Business Taxation b.
Donation of Immovable Property
Chapter 6
DONOR’S TAX
Donation
- Act of liberality
- Person disposes gratuitously of a thing or right
in favor of another, who accepts it
- Law considers donation as a contract – since
requires acceptance
- Rules of oblicon apply to it as a suppletory law
Nature of Donor’s Tax
- Tax levied, assessed, collected and paid upon
the transfer by any person of a property by gift
- an Excise tax and NOT a property tax,
- gift inter-vivos
- direct tax - tax imposed on the donor
- both applies to natural and juridical persons
Purpose of Donor’s Tax
- to prevent avoidance of estate tax
- to prevent or compensate for the loss of the
progressive rates of income tax when large
estates are split up by gifts to numerous
donees
Elements of Donation
1. Capacity to make donations
2. Donative intent or intent to make a gift on the
part of the donor
3. Delivery – donor’s tax applies to a completed
gift (completed by delivery)
4. Acceptance – the transfer is perfected from the
moment the donor knows of the acceptance by
the donee (must be made during the lifetime
of the donor and donee)
Completion and Perfection of Donation
- Donor’s tax shall nor apply unless and until
there is a completed gift
Law that Governs the imposition of Donor’s Tax
- Law in force @ the time of perfection/
completion of the donation shall govern the
imposition of donor’s tax
Formalities
a. Donation of Movable Property
o May be orally or in writing
o Oral donation – requires simultaneous
delivery
o If value exceeds 5,000 – donation and
acceptance must be in writing,
otherwise void
- Must be made in a public document specifying
the property donated and the value of the
charges w/c the donee must specify
Acceptance of Immovable Property
o Immovable Property may be accepted
▪ In the same deed of donation
▪ In sperate public document
Characteristics of Donor’s Tax
1. Excise tax, not property tax
2. Applies when there is a completed gift
3. Transfer is perfected from the moment the
donor knows of the acceptance of the donee
4. Direct tax – imposed on the donor
Classification of Donation
As to motive or purpose
1. Simple – purse liberality
2. Remuneratory – made due to past service
rendered – NOT SUBJECT TO DONOR’S TAX
3. Modal – consideration is less than the value
of the thing donated
As time of taking effect (Perfection)
1. Donation inter-vivos – during the lifetime of
the donor and donee
2. Donation mortis causa – upon death of the
donor
Void Donations
1. Between persons who were guilty of adultery or
concubinage at the time of the donation -
kabet
2. Between persons found guilty of the same
criminal offense
3. Made to public officer or his wife, or his
descendants and ascendants by the reason of
his office – suhol or bribery
Valuation of Gross Gift
- same sa estate tax
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 Inclusions in the Gross Gifts
1. Direct gifts
2. Gifts thru creation of a trust
3. Transfer for insufficient consideration
4. Condonation of debt
5. Repudiation of Inheritance
6. Renunciation by the surviving spouse of his/her
share in the common property

3. Transfer for Insufficient Consideration (#3 sa

inclusion)

Donor’s Tax Rate

• Sale of Shares of Stock of a Domestic Corpo
- Beg Jan 1, 2018
(not thru local stock exchange) lower than its
- 6% net gifts in excess of P250,000
FMV
- Shall apply irrespective of the relationship of
o The amount of by w/c the FMV of the
the donor and the donee
property exceeded the value of the
- Any contribution in cash or in kind to any
consideration shall be deemed as a
candidate – ELECTION CODE – NOT SUBJECT
gift
TO DONOR’S TAX
o EXCEPTION: when it is sold at arm’s
length, free from any donative intent
Gross Gift
in the ordinary course of business
- Include real and personal property whether
intangible or tangible or mixed wherever
4. Condonation or Cancellation of Indebtedness
situated
- Is a mode of extinguishing an obligation
- Rules in computing gross estate shall also apply
- Subject to donor’s tax
in determining the composition of the gross
No condonation if:
gift
o Due to rendition of service – subj to
- Same din sa reciprocity rule
income tax
o Was made by a corporation in favor of
its shareholders – dividend income
Payment of Loan by the Guarantor
- Not subject to donor’s tax
- Bc need bayaran ni debtor si guarantor
- Not gratuitous
Classification of Donors
1. Citizen and resident
2. NRA w/ reciprocity
3. NRA w/o reciprocity

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 5. Repudiation of Inheritance
- Repudiation or general renunciation by an heir,
including the surviving spouse, of his or her
share in the hereditary estate left by the
decedent is NOT subject to donor’s tax
Subject to DONOR’S TAX if
1. The renunciation was categorically done in
favor of identified heir/s AND
2. To the exclusion or disadvantage of other co-
heirs
• To be subj to donor’s tax, 2 conditions must
be present
6. Renunciation of share in common property by
surviving spouse and repudiation of inheritance
- After the dissolution of the marriage in favor of
the heirs of the deceased spouse or any other
persons is SUBJECT to Donor’s Tax
EXEMPT GIFTS and/or Deductions from the Gross
Gifts
- not to be treated as exclusions from the gross
gift of the donor
- partake the nature of deductions
- ADD sa gross gift
- THEN DEDUCT as part of deductions
1. Donations not exceeding 250,00 during the year
2. Gifts made to or for use of the National
Government – not conducted for profit
o If used for profits – subject to
donor’s tax and NOT allowed as
deduction
3. Gift in favor of non-profit educational and or
charitable org provided that NOT MORE THAN
30% of said gifts shall be used for
administration purposes
o If more than 30% for admin – subject
to donor’s tax and NOT allowed as
deduction
Notice of donation by a donor engaged in business
- to be exempt from donor’s tax and claim full
deduction
o shall give notice of donation on every
donation worth at least P50,000 to RDO
w/in 30 days after receipt of the qualified
donee institution’s duly issued Cert of
Donation
o shall be attached to the said notice of
donation stating not more than 30% for
admin purposes
4. Donations made to entities as exempted under
special laws
a. Prizes and awards given to athletes
b. IRRI
c. Ramon Magsaysay Award Foundation
d. Phil. Inventor’s Commission
e. Integrated Bar of the Phil
f. Development Academy of the Phil
g. Phil-American Cultural Foundation
h. Philhealth
i. Equipment, materials, services to the Task
Force on human settlement
j. Intramuros Administration
k. Southern Phil Dev. Administration
l. National Social Action Council
m. Museum of Costumes
n. Aqua-culture Dept. of Southeast Asia
Fisheries Dev. Center of the Phil
o. Exempt donations under Bayanihan Act
5. Encumbrances on the property donated if
assumed by the donee
- If mortgaged property is transferred as
gift, but imposing upon the donee the
obligation to pay the mortgage liab
- FMV of property less mortgage = net gift
6. Diminutions
- Reduction in the value of the donated
property as provided by the donor
- Refers to the decrease in the value of the
donated property as a result of a
condition made by a donor to the donee
Phil. Red Cross
- Autonomous
- Exempt from payment of all direct and indirect
taxes
- All donations and legacies and gifts – EXEMPT
from donor’s dax and shall be deductible from
the gross income of the donor for income tax
purposes
Computation of Donor’s Tax Due
• Computation – shall be on a cummulative basis
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 Donation made by Spouses
- Husband and wife are considered as separate
and distinct taxpayers for the purpose of the
donors tax
- If what was donated was a conjugal or
community property and only the husband
signed the deed of donation – there is only one
donor for donor’s tax purposes w/o prejudice
to the right of the wife

o Gifts from Common Property – gift is

taxable ½ to each donor spouse
o Donation bet Husband and Wife during
marriage
▪ General Rule: not taxable,
declared void by law
▪ XPN: Moderate gifts bet
spouses are valid

Donations made by a Foreign Corporation

- Subject to donor’s tax if property is located in
the Phil.
- NOT subject to donor’s Tax - Donation of FC of
its own shares of stock
- 85% of the business of the FC is located in the
Phil or if shares donated have acquired
business situs in the Phil – subject to donor’s
tax subject to the rule of reciprocity
Splitting of Gift
- Is a tax minimization scheme (Tax avoidance –
legal) which is done by spreading gifts over
numerous calendar years instead of adding it
to the donations made during the same
calendar year
- Under TRAIN law – 1st P250,000 donation is
exempt
Tax Credit for Foreign Donor’s Tax
- Donor is allowed to claim gift tax paid in the
foreign country as a tax credit against the gift
tax paid in the Phil
- Can only be claimed by Citizens or Residents in
the Phil
- NRA – cannot claim tax credit
Filling of Tax Return and Payment of Tax Due
- Any indiv who makes any transfer by gift shall
make a return in duplicate.
- Return is filed 30 days after the date the gift is
made or completed (Pay-as-you file)
Return shall set forth:
1. Each gift made during the calendar year w/c is
to be included in computing net gifts
2. Deduction claimed and allowable
3. Any previous net gift made during same
calendar year
4. Name of donee
5. Such further info as may be required
Place of Filing
1. authorized agent bank (AAB)
2. Revenue District Officer (RDO)
3. Revenue Collection Officer having jurisdiction
kung san nakatira yung donor if no legal
recidence Office of the Commissioner
If gifts made by Nonresident
1. Phil. Embassy or Consulate
2. Directly w/ the Officer of Commission (RDO 39-
South, QC
Civil Penalties and Interest
1. 25% - no false or fraudulent intent
2. 50% - false, malice or fraudulent intent
3. Interest on the unpaid amt of tax from the date
computed until fully paid
Interest rate
o Under TRAIN Law – 12%
o Prior 2018 – 20%