees are persons to whom gifts of real property and personal
property are given by virtue of a will.

4. Acceptance- the acceptance of an inheritance may be express or tacit. An express

acceptance maybe made in a public or private document.
 Executors and Administrators

An executor is a person appointed by a testator to carry out the directions and requests in
his will, and to dispose of the property according to his testamentary provisions after his
death.

An administrator- is a person appointed by the court to administer the assets and liabilities
of the decedent

TESTAMENTARY SUCCESSION

Will- is an act whereby a person is permitted, with the formalities prescribed by law to
control a certain degree of disposition of his estate to take effect after his death.

Codicil- is an instrument that amends the provisions of a will

Probate of will- is the court procedure by which a will is proved to be valid or invalid.

CAPACITY TO SUCCEED BY WILL

Persons not incapacitated by law may succeed by will or ab intestato. In order to be

capacitated to inherit, the heir, devisee or legatee must be living at the moment the
succession opens, except in case of representation when it is proper

Holographic will- is a will written entirely by the testator with his own hand and not
witnessed or attested.

INSTITUTION OF HEIR

Institution of Heir- is an act by virtue of which a testator designates in his will the person or
persons who are to succeed him in his property and transmissible rights and obligations.

Legitime- is the part of the testator’s property which cannot dispose of because the law has
reserved it for certain heirs, who are therefore, called compulsory heirs.

The following are compulsory heirs:

1. Legitimate children and descendants, with respect to their legitimate parents and
ascendants

2. In default of the foregoing, legitimate parents and ascendants with respect to their
legitimate children and descendants

3. The widow or widower

4. Acknowledged natural children and natural children by legal fiction

5. Other illegitimate children

DISINHERITANCE
When a person expects or is expected to inherit, but does not, the person is said to be
disinherited. The following shall be sufficient causes for the disinheritance of children and
descendants, legitimate as well as illegitimate:

1.When a child or descendant has been found guilty of an attempt against the life of the
testator, his or her spouse, descendants or ascendants

2. When a child or descendant has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, if the accusation as been found groundless

3. When a child or descendant has been convicted of adultery or concubinage with the
spouse of the testator

4. When a child or descendant by fraud, violence, intimidation or undue influence causes the
testator to make a will or to change on already made

5. A refusal without justifiable cause to support the parent or ascendant who disinherits
such child or descendant

6. Maltreatment of the testator by word/deed, by the child or descendant

7.When the child or descendant leads a dishonourable or disgraceful life

8. Conviction of a crime which carries with it the penalty of civil interdiction

LEGAL OR INTESTATE SUCCESSION

If a person dies without leaving a will, the person is said to have died intestate. Legal or
intestate succession takes place:

1. If a person dies without a will, or with a void will, or one which has subsequently lose its
validity.

2. When the will does not institute an heir to or dispose of all the property belonging to the
testator. In such case, legal succession shall take place only with respect to the property
which the testator has not disposed

3. If the suspensive condition attached to the institution of heir does not happen or is not
fulfilled or if the heir dies before the testator, or repudiates the inheritance, there being no
substitution and no right of accretion takes place.
4. When the heir instituted is incapable of succeeding, exception cases provided in the Civil
Code.

Representation- is a right created by fiction of law, by virtue of which the representative is

raised to the place and the degree of the person represented and acquires the rights which
the latter would have if he were living or if he could have inherited.

Order of Intestate Succession

1.Descending direct line (legitimate children/ descendants)

2. Ascending direct line (legitimate parents/ascendants)
3. Illegitimate children/ descendants
4. Surviving spouse
5. Collateral relatives within the 5th degree
6. The State
Gross Estate

Estate Tax Definition

 It is 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.
 It is an excised 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.
 On this basis, estate tax should not be construed as a direct tax on the property of the
decedent although the tax is based thereon.

Justification for the imposition of Estate Tax

 Benefit-Received Theory
 Privilege or State Partnership Theory
 Ability to Pay Theory
 Redistribution of Wealth Theory

Classification of Taxpayer and Composition of Gross Estate

Reciprocity Clause

The tax code excludes “intangible” personal property with situs in the Philippines from the gross
estate of a non-resident alien decedent if there is reciprocity. There is reciprocity if:

- 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 estate tax of any character in respect to intangible
personal property of citizens of the Philippines not residing in that foreign country; or

- The laws of the foreign country of which the decedent was a resident citizen at the time of
his death allow a similar exemption for estate taxes of every character, in respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign
country.
Intangible assets with situs “within” the Philippines

Section 104 of the tax code enumerates the following intangible personal property with situs in the
Philippines, for estate tax purposes”

 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 issued by any foreign corporation, 85% of the business of which
is located in the Philippines.
 Shares, obligations or bonds issued by any foreign corporations 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.

Situs of Tangible and Intangible Property

Valuation of Gross Estate

Exemptions and exclusions from gross estate

Under Sections 85 and 86, NIRC

1. Capital or exclusive property of the surviving spouse

2. Properties outside the Philippines of a non-resident alien decedent

3. Intangible personal property on the Philippines of a non-resident alien under the Reciprocity
Law
Under Sec. 87, NIRC

1. The merger of usufruct in the owner of the naked title;

2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommisary;
3. The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and
4. All bequest 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, however, that not more than thirty percent (30%) of the said bequest,
devises, legacies or transfers shall be used by such institutions for administration purposes.

Under Special Laws

1. Proceeds of life insurance and benefits received by members of the GSIS (RA728).

2. Benefits received by members from the SSS by reason of death (RA1792).

3. Amounts received from Philippine and United States governments for war damages.

4. Amounts received from United States Veterans Administration.

5. Benefits received from the Philippines and US government for damages suffered during World
War II (RA227).

6. Retirement benefits of officials/employees of a private firm (RA4917).

7. Payments from the Philippines of US government to the legal heirs of deceased of World War II
Veterans and deceased civilian for supplies/services furnished to the US and Philippine Army
(RA136).

8. 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.

9. Life Insurance proceeds on Insurance policy (group insurance) taken out by his employer on the
employee’s life, whoever the beneficiary maybe, whether the designation as beneficiary is revocable
or irrevocable.

10. Transfer by way of Bonafide Sales

11. Properties held in trust by the decedent.

12. Acquisition and/or transfer expressly declared as not taxable.

13. Personal Equity and Retirement Account (PERA) assets of the decedent-constributor (Sec. 24 RA
9505 – Personal Equity and Retirement Account Act of 2008)

Inclusions in the Gross Estate

Properties owned by the decedent actually and physically present in his estate at the time of his
death such as land, buildings, shares of stock, vehicles, bank deposit, etc.

Decedent’s Interest – Refers to the 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. It also refer to the value of ANY INTEREST IN PROPERTY OWNED OR
POSSESSED by the decedent at the time of his death (interest having value or capable of being
valued, transferred)

Example:

· Dividends declared before his death but received after death.

· Partnership profit which have accrued before his death

· Usufructuary rights, etc.

Properties NOT PHYSICALLY IN THE ESTATE (these have already been transferred during the lifetime
of the decedent but are still subject to payment of estate tax)

1. Transfer in contemplation of death

- It is the thought of death, as a controlling motive which induces the disposition of the property for
the purpose of avoiding the tax.

- Value of properties transferred by the decedent during his lifetime in anticipation of his death

a. transfer of property in favor of another person, but the transfer was intended to take effect
only upon the transferor’s death

b. transfer by gift intended to take effect at death, or after death, or under which the donor
reserved the income or the right to designate the persons who should enjoy the income

Ø Exception: there is no transfer in contemplation of death when the transfer of property is a bona
fide sale for an adequate and full consideration in money or money’s worth.

- Included within this concept is donation mortis causa – becomes effective upon the death of the
donor

2. Transfer with retention or reservation of certain rights

- The decedent have transferred his property during his lifetime, but retained for himself beneficial
enjoyment of the thing or the right to receive income from the same.

3. Revocable Transfers

- It is a transfer where the terms of enjoyment of the property may be altered, amended, revoked or
terminated by the decedent.

- It is sufficient that the decedent had the power to revoked though he did not exercise the power.

4. Transfers under a general power of appointment

Power of appointment

- the right to designate the person or persons who will succeed to the property of the prior
decedent.

General power of appointment

- when it authorizes the donee to appoint any person he pleases.

- The rule is the gross estate shall include any property passing or transferred under a general
power of appointment exercised by the decedent
a) By will

b) By deed to take effect in possession or enjoyment at or after his death .

c) By deed under which he has retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death.

d) The possession or enjoyment of, or the right to the income from the property.

e) The right, either alone, or in conjunction with any person to designate the persons who shall
possess or enjoy the property or the income therefrom.

Special power of appointment

- when the donee can appoint only from a restricted or designated class of persons other than
himself

(NOTE: Property transferred under a special power of appointment should be excluded from the
gross estate.)

5. Transfer for insufficient consideration

- Property transferred by virtue of a bonafide sale for a price less than its fair market value at the
time of sale.

- The excess of the fair market value of the transferred property at the time of death over the value
of the consideration received shall be included in the gross estate.

- Two FMVs to be used:

a. FMV of the property at the time of sale – to determine whether or not the consideration was
full and adequate

b. FMV of the property at the time of death - to determine the amount to be included in the
gross estate if the consideration received is less than full and adequate a compared to the FMV at
the time of sale

6. Claims against insolvent person

For estate tax purposes, an insolvent is a person whose properties are not sufficient to satisfy,
whether fully or partially, his debts. A judicial declaration of insolvency is not required. But the
incapacity of the debtor to pay his obligation should be proven. As a rule regardless of the amount
the debtor is unable to pay, the full amount of the claim against the insolvent person should be
included in the gross estate of the decedent. The portion of the claim which is not collectible should
be allowed as a deduction from the gross estate.

7. Proceeds of life insurance

- Proceeds of life insurance taken out by the by the decedent on his own life shall be included in the
gross estate if the following requisites are present:

1. it must be an insurance on the life of the decedent

2. the beneficiary must be either of the following:

a. his estate
b. his executor

c. his administrator and

d. any third person provided that the designation is not irrevocable

NOTE: When the problem is silent, the designation of beneficiary is revocable; irrevocable
designation of beneficiary is never presumed and for it to be valid, must be in writing.

- Life insurance taken out not by the decedent himself is not part of the gross estate.

TAX RATES

BEGINNING JANUARY 1, 2018

Ra 10963, otherwise known as the “tax reform for acceleration and inclusion act” (train law)
provides that the estate of every decedent, whether resident or non resident, of the Philippines, as
determined in accordance with nirc (as amended), shall be subject to an estate tax rate of 6%.

Under the tax code, as amended, the estate tax shall be paid by the executor, administrator or any
of the legal heirs, at the time the return is filed (pay as you file system). An estate tax return shall be
filed under oath in any of the following situations (RR 12-2018

1. In cases of transfer subject to estate tax; and

2. Where regardless of the gross value, the estate consists of registered or registrable property
such as real property, motor vehicle, share of stocks, or other similar property for which a
certificate authorizing registration from the bir is required as a condition precedent for the
transfer of ownership thereof in the name of the transferee, the executor or the
administrator, or any of the legal heirs as the case maybe.

Estate tax showing the gross value exceeding 5 million pesos shall be supported with a
statement duly certified by a cpa containing the following:
 Itemized assets of the decedent with their corresponding gross value at the time of his
death, or in the case of non-resident, not a citizen of the Philippines, of that part of his gross
estate situated in the Philippines.
 Itemized deductions allowed from the gross estate under section 86 of the tax code, as
amended.
 The amount of tax due whether paid or still due and outstanding.

Time of filing of the estate tax return

 The estate tax return is allowed to be one 1 year from the date of death (previously within 6
months). The court approving the project of partition shall furnish the commissioner with
certified copy thereof and it order within 30 days after promulgation of such order.
Time for payment of the estate tax

 As a general rule, the estate tax imposed under the tax code shall be paid at the time the
return is filed by the executor , administrator or the heirs.

Place of filing the return and payment of the estate tax

 In case of a resident decedent, the administrator or executor shall register the estate of the
decedent and secure a new TIN therefor from the RDO where the decedent was domiciled at
the time of his death and shall file the state tax return and pay the corresponding estate tax
with aab.
 In case of a non-resident decedent, whether non resident citizen or alien, with executor or
administrator in the Philippines, the estate tax return shall be filed with and the tin for the
estate shall be secured from the rdo where such executor or administrator is registered.
Provided however, that in case the administrator or executor is not registered, the estate tax
return shall be filed with the and the tin of the estate shall be secured from the rdo having
jurisdiction over the executor’s or administrator’s legal residence.

Cont.

Nonetheless, in case the nonresident decedent does not have an executor or administrator in the
Philippines, the estate tax return shall be filed with and the tin for the estate shall be secured from
the office of the commissioner through rdo no. 39 –south Quezon city.

The foregoing provision, not withstanding, the commissioner of the internal revenue may continue
to exercise his power to allow different venau/place in the filing of tax returns.
 Deductions from Gross Estate

◦ To compute the net estate of the deceased, there are certain items that can be deducted
from the value of the gross estate under the Tax Code. RR 12-2018 in relation to sections 86
(A) and 86 (B) of the Tax Code as amended under TRAIN Law, allows deductions from gross
estate to arrive at the taxable estate which is used as a basis in determining the applicable
estate tax due.

Allowable Deductions from the Gross Estate upon effectivity of RA 10963 (TRAIN Law)

◦ Citizen and Resident Decedents

I. Ordinary Deductions

1. Expenses, Losses, Indebtedness, Taxes, etc. (LIT)

a. Losses

b. Indebtedness/Claims against the estate

c. Taxes

d. Claims against insolvent person

◦ Non-resident Alien decedents

I. Ordinary Deductions

1. Proportionate deductions for Lossess, Indebtedness, Taxes, Claims against insolvent persons
(LIT)

GE Phils x LIT world

GE World

◦ Allowable Deductions from the Gross Estate upon effectivity of RA 10963 (TRAIN Law)

◦ Citizen and Resident Decedents

2. Transfer for Public Use

3. Vanishing Deductions

II.Special Deduction

1. Standard Deduction

2. Family Home

3. RA 4917

III. Share of the surviving spouse (for married decedents)

◦ Non-resident Alien decedents

2. Transfer for Public Use

3. Vanishing Deductions
II. Special Deductions

Standard deduction of P500,000

III. Share of the surviving spouse (for married decedents)

Losses

◦ For purposes of estate taxation, deductible losses from the gross estate shall pertain to
casualty losses.

◦ Casualty Losses arising from fires, storms, shipwreck, other casualties, robbery, theft or
embezzlement provided that:

a) Losses are not compensated for by insurance,

b) Losses have not been claimed as a deduction for income tax purpose, and

c) Losses were incurred during the settlement of the estate

d) Arising exclusively from

- acts of God such as fire, storm, shipwreck and other similar casualty.

- Acts of man such as robbery, theft, embezzlement

Indebtedness or Claims against the estate (including mortgage payable)

◦ Claims against the estate or indebtedness in respect of property may arise out of:

◦ a) Contract

◦ b) Tort

◦ c) Operation of Law

A. What are the Requisites for Deductibility of Claims against the Estate?

◦ a) The liability represents a personal obligation of the deceased existing at the time of his
death

◦ b) The liability was contracted in good faith and for adequate and full consideration in
money or money’s worth

◦ c) The liability must be a claim which is valid in law and enforceable in court.

◦ d) The death must not have been condoned by the creditor or the action to collect from the
decedent must not have been prescribed.
 B. What are the Substantiation Requirements of Claims Against Estate?

a.) Except for loans granted by financial instruction, the debt instrument like promissory
note or contract of loan must be duly notarized.

b.) If the unpaid obligation arose from the purchase of goods or services,

Substantiate by showing evidence of the purchase of goods or service, such as sales invoice, delivery
receipt, contract for the services, and statement of account given by the creditor as duly received by
the decedent debtor.

c) Duly notarized Certification from the creditor as to the unpaid balance of debt, including
interest as of the time of death:

> If the creditor is a corporation, the sworn certification must be signed by the (i) President, (ii) Vice
President, or (iii) other principal officer of the corporation.

> If the creditor is a partnership, the sworn certification should be signed by any of the general
partners.

> If the creditor is a bank or other financial institutions, the Certification shall be executed by the
branch manager of the bank that monitors and manages the loan of the decedent-debtor.

> If the creditor is an individual, the sworn certification should be signed by him.

When the lender is the relative of the debtor within fourth civil degree, either by
consanguinity (blood) or affinity (marriage),

◦ A copy of the promissory note or other evidences of indebtedness must be filed with the
RDO having jurisdiction over the borrower within fifteen days from the execution thereof.

◦ a. Requirements prescribed in existing or prevailing internal revenue issuances:

◦ (i) Proof of financial capacity of the creditor to lend the amount at the time the loan was
granted.

◦ (ii) Latest audited balance sheet with a detailed schedule of its receivable showing the
unpaid balance of the decedent-debtor. In case the creditor is an individual who is no longer
required to file income tax return, a duly notarized Declaration by the creditor of his capacity
to lend at the time.

◦ (iii) If the Creditor is a non-resident citizen, the executor/administrator or any of the legal
heirs must submit a duly notarized declaration of the creditor of his capacity to lend at the
time when loan is granted, authenticated or certified to as such by the tax authority of the
country where non-resident is a resident.
 Unpaid Mortgages, Taxes and Casualty losses

◦ A. In case unpaid Mortgages is being claimed by the estate, verification must be made as
to who was the beneficiary of the loan proceeds.

◦ The value of the unpaid loan must be included as a receivable of the estate.

◦ B. Taxes which have accrued as of the death of the decedent which were unpaid as of the
time of death.

◦ This deduction will not include:

◦ a) Income Tax received after death

◦ b) Property Tax not accrued before death

◦ c) Estate Tax due from transmission of his estate

Claims of the deceased against insolvent persons

◦ Claims of deceased against insolvent persons as defined under R.A. 10142, where the value
of the decedent’s interest therein is included in the value of the gross estate.

◦ Requisites:

◦ The incapacity of the debtor to pay his obligation should be proven

◦ The full amount owed by the insolvent person must first be included in the
decedent’s gross estate and the amount uncollectible shall be allowed as deduction.

◦ If the insolvent could only par partial amount, the full amount owed shall be
included in the gross estate, and the amount uncollectible shall be allowed as
deduction.

Transfer for Public Use

Disposition in a last will and testament or transfers to take effect after the death in favor of the
government of the Phillipines or any political subdivision thereof for exclusively public purposes.
Before a transfer for public use is allowed as a deduction from the gross estate, same amount shall
be included first in the computation of the gross estate.

Property Previously Taxed

◦ It is the amount allowed to reduce the taxable estate of a decedent where the property
received by him from a prior decedent or donor by:1)Gift or by 2)Bequest, device or
inheritance, has been the object of previous transfer taxation.

◦ Requisites:

1. Death

2. Identity of property

3. Location
 4. Inclusion of property

5. Previous taxation of the property

6. No previous vanishing deduction on the property

 a. One hundred percent (100%) of the Value if the prior decedent died within one (1) year
prior to the death of the decedent, or if the property was transferred to him by gift, within
the same period.

 b. Eighty percent (80%) of the Value if the prior decedent died more than one (1) years but
not more than two (2) years prior to the death of the decedent, or if the property was
transferred to him by gift, within the same period.

 c. Sixty Percent (60%) of the Value if the prior decedent died more than two (2) years but
not more than three (3) years prior to the death of the decedent, or if the property was
transferred to him by gift, within the same period

 d. Forty Percent (40%) of the Value if the prior decedent died more than three (3) years but
not more than four (4) years prior to the death of the decedent, or if the property was
transferred to him by gift, within the same period.

 e. Twenty Percent (20%) of the Value if the prior decedent died more than four (4) years
but not more than five (5) years prior to the death of the decedent, or if the property was
transferred to him by gift, within the same period.

 Where a deduction has lien on the property, the property previously taxed shall be reduced
by the amount of mortgage.

 Where property referred to consist of two (2) or more items, the aggregate value of such
items shall be used for the purpose of computing the deduction.

Special Deductions

Standard Deduction

 If the Decedent is either a Citizen or Resident of the Philippines,

A deduction in the amount of Five Million (P5,000,000) shall be allowed without the need of
substantiation.

◦ If the Decedent is a Non-Resident Alien,

Only Five Hundred Thousand Pesos (P500,000) shall be allowed without need of
substantiation.

The Family Home

◦ The Family Home is the dwelling house and lot where husband, wife, or head of the family
and member of their family reside.

◦ Unmarried Head of a Family is an unmarried or legally separated man or woman living with
parents, siblings, and/or children that is dependent upon him or her for their chief support.

◦ Where such brothers, sisters or children are:

a. Not more than 21 years of age

b. Unmarried

c. Not gainfully employed

d. Incapable of self-support because of mental or physical defect

What are the Conditions for the allowance of family home as deduction from the gross
estate?

◦ a. The family home must be the actual residential home of the decedent and his family at
the time of his death, as certified by the Barangay Captain where the family home is
situated.

◦ b. The total value of the family home must be included as part of the gross estate of the
decent.

◦ c. Allowable deduction must be equivalent to the fair market value of the family home, or
the extent of the decedent interest (whether conjugal/community or exclusive
property) whichever is lower, but not exceeding P10,000,000.

◦ For the purpose of availing of a family home deduction, a person may constitute only one (1)
family home.

Amount received by heirs under Republic Act No. 4917

◦ Any amount received by the heirs from the decedent’s employer as a consequence of the
death of the decedent-employee is allowed as a deduction

◦ Provided that the amount of the Separation Benefit is included as part of the gross estate of
the Decedent.

Net Share of Surviving Spouse in the Conjugal Partnership or Community

◦ After deducting the allowable deductions to the conjugal or community properties included
in the gross Estate,

◦ The Share of the surviving spouse must be removed to ensure that only the decedent’s
interest in the estate is taxed.
Property Relations

Overview

 Pre-nuptial agreements are no longer new nowadays.

 The term is also used interchangeably with premarital agreement or ante-nuptial
agreement.
 Preparing prenuptial agreement in the Philippines is relatively easy since Philippine laws do
not require the agreement between the future spouses to be registered in a government
office to be binding between parties.
 The prenuptial agreement which must be in writing, should be executed prior to the
celebration of the marriage, and signed by future spouses.

Property Relations

The system of property relationship is applicable only to married persons. It is used to

distinguish a conjugal or community property from an exclusive property. Under Art. 74 of
the New Family Code (as amended) the property relationship between husband and wife
shall be governed in the following order:

 By marriage settlements executed before marriage

 By the provision of the law
 By the local custom

Types of Property Relations

A. Absolute community Property (ACoP)

B. Conjugal Partnership of Gains (CPG)

C. Complete separation of property, or

D. Any other regime

In the event the couple had not adopted or agreed upon a system before their marriage, the rule is:

Date of Marriage Property Relationship

Before August 3, 1988 CPG

On or after August 3, 1988 ACP

Absolute Community of Property (ACP)

 This is the most common regime in Philippine marital property relations.

 As a general rule, the provisions on co-ownership shall apply to the absolute community of
property between the spouses.
 The spouses become co-owners of all property they bring into the marriage and those
acquired by each or both of them during marriage, save for the exceptions expressly
enumerated by law.
 The rules on co-ownership applies in all matters not provided in the New Family Code.
Property Acquired before marriage (Community Property)

 In general, property owned by the spouses before or upon celebration of marriage and
brought into marriage become part of the community property. These include among
others, property inherited or received as donation before the marriage.

Exception:

 Property acquired before marriage by either spouse who has legitimate descendants by the
former marriage and the fruits as well as income, if any, of such property shall be classified
as exclusive property.

Property Acquired During Marriage (Either Community or Exclusive Property)

 Property acquired during marriage will be presumed to belong to the community, unless it
can be proven to be exclusive property. Property acquired during marriage by onerous title
from a common fund or from income of either of them is community property.

Community Property under ACP

1. Family Home – constituted by husband and wife is community property. However, an

exclusive property does not become community property even if it is used as family home.

2. Proceeds of life insurance

- Exclusive Property: if premium was paid from exclusive funds.

- Conjugal Property: if premium was paid from conjugal funds or from income of
either spouse during marriage.

3. Claim against insolvent person is either exclusive or conjugal property

Exclusive Property under ACP

The following shall be excluded from the community property”

 Property acquired during marriage by gratuitous title by either spouse and the fruits as well
as the income thereof, if any, unless, the donor, testator, or grantor, expressly provided that
it be part of community.
 Property for personal and exclusive use of either spouse. However, jewelry shall form part of
the community.
 Property acquired before the marriage by either spouse who has legitimate descendants by
a former marriage, and the fruits as well as the income, if any such property.

Conjugal Partnership of Gains (CPG)

 It is one of the property relations between the spouses, under which the husband and wife
place in a common fund the proceeds, products, fruits and income from their separate
properties and those acquired by either or both spouses through their efforts or by chance,
and upon dissolution of the marriage or of the partnership, the net gains or benefits
obtained by either or both spouses shall be divided equally between them, unless otherwise
agreed in the marriage settlements.
CGP applies:

 When the future spouses agree to it in the marriage settlement; or

 To conjugal partnership of gains already established between spouses before the effectivity
of the New family code without prejudice to vested rights

Exclusive property under CPG

1. That which is brought to the marriage as his or her own.

2. That which each acquires during marriage by gratuitous title.

3. That which is acquired by right of redeption or by exchange with property belonging to only
one of the spouses.

4. That which is purchased with the exclusive money of the wife or of the husband.

Conjugal Property under CPG

 That which is acquired by onerous title during the marriage at the expense of the common
fund, whether the acquisition be for the partnership, or for only one of the spouses;
 That which is obtained by the industry, or work, or as salary of the spouses, or of either of
them;
 The fruits, rents or interests received or due during the marriage, coming from the common
property or from the exclusive property of each spouse.
 That share of the hidden treasure discovered during marriage which the law awards to the
spouses or either of them as finder or proprietor
 Property acquired by occupation, such as fishing and hunting, by spouses or by either of
them
 Improvements made on the separate property of the spouses through advancements from
the partnership or through the industry of either the husband or the wife.

Family home – when constituted by husband and wife, is conjugal property. An exclusive
property, when used as family home remains an exclusive property.

Proceeds of life insurance – policy when included in the gross estate, is considered exclusive
property if premium was paid out of exclusive funds. Otherwise, conjugal property.

Claims against insolvent person can be conjugal or exclusive property depending on

whether the claim is for conjugal or exclusive.

Complete Separation of Property

 Should the future spouses agree in the marriage settlements that their property relations
during marriage shall be based upon the system of complete separation of property, the
following provisions shall supplement the marriage settlements.
 Separation of property may refer to present or future property or both. It may be total or
partial. In the latter case, the property not agreed upon as separate shall pertain to the
conjugal partnership of gains.
 Each spouse shall own, dispose of, possess, administer and enjoy his or her own separate
estate, without the consent of the other. All earnings from any profession, business or
industry shall likewise belong to each spouse.
 Each spouse shall proportionately bear the family expenses.
Property regime of union without marriage

Capacitated to Marry

 wages and salaries shall be owned by them in equal shares

 property acquired by both of them through their work or industry shall be governed
by the rules on co-ownership
 Neither party can encumber or dispose by acts inter vivos of his or her share in the
property acquired during cohabitation and owned in common, without the consent
of the other, until after the termination of their cohabitation.

Incapacitated to Marry

 only the properties acquired by both of the parties through their actual joint
contribution of money, property, or industry shall be owned by them in common in
proportion to their respective contributions. (if silent assume equal shares)
 The share of any party who is married to another shall accrue to the absolute
community or conjugal partnership, as the case may be, if existing under the valid
marriage.

Proforma computation of net taxable estate and estate tax due if Decedent was married with
surviving spouse as amended under TRAIN LAW
Proforma computation of net taxable estate and estate tax due if Decedent was married with
surviving spouse as amended under TRAIN LAW (Cont.)

Proforma computation of net taxable estate and estate tax due if Decedent was married with
surviving spouse as amended under TRAIN LAW (Cont.)

Estate Tax Credit and Distributable Estate

Estate Tax Credit

 It is a deduction from estate tax itself.

 Refers to the taxpayer’s right to deduct from the tax due the amount of tax it has paid to a
foreign country.
 The amount of credit for estate tax paid to a foreign country shall not exceed the proportion
of the tax due in the Philippines which the decedent’s net estate situated within such
country bears to his entire net estate.
Statutory formula for the computation of estate tax credit:

Limit A – If there is only one foreign country

Net estate, foreign country Philippine Estate

Net estate, world X Tax due = Pxxx (limit)

Versus

Actual tax paid, foreign country = Pxxx (actual)

Allowed tax credit (lower) = Pxxx (tax credit)

Limit B – If there are more than 1 foreign countries

Step 1 – compute limit 1 per country

Step 2 – compute limit 2 using the formula:

Net estate, foreign country Philippine Estate

Net estate, world X Tax due = Pxxx (limit)

Versus

Actual tax paid, all foreign countries = Pxxx (actual)

Limit B (lower amount) = Pxxx (Limit B)

Step 3 – Choose the lower amount between Limit A and Limit B = Allowed Tax Credit

Net Distributable Estate vs. net taxable estate

 Net taxable estate is the result of the application of the law under estate taxation. Net
distributable estate, on the other hand, is the amount arrived at from gross estate consisting
all properties in the possession and control of the decedent at the time of death and actual
expenses, charges, and payments from the gross estate.
 Business Taxes

Introduction

 These are imposed upon onerous transfers such as sale, barter, exchange and
importation.

 It is called as such because without business pursued in the Philippines (except

importation) by the taxpayer, business taxes cannot be applied.

 Are in addition to income and other taxes paid, unless specifically stated.

 Generally based on gross sales or gross receipts, hence taxpayers engaged in trade
are still liable to pay for business tax.

Types of Business Taxes

• Value addet tax (VAT

• Other percentage taxes (OPT)

• Excise taxes

 As a rule, sale of goods or services made in the normal course of trade or business
are subject to vat unless exempt.

 Nonetheless, if the sale is exempt from vat, it may be subject to other percentage
taxes except those transactions exempt from business tax.

 Consequently, transactions subject to vat should no longer be subjected to other

percentage tax, however, such is not the case with respect to excise taxes.

 A transaction subjected to either vat or OPT may still be subjected to excise tax.
VALUE –ADDED TAX

 Is a tax on value added by every seller to the purchase price or cost in the sale or
lease of goods, property or services in the ordinary course of trade or business as
well as on importation of goods into the Philippines, whether for personal or
business use.

 It is a tax on consumption levied on the sale, barter, exchange, or lease of goods or

properties and services in the Philippines and on the importation of goods into the
Philippines levied at each stage of production and distribution process.

Kinds of VAT

 VAT on sale of goods or properties

 VAT on importation of goods

 VAT on sale of services and use or lease of properties.

Person Liable

 Sale in the Ordinary course

 RR 16-2005 provides that any person who, in the course of his trade or
business, sells, barters, exchanges or leases goods or properties, or renders
services, and any person who imports goods, shall be liable to VAT imposed
on sections 106 to 108 of the Tax code.

Importation

 In the case of importation of taxable goods, the importer, whether an

individual or corporation and whether or not made in the course of his trade
or business, shall be liable to VAT imposed in Sec. 107 of the tax code.

 Transfer made by a tax-exempt entity to none-tax exempt entity. Transfer

made by a tax exempt person/entity not enjoying indirect tax exemption,
shall be subject to VAT. The none-exempt transferee shall be considered as
the importer and shall liablw for the unpaid vat pursuant to RA no. 9224 as
implemented by RR no. 25-03.

Meaning of the term “goods or properties”

 All tangible and intangible objects which are capable of pecuniary estimation and
shall include, among others:

 Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business.

 The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right.

 The right or the privilege to use any industrial commercial or scientific equipment.

 The right or the privilege to use motion picture films, films, tapes and discs;

 Radio, television, satellite, transmission, and cable television time.

Sale of Services

 Means performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, whether in kind of in cash. Vat on sale of service is a
tax on payments for services rendered in the exercise of profession or calling.

Sale of Real Properties

 Refer to real properties held primarily for sale to customers or held for lease in the
ordinary course or trade or business of the seller. In the case of sale of real
properties on the installment plan, the real estate dealer shall be subject to VAT on
the installment payments, including interest and penalties, actually and/or
constructively received by the seller.

Characteristics of VAT

 It is an indirect tax where tax shifting is always presumed.

 It is consumption-based.

 It is imposed on the value-added in each stage of production and distribution

process.

 It is a credit-invoice method value added tax.

Basis of Value Added Tax

 Under the law, a single rate equivalent to 12% is based on the following:
Sale of Goods

Gross Sales Pxx

Less: Sales discounts xx

Sales returns xx xx

Net Sales XX

Add: excise tax if any xx

Tax Base XX

X vat rate 12%

Output VAT XX

Less: Input VAT (xx)

VAT payable (excess input tax) PXX

Sale of Services

Cash received (actually and constructively) PXX

Deposits/Advance payments for future projects xx

Materials charged for services XX

Gross receipts PXX

X vat rate 12%

Output VAT XX

Less: input vat (XX)

VAT payable (Excess input tax) PXX

Dealer in Securities and Lending Investors

Gross selling price Pxx

Less: Acquisition cost of securities sold for the mo/qtr XX

Balance Pxx

Add:other income subject to basic tax XX

Gross income xx

X vat rate 12%

Output VAT XX

Less: input vat (xx)

VAT payable XX

Sale of goods /services to senior citizen and PWDs (as amended)

 It shall not be subject to the 12% value added tax .

Gross selling price

 The amount of money or its equivalent which the purchaser pays or is obligated to pay to
the seller in consideration of the sale, barter or exchange of the goods or properties,
excluding VAT.

 The excise tax , if any, on such goods or properties shall form part of the gross selling price.

 It the vat is not billed separately in the document of sale, the selling price or the
consideration therein shall be deemed to be inclusive of vat.

Gross receipts

 Refers to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits applied as payments for services rendered and
advanced payments actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding VAT.
VAT registration

A. Mandatory Registration

 Any person or entity who in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if the
aggregate amount or actual gross sales or receipts exceed P3,000,000 beginning Jan.
1, 2018 under TRAIN Law for the past 12 months or there are reasons to believe that
the gross sales or receipts for the next 12 months will exceed P3M.

Optional Registration

 Any person who is VAT-exempt or not required to register for VAT may elect to be VAT
registered by registering with the RDO that has jurisdiction over the head office of that
person, and pay the annual registration fee for every separate and distinct establishment.
Any person who elects to register under optional registration shall not be allowed to cancel
his registration for the next 3 years.

 Any person who is Vat registered but enters into transactions which are exempt from VAT
may opt that the VAT apply to his transaction which would have been exempt under the tax
code.

 Franchise grantees of radio and/or television broadcasting whose annual gross receipts of
the preceding year do not exceed P10M derived from business covered by the law granting
the franchise may opt for VAT registration.

Cancellation of Registration

 If he makes a written application and can demonstrate to the commissioner’s satisfaction

that his gross sales or receipts for the following 12 months other than those that are
exempt, will not exceed P3M.; or

 If he has ceased to caryy on his trade or business and does not expect to recommence any
trade or business within the next 12 months.

Computation of VAT payable

Output VAT (Sales or receiptsx12%) Pxx

Less: input VAT (purchases of goods or services x12%) (xx)

Advance VAT payment (xx)

VAT payable Pxx

Other Percentage Taxes

 It is a tax imposed on sale, barter, exchange or importation of goods or sale of services

based upon gross sales, value in money of receipts derived by the manufacturer, producer,
importer or seller measured by certain percentage of the gross selling price or receipts.
Excise Taxes

 In addition to VAT, excise taxes apply to goods manufactured or produced in the Philippines
for domestic sales or consumption or for any other disposition and goods imported.