Acc 321

UNIVERSITY OF MINDANAO
Tagum College
Department of Accounting Education

Accountancy Program
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)
Course/Subject: ACC 321 – Business Taxation
Name of Teacher: Jon D. Inocentes,CPA
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS INTENDED USE.
THIS IS INTENDED ONLY FOR THE USE OF THE STUDENTS WHO ARE
OFFICIALLY ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Week 1 TO 3: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to:
a. Discuss the basic concept of succession.
b. Apply taxation rules in determining estate tax due of unmarried decedent.
Big Picture in Focus: ULOa. Discuss the basic concept of succession.
Metalanguage
The terms used for this specific unit learning outcome are already discussed and explained
in the essential knowledge section as part of the discussion. Hence, having separate
presentation will mean redundancy.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully understand
the following essential knowledge laid down in the succeeding pages. Please note that you
are not limited to exclusively refer to these resources. Thus, you are expected to utilize other
books, research articles and other resources that are available in the university’s library e.g.
ebrary, search.proquest.com etc., and even online tutorial websites.
Topic: ESTATE TAXATION
INTRODUCTION TO TRANSFER TAX
Transfer tax is a tax imposed upon gratuitous transfer of property ownership. Gratuitous
transfer is one that neither imposes burden nor requires consideration from transferee or
recipient. It is a privilege tax which is imposed on the act of passing ownership of property
and not a tax on the property itself.
The transfer of ownership may take effect during lifetime in the case of the gift tax (inter
vivos) , or upon death of a person in the case of the estate tax (mortis causa). Estate tax and
donor’s tax are the two transfer taxes under our laws and is defined in the National Internal
Revenue code as:
1. Estate tax which is an excise tax imposed upon the right of transmitting property at
the time of death, and the privilege of controlling the disposition of one’s property to
take effect upon death.
2. Donor’s tax (Gift tax) which is a tax on the privilege of transmitting one’s property to
another during his lifetime without adequate and full valuable consideration.
Basic Concepts of Succession
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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 by will or by operation of law (Art. 774, Civil Code of the Philippines)
Elements of Succession
 Decedent – the person whose property is transmitted through succession, whether

testamentary, intestate, or mixed.
 Heir – the person called to the succession either by the provision of a will or by
operation of law.
 Estate – refers to all property, rights and obligations of a person which are not
extinguished upon his death.
Kinds of Succession
a. Testamentary – results from the designation of an heir, made in a will executed in

the form prescribed by the law.
b. Legal or Intestate Succession – transmission of properties where there is no will,
or if there is a will, such is void or lost its validity, or nobody succeeds the will
c. Mixed Succession – a transmission of properties, which is effected partly by will and
partly by operation of law
Persons authorized to manage the estate
a. Executor (executrix) is the person nominated by the testator to carry out the
directions and requests in the decedent’s will and to dispose his property according
to the decedent’s testamentary provisions after his death.
b. Administrator (administratrix) is the person appointed by the court, in accordance
with the governing statute, to administer and settle intestate estate and such
testate estate as no competent executor designated by the testator.
TESTAMENTARY SUCCESSION
WILL- an act wherebyn a person is permitted with the formalities requireed by law, to control
to a certain degree the disposition of his estate, to take effect after his death from the
moment of the death of the decedent, the rights to the suceession are transmitted , and the
possession of the hereditary proprerty is deemed transmitted to the heir.
Kinds of Wills:
1. Notatriall will- is one which which is executed in accordance with the formalities
prescribed by Art. 804 to 808 of the New Civil Code. It s a will that is created for
the testattor by a third party, usually his lawyer, follows proper form, signed and
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dated in front of reuired number of wtnesses ( 3 or more witnesses) and

acknowledged by the presence of a notay public.
2. Holographic will- a written will which must be entirely written,dated and signed
by the hand of the testator himself, without any necessity of any witness. This kind
of will does not need formalities because many people can recognize his
handwriting and it can be verified by a penmanship expert.
Codicil- a supplemet or addition to a will, made after the exceution of a will and
and annexed to be taken as part thereof,by which any disposition made in the
original will is explained, added to or alttered.
Kinds of Successors
a. Legatee – an heir of personal property given by virtue of a will
b. Devisee – an heir of real property given by virtue of a will
Under testamentary succession, properties left by the decedent are classified into:
Legitime – portion of the testator’s property which could not be disposed freely because the
law has reserved it for the compulsory heirs.
Free portion – part of the whole estate which the testator could dispose of freely through a
written will irrespective of his relationship to the recipient.
The following are the compulsory heirs:
1. Legitimate children and descendants, which include legally adopted children

2. In the absence of legitimate descendants, the legitimate parents or ascendants*
3. Surviving spouse
4. Illegitimate child, both natural and spurious
*Note: Legitimate parents or ascendants can only inherit in the absence of legitimate
children or descendants. Brothers and sisters of the decedent are not considered as
compulsory heirs, thus they cannot inherit from the legitime of the decedent
In the absence of compulsory heirs, the successors would be:

1. Relatives up to 5th degree of consanguinity
2. If there were no relatives, the government shall inherit the whole estate.
3. If there is a will, the decedent may name other persons to inherit the free
portion of the net distributable estate
The table below explains the legitime of the compulsory heirs:
Legitimate Legitimate Surviving Illgitimate Free

Children/Descendnts Parents/Ascendants Spouse Children/Descendsants Portion
a. 1/2 excluded Same as 1/2 legitime of a Varies

legitime of a legitimate child
legitimate child
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b. None surviving 1/2 None surviving None surviving 1/2
c. None surviving 1/2 1/4 None surviving 1/4
d. None surviving None surviving 1/2 None surviving 1/2
e. None surviving None surviving 1/3 1/3 1/3
Examples:
1. Hereditary estate - P 1,500,000

Survivors:
Legitimate child
Parents
Spouse
The distribution of the state is

Legitimate child – P 750,000 (1/2 of the hereditary state)
Parents - None
Spouse - P375, 000
Free portion - P375, 000

Survivors:
Legitimate children -2
Parents
Spouse
The distribution of the estate is
Legitimate children – P 750,000 (375,000 each child)
Parents - None
Spouse - P375, 000 ( equal to the share of each legitimate child)

Survivors:
Parents
Spouse

Parents - None
Spouse - P250, 000 (equal to the share of each legitimate child)
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Survivors:
Illegitimate child
Parents
Spouse

Parents - None
Illegitimate child -P 187,500 (1/2 of the share of eachlegitimate child)
Spouse - P 375,000 (equal to the share of eachlegitimate child)
Free portion - P187,500

Survivors:
Parents
Parents - P750,000
Free portion - P750,000

Survivors:
Parents
Spouse
Parents - P750,000
Spouse - P 375,000
Free portion - P 375,000

Survivor:
Spouse
Spouse - P 750,000
Free portion - P 750,000

Survivors:
Illegitimate child
Spouse
Illegitimate child - P 500,000
Spouse - P 500,000
Disinheritance
When a person expects or is expected to inherit, but does not,the person is said to be
inherited.
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Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his

legitime, for causes expressly stated by law. (848a)
Article 916. Disinheritance can be effected only through a will wherein the legal cause
therefor shall be specified. (849)
Article 917. The burden of proving the truth of the cause for disinheritance shall rest upon
the other heirs of the testator, if the disinherited heir should deny it. (850)
Article 918. Disinheritance without a specification of the cause, or for a cause the truth of
which, if contradicted, is not proved, or which is not one of those set forth in this Code, shall
annul the institution of heirs insofar as it may prejudice the person disinherited; but the
devises and legacies and other testamentary dispositions shall be valid to such extent as will
not impair the legitime. (851a)
Article 919. 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 has 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 one 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 or deed, by the child or descendant;
(7) When a child or descendant leads a dishonourable or disgraceful life;
(8) Conviction of a crime which carries with it the penalty of civil interdiction. (756, 853, 674a
Article 920. The following shall be sufficient causes for the disinheritance of parents or
ascendants, whether legitimate or illegitimate:
(1) When the parents have abandoned their children or induced their daughters to live a
corrupt or immoral life or attempted against their virtue;
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(2) When the parent or ascendant has been convicted of an attempt against the life of the
testator, his or her spouse, descendants, or ascendants;
(3) When the parent or ascendant has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, if the accusation has been found to be false;
(4) When the parent or ascendant has been convicted of adultery or concubinage with the
spouse of the testator;
(5) When the parent or ascendant by fraud, violence, intimidation, or undue influence causes
the testator to make a will or to change one already made;
(6) The loss of parental authority for causes specified in this Code;
(7) The refusal to support the children or descendants without justifiable cause;
(8) An attempt by one of the parents against the life of the other, unless there has been a
reconciliation between them. (756, 854, 674a)
Article 921. The following shall be sufficient causes for disinheriting a spouse:
(1) When the spouse has been convicted of an attempt against the life of the testator, his or
her descendants, or ascendants;
(2) When the spouse has accused the testator of a crime for which the law prescribes
imprisonment of six years or more, and the accusation has been found to be false;
(3) When the spouse by fraud, violence, intimidation, or undue influence cause the testator
to make a will or to change one already made;
(4) When the spouse has given cause for legal separation;
(5) When the spouse has given grounds for the loss of parental authority;
(6) Unjustifiable refusal to support the children or the other spouse. (756, 855, 674a)
LEGAL OR INTESTATE SUCCESSION
If a person dies without leaving a will, the person is said to have died intestate, a status
known as intestacy.
Art. 960. Legal or intestate succession takes place:

(1) If a person dies without a will, or with a void will, or one which has subsequently lost its
validity;
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(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 of
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, except in cases provided in this
Code. (912a)
Art. 961. In default of testamentary heirs, the law vests the inheritance, in accordance with
the rules hereinafter set forth, in the legitimate and illegitimate relatives of the deceased, in
the surviving spouse, and in the State. (913a)
Art. 962. In every inheritance, the relative nearest in degree excludes the more distant ones,
saving the right of representation when it properly takes place.
Relatives in the same degree shall inherit in equal shares, subject to the provisions of article
1006 with respect to relatives of the full and half blood, and of Article 987, paragraph 2,
concerning division between the paternal and maternal lines. (912a)
Art. 963. Proximity of relationship is determined by the number of generations. Each

generation forms a degree. (915)
Art. 964. A series of degrees forms a line, which may be either direct or collateral.
A direct line is that constituted by the series of degrees among ascendants and
descendants.
A collateral line is that constituted by the series of degrees among persons who are not
ascendants and descendants, but who come from a common ancestor. (916a)
Right of Representation
Art. 970. 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. (942a)
Art. 972. The right of representation takes place in the direct descending line, but never in
the ascending.
In the collateral line, it takes place only in favor of the children of brothers or sisters, whether
they be of the full or half blood. (925)
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Consider the illustration:
AB
CE DF
H I GK
JL
M N
1. In the Illustration C and D are siblings (brothers and sisters). Their common parents are
A and B.
2. G is the daughter of C and E;J is the son of D and F.
3. M is the son of G and K; N is the daughter of K and L.
4. A, C, G and M, in that order, are relatives in the direct descending line. From A to C is
one degree; from C to G is another degree and from G to M is another degree.
5. N, J, D and B, are relatives in the ascending direct line.
6. C, G, and M are relatives of D, J and N in the collateral line.
7. G is the niece of D, D is the uncle of G; J is the nephew of C, C is the aunt of J.
8. H and I are first cousins, they are four degrees apart, H to C, C to AB, AB to D, and D to
I.
9. M and N are second cousins; they are six degrees apart.
10. Because of G’s marriage to K, K becomes H’s brother in law, H being G’s brother. They
become relatives by affinity. Affinity is the connection existing in consequence of
marriage between each of the marriage spouse and the kindred of the other.
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11. Applying right of representation, If C dies ahead of A, C’s daughter G and son H may
12. represent C to the succession when A dies.
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 5th degree
6. The State
legitimate Legitimate Illegitimate Surviving Brothers, Other

children parents/ children/ spouse Sisters/ Collateral
/descenda ascendants) descendants Nephews, relatives within State
nts Nieces 5th degree
a. entire excluded None surviving excluded excluded excluded excluded

b. ½ if only 1 excluded None surviving 1/2 excluded excluded excluded
child
c. 1/3 each if excluded None surviving 1/3 excluded excluded excluded
two
children
d. None entire None surviving None excluded excluded excluded
surviving surviving
e. None 1/2 1/4 1/4 excluded excluded excluded
surviving
f. None None 1/2 1/2 excluded excluded excluded
surviving surviving
g. None None None surviving entire excluded excluded excluded
surviving surviving
h. None None None surviving 1/2 1/2 excluded excluded
surviving surviving
i. None None None surviving None entire excluded excluded
surviving surviving surviving
j. None None None surviving None None surviving entire excluded
k. None None None surviving None None surviving None surviving entire
Self-Help: You can also refer to the sources below to help you further
understand the lesson.
Ballada, W., &Ballada, S. (2018). Transfer and business taxation: made easy.(17th ed.).
Philippines: DomDane Publishers & Made Easy Books.
Ampongan, O. (2013).Business & transfer taxes. (2nd ed.).Manila: Conanan Educational

Supply.
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Tabag, D. (2018) Cpa reviewer in taxation with special notes. Manila: Professional Review
and Training Center.
Let’s Check
I. Questions:
1. What is the meaning of the term succession?
2. Identify and differentiate the kinds of succession.
3. When does legal or intestate succession takes place?
4. What is meant by the word legitime?
5. What are the sufficient causes for disinheriting a spouse?
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II. True or False:
1. Estate tax is an excise tax.

2. A transfer is said to be gratuitous when there is a consideration for the transfer.
3. Legitime is the portion of the testator’s property which could not be disposed freely
because the law has reserved it for the compulsory heirs.
4. Brothers and sisters of the decedent are not compulsory heirs.
5. The surviving spouse is not entitled to his legitime if all compulsory heirs exist.
6. In every inheritance, the relative nearest in degree excludes the more distant ones,
saving the right of representation when it properly takes place.
7. An executor is a person appointed by the court to administer the assets and liabilities
of the decedent.
8. 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.
9. Disinheritance can be affected only through a will but the legal cause therefore may
not be specified.
10. Under the law on legitimes, if only survivor is the widow or widower, she or he shall
be entitled to one-half of the hereditary estate of the deceased spouse, and the
testator may freely dispose of the other half.
III. Multiple Choice:
1. When there is a will, a person appointed in such will take charge in carrying out the
wishes of the testator is called:
a. Administrator b. executor c. trustee d. heir
2. Who is the taxpayer in estate tax

a. The heirs or successors
b. The deceased person’s estate
c. The heir’s legal representatives
d. The executor or administrator of the state.
3. When there are two or more legitimate children in a testamentary succession, the share
of the surviving spouse would be
a. One-half of a share of a child
b. Equal to the share of each child
c. One-fourth of the hereditary state
d. One-half of the hereditary
4. Succession which results from the designation of an heir, made in a will executed in the
form prescribe by law.
a. Testamentary
b. intestate succession
c. mixed succession
d. legal succession
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5. Estate tax is
a. Property tax
b. Personal tax
c. Business tax
d. Excise tax
6. Part of estate which is restricted for the compulsory heirs of the decedent.
a. Free portion
b. Restricted property
c. Legitime
d. Taxable Estate
7. Which of the following is not regarded as compulsory heir?
a. Illegitimate children
b. Surviving spouse
c. Legitimate parents
d. Brother
8. In default of testamentary heirs, the law determines who are to succeed to the
inheritance of the deceased. Which of the following ranks first in order of intestate
succession?
a. Legitimate children
b. Surviving spouse
c. Legitimate parents
d. Illegitimate children
9. If the surviving heirs in a testamentary succession are the parent and a legitimate child of
the decedent, what is the share of the parent in legitime?
a. 1/3 b. ¼ c. 1/2 d. Zero
10. Which of the following is not a cause for a valid disinheritance of a children or
descendants?
a. Parents have abandoned their children
b. The child has been convicted with the concubinage with the spouse of the
decedent.
c. A child by fraud causes the testator to make a will
d. A child has been found guilty of an attempt against the life of the testator
Let’s Analyze
Donor died on the day on which the inter vivos donation was made.Dina Malas
executed a deed of donation on her one (1) hectare parcel of land in favour of her friend,
Benny Buenas. Five (5) minutes after it was signed by the notary public, Dina went home but
on her way she met an accident. Dina died instantaneously. Her heir claimed that the
donation was not valid because it was a mortis causa transfer. Moreover, the instrument was
not executed in accordance with the formalities of a will. Is the donation an inter vivos or a
mortis causa? Justify your answer.
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In a Nutshell
1. Puma Panao died intestate leaving 3 illegitimate Anac, Sila and Labas. Cute and Sweetie
are the legitimate children of Anac who predeceases Puma Panao. The net distributable
estate of Puma Panao amounts to P 12,000,000.
How much is the share of Cute?
2. The hereditary state is P 3,000,000. The surviving relatives are the parents, the spouse
and the four children. The testator is giving 20% of the free portion to his sister-in-law.
How much could be designated to the sister-in-law?
Q&A List
In this section you are going to list what boggles you in this unit. You may indicate
your questions but noting you have to indicate the answers after your question is being
raised and clarified. You can write your questions below.
Questions/Issues Answers
1.
2.
3.
4.
5.
Keyword Index
 Succession
 Inheritance
 Representation
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Big Picture in Focus: ULOb. Apply taxation rules in determining estate

tax due of unmarried decedent.
Metalanguage
The terms used for this specific unit learning outcome are already discussed and explained
in the essential knowledge section as part of the discussion. Hence, having separate
presentation will mean redundancy.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully understand
the following essential knowledge laid down in the succeeding pages. Please note that you
are not limited to exclusively refer to these resources. Thus, you are expected to utilize other
books, research articles and other resources that are available in the university’s library e.g.
ebrary, search.proquest.com etc., and even online tutorial websites.
GROSS ESTATE
Consist of all properties and interests in properties of a decedent at the time of death as well
as properties transferred during lifetime (only in form), but in substance was only transferred
at the time of death.
Classification of decedent
1. Resident or citizen- gross estate shall include all properties located within and outside
the Philippines.
2. Non-resident alien- gross estate shall include properties located only within the
Philippines.
Resident Citizen, Non-Resident Citizen and Resident Alien decedents
The following shall comprise the gross estate of the decedent:

1. Tangible personal property. Personal property that can be seen and touched. These
include appliances, jewellery, car and other movable property which can be transported
from another.
2. Intangible personal property. Personal property that can be seen and touched because
they have no physical form. Bank deposits, bonds, promissory notes, copyright,
trademark, mortgages, patent, and licenses are intangible personal property.
3. Real or immovable property. This consists of land, building, or anything attached to soil
with permanence.
4. Taxable transfers. Althoughthese transfers are inter vivos(during the life time ) in form,
they are actually mortis causa in substance because they are intended to take effect
upon or after the death of the transferor.
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a. Transfer in contemplation of death

b. Revocable transfers
c. Transfers under general power of appointment
d. Proceeds of life insurance with revocable beneficiary
e. Transfer for insufficient consideration
Transfer in contemplation of death

 The impelling cause of the transfer is the thought of his death
 It includes disposition of property for the purpose of avoiding tax
 Transfers of properties based on the following grounds are not considered in
contemplation of death
a. to relieve the donor from the burden of management
b. to settle family litigated or unlitigated disputes
c. to reduce or save tax or property taxes
d. to provide independent income for dependents
e. to reward services rendered
f. to protect family members from the hazards of business operations
g. to see children enjoy the property and its fruit while the donor is still alive
Revocable transfers
 In revocable transfers, the terms may be changed, amended, revoked, or
terminated by the decedent.
 What is material is the power to amend, revoke, terminate, or alter though the
power is not exercised.
 It includes the transfer which allows the transferor to continue enjoying,
possessing or controlling the property.
Transfers under general power of appointment

 A power of appointment is a right to designate by will or deed executed in
contemplation of death or after death.
 A power of appointment may either be general or special (limited)
 A special power of appointment authorizes the holder of the power to appoint only
among a restricted or designated class of persons other than him/her.
 General power of appointment means that the decedent must have the power to
exercise in favor of himself/herself,his/her estate, or the creditors of his/her estate.
 Requisites for inclusion of property transferred under the general power of
appointment
a. existence of the general power of appointment
b. exercise of such power by the decedent by will or by deed.
c. the transfer of the property by virtue of such exercise
Proceeds of life insurance with revocable beneficiary

a. If the wife, child, or other third person is the beneficiary
 The proceeds shall be taxable if the policy is revocable
 The proceeds shall be tax exempt the policy is irrevocable
b. If the estate, executor or administrator is the beneficiary:
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 The proceeds are taxable whether the policy is revocable or irrevocable

 The policy shall clearly indicate whether the beneficiary is revocable or
irrevocable.In absence of any clear indication to that effect of designation of the
beneficiary shall be treated as revocable.
Transfer for insufficient consideration

 In general, if a property is transferred with inadequate consideration (partial payment),
the excess of the payment over the fair value at time of death shall be included as
part of the gross estate.
 If the property is transferred with inadequate consideration is capital asset (real
assets such as land or building).it is subject to 6% capital gain tax based on the
selling price or the fair market value whichever is higher.
 If the property is transferred in an ordinary asset, the disposition thereof for
inadequate consideration is subject to donor’s tax.
 If the transfer is not shown to have been made in contemplation of death or to take
effect upon the decedent’s death, the transfer is subject to donor’s tax.
Non-resident alien decedent

If the decedent is was a non-resident alien, only his property situated in the Philippines shall
form part of his gross estate. His gross estate shall include the following:
1. Franchise which must be exercisable in the Philippines;

2. Shares, obligations or bonds issued by domestic corporations;
3. Shares, obligations or bonds issued by any foreign corporation, 85% of business of
which is in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation, if such shares,
obligations or bonds have acquired business in the Philippines;
5. Shares or rights in any partnership, business or industry established in the
Philippines.
The inclusion of intangible personal property located in the Philippines in the gross estate of
a non-resident alien decedent is subject to reciprocity rule. Such intangible personal
property shall not be included in the gross estate in the following cases:
 If the decedent at the time of was a resident of a foreign country which at the time of
death did not impose a transfer tax or death of any character in respect of intangible
personal property of citizens of the Philippines not residing in that foreign country; or
 If the laws of the foreign country of which the decedent was resident at the time of his
death allow similar exemption from transfer taxes or death taxes of every character in
respect of in intangible personal property owned by the citizens of the Philippines not
residing in that foreign country.
Valuation of gross estate
1. In general, gross estate shall be valued at its fair market value at the time of decedent’s
death
2. Real properties- valued, whichever is higher, based on
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Telefax: (084) 655-9591, Local 116
 Fair market value

 Zonal value
3. Personal properties-
 Recently acquired properties- valued at acquisition cost or purchase price
 Previously acquired properties- fair market value at the time of death
4. Usufruct
 In accordance with the latest Basic Standard Mortality Table, to be approved the
secretary of finance, upon recommendation of the Insurance Commissioner.
5. Shares of stock
a. Traded in local stock exchange (LSE)- mean between the highest and lowest
quotations nearest the date of death, if none is available on the date of death itself.
b. Not traded in local stock exchange
 Common shares- book value

 Preferred share-par value
Situs of Property
As a general rule, the situs of real propertyis the place or country where it is situated.
Generally, the situs of tangible personal property is the place or country where such is
actually located at the time of decedent’s death.
As a general rule, the situs of intangible personal property is the domicile or residence of the
owner. However, this rule may not control when the property has in fact, a situs, elsewhere.
In addition, to the ones already enumerated, the following test tests of situs apply;
1. Accounts receivable- residence of the debtor

2. Bank deposit- location of depository bank
3. Copyright,trademark,patent, & franchise- place or country were the intangibles is used or
exercised.
Illustration on Situs and Gross Estate:
Ms. Nila Banez, single, died leaving the following properties:
a. House and lost in the Philippines 2,500,000.00

b. House and lot in Australia 3,000,000.00
Land & building which is located in Quezon City,
c. Philippines 10,000,000.00
Trees, plants, growing fruits and land on which they
d. areplanted in Tiaong,Quezon 500,000.00
e. Fish pond in Marilao, Bulacan 200,000.00
f. Car in the Philippines 700,000.00
g. Van in Australia 800,000.00
h. Appliances in house and lot in the Philippines 200,000.00
i Appliances in house and lot in Australia 400,000.00
j. Jewelry in the Philippines 1,200,000.00
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k Jewelry in China 500,000.00

l. Bank deposit in Beijing, China 15,000,000.00
m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000.00
n. Notes receivable, debtor residing in the Philippines 150,000.00
Accounts receivable, debtor residing in Sydney,
o. Australia 175,000.00
p. Copyright exercised in the Philippines 300,000.00
q. Trademark used in Australia 400,000.00
r. Patent exercised in China 600,000.00
s. Franchise used in the Philippines 700,000.00
t. ABS-CBN certificate of stocks kept safe in Australia 450,000.00
Meralco certificate of stocks kept safe in the
u. Philippines. 550,000.00
Trasury bonds issued by Bangko Sentral ng
v. Pilipinas. 850,000.00
w. Foreign shares,80% business in the Philippines 900,000.00
Obligations issued by foreign corporation with no
x. businesssitus in the Philippines 750,000.00
y. Foreign bonds with business situs in the Philippines 650,000.00
Business right in a corporation established in
z. Macau, China 1,500,000.00
Investment in partnership established in the
aa. Philippines 2,250,000.00
bb. Foreign shares,90% business in the Philippines 1,750,000.00
Interest in an industry established in Brisbane,
cc. Australia 2,000,000.00
Total 53,975,000.00
Required: After determining the situs of each items above,compute for the gross estate if
Ms. Banes died a/an:
1. Filipino residing in the Philippines.

2. Filipino residing in Australia.
3. Australian residing in the Philippines.
4. Australian residing in the Australia with reciprocity.
5. Australian residing in China
Solution: The situs of each item above follows:
a. House and lost in the Philippines 2,500,000.00 Within

b. House and lot in Australia 3,000,000.00 Without
Land & building which is located in Quezon City
c. 10,000,000.00 Within
Philippines
d. 500,000.00 Within
are planted in Tiaong,Quezon
e. Fish pond in Marilao, Bulacan 200,000.00 Within
f. Car in the Philippines 700,000.00 Within
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Telefax: (084) 655-9591, Local 116
g. Van in Australia 800,000.00 Without

h. Appliances in house and lot in the Philippines 200,000.00 Within
i Appliances in house and lot in Australia 400,000.00 Without
j. Jewelry in the Philippines 1,200,000.00 Within
k Jewelry in China 500,000.00 Without
l. Bank deposit in Beijing, China 15,000,000.00 Without
m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000.00 Within
n. Notes receivable, debtor residing in the Philippines 150,000.00 Within
Accounts receivable, debtor residing in Sydney,
o. 175,000.00 Without
Australia
p. Copyright exercised in the Philippines 300,000.00 Within
q. Trademark used in Australia 400,000.00 Without
r. Patent exercised in China 600,000.00 Without
s. Franchise used in the Philippines 700,000.00 Within
t. ABS-CBN certificate of stocks kept safe in Australia 450,000.00 Within
u. 550,000.00 Within
Philippines.
v. Trasury bonds issued by Bangko Sentral ng Pilipinas. 850,000.00 Within
w. Foreign shares,80% business in the Philippines 900,000.00 Without
x. 750,000.00 Without
business situs in the Philippines
y. Foreign bonds with business situs in the Philippines 650,000.00 Within
Business right in a corporation established in Macau,
z. 1,500,000.00 Without
China
aa. 2,250,000.00 Within
Philippines
bb. Foreign shares,90% business in the Philippines 1,750,000.00 Within
Interest in an industry established in Brisbane,
cc. 2,000,000.00 Without
Australia
1. The gross estate of Ms. Banes being a resident of the Philippines shall include all her
property wherever situated, as enumerated in the illustration or P53,975,000.
2. The gross estate of Ms. Banes being a Filipino residing in Australia is also P53,975,000
because Filipino citizens whether residing or not in the Philippines, are subject to estate
tax in the same manner.
3. The gross estate of Ms. Banes being an Australian residing in Philippines is also
P53,975,000 because residents of the Philippines, whether Filipino citizens or aliens are
subject to estate tax in the same manner.
4. The gross estate of Ms, Banes being an Australian residing in Australia shall consist of
property situated in the Philippines.
The reciprocity rue may apply in this case because Ms. Banez at the time of her is a
resident and citizen of Australia and has intangible personal property in the Philippines.
When there is reciprocity, the transmission of intangible personal property located in the
Philippines of a non-resident alien decedent is not subject to tax. Accordingly, the
computation of Ms. Banes’ gross estate is shown below:
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Building & land o which is stands on Quezon City

Total 15,300,000.00
5. The gross estate of Ms, Banes being an Australian residing in China shall consist of
property situated in the Philippines.
The reciprocity rule cannot apply in this case because Ms. Banez although a non-
resident alien in the Philippines is not a resident and citizen of one foreign country. So
that the reciprocity rule may apply, the non-resident alien must be a resident and citizen
of one foreign country at the time of his death.
When there is no reciprocity, the transmission of intangible personal property located in

the Philippines of a non –resident alien decedent is subject to tax,

Land & building which is located in Quezon City,
m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000.00
n. Notes receivable, debtor residing in the Philippines 150,000.00
p. Copyright exercised in the Philippines 300,000.00
s. Franchise used in the Philippines 700,000.00
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Davao del Norte
Telefax: (084) 655-9591, Local 116
t. ABS-CBN certificate of stocks kept safe in Australia 450,000.00

u. Philippines. 550,000.00
Trasury bonds issued by Bangko Sentral ng
v. Pilipinas. 850,000.00
x. business
y. Foreign bonds with business situs in the Philippines 650,000.00

aa. Philippines 2,250,000.00
bb. Foreign shares,90% business in the Philippines 1,750,000.00
Total 27,950,000.00
Exemptions and Exclusions from Gross Estate
 Under Section 85 and 86 of 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 of a non-resident alien in the Philippines when the
rule of reciprocity applies.
 Under Section 87 of NIRC

1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy of the fiduciary heir or
legatee to the fideicommissary
3. Transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the will of the predecessor
4. All bequests, devices, legacies or transfers to social welfare , cultural and
charitable institutions, provided:
i. No part of the net income of said institution inure to the benefit of any
individual;
ii. Not more than 30% of such transfers shall be used for administration
purposes.
 Under Special Laws

1. Proceeds of life insurance and benefits received by members of the GSIS (RA
728)
2. Benefits received by members from SSS by reason of death (RA 1792)
3. Amounts received from Philippine and United States governments for war
damages
4. Amounts received from United States Veterans Administration
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5. Retirement benefits of officials/employees of a private firm (RA 4917),

provided they are included in the gross estate.
6. Payments from the Philippines and US governments to the legal heirs of
deceased of World War II Veterans and deceased civilian for supplies/services
furnished to the US and Philippine Army (RA 136)
Deductions from Gross Estate
Deductions are the amounts or items that the law allows to be deducted from gross estate to
arrive at net estate.
The deductions from gross estate should be grouped into:

1. Those allowed if the decedent was a resident or citizens
2. Those allowed if the decedent was a non-resident alien
Resident Citizen, Non-Resident Citizen and Resident Alien decedents
Ordinary deductions
1. Losses, Indebtedness, Taxes,etc.

a. Casualty losses
b. Claim against insolvent person
c. Claim against the estate
d. Unpaid mortgage
e. Unpaid taxes
2. Transfer for public use
3. Property previously taxed or vanishing deduction
Special deductions
1. Standard deduction
2. Family home
3. Amount received by heirs under R.A. 4917
4. Share of the surviving spouse
Non-resident alien decedent
1. .Claims against the estate, claims against insolvent persons, and unpaid mortgages.
This deduction is subject to limitation as follows;
Gross estate,Phil x WorldClaims against the estate,

Gross estate,world claims against insolvent persons, = Deductions allowed
and unpaid mortgages
2. Property previously taxed or vanishing deduction. Vanishing deduction on property

situated in the Philippines.
3. Transfer for public use of property situated in the Philippines
4. Net share of surviving spouse in the conjugal partnership or community property
5. Standard deduction of P 500,000.
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Telefax: (084) 655-9591, Local 116
Ordinary deductions
Casualty losses
This includes losses due to fire, storm, shipwreck, theft, robbery or embezzlement.
Requisites:
 Incurred during the settlement of the estate;
 The loss is not compensated by insurance or otherwise;
 The loss is not claimed as a deduction in the estate income tax return;
 The loss must occur not later than the last day for payment of the estate tax. (The
last day for payment of the estate tax is 6 months from the decedent's death).
Amount deductible – the amount deductible is the value of property lost
Claim against insolvent person
These are receivables of the decedent on persons declared by competent authorities as

insolvent.
Requisites:
 value of the decedent's interest therein is included in the gross estate;
 The insolvency of the debtor must be established
Amount deductible – the amount of claims/receivable that cannot be collected
Example:
Mr. X borrowed P 150,000 from Mr. Y. After a month, the debtor paid P 50,000. Before the
remaining balance of P 100,000 was paid,Mr. X died. Prior to his death, the court declared
Mr. X insolvent.The total assets and total liabilities of the debtor amount to P 200,000 and P
500,000 respectively.
The full amount of the claim must be included in the gross estate. The proportionate amount
of P 40,000 ( P 100,000 X 2/5) is still collectible. The amount deductible from gross estate is
P 60,000 ( P 100,000-P 40,000).
Claim against the estate

These are financial obligation of the decedent prior to his/her death and still enforceable at
the time of death.
Requisites:
 Contracted in good faith;
 Must be valid in law and enforceable in court;
 Must not have been condoned by the creditors;
 Must have not been prescribed;
 Personal debt of the decedent existing at the time of his death
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Telefax: (084) 655-9591, Local 116
Amount deductible-the amount of debt that will qualify in the above requirements.
Unpaid mortgage
These are amounts owed by the decedent supported with collateral and still outstanding at
the time of death.
Requisites:
 The fair market value of the mortgaged property undiminished by the mortgage
indebtedness should be included in the gross estate;
 Contracted in good faith
 For an adequate and full consideration
Amount deductible- amount of unpaid mortgage
Unpaid taxes
Requisites:
 The tax must have accrued as of the death of the decedent which were unpaid as of
the time of death
Amount deductible–amount of taxes that accrued before the decedent’s death but not
including:
 Income tax on income earned after death;
 Property taxes that accrue after death;
 Estate tax
Transfer for public use

These are amount of bequest, legacies, or devices to or for the use of the of the
government of the Philippines exclusively for public purpose.
Requisites:
 Given to the government of the Philippines (national or local);
 Must be testamentary in character;
 By way of donation mortis causa executed by the decedent before his death;
 Exclusively for public purpose
Amount deductible- amount of all bequests, legacies, devises, or transfers to or for the use
of the Government of the Philippines, or any of its political subdivisions.
Property previously taxed or vanishing deduction
Purpose: To minimize the effects of a double tax on the same property within a short period
of time.
Requisites:
Conditions for allowance:
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Telefax: (084) 655-9591, Local 116
 There is a property forming a part of the gross estate of the present decedent situated
in the Philippines;
 The present decedent acquired the property by inheritance or donation within 5 years
prior to his death;
 The property subject to vanishing deduction can be identified as the one received
from the prior decedent, or from the donor, or can be identified as having been
acquired in exchange for the property so received;
 The property acquired formed part of the gross estate of the prior decedent, or of the
taxable gift of the donor;
 The estate tax on the prior transfer or the gift tax on the gift must have been paid; and
 The estate of the prior decedent has not previously availed of the vanishing
deduction.
Percentage of vanishing deduction - the rate depends on the interval between the death
of present decedent and death of prior decedent (if the property was acquired by
inheritance) or death of present decedent and date of gift (if the property was acquired by
donation), as follows:
More than Not more than Percentage

xxx 1 years 100%
1 years 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years xxx xxx
Procedures in computing vanishing deduction
a. Determine the initial value by comparing the FMV of the property used in computing
the first transfer tax paid with the FMV of the property in the present decedent. The
lower of the two is the initial value.
b. From the initial value taken, deduct any mortgage or lien on the property previously
taxed which was paid by the present decedent prior to his death, where such
mortgage or lien was a deduction from the gross estate of the prior decedent or gross
gift of the donor. This is the initial basis.
c. The initial value taken, as reduced by Step (b), shall be further reduced by prorated
deductions for losses, indebtedness, taxes and transfers for public purpose only,
allocable to the property previously taxed as follows:
Initial basis
Gross estate X Deductions = Portion deductible
This is the final basis.
d. Determine the time interval between the death of present decedent and death of prior
decedent (if the property was acquired by inheritance) or death of present decedent
and date of gift (if the property was acquired by donation) to find the applicable
percentage of vanishing deduction
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Telefax: (084) 655-9591, Local 116
e. Multiply the final basis by the percentage of vanishing deduction to arrive at the
VANISHING DEDUCTION.
Example:
Val Hallada died on November 20,2018. Some of the properties he left are the following:
Mode of Date of Market value Death of

Assets Acquisition Acquisition Date acquired VaL Hallada
Land Donation 7-3-2014 P 500,000 P 350,000

Car Purchase 10-2-2017 800,000 980,000
Other information:
1. The gross estate of the decedent amounts to P 3,000,000.

2. The land was mortgaged for P 50,000 which was deducted in prior estate and Hallada
paid the same before he died.
3. The allowable deductions total P125,000, which includes medical expenses of P 30,000. It
excludes transfer to national government amounting to P 50,000.
Required: Compute for the vanishing deduction
Corrected Losses, indebtedness, taxes and Transfer for public use:

Unadjusted P 125,000
Add: Transfer for public use 50,000
Less: Medical expenses 30,000
Adjusted P 145,000
Value taken (Land) P350,000

Less: mortgage paid 50,000
Initial basis P 300,000
Less: proportional deduction
(300,000/3,000,000)*145,000 14,500
Final basis 285,500
Vanishing deduction % 20%
Vanishing deduction 57,100
Special deductions
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Davao del Norte
Telefax: (084) 655-9591, Local 116
Standard deduction
This is a fixed amount equivalent to P 5,000,000 which is automatically deductible and not
subject to any substantiation.
Family home
1. Defined- The family home is the dwelling house where a person and his family reside,
and the land on which it is situated.
2. Value included in the gross estate. The current fair market value or zonal value of
the family home, whichever is higher, shall be included in the gross estate of decedent.
3. Valuation date. The family home shall be valued as of the date of death.
4. Conditions for allowance of deduction:
a. Decedent must have died on or after July 28, 1992.
b. The total value of the family home must be included in the gross estate of the
decedent.
c. The family home must be the actual residence of decedent and his family at the time
of death, as certified by the Barangay Captain of the locality where the family home
is situated.
d. Deduction cannot exceed the fair market value or zonal value of the family home as
included in the gross estate but not exceeding P10,000,000.
e. It is a deduction from common properties or separate properties of the decedent, as
the case maybe.
Example:
The current value of the family home at the time of death is of Mr. X is P 16,000,000 when
the zonal value is 17,500,000.
What amount of family home is to be included and deducted in the gross estate?
Answer:
The amount includible in the gross estate is the zonal value of P 17,500,000 because it is
higher than the current value.
The family home deductible from the gross estate is P 10,000,000 only because it is the
maximum amount allowed.
If the family home is is a conjugal or community property, the amount deductible is the
share of the decedent in such property, which is equivalent to ½ of the amount included in
the gross estate but not exceeding P 10,000,000.
Thus, if the family home is part of the community property, the entire amount of P
17,500,000 is included in the gross estate. However only P 8,750,000 is deductible because
this is the only amount corresponding the share of the decedent is such property.
Amount received by heirs under R.A. 4917
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Davao del Norte
Telefax: (084) 655-9591, Local 116
This pertaining to the benefits granted and received by the heirs of the decedent from his
employer, as a consequence of separation of service, due to death of the decedent.
Provided, however, that such amount is included in the gross estate of the decedent.
Share of the surviving spouse
The share of the surviving spouse in the conjugal or community property as diminished by
the obligations properly chargeable to such property shall be deducted from the gross
estate.
Common properties P xx
Common deductions (xx)
Net common properties before deductions xx
Multiply by 50%
Share of the surviving spouseP xx
Net Estate and Estate tax: Unmarried Decedent
Format of Computation:
Gross Estate P xx
Less:
Ordinary deductions (xx)
Special deductions (xx)
Net Taxable Estate xx
Estate tax rate 6%
Estate tax due xx
Illustration- Resident Citizen
Dina Nakahinga, resident Filipino, single, died on February 14, 2018. Assets declared and
deductions claimed by the estate are as follows:
Assets:
Family Home (house) Quezon City 8,000,000
Lot in Quezon City where the house stands 500,000
Fishpond, Bulacan 4,000,000
Apartment, Manila 1,600,000
Shares of stock, Good Luck Co., domestic 600,000
Shares of stock, BX Inc., a foreign Corporation
60% of the business is in the Phil. 400,000
Cash in Bank 100,000
Deductions claimed:
Funeral expenses 300,000
Family home deduction 8,500,000
Medical expenses incurred within one year before death 600,000
Loss (Decedent has a receivable from Mr. MAX) 40,000
Liability (This represents unpaid subscription to 200
shares of Tililing Co. acquired on February 10,2018) 200,000
Standard deduction (Unitemized & undocumented) 5,000,000
Death benefits under RA 4917 300,000
Compute for the net taxable estate and estate tax.

Gross estate
34
Davao del Norte
Telefax: (084) 655-9591, Local 116
Family Home (house) Quezon City 8,000,000

Lot in Quezon City where the house stands 500,000
Fishpond, Bulacan 4,000,000
Apartment, Manila 1,600,000
Shares of stock, Good Luck Co., domestic 600,000
Shares of stock, BX Inc., a foreign Corporation
60% of the business is in the Phil. 400,000
Cash in Bank 100,000
Shares of stock, Tilling Co. 200,000
Receivable from Mr. MAX 40,000
P 15,740,000
Less: Deductions
Loss (Decedent has a receivable from Mr. MAX)40,000
Liability (This represents unpaid subscription to 200
shares of Tililing Co. acquired on February 10,2018) 200,000
Family home deduction 8,500,000
Standard deduction (Unitemized & undocumented) 5,000,000
Total P14,040,000
Net Taxable estate P 1,700.000
Estate tax due (1,700,000* 6%) P 102,000
Illustration- Non resident alien

Che Cua, a non resident alien died leaving the following assets-
Domestic shares P 1,000,000
Foreign shares 3,000,000
Tangible personal property, Philippines 6,000,000
Expenses( deductible) 1,200,000
Note- The country where he is a citizen and resident does not impose transfer tax on
transmission of intangibles of Filipinos.
Compute for the net taxable estate and estate tax.

Gross estate within in the Philippines P6, 000,000
Gross estate outside the Philippines 4,000,000
Total gross estate within and outside the Philippines P 10,000,000
Gross estate P 6,000,000

Less:
Proportional deductions
(1,200,000*6/10) 720,000
Standard deduction 500,000
Total P1,220,000
Net Taxable estate P 4,780,000
Estate tax due (4,780,000* 6%) P 286,800
35
Davao del Norte
Telefax: (084) 655-9591, Local 116
Ballada, W., & Ballada, S. (2018). Transfer and business taxation: made easy.(17th ed.).
Ampongan, O. (2013).Business & transfer taxes. (2nd ed.).Manila: Conanan Educational

Supply.
Tabag, D. (2018) Cpa reviewer in taxation with special notes. Manila: Professional Review
and Training Center.
Let’s Check
I Questions:
1. What constitute gross estate of a resident citizen?
2. What constitute gross estate of a non-resident alien?
3. What are the ordinary deductions?
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Davao del Norte
Telefax: (084) 655-9591, Local 116
4. What are the special deductions?
5. Explain reciprocity rule of non-resident alien?
II.MULTIPLE CHOICE QUESTIONS

1. As a rule, all the decedents are taxable on world, except
a. Non-resident alien
b. Non-resident citizen
c. Resident-alien
d. All of these
2. Which property is covered by the reciprocity exemption?
a. Intangible personal property abroad
b. Intangible personal property in the Philippines
c. Tangible personal property abroad
d. Tangible personal property in the Philippines
3. The proceeds of life insurance designated by the decedent to his executor is excluded in
the gross estate
a. If the designation is revocable
b. If the designation is irrevocable
c. Without regard to the designation as revocable or irrevovable
d. Under no circumstances
4. Mr. Faustino Santos, testator appointed Mr. Generoso Cruz as the executor of the
estate. Mr. Santos was a citizen of Argentina and a resident of Quezon City. He was in
California, USA visiting his son when he died. He owned a Mercedes sports car and
several bank deposits in the USA. The executor asked you whether or not the car and
bank deposits in USA will still have to be declared as part of the Philippine gross estate
37
of Faustino Santos. Argentina does not impose taxes of any kind. What answer will you
give him?
a. The car and bank deposits in the USA have to be declared as part of the
Philippine gross estate because the decedent was a resident at the time of his
death and, as such, properties wherever situated are included in the gross estate.
b. The car and bank deposits in the USA need not be declared as part of the
Philippine gross estate because when Mr. Santos died he was in California, USA
making him a non-resident alien.
c. The car and the bank deposits in the USA have to be declared as part of the
Philippine gross estate only when the decedent specified in his will and testament
that such properties must form part of his gross estate.
d. The car and the bank deposits in the USA need not be declared as part of the
Philippine gross estate because Argentina does not impose transfer taxes of any
kind.
5. Statement 1: A resident alien is taxable only on his estate situated in the Philippines.
Statement 2: A non-resident alien is taxable only on his estate situated in the
Philippines.
Which is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
6. Which shall not form part of the gross estate of a decedent:

a. Life insurance where the executor is the beneficiary and it is irrevocable
b. Transfer passing special power of appointment.
c. Revocable transfer
d. Intangible personal property of non-resident
7. Personal property with a cost of P400,000 and a fair market value at the time of death
P900,000, but subject to a mortgage of P250,000
a. Shall be in the taxable net estate at P500,000
b. Shall be in the gross estate at the decedent’s equity of P650,000
c. Shall be in the gross estate at P400,000
d. Shall be in the gross estate at P900,000
8. Statement 1: Losses can be deducted only if incurred during the settlement of the estate.
Statement 1: Losses can be deducted only if the property lost is included in the gross
estate.
a. both statement are true.
b. both statement are false.
c. the first statement is true, but the second statement is false.
d. the first statement is false, but the second statement is true.
9. Which of the following is deductible from the gross estate?

a. Income tax paid on income received after death.
b. Unpaid property taxes accrued in the year of death.
c. Donor’s tax accrued after to death.
d. Estate tax paid to a foreign country.
10. Which is not a requisite of vanishing deduction?

38
a. If the property is acquired by inheritance, the prior estate must have paid the
estate tax
b. If the property is acquired by inheritance, the property must not have claimed
vanishing deduction
c. The decedent must have acquired the property by way of inheritance or
donation.
d. The decedent must have acquired the property by purchase.
11. A resident decedent was married at the time of death and under the system of conjugal
partnership of gains. Among the properties in the gross estate were:
Land, inherited before the marriage, fair market value P5, 000,000
Family home built by the spouses on the inherited land 4,000,000
Deduction for family home is:
a. P9,000,000 c. P5,000,000
b. P7,000,000 d. P2,000,000
12. The heirs of the decedent compiled the following accrued taxes:
Before death After death
Real property tax P 40,000 P-
Income tax P 80,000 P 110,000
Estimated estate tax P 400,000
Compute the deductible taxes.
a. P 120,000
b. P 230,000
c. P 510,000
d. P 630,000
A decedent left the following properties:

Land in Italy (with P1M unpaid mortgage) P 2,000,000
Land in Davao City, Phil.. (zonal value P750,000) 500,000
Franchise in USA 100,000
Receivable from debtor in Phil. 50,000
Receivable from debtor in USA 100,000
Bank deposit in Phil 20,000
Bank deposits in USA 80,000
Shares of stocks of PLDT, Phil. 75,000
Shares of stock of ABC, foreign corporation
75% of the business in the Philippines 125,000
Other personal properties in the Philippines 300,000
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13. If the decedent is a non-resident citizen his gross estate is:
a. P 3,350,000
b. P 3,600,000
c. P 2,350,000
d. P 2,600,000
14. If the decedent is non-resident alien (no reciprocity) his gross estate is?
a. P 800,000
b. P 945,000
c. P 1,050,000
d. P 1,195,000
15. If in the preceding number reciprocity law can be applied the gross estate is:
a. P 800,000
b. P 945,000
c. P 1,050,000
d. P 1,195,000
Let’s Analyze
For each type of decedent, compute for the Gross estate of Mr. Lao if he left the following
property:
A. Resident Citizen
Do Not Copy
B. Non- Resident Citizen

C. Resident Alien
D. Non- Resident Alien
E. Non- Resident Alien, Without Reciprocity
1. Lot in Pakistan P1,500,000

2. Accounts Receivable ,debtor in Jolo, Sulu 150,000
3. Foreign Bonds 2,800,000
4. Buildings in Quezon City 5,000,000
5. Fishing Boat in Nasugbu, Batangas 175,000
6. Car in Pakistan 1,200,000
7. Van in Manila 1,400,000
8. Farm in Lean, Batangas 550,000
9. Appliances in Cotabato City 500,000
10. Jewelry in Pakistan 800,000
11. Shares of stock,domestic corporation 250,000
12. Bank deposit, Swiss Bank 3,0000,000
13. Notes Receivable, debtor in Pakistan 700,000
14. Copyright exercised in the Philippines 2,500,000
15. Patent used in Paris 4,500,000
16. Franchise used in Sta. Rosa Laguna 2,000,0000
17. Treasury bonds, government corporation 900,000
18. House & Lot in Davao City 1,000,000
19. Fishpond in Nasugbu, Batangas 300,000
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20. Mango Fruits and Tress in Zambales 850,000

21. Obligations by a domestic corporation 400,000
22. Interest in a domestic industry 475,000
23. Library house in Cotabato City 250,000
In a Nutshell
Mr. Nakalimot Huminga, head of family died on January 15,2018 ,leaving the following properties
and obligations:
Cash in bank,50% donated mortis causa to Natl
Govt;50% to Q.C. Govt 3,000,0000
House and lot in Makati, F. Home 15,000,000
Personal properties 15,000,000
Farm lot 8,250,000
Claim against an insolvent debtor 2,250,000
Transfer in contemplation of death( gratuitous) 15,000,000
Transfer passing under special power of appointment 750,000
Deductions claimed:
Funeral expenses 5,750,000
Judicial expenses 675,000
Donation mortis causa to Quezon City Government 1,500,000
Unpaid mortgage on the farm lot 750,000
Medical expenses( included in the funeral expenses
Incurred within the 1 year period with receipts) 2,250,000
The farm lot was inherited 5 1/2 years by the decedent before his death with a value then of P
Do Not Copy
5,750,000 and a mortgage indebtedness of P 1,500,000.

Determine the following:
a. Gross Estate
b. Total allowable deductions
c. Net taxable estate
d. Estate tax due
Q&A List
In this section you are going to list what boggles you in this unit. You may indicate your
questions but noting you have to indicate the answers after your question is being raised and
clarified. You can write your questions below.
1.
2.
3.
4.
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Keyword Index
 Gross Estate
 Reciprocity
 Situs
 Allowable deductions
 Net Taxable Estate
Big Picture B
Week 4&5: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to:
a. Apply taxation rules in computation of estate tax due of married decedent.
b. Apply taxation rules in computation of donor’s tax.
Big Picture in Focus: ULOa. Apply taxation rules in computation of

estate tax due of married decedent.
Metalanguage
The terms used for this specific unit learning outcome are already discussed and explained in the
essential knowledge section as part of the discussion. Hence, having separate presentation will
mean redundancy.
Do Not Copy
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully understand the
following essential knowledge laid down in the succeeding pages. Please note that you are not
limited to exclusively refer to these resources. Thus, you are expected to utilize other books,
research articles and other resources that are available in the university’s library e.g. ebrary,
search.proquest.com etc., and even online tutorial websites.
GROSS ESTATE
(CONJUGAL PARTNERSHIP OF GAINS & ABSOLUTE COMMUNITY OF PROPERTY

REGIME)
The determination of gross estate of a married decedent shall depend on the system of property
relationship governing the spouses which may be either:
1. Absolute community of property

2. Conjugal partnership of gains
3. Complete separation of property
4. Any other regime
Rules in determining the property of relationship
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1. Agreement on marriage settlement

2. If there was no prenuptial agreement and:
a. The date of marriage took place before August 3, 1988, conjugal partnership
of gains.
b. The date of marriage took place on or after August 3, 1988, absolute
community of property.
Conjugal partnership of gains
Art. 106. Under the regime of conjugal partnership of gains, 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. (142a)
Article 116. All property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be
conjugal unless the contrary is proved. (160a)
EXCLUSIVE PROPERTY OF EACH SPOUSE

The following items form part of the exclusive property of each pose:
(1) That which is brought to the marriage as his or her own;
Do Not Copy
(2) That which each acquires during the marriage by gratuitous title (through pure liberality, as in
donation and testate/intestate succession);
(3) That which is acquired by right of redemption, by barter or by exchange with property
belonging to only one of the spouses; and
(4) That which is purchased with exclusive money of the wife or of the husband.
Article 117
The following are conjugal partnership properties:
1. Those 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;
2. Those obtained from the labor, industry, work or profession of either or both of the
spouses;
3. The fruits, natural, industrial, or civil, due or received during the marriage from the
common property, as well as the net fruits from the exclusive property of each spouse;
4. The share of either spouse in the hidden treasure which the law awards to the finder or
owner of the property where the treasure is found;
5. Those acquired through occupation such as fishing or hunting;
6. Livestock existing upon the dissolution of the partnership in excess of the number of
each kind brought to the marriage by either spouse; and
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7. Those which are acquired by chance, such as winnings from gambling or betting.
However, losses therefrom shall be borne exclusively by the loser-spouse. (153a,
154a, 155, 159)
Absolute community of property
The absolute community of property between spouses starts from the time the marriage is
celebrated. It cannot be modified during the marriage; hence, any agreement must be done prior
to contracting the marriage (Article 88, Family Code). Under the regime, all properties owned by
the spouses before the marriage and those that they acquire during the marriage shall form part of
the absolute community and is shared equally by husband and wife (Article 91, Family Code).
EXCLUSIVE PROPERTY OF EACH SPOUSE

As a general rule, any property acquired during the marriage is presumed to belong to
the community, unless it is shown that it is excluded in the following:
1. Property acquired during the marriage by gratuitou s title such as by way of

donation or inheritance unless the donor testator or grantor provides that they shall
form part of the community property. So, if one of the spouses inherited a property
during the marriage, his/her future spouse will not co -own that property as well as
the fruits and income therefrom.
2. Property for personal and exclusive use of either spouse. Jewelry is not considered
DoNotCopy
excluded under this; hence, it is part of the community property.
3. Property acquired before the marriage if the acquiring party has legitimate
descendants (children, grandchildren) by a former marriage. The fruits and income
of such property are also excluded.
Communal property
Unless provided in the Family code or in the marriage settlements, the communal property shall
consist of all the property owned by the spouses at the time of the celebration of the marriage or
acquired thereafter.
Property acquired during marriage is presumed to belong to the community; unless it is proved
that it is one of those excluded therefrom.
SUMMARY OF RULES
Property Relationship Between Spouses
Conjugal Absolute
Partnership Community
I. Property acquired BEFORE Marriage
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a. Gratuitous Exclusive Communal

b. Onerous Exclusive Communal
c. Where the spouse has a legitimate Exclusive Exclusive
descendant from a previous
marriage
II. Property acquired DURING marriage
a. Gratuitous title Exclusive Exclusive
b. Onerous Title Conjugal Communal
c. In exchange of EXCLUSIVE Exclusive Exclusive
property
d. In exchange of conjugal/ Conjugal Communal
community property
e. Fruits or income from EXCLUSIVE Conjugal Exclusive
property
f. Fruits or income from conjugal/ Conjugal Communal
community property
 The highlighted rows are the differences between the two systems.
 Jewelries shall form part of the communal property (in case of absolute community).
Do Not Copy
Illustration:
Aldo died leaving the ff property:
a. Real property in Baguio Citybrought into marriage
300,000.00
b. Income of real property in Baguio
60,000.00
c. Real property in Cebu City brought into marriage by wife
240,000.00
d. Income of real property in Cebu City
25,000.00
e. House in Pili,Camarines Sur acquired by Aldo during marriage
375,000.00
f. Income of house in Pili
50,000.00
g. Real property in Ilo-ilo City, earned by wife during marriage
225,000.00
h. Income of real property in Ilo-Ilo city
80,000.00
i. Tangible personal property in Manila inherited by Aldo during
marriage 500,000.00
j. Income of properties in manila
175,000.00
k. Intangible personal properties in Singapore, inherited by wife during
marriage 430,000.00
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Davao del Norte
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L. Income of intangibles in Singapore

85,000.00
m. Tangible personal property in Dagupan City,inherited by Aldo
before marriage 20,000.00
n. Income of property in Dagupan City
10,000.00
o. Intangible personal property in Canada,inherited by wife before
marriage 350,000.00
p. Income of personal property in Canada
85,000.00
1. Determine the total exclusive and conjugal properties under conjugal partnership of gains.
2. Determine the total exclusive and communal properties under absolute community of property
regime.
Conjugal partnership of gains Absolute community

Exclusive Conjugal Exclusive Conjugal
a.
300,000.00 300,000.00
b. 60,000.00
60,000.00
c.
240,000.00
d. 25,000.00
Do Not Copy
25,000.00
e. 375,000.00
375,000.00
f. 50,000.00
50,000.00
g. 225,000.00
225,000.00
h. 80,000.00
80,000.00
i.
500,000.00 500,000.00
j. 175,000.00
175,000.00
k.
l. 85,000.00
m.
20,000.00 20,000.00
n. 10,000.00
10,000.00
o.
350,000.00
p. 85,000.00
85,000.00
820,000.00 675,000.00
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1,170,000.00 1,820,000.00
Formula in Computing Estate Tax

For married decedents (residents and citizens)
Exclusive Conjugal/Community Total

Properties Properties
Gross Estate xx xx xx
Less: Allowable Deductions
1. Ordinary (LITE) (xx) (xx) (xx)
Net Estate before Special Deductions xx xx xx
2. Special Deductions
 Family Home (xx)
 Medical Expenses (xx)
 Standard deduction (xx)
 Benefits received under RA 4917 (xx)
 Share of the Surviving Spouse (1/2
of the net conjugal/community
estate before special deductions) (xx)
Net Taxable Estate xx
Estate Tax Due Do Not Copy
xx
Less: Estate Tax Credit (xx)
Estate Tax Payable xx
 As a general rule, obligations contracted during the marriage are presumed to have
benefited the marriage, and are charges againts the community/conjugal property
 Vanishing deduction may be a dedcution against exclusive or community/conjugal

property, depending on the classification of the property to which it is related, if
exclusive or community/conjugal.
 A deduction, whether against exclusive or community/conjugal estate follows the

classification of the property in the gross estate. If the property to which the
deductioon is related is exclusive property in the gross estate, the deduction is against
the exclusive gross estate. If the property to which the deductioon is related is
community/conjugal property in the gross estate, the deduction is against the
community/conjugal gross estate.
Illustration:
A married decedent died leaving the following:
Community properties P 50,000,000
Exclusive properties 30,000,000
Community ordinary deductions 4,500,000
Exclusive ordinary deductions 8,500,000
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Among those included in the exclusive property were the following:
 A piece of land inherited from the decedent’s father who predeceased him 3 ½ years ago ,
FMV at the time of inheritance was P 8,000,000 ( no mortgage indebtedness);FMV at the
time of present decedents death, P 9,000,000. This was mortgaged during the marriage for
the benefit of the family for P 3,000,000 which was paid by the decedent before he died.
 Car which was received as gift 18 months before the decedents death .FMV date of
donation, P5,000,000;FMV date of death, P 4,000,000.
 Family home as certified by the Barangay captain in the locality where they were situated,
P12,000,000.
Determine the taxable net estate and estate tax due.
Value taken (Land) P8,000,000

Less: mortgage paid
Initial basis P 8,000,000
(8M/80M)*13,000,000 1,300,000
Final basis 6,700,000
Vanishing deduction P2,680,000
Value taken (Car) P4,000,000

Less: mortgage paid
Do Not Copy
Initial basis P 4,000,000

(4M/80M)*13,000,000 650,000
Final basis 3,350,000
Vanishing deduction P 2,680,000
Exclusive Properties Community Total

Properties
Gross Estate
30,000,000.00 50,000,000.00 80,000,000.00
Ordinary Deductions
8,500,000.00 4,500,000.00 13,000,000.00
Vanishing deductions
5,360,000.00 5,360,000.00
Net estate before special
deductions 21,500,000.00 45,500,000.00 61,640,000.00
Family home
10,000,000.00
Standard deduction
5,000,000.00
Share of the surviving (45,500,000/2)
spouse 22,750,000.00
Net Taxable Estate 23,890,000.00
48
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Estate tax due (23,890,000*6%) 1,433,400.00
Illustration: ( Non-resident alien)

Purobuto, non-resident Japanese, died leaving the following:
Exclusive properties, Philippines P 5,600,000

Conjugal properties, Philippines 4,200,000
Conjugal properties, Abroad 18,200,000
Claim against insolvent person 1,000,000
Claim against the estate 1,500,000
Losses: occurring 3 mos. After deathdue to fire 1,700,000
Donation mortis causa to Makati City Hall 1,800,000
Family Home (inc. Above ) 10,000,000
Standard deduction 10,000,000
Determine the taxable net estate and estate tax due.
Exclusive Properties Community Total

Properties
Gross Estate 9,800,000.00
5,600,000.00 4,200,000.00
Less: Proportional deduction
(9.8M/28M) 4,200,000 Do Not Copy
1,470,000.00 1,470,000.00
Transfer for public use 1,800,000.00 1,800,000.00
Net estate beforespecial 3,800,000.00 2,730,000.00 6,530,000.00
deductions
Standard deduction 500,000.00
Share of the surviving (4,200,0000/2) 1,365,000.00
spouse
Net Taxable Estate 4,665,000.00
Estate tax due (4,665,000*6%) 279,900.00
Claim against insolvent person P 1,000,000

Claim against the estate 1,500,000
Losses 1,700,000
Allowable proportional LITe P 4,200,000
Compliance Requirements
a. The estate tax return shall be filed within 1 year after the decedent’s death, but may be
extended to not exceeding 30 days if authorized by the BIR Commissioner.
Who shall file the Estate tax return?
 Executor/administrator (primary); or
 Any of the legal heirs (secondary)
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b. When the estate tax return shows a gross value exceeding P 5,000,000, it shall be supported
with a statement duly certified by a CPA which shall contain the following:
 Composition of the gross estate
 The allowable deductions claimed
 The estate tax due
c. The payment of estate tax shall be made at the time the return is filed. However, the CIR
may allow an extension of until 5 years if settled judicially or 2 years if settled extra-
judicially
Tax credit for estate tax paid to a foreign country

1. Who can claim? Only citizen or resident alien decedent.
2. Amount Deductible, whichever is lower:
a. Actual estate tax paid abroad
b. Limit
2. Limitations on tax credit:
a. Only one country is involved
Net estate (per Foreign Country) x Philippine estate tax

Total net estate
b. Two or more foreign countries are involved

Limit 1: per country
Net estate (per Foreign Country) Do Not Copy
x Philippine estate tax

Total net estate
Limit 2: Total Foreign Country
Net estate (all Foreign Countries) x Philippine estate tax

Total net estate
Ballada, W., & Ballada, S. (2018). Transfer and business taxation: made easy.(17th ed.).
Ampongan, O. (2013).Business & transfer taxes. (2nd ed.).Manila: Conanan Educational Supply.
Tabag, D. (2018) Cpa reviewer in taxation with special notes. Manila: Professional Review and
Training Center.
Let’s Check
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I Questions:
1. Differentiate conjugal partnership and absolute community of property regime.
2. What constitute exclusive properties under conjugal partnership of gains?
3. What constitute conjugal properties under conjugal partnership of gains?
Do Not Copy
4. What constitute exclusive properties under absolute community of property regime?
5. What constitute community properties under absolute community of property regime?
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II MULTIPLE CHOICE QUESTIONS

1. Properties owned before marriage and brought into the marriage are generally classified as:
I- conjugal properties under conjugal partnership of gains.

II- exclusive properties under absolute community of properties.
a. Only I is correct c. Both I and II are correct

b. Only II is correct d. Both I and II are incorrect
2. Which is correct regarding the share of the surviving spouse?

a. One-half of the gross estate after ordinary deductions
b. One-half of the common properties plus the separate properties of the surviving spouse
c. One-half of the net common properties
d. The whole of the separate property of the surviving spouse
3. 1st statement: For marriages on or after August 3, 1988, the property relationship between
husband and wife, in the absence of a written agreement between them, is the system of
absolute community of property.
2nd statement: There may be a property relationship of conjugal partnership of gains even
if marriage was on or after August 3, 1988.
a. Only the first statement is true Do Not Copy
b. Only the second statement is true

c. Both statements are true
d. Both statements are false
4. Which of the following is correct? Under the system of conjugal partnership of gains and
absolute community of property:
a. Property owned before the marriage is exclusive property under both systems
b. Income of property under (a) is exclusive property under both systems
c. Property under (a) may be conjugal or community when expressly declared by the
benefactor as conjugal or community
d. Property acquired during the marriage by inheritance or gift is exclusive property under
both systems
5. Which of the following is not a part of the gross estate?

a. Conjugal property
b. Community property
c. Exclusive property of the decedent
d. Exclusive property of the surviving spouse
6. Properties acquired by gratuitous title before the marriage are generally classified as:
A. Community properties under the absolute community of property regime.
B. Conjugal properties under conjugal partnership of gains.
a. A only
b. A and B
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c. B only
d. Neither A nor B
7. Which of the the following distinguishes conjugal property from community property?
a. Properties inherited during marriage

b. Those acquired through occupation during marriage
c. Fruits of exclusive property
d. Income earned by each spouse during marriage
8. One of the following is not a community property of the spouses

a. Property inherited by the husband before marriage
b. Winnings in gambling]
c. Fruits of property inherited during marriage
d. Fruits of property inherited before the marriage
9. One of the following is not entitled to tax credit for taxes paid to foreign country
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-resident alien
10. The estate tax return should be accompanied by a certificate of an independent CPA if the
gross estate is: (UNDER TRAIN LAW)
a. P5,000,000 c. Over 5,000,000
b. P5,000,000 or over d. P50,000 or over
Do Not Copy
Lovely,married Andy, a 60 years old lawyer who had two children in a previous marriage.The
spouses had the following properties:
Lovely Andy
Before marriage:
Total properties P 400,000 P 4,000,0000
During marriage:
Income from separate industry 200,000 2,000,000
Income from properties brought into marriage 80,000 700,000
Inheritance and donations received 450,000 500,000
Assuming the conjugal partnership of gains, compute the following:
11. The separate property of Lovely

a. P 400,000 b. P 450,000 c. P 850,000 d. P 1,050,000
12. The gross estate of Lovely
a. P 3,130,000 b. P 3,330,000 c. P 3,830,000 d. P 7,880,000
Assuming the absolute community of property, compute the following:

13. The separate property of Lovely
a. P 400,000 b .P 450,000 c. P 850,000 d. P 1,050,000
14. The gross estate of Lovely

a.P 3,130,000 b. P 3,330,000 c. P 3,830,000 d. P 7,880,000
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15. The following data pertain to the estate of a married decedent:

Conjugal real properties P 15,000,000
Conjugal family home 12,000,000
Exclusive properties 12,500,000
Conjugal ordinary deductions:
Other deductions 1,300,000
Medical expenses 600,000
The taxable net estate is:
a. P 10,750,000
b. P 13,750,000
c. P 14,350,000
d. P 19,350,000
Let’s Analyze
Pepe married Pilar on January 20,1995 without any prior agreement in writing as to the system of
property relationship that will govern their properties when they are already married. Pepe brought
into the marriage an old Spanish house in Vigan, Ilocos Sur worth P2,000,000 while Pilar brought
with her a 200 hectare pineapple plantation in Bukidnon which she acquired while she was still
single.
As a consequence of her marriage,she received as gift from her parents another 200 hectare
banana plantation in Cagayan de Oro City on January 31,1995.
Do Not Copy
Twelve (12) years thereafter, she died a car accident. The joint account deposit of the spouses
with Metrobank was P5,000,000.She was insured with an insurance company for P2,500,000 with
Pepe as the appointed irrevocable beneficiary.
For numbers 1-4,classify the properties identified above by choosing your answers from the
options below:
Options:
A. Exclusive property of Pepe

B. Exclusive property of Pilar
C. Conjugal property of of Pepe and Pilar
D. Community property of Pepe and Pilar
1. The old spanish house in Ilocos Sur

2. The banana plantation in Cagayan de Oro Cty
3. The income of banana plantation
4. The deposit with metro bank
In a Nutshell
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Mr. Malungkot died intestate on September 30,2018. He is survived by his wife. An inventory of
the state showed the following:
FMV tax declaration Zonal Value
Exclusive estate:
Commercial land 700 sq. m. P 8,500,000 P 9,000/s.q. m.
Residential land 900 sq.m 5,800,000 P 10,000/s.q. m.
Conjugal estate:
Farm land, 800 s.q. m. P 11,300,000 P 7,000/s.q. m.
Residential house 7,500,000
Car, Toyota 2,000,000
Other properties 4,800,000
On January1,2014 the commercial land was mortgaged at the Phil. National Bank for 500,000.
The residential house ( certified family home is mortgaged with unpaid balance of P 800,000 as of
the date of death.) The 900 s.q. m. residential land is the family home’s lot.
OTHER POSSIBLE DEDUCTIONS:
Funeral expenses P 500,000

Claim against the estate 900,000
Medical expenses 300,000
Required: Determine the net taxable estate and tax due
Do Not Copy
Q&A List
In this section you are going to list what boggles you in this unit. You may indicate your
questions but noting you have to indicate the answers after your question is being raised and
clarified. You can write your questions below.
1.
2.
3.
4.
5.
Keyword Index
55
 Conjugal partnership of gains
 Absolute Community
 Exclusive properties
 Communal properties
 Conjugal properties
Big Picture C
Week 6–7: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to:
a. Apply taxation rules in computation of donor’s tax.
Big Picture in Focus: ULOa. Big Picture in Focus: ULOb.

Apply taxation rules in computation of donor’s tax.
Metalanguage
The terms used for this specific unit learning outcome are already discussed and
explained in the essential knowledge section as part of the discussion. Hence,
having separate presentation will mean redundancy.
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Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully
understand the following essential knowledge laid down in the succeeding pages.
Please note that you are not limited to exclusively refer to these resources. Thus,
you are expected to utilize other books, research articles and other resources that
are available in the university’s library e.g. ebrary, search.proquest.com etc., and
even online tutorial websites.
Topic: Donor’s Tax
Definition and nature of donation
Art. 725. Donation is an act of liberality whereby a person disposes gratuitously of a

thing or right in favor of another, who accepts it. (618a)
Kinds of Donation
1. Donation mortis causa

a. It becomes effective upon the death of the donor.
b. It is considered a testamentary disposition, and governed by the law on
succession.
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c. The donation is subject to estate tax
2. Donation inter vivos
 It takes effect during the lifetime of the donor
 The donation is subject to donor’s tax
3. Other forms of donation
a. Cancellation of indebtedness
 Debts cancelled by the creditor without any consideration is a
donation, and subject to donor’s tax.
b. Transfer of properties for less than adequate and full consideration
 Property transferred other than real property, for less than
adequate and full consideration, the amount by which the fair
market value exceeded the value of the consideration shall be
considered as a gift, and subject to donor’s tax.
 Where the consideration is fictitious, the entire value of the
property transferred shall be subject to donor’s tax.
 Bona fide transfer in the ordinary course of business, at arm’s
length and free from any donative intent, even if the
consideration is inadequate is not subject to donor’s tax.
Elements of Taxable donation

1. Capacity of the donor to transfer property
2. Donative intent
3. Delivery
 The transfer of the property is completed by the delivery, either
actually or constructively, of the donated property to the done.
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4. Acceptance of the gift by the done

 The transfer of property by gift is perfected from the moment the donor
knows of the acceptance by the done.
Formal Requisites
Although the law used the term “act”, the law considers donation as a
“contract” as shown by the fact that it requires acceptance, and that the rules on
obligations and contracts apply to it as a suppletory law (Art. 732 NCC). Being so,
the required form, as provided below shall be observed, otherwise, void.
Personal Property Real or registrable

property
Amount of donation P5,000 or less more than P5,000 Regardless of
amount
Form of Donation oral or in writing in writing in public document
Persons Who May Give or Receive a Donation
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All persons who may contract and dispose of their property may make a donation.
Guardians and trustees cannot donate the property entrusted to them. The donor’s
capacity shall be determined as of the time of the making of the donation.
All those who are not specifically disqualified by law, therefore, may accept
donations. Incapacity to succeed by will; shall be applicable to donations inter
vivos.Minors and others who cannot enter into a contract may become donees but
acceptance shall be done through their parents or representatives. Donations made
to conceived and unborn children may be accepted by those persons who would
legally represent them if they were already born. Donations madeto incapacitated
persons shall be void, though simulated under the guise of another contract through
a person who is interposed.
No person may give o receive, by way of donations, more than he may give or
receive by will. The donations shall be in officious in all that it may exceed this
limitation.
Husband and wife are considered as separate and distinct tax payer’s for purpose of
the donor’s tax. However, if what was donated is a conjugal or community property
and only the husband signed the deed of donation, there is only one donor for
donor’s tax purposes, without prejudice to the right of the wife to question the validity
of the donation without her consent pursuant to the pertinent provisions of the civil
code of the Philippines and the Family Code of the Philippines.
Husband and wife cannot donate any con jugal or community property without the
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consent of the other. However, either spouse may, without the consent of the other,
make moderate donations for charity or on occasions of family rejoicing or family
distress. Husband and wife may make a joint donation of conjugal or community
property. In this case and for donor’s tax purposes, each spouse shall be considered
a separate donor of his or her interest in the property one-half being the gift of the
husband and the other half that of the wife.
Exempt Donations Under Special Laws

 International Rice Research Institute;
 Philippine- American Cultural Foundation;
 Ramon Magsaysay Award Foundation;
 Philippine Inventor’s Commission;
 Integrated Bar of the Philippines;
 Development Academy of the Philippines;
 Aquaculture Department of the Southeast Asia Fisheries Development
Center of the Philippines;
 National Social Action Council;
 Intramuros Administration;
 Southern Philippines Development Foundation;
 National Museum;
 National Library;
 National Historical Institute;
 Task Force on Human Settlement consisting of equipment, materials
and services;
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 Public Schools in accordance with the Adopt-a-school Act of 1998 (R.A
8525);
 Philippine Red Cross.
Void Donations
 Those made between persons who were guilty of adultery or concubinage at
the time of the donation;
 Those made between persons found guilty of the same criminal offense, in
consideration thereof;
 Those made between the spouses during the marriage, except moderate gifts
which the spouses may give each other on the occasion of any family
rejoicing.
 Those made between persons living together as husband and wife without a
valid marriage.
 Those made to a public officer or his wife, descendants and ascendants, by
reason of his office.
Donor’s (Gift) Tax

DEFINITION AND NATURE
Donor’s tax is a tax on a donation or gift, and is imposed on the gratuitous

transfer of property between two or more persons who are living at the time of the
transfer.
A donor’s tax (or gift tax) is a tax le vied, assessed, collected and paid upon
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the transfer by any person, resident or non-resident, of the property by gift.
It is a tax imposed on the exercise of the donor’s right during lifetime to

transfer property to others in the form of gift.
The donor’s tax is not a property tax, but is a tax imposed on the transfer of
property by way of gift inter vivos.
As in the case of the estate tax, the donor’s tax is an excise. Thus, the tax is
imposed on the donor and determined with reference to all the donor’s gifts.
In donor’s tax, the law imposable is the law in force at the time of the
perfection/completion of the donation.
Gross gift
Definition of gross gift
The term “gross gift” includes real and personal property, whether tangible or
intangible, or mixed, wherever situated.
Composition of gross gift
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The composition of gross gift will depend on the citizenship and/or
residence of the donor. If resident or citizen, he is taxable on properties situated
within and without the Philippines. However, if the donor is a non-resident alien, he
shall be subject to tax on properties donated which are located within the Philippines
only.
Thus, if the donor is a citizen or resident alien, the gross gift maybe composed
of:
 Real property, within or without
 Tangible personal property, within or without
 Intangible personal property, within or without
In the case of a non-resident alien, the gross gift maybe composed of the
following:
 Real property within
 Tangible personal property within
 Intangible personal property within, unless there is a reciprocity in
which case it is not taxable
It should be noted the the above rule is the same rule that applies in
the computation of gross estate.
Matrix 1 below simplifies the rule on the determination of whether or

not the property shall includible in the gross gift of the donor:
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Resident or NR alien(no NR alien (with

Classification of property citizen reciprocity reciprocity)
Real property
Within Yes Yes Yes
without Yes No No
Personal property
Tangible within Yes Yes Yes
Tangible without Yes No No
Intangible within Yes Yes No
Intangible without Yes No No
Rule on reciprocity
The rule on reciprocity applies if the following requisites are present :
 The donor is a non-resident alien; and

 The properties are intangible personal which are located within the
Philippines.
No donor’s tax shall be collected in respect of intangible personal property in

the following instances:
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1. If the donor’s at the time of the donation was a citizen and resident of
a foreign country which at the time of the donation did not impose a
transfer tax on intangible personal property of the citizens of the
Philippines not residing in that foreign country.
2. If the law of the foreign country of which the donor was a citizen and
resident at the time of the donation allows a similar exemption from
transfer taxes of every character or description in respect of intangible
personal property owned by citizen of the Philippines not residing in
that foreign country.
Intangible personal property
The following intangible personal properties are considered within the

Philippines:
1. Franchise which must be exercised within the Philippines;

2. Shares, obligations or bonds issued by corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its law;
3. Shares, obligation or bonds issued by any foreign corporation eighty five per
centum (85%) of the business of which is located in the Philippines;
4. Shares, obligations or bonds issued by a foreign corporation if such shares,
obligation or bonds have acquired a business situs in the Philippines; and
5. Shares or rights in any partnership, business or industry established in the
Philippines. Do Not Copy
Valuation of gifts made in property
The valuation of the property donated shall be made at the time of gift which
is the time of the terminating event.
If the gift is made in property, the fair market value thereof at the time of the
gift shall be considered the amount of the gift.
In case of real property, the value shall be whichever is higher between:

1. The fair market value as determined by the commissioner of Internal
Revenue (zonal value),or
2. The fair market value as shown in the schedule of values fixed by the
Provincial and City Assessors (assessed value).
Fair market value is defined as the price at which any seller will sell and any buyer
will buy, both willingly without any force or intimidation.
In the case of stocks, bonds or other securities, the following rules shall apply:
1. If listed and traded in the stock exchange, the fair market value shall be
the mean between the highest and the lowest quoted selling price of the
securities on the valuation date.
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2. If not listed and traded in the stock exchange, the fair market value shall
depend on whether the stocks are preferred or common.
If the stocks are common, the market value shall be the book value of the
security on the valuation date or on the date nearest the valuation date.
If the stocks are preffered, the fair market value shall be the par value of the
security.
Illustration
Ara gave the following properties to various donees on December 25, 2018:
House and lot in London P3,500,000
Apartment house in Naga City 8,000,000
Car in Iriga City 520,000
Car in London 900,000
Savings deposit with BPI 50,000
Time deposit in a New York Bank 120,000
Accounts receivable, debtor residing in the Philippines
140,000
Accounts receivable, debtor residing in Hongkong
35,000
Franchise exercised in New York 225,000
Franchise exercised in Philippines
120,000 Do Not Copy
Investment in Good Time Co., partnership established in Hongkong160,000

Investment in Lovers Company partnership established in the Phil’s.
125,000
Required: Compute the gross gift if Ara is

1. Resident citizen/resident alien/nonresident citizen
2. Non resident alien (without reciprocity)
3. Non-resident alien (with reciprocity)
Donor is a resident citizen/resident alien/nonresident citizen

House and lot in London P3,500,000
Car in London 900,000
Time deposit in a New York Bank 120,000
Accounts receivable, debtor residing in the Philippines 140,000
Accounts receivable, debtor residing in Hongkong 35,000
Franchise exercised in New York 225,000
Franchise exercised in Philippines 120,000
Investment in Good Time Co., partnership established in Hongkong 160,000
Investment in Lovers Company, partnership established in the Phil’s. 125,000
Gross gift P13,895,000
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Donor is a non-resident alien (without reciprocity)

Accounts receivable, debtor residing in the Philippines 140,000
Franchise exercised in Philippines 120,000
Investment in Lovers Company, partnership established in the Phil’s 125,000
Gross gift P 8,955,000
Donor is a non-resident alien (with reciprocity)

Gross gift P 8,520,000
Donation of conjugal or community property
Neither spouse may donate any conjugal or community property without the consent
of the other. However, either spouse may, without the consent of the other, make
moderate donations from the conjugal/community property from the charity or on
occasion of family rejoicing or distress.
If the property donated is a conjugal or community property and the only husband
signed the deed of donation, there is only one donor for donor’s tax purposes,
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without prejudice to the right of the wife to question the validity of the donation
without her consent, pursuant to the provision of the civil code of the Philippines and
the family code of the Philippines.
Husband and wife are considered as distinct taxpayers for donor’s tax
purposes. Thus, in case a gift is made by the spouses out of conjugal or community
property, each of them is a donor out of the respective share in the property.
Political Contributions (Omnibus Election Code (OEC) and Republic Act No.
7166)
1. As a rule, any contributions given to candidates, political parties or coalition
of parties are not subject to donor’s tax as long as the following conditions
are met:
2. The contribution is for campaign purposes; and
3. The donation is duly reported to the Commission on Election (COMELEC)
4. The campaign contribution is subject to donor’s tax on the part of the donor,
if such contributions are not reported to the COMELEC.
Deductions gross gift
1. Gifts to the National Government, its political subdivisions or any entity

created by any of its agencies which is not conducted for profit.
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2. Gifts in favor of educational, charitable, religious, cultural and social welfare
institutions, etc. (subject to 30% rule)
3. Encumbrance on property donated assumed by the done (mortgages, if any)
4. Diminution in the value of property.
Net gift and Donor’s tax
Computation of Donor’s Tax
On first donation:
Gross Gift xx
Less: Deductions from gross gift (xx)
Net gift xx
Times the Applicable rate* %
Donor’s tax due and payable xx
Less: Tax Credit (xx)
Donor’s Tax Payable xx
On subsequent donation:
Gross gift made this month xx
Less: Deductions from gross gift (xx)
Net gifts, current xx
Add: ALL prior net gift w/in the year xx
Aggregate net gifts xx
Times applicable Tax rate* Do Not Copy
%
Donor’s Tax Due xx
Less: Donor’s Tax paid on prior gifts (xx)
Tax Credits (xx)
Donor’s Tax Due and Payable xx
*donor’s tax rate is 6% in excess of 250,000.
Tax credit for donor’s tax paid to a foreign country

1. Who can claim? Only citizen or resident alien decedent.
2. Amount Deductible, whichever is lower:
c. Actual estate tax paid abroad
d. Limit
3. Limitations on tax credit:
a. Only one country is involved
Net gift (per Foreign Country) x Philippine donor’s tax

Total net gift
c. Two or more foreign countries are involved

Limit 1: per country
Net gift (per Foreign Country) x Philippine donor’s tax
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Total net gift
Limit 2: Total Foreign Country
Net gift (all Foreign Countries) x Philippine donor’s tax

Total net gift
Deadline for Filing of return

1. The deadline for the filing of donor’s tax return (BIR Form 1800) will be 30
days after the donation was made.
2. The payment for donor’s tax shall be the same day as of that the day the
return was filed (Pay-as-You-File System)
3. When the Commissioner gives an extension, the payment of the tax due
may be made on such day as extended by the CIR, but not to exceed six
(6) months.
4. The filing of returns for donor’s tax is with the Revenue District Office or
duly authorized collection (e.g. City Treasurer) in which the donor resided
at the time of transfer.
5. If there is no legal residence in the Philippines, filing should be made with
the Office of the Commissioner on Internal Revenue.
Attachments
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1. Based on the BIR Form 1800, the following documents shall be attached:
2. Sworn statement of the relationship of the donor to the donee;
3. Proof of tax claimed tax credit, if applicable;
4. Certified true copy of the Original/Transfer/Condominium Certificate of
Title (OCT, TCT, CCT) of the donated property (for real properties);
5. Certified true copy of the latest Tax Declaration of lot and/or improvement,
if applicable (for market value purposes);
6. Certificate of No Improvement issued by the Assessor’s Office where the
donated real property/ies have not declared improvements, if applicable;
7. Proof of valuation of shares of stock at the time of donation, if applicable;
8. For listed stocks – newspaper clippings/certification issued by the Stock
Exchange as to the value of per share
9. For unlisted stocks – latest audited Financial Statements of the issuing
corporation with the computation of the book value per share.
10. Proof of valuation of other types of personal properties, if applicable;
11. Proof of claimed deductions, if applicable; and
12. Proof of the Tax Debit Memo used as payment.
Illustration
Anacleto gave the following donations to:
02-14-18 ---Azucena, legitimate daughter on account of marriage last 12/31/2016—

P190,000.
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06-01-18—Brusco, brother on account of marriage scheduled 12/31/2017—
P160,000.
10-13-18—Carizosa, legitimate daughter, on account of marriage on 11/12/2017—
P180,000
01-15-19 – National Gov’t, land donated for public purpose with a fair value of P
700,000
05-15-19—Dalmacio, father, on account of marriage, land with a fair market value of
but P1,000,000 mortgage for P100,000 which was assumed by the
donee.
Required: Compute the tax due on each donation.
02-14-18
Gross 190,000.00
gift
Less: Exempt gifts (250,000.00
)
Taxable net gift (60,000.00)
Donor's tax due Exempt
06-01-18
Gross gift 160,000
Add: prior net gift 190,000
Aggregate net gift Do Not Copy
350,000
Less: Exempt gifts (250,000)
Taxable net gift 100,000
x Donor's tax rate 6%
Donor's tax due 6,000
10-13-18
Gross 180,000
gift
Aggregate net gift 530,000
Less: Exempt gifts (250,00
0)
Less: prior tax payments (6000)
Donor's tax payable- 10/31/18 16,800
or simply P 180,000 *6% = P 16,800
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01-15-19
Gross 700,000
gift
Deduction:
Gifts in favor to National government (700,00
0)
Net gift -
05-15-19
Gross gift 1,000,000

Deduction:
mortgage assume by the done (100,000)
Net gift 900,000
Add: prior net gift -
Less: prior tax payments -
Illustration 2 Do Not Copy
Mr. and Mrs. K, made the following donations.

1/25/2019 -To L, their legitimate son, on account of marriage last 1/20/2018, car
worth P800,000, with P200,000 mortgage, ½ was assumed by the one.
5/31/2019 -to M, brother of Mr. K, his capital property worth P500,000 on account
of marriage 6 months ago of M with a condition that the one will pay the
donor’s tax thereon.
7/15/2019 -To N, daughter of Mrs. K by former marriage, on account of her
marriage 18 months ago, Mrs. K’s paraphernal (exclusive) property
worthP100,000.
8/20/2019 -To N on account of the same marriage, conjugal car of the couple
worth P400,000, with P200,000 unpaid mortgage, ½ assumed by N.
And P500,000 worth of land to their four sons on account of their
graduation, 20% of which was owned by their Kumpadre who agreed to
donate his share thru a public document.
Required: Compute the tax due on each donation.
1/25/2013
Mr Mrs
Gross gifts (800,000/2) 400,000.00 400,000.00
Less:
mortgage assumed by the done ( (50,000) (50,000)
200,000*50%)/
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2
Net gift 350,000.00 350,000.00
Less: Exempt gifts (250,000) (250,000)
Taxable net gift 100,000 100,000
x Donor's tax rate 6% 6%
Donor's tax due 6,000 6,000
5/31/2019
Mr
Gross gift 500,000
or simply P 500,000 *6% = P 30,000
7/15/2019
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Mrs
Gross 100,000
gift
Less: Exempt gifts (250,00
0)
or simply P 100,000 *6% = P 6,000
Mr Mrs
Gross gifts
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Car (400,000/2) 200,000.00 200,000.00
Land (500,000*80%)/2 200,000.00 200,000.00
Total 400,000.00 400,000.00
Less:
mortgage assumed by the ( 200,000*50%)/2 (50,000) (50,000)
donee
Net gift 350,000.00 350,000.00
Add: prior net gift 850,000 450,000
Aggregate net gift 1,200,000 800,000
Less: Exempt gifts (250,000) (250,000)
Taxable net gift 950,000 550,000
x Donor's tax rate 6% 6%
Donor's tax due 57,000 33,000
Less: prior tax payments (36000) (12000)
Donor's tax payable- 8/20/19 21,000 21,000
or simply P 350,000 *6% = P 21,000
Kumpadre
Gross (500,000*20%) 100,000.0
gift 0
Less: Exempt gifts (250,000.0
0)
Taxable net gift Do Not Copy
(150,000.0
0)
Donor's tax due Exempt
Self-Help: You can also refer to the sources below to help you
further understand the lesson.
Ballada, W., & Ballada, S. (2018). Transfer and business taxation: made easy.(17th
ed.). Philippines: DomDane Publishers & Made Easy Books.
Ampongan, O. (2013).Business & transfer taxes. (2nd ed.).Manila: Conanan

Educational Supply.
Tabag, D. (2018) Cpa reviewer in taxation with special notes. Manila: Professional
Review and Training Center.
Let’s Check
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I Questions:
1. Differentiate donation mortis causa and donation inter vivos.
2. What are the elements of a taxable donation?
3. What are the formal requisites for a valid donation?
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4. What are the allowable deductions from gross gift?
5. Explain taxation rules on donation of conjugal or communal property?
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1. Donor's tax is classified as
a. Property tax b. Business tax c. Personal tax d. Excise tax
2. Which of the following obligations, if assumed by the donee, is not deductible

even if assumed by the donor?
a. Mortgage payable
b. Real property tax
c. Donor's tax
d. All of these
3. The reciprocity clause in the donor's tax law applies to a:

a. Non-resident citizen
b. Resident citizen
c. Resident alien
d. Non-resident alien
4. Which of the following statements is correct? A donation inter vivos by husband

and wife, jointly during the marriage
a. Is a donation of conjugal property that will require one computation of

the donor's tax, if the spouses are under the system of conjugal
partnership of gains. Do Not Copy
b. Is a donation of community property that will require one computation of

the donor's tax, if the spouses are under the system of absolute
community of property.
c. Is a donation of exclusive property by the either spouse that will require
one computation of the donor's tax, if the spouses are under the system
of conjugal partnership of gains.
d. Is a donation of each spouse to the extent of one-half that will require
separate computation for two donor's taxes, under whichever property
relationship exists between the spouses.
5. For the donation to be considered valid, acceptance of the donation must be

made:
a. during the lifetime of the donor only.
b. during the lifetime of the donee only.
c. during the lifetime of the donor and the donee.
d. none of the choices.
6. The following are the requisites of a donation for purposes of the donor's tax,
except one.
a. Capacity of the donor
b. Capacity of the donee
c. Delivery of the subject matter or gift
d. Donative intent
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7. Which of the following donations inter vivos may not require that it be made in
writing?
a. Donation of personal (movable) property, the value of which exceeds
P5,000
b. Donation of personal (movable) property, the value of which is P5,000
c. Donation of real (immovable) property, the value of which is less than
P5,000
8. All of the following except one are exempt from gift tax under special laws:
a. Donation to Integrated Bar of the Philippines
b. Donation to Development Academy of the Philippines
c.Donation to Philippine Institute of Certified Public Accountants
d. Donation to International Rice Research Institute
9. Which of the following donations is not entitled to deduction?

a. Donation to charitable institution
b. Donation to scientific organization
c. Donation to social welfare
d. Donation to a political party
10. Statement 1: As a rule , donations to candidates in local and/or national

elections are not subject to donor’s tax.
Statement 2: Donation to a political party is not subject to donor’s tax if it is
reported by the donor to the Comelec and by the candidate in his Statement of
Expenditures. Do Not Copy
a. True; True c. False; False

b. True; False d. False; True
11. The following donations were made by a domestic corporation during the year
To the Department of Social Welfare P 500,000
To another domestic corporation P 500,000
The donor’s tax due on the above donation is-
a. P 15,000 c. P 30,000
b. P 45,000 d. P 60,000
Q a citizen of the Philippines made the following donations in 2018:

01/10/2018 : To R, a legitimate daughter, on account of marriage cash of 90,000.
05/10/2018 : To S, a legitimate son, on account of mortgage, property with a fair
market value of P200,000 and a mortgage of 100,000,1/2 was assumed by S.
10/10/2018 : To T, a friend, an ordinary donation of P70,000.
01/10/2019 : To U, a niece, a donation on account of marriage of P 100,000.
12. The donor’s tax on the donation of October 10, 2018:

a. P300 c. P 3,600
b. P600 d. P 4,200
13. The donor’s tax on the donation of January 10,2019:

a. exempt c. P5,400
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b. 6,000 d. P5,800
Anaconda, resident, gave the following donations:
DoneeJanuary 22, 2019

Barbado Legitimate son, on account of graduation – P140,000.
Naga City A parcel of land to be used for public purpose– P200,000.
Coronado Legitimate child on account of its forthcoming marriage on February 14,
2019 – P6,000.
Dimalupig Legitimate daughter, on account of marriage on February 4, 2018. -
P7,000.
March 25, 2019
Barbado On account of marriage on April 10, 2019 – P150,000.
Coronado Additional donation on account of marriage Feb. 14, 2019 – P69,000.
Dimalupig Additional donation on account of marriage Feb. 4, 2018 – P200,000.
Devt. Academy of the Phil’s For education and training purposes,
P50,000.
14. The donor’s tax due on January 22, 2019.

a. 800 c. 140,000
b. 660 d. exempt
15. The donor’s tax due on March 25, 2013.

a.16,700 c. 9,200
DoNotCopy
b. 18,900 d. 15,720
Let’s Analyze
Liwayway gave the following properties to various donees on December 25, 2018:
a. House and lot in the Philippines (mortgaged for P300,000) 1,250,000
b. Condominium unit in Hongkong 1,000,000
c. Car in Philippines 70,000
d. Car in Hongkong 60,000
e. Franchise exercised in the Philippines 300,000
f. Franchise exercised in New York, USA 25,000
g. Domestic shares, certificate kept in New York, USA 55,000
h. Foreign shares, 90% of business in the Philippines 60,000
i. Foreign shares, 30% of business in the Philippines, with business
situs in the Philippines. 15,000
j. Foreign shares, 60% of business in the Philippines 75,000
Required: Compute for the gross gift if Liwayway is
1. Resident citizen/resident alien/nonresident citizen

2. Non resident alien (without reciprocity)
3. Non-resident alien (with reciprocity
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In a Nutshell
Mr. and Mrs. Albano gave the following donations:

July 1, 2013 Community property was donated to Balaoing, sister of Mr.
Albano. The fair market value is P400,000.
Sept. 25, 2013 Community property worth P300,000 to Cuarto, son of Mrs.
From her teen-age boyfriend .
Nov.10, 2013 Cash of P250,000 was donated to Balaoing on account of
marriage on December 2013.
1. The donor’s tax due of Mr. Albano on Sept, 25,2013

2. The combined donor’s tax due of Mr and Mrs Albano on Nov 10,2013 is
Q&A List
In this section you are going to list what boggles you in this unit. You may
indicate your questions but noting you have to indicate the answers after your
question is being raised and clarified. You can write your questions below.
1.
2.
3.
4.
5.
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Keyword Index
 Gross Gift
 Net Gift
 Donor’s Tax
Big Picture D
Week 8&9 Unit Learning Outcomes (ULO): At the end of the unit, you are expected
to:
a. Apply taxation rules in determining value added tax payable.
b. Apply taxation rules in determining other percentage tax payable
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Big Picture in Focus: ULOa. Apply taxation rules in determining
value added tax payable.
Topic: Value- Added Tax (VAT)

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Nature and Concept of Business Taxes
Business taxes are imposed upon onerous transfers such as sale, barter or
exchange. But a person may, although not engaged in business, be subject to
business tax.
Under the Tax Code, the 3 major business internal revenue taxes are:
1. Value – Added Taxes
2. Percentage Taxes
3. Excise Taxes
Value-Added Tax
 is a tax on the value added to the purchase price or cost in the sale or lease of goods,
property or services in the course of the trade or business in the Philippines.
 is an indirect tax that may be shifted or passed on to the buyer,transferee or lessee of the
goods, property or services.
 Every person who, in the course of trade or business, sells, barters, exchanges, leases
goods or property, or renders services is subject to 12% VAT, if the aggregate of his
actual or expected gross sales and/or gross receipts exceeds P3,000,000.00 any person
who imports goods is likewise subject to VAT.
 The phrase” in the course of trade or business” means regular conduct or pursuit of a
commercial or economic activity, including transactions incidental thereto by any person
regardless of whether or not the person engaged therein is a non-stock, non-profit private
organization or government entity.
 For as long as a government entity sells, barters, exchanges, leases goods or property, or
renders services in the course of trade or business, it is required to register as a VAT
taxpayer (BIR Ruling 60- 2000
 For as long as a government entity sells, barters, exchanges, leases goods or property, or
renders services in the course of trade or business, it is required to register as a VAT
taxpayer (BIR Ruling 60- 2000)
 Generally, services rendered in the Philippines by a non-resident foreign person shall be

considered as being rendered in the course of trade or business even if the performance
of services is not regular and such services are therefore subject to VAT.
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 Non-resident corporations deriving income from services rendered abroad are not subject
to Philippine income tax and, likewise, notsubject to VAT
VAT on Sale of Goods or Property

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Goods or property shall mean all tangible and intangible objects that are capable ofpecuniary
estimation and shall include:
1. Real property held primarily for sale to customers or lease in the ordinary course
of business.
2. The right or privilege to use patent, copyright, design or model and other
intangible property.
3. The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment.
4. The right or privilege to use motion picture films, films, tapes and discs.
5. Radio, television, satellite transmission and cable television time.
Sale of goods or property shall be subject to 12% VAT based on the gross selling
price.
Gross selling price is the total 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 the VAT.
Excise Tax, if any, on such goods or property shall form part of the gross
selling price.
Tax rate and tax base

There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to twelve percent
(12%) of the gross selling or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller on transferor.
The tax base refers to the amount on which the twelve percent (12%) rate of
value-added tax is applied.
Thus, if the seller sells goods (in cash or on account) amounting to P100, 000
(excluding the tax), this amount will serve as the tax base in computing the tax.
The amount of value-added tax (output tax on the seller and input tax on the
buyer) is computed as follows:
1. If the amount includes the tax – multiply by 3/28.
VAT (P112, 000x3/28) =P12, 000
2. If the amount does not include the tax- multiply by 12%
Common query from the students: “For purpose of computing the value-added tax, when shall we
multiply base by 12% or by 3/28?
Answer: The tax base shall be multiplies by 3/28 if the problem states that the
amounts are :“inclusive of tax:, “VAT inclusive” or other similar terms.
It shall be multiplies by 12% if the problem states the the amounts are:
“taken from books”, “exclusive of tax”, “VAT/tax not included”, “gross selling price”,
“gross receipts” and other similar terms.
Deduction from gross selling price

The following shall be allowed as deductions from gross selling price in
computing the tax base during the month or quarter:
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1.) Sales returns and allowances for which a proper credit or refund was made
during the month or quarter to the buyer for sales previously recorded as
taxable sales.
2.) Sales discounts- Discounts determined and granted at the time of sale, which
are expressly indicated in the invoice, the amount thereof forming part of the
gross sales duly recorded in the books of accounts.
Sales discounts indicated in the invoice at the time of sale, the grant of which is
not dependent upon the happening of a future event, may be excluded from the
gross sales within the same month/quarter it was given.
ILLUSTRATION
The following data were taken from the books of Tiberio Company during the
month of April of the current year:
Cash sales P 453,200

Sales on account 565,800
sales returns and allowances 31,548
Sales discount 35,250
REQUIRED: Compute for the gross selling price and the tax base.
Cash sales P453,200
Sales on account 565,800
Gross selling
price 1,019,000
Less: Deductions
Sales returns and
allowances P31,548
sales
discounts 35,250 66,798
Tax base 952,202
1.) Gross selling price includes all sales made during the period whether cash
sales on account. Do Not Copy
2.) Sales discounts shall only be allowed as deduction from gross selling price if it is indicated
in the sales invoice.
3.) In the absence of sales returns and allowances and sales discounts, the taxbase shall be
the gross selling price.
Determination of the tax

The 12% tax shall be computed by multiplying the total amount in the invoice by3/28. The
VAT payable is determined by deducting the input tax from the output tax.
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Thus, the formula in computing VAT payable is:
Output tax PX X
Less: Input tax XX
VAT payable XX
Output tax is defined as the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to register
under the Tax Code. It is also called Output VAT.
Input tax refers to the value-added tax from or paid by a VAT registered person in
the course of his trade or business on importation of goods or local purchase of
goods or services, including lease or use of property, from a VAT registered person.
It is also called Input VAT.
VAT payable refers to the excess of the output tax over the allowable in put tax. In
the case of importation, it is the value-added tax due on such importation.
ILLUSTRATION
Teendera, a VAT registered taxpayer, sold to Mommy Mely certain pieces of

merchandise. The amount indicated in the invoice is P6, 720. Subsequently, Mommy
Mely sold the same goods to Papa Billy for P11, 200, who later on sold them to Vi
Belly, the ultimate consumer, P17, 920.
REQUIREMENTS:
1.) Record the journal entries in the sales book of Teendera.
2.) Record the accounting entries in the purchase and sales books of Mommy
Mely.
3.) Compute the VAT payable by Mommy Mely.
4.) Record the accounting entries and the VAT payable by Papa Billy.
5.) What is the tax consequence on Vi Belly, the ultimate consumer.
1.) To record the accounting entries in the book of Teendeera.
Cash/Accounts receivable P6,720

Sales P6,000
Output tax(6,720x3/28) 720
2.) To record the accounting entries:

A. In the purchase book of Mommy Mely.
Purchases 6,000
Input tax 720
Cash/Accounts payable 6,720
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B. In the sales book of mommy Mely
Cash/Accounts receivable 11,200

Sales 10,000
Output tax 1,200
3. ) To compute the VAT payable by Mommy Mely.
Output tax P1,200
Less: Input tax 720
VAT payable 480
4.) To record the accounting entries.

A. In the purchase book of Papa Billy.
Purchases 10,000
Input tax 1,200
Cash/Accounts payable 11,200
B. In the sales book of Papa Billy.
Cash/Accounts receivable 17,920

Sales 16,000
output tax 1,920
Computation Of VAT payable by Papa Billy:

Output tax P1,920
Less: Input tax 1,200

VAT payable 720
1. ) The excess of output taxes over the input taxes in a month is the value-added tax payable by the
taxpayer for the month.
2.) Any excess of the input taxes over the output taxes in a quarter shall beavailable for carry-
over as credit in the succeeding months or quarter.
3.) Value-added tax is a tax on consumption. The seller is the one statutorily liable for the
payment but the amount of the tax may be shifted or passed onto the buyer.
Being the ultimate consumer, Vi Belly shall assume the tax burden because she cannot pass
it anymore to another. Thus, upon purchase she is bound to shoulder the tax of P1, 92
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The following sale by VAT-registered person shall be subject to Zero- rate:

a. Export Sales
i. The sale and actual shipment of goods from the Philippines to a
foreign country.
ii. Sale of raw materials or packaging materials to a nonresident buyer
for delivery to a resident local export-oriented enterprise.
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iii. Sale of raw materials or packaging materials to export-oriented
enterprises whose export sales exceed 70% of total annual
production.
iv. Those considered export sales under the Omnibus Investment
Code of 1987 (E. O. No. 226) and other special laws, e.g., sales to
diplomatic missions and other agencies and/or instrumentalities
granted tax immunities.
v. Sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations.
b. Foreign currency denominated sale

i. It means sale to a nonresident of goods (except automobiles and
nonessential goods) assembled or manufactured in the Philippines
for delivery to a resident in the Philippines.
c. Effectively zero-rated sales

- Effectively zero-rated sales of goods and properties shall refer to the
local sale (constructive export) by a VAT-registered person to a person or
entity who was granted indirect tax exemptions under special laws or
international agreement, such as:
i. Sale to Asian Development Bank (ADB);
ii. Sale to International Rice Research Institute (IRRI);
iii. Sale to duly registered and accredited enterprises with Subic Bay
Metropolitan Authority (SBMA); and
iv. Sale to duly registered and accredited enterprises with Philippine
Economic Zone Authority (PEZA).
oZero-rated sale of goods and properties by a VAT-registered person is a taxable transaction for
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VAT purposes, but shall not result in any output tax.
(VAT-exempt is different from Zero-rated in as much as Zero-rated VAT registered

taxpayer cannot charge output vat but can claim input vat, while vat-exempt cannot
claim input vat
Deemed Sale Transactions

a. Transfer, use or consumption not in the course of trade or business of
goods or properties originally intended for sale or for use in the
course of trade or business;
b. Consignment of goods if not sold within 60 days following the date of
consignment;
c. Distribution or transfer to creditors in payment of debt or dacion en pago;
d. Distribution or transfer to shareholders or investors as share in the profit;
and
e. Retirement from or cessation of business or incorporation of single
proprietorship with respect to all goods on hand, whether capital goods,
stock in trade, supplies or materials, as of the date of such retirement,
cessation or incorporation,
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Notes: The tax base for deemed sale transactions would be the lower of
(a) acquisition cost or (b) the current market price. Where the gross
selling price is unreasonably lower than the actual market value, the
appropriate tax base shall be determined by the Commissioner. Thegross
selling price is unreasonably lower than the actual market value if it is
lower by more than 30% of the actual market value of the same goods of
the same quantity or quantity sold in the immediate locality on the the
nearest date of sale.
f. Transfer of assets as a result of merger or consolidation are not

considered as deemed sale transaction. However, the unused input tax
of the dissolved corporation, as of the date of merger or consolidation,
shall be absorbed by the surviving corporation.
ILLUSTRATION
Antonio is engaged in a merchandising business. His sales invoice and other data
during the month of January are shown below:
Cash P784,000
Goods consigned:
January 10 of the current year P265,000
November 10 of the preceding year 16,800
Goods taken for personal use 17,920
Goods taken as payment to creditors Do Not Copy
24,640
Purchase of merchandise 728,000
Purchase of supplies 89,600
REQUIRED: Compute the following:
a. Output tax
b. Input tax
c. VAT payable
Cash sales 784,000

Consigned goods 16,800
Goods taken for personal use 17,920
Payment to creditors 24,640
Total 843,360
Multiply by '3/28
Output taxes 90,360
Less: Input taxes
Merchandise 728,000
Supplies 89,600
Total 817,600
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Multiply by '3/28 87,600
VAT payable 2,760
Sale of Properties
1. Sale of real property classified as capital asset is not subject to VAT.
Such transaction is subject to capital gains tax of 6% based on sales price
or FMV, whichever is higher.
2. In general, sale of real property primarily held in the normal course of
business (inventory/ordinary asset) is subject to VAT, except:
a. Residential lot with selling price of P 1,500,000 and below; and
b. Sale of house and lot and other residential dwellings with selling
price at P 2,500,000 and below.
3. Sale of real properties in the course of trade or business

c. On installment plan (initial payments do not exceed 25% of the gross
selling price)
Installments received Xxx
Add:
Interest Xxx
Other charges Xxx
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Xxx
Tax base Xxx
Note: Upon full payment, if the zonal or market value is higher than
the total receipts or collections, the additional VAT shall be paid
accordingly.
d. On cash basis or deferred payment plan (initial payments exceed 25%
of the gross selling price)
The tax base shall be the higher between SELLING PRICE stated in
the sales document and ZONAL OR MARKET VALUE.
Notes:
a. If the gross selling price is the zonal or market value of the real
property, the zonal or market value shall be deemed inclusive of the
VAT.
b. If the VAT is not billed separately, the selling price stated in the sales
document shall be deemed inclusive of the VAT.
ILLUSTRATION
Bahay Kubo Inc. is a real estate dealer. Details of its sales during the year showed
the following:
Date of sale June 2,2018
Consideration in the deed of sale P5,000,000
Fair market value in the assessment rolls 4,800,000
Zonal Value 5,200,000
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Schedule of payments:
June 2,2018 1,000,000
June 2,2019 2,000,000
June 2,2020 2,000,000
Determine the output tax on June 2, 2019
Ratio of initial payment over SP=1/5=20%

Type of Sale=installment Sale
Output Vat June 2, 2019=2/5x5,200,000x12%=P249,600
Advance VAT on the Transport of Naturally Grown and Planted Timber

Products
An advance VAT is imposed on the transport of naturally grown and planted timber
products and is determined by applying the 12% VAT rate on the value per cubic
meter of the different species of naturally grown and planted timber products in
accordance with the schedule as provided in Revenue Regulations 13-2007.
Advance VAT on the Sale of Refined Sugar
An advance VAT is imposed on the sale of refined sugar and shall be paid by the
owner/seller to the RDO of the BIR before any refined sugar can be withdrawn from
any sugar refinery/mill. (RR 13-2008, sec. 3)
Persons or firms engaged in the productio n and manufacturing of refined sugar for
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their own account shall be allowed a presumptive input tax, which is creditable
against the output tax, equivalent to 4% of the gross value in money of their
purchases of primary agricultural products which are used as inputs to their
production.
Advance VAT on the Sale of Flour Milled from Imported Wheat
The VAT on the sale of flour milled from imported wheat shall be paid by the flour
miller prior to the release from the BOC’s custody of the wheat which is imported and
declared for flour milling.
The amount of advance VAT payment shall be determined by applying the 12% VAT
on the tax base as follows:
a. For wheat imported by flour millers – 75% of the sum of:
b. The invoice value multiplied by the currency exchange rate on payment date
c. Estimated customs duties and other charges prior to the release of the
imported wheat from customs custody
d. 5% of the sum of (a) and (b)
For wheat purchased from traders – 75% of the sum of:

a. The invoice value
b. Estimated freight expenses
c. 5% of the sum of (a) and (b)
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VAT on sale of Services and Use or Lease of properties
The phrase “sale or exchange of services” means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by:
a. Construction and service contractors
b. Stock, real estate, commercial, customs and immigration brokers
c. Lessors of property
d. Warehousing services
e. Proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places.
f. Dealers in securities
g. Lending investors
h. Transport contractors on their transport of goods or cargoes
i. Sale of electricity by generation, transmission and distribution companies
j. Non-life insurance companies
k. Pre-need companies
l. Similar services regardless of whether or not the performance thereof calls for
the exercise or use of physical or mental faculties
Their shall be levied, assessed and collected, a value – added tax equivalent to 12%
of the gross receipts, excluding the VAT, derived from the sale or exchange of
services, including the use or lease of properties.
Gross receipts – Do Not Copy
means 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.
Zero – Rated Sale of Services:
In general, a zero-rated sale of services (by a VAT-registered person) is a taxable

transaction for VAT Purposes, but shall not result to any output tax. However, the
input tax on purchase of goods, properties or services related to such zero-rated sale
shall be available as tax credit or refund in accordance with regulations.
1. Processing, manufacturing or repacking goods and other services performed for

other persons doing business outside the Phil. or to a non-resident person not
engaged in trade or business, which goods are subsequently exported, where the
services are paid for in foreign currency and accounted for in accordance with the
rules & regulations of the BSP.
2. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Phil. is a signatory.
3. Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof.
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4. Services performed by sub/contractors duly accredited by either the BOI or the
EDC in processing, converting or manufacturing goods for an enterprise whose
export sales exceed 70% of the total annual production.
5. Transport of passengers and cargo by domestic air or sea carriers from the Phil.
to a foreign country.
6. Sale of power or fuel generated through renewal sources of energy such as
biomass, solar, wind, hydropower and other energy sources using tech. such as
fuel cells & hydrogen fuels; provided, zero-rating shall apply only to such services
Exempt Transactions
This means that the sale of goods or services and the use or lease of properties are
not subject to VAT (output tax) and the seller or lessor is not allowed to any tax credit
on VAT ( input tax) on purchases.
The following are VAT- exempt transactions

1. Sale or importation of
a. Agricultural marine food product in their original state;
b. Livestock and poultry used as, producing goods for human
consumption
c. Breeding stock and genetic materials
Products considered in their original state:
a. Products which undergone simple processes or preparation or
preservation for the market (freezing, drying, salting, broiling,roasting,
smoking or stripping)
b. Polished or husked rice Do Not Copy
c. Corn grits
d. Raw cane sugar and molasses
e. Ordinary salt
f. Copra
Note: Livestock does not include fighting cocks race horses, zoo animals, and other
animals generally considered as pets.
2. Sale or importation of
a. Fertilizers
b. Seeds, seedlings, and fingerlings
c. Fish prawn, livestock and poultry feeds
d. Ingredients used in the manufacture or finished feeds,( except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo
animals, and other animals generally considered as pets.)
3. Importation of personal and household effects belongings to the:

a. Residents of the Philippines returning from abroad; and
b. Non-resident citizens coming to resettle in the Philippines
Note: such goods must be exempt from custom duties
4. Importation of professional instruments and implements, tools of trade,

occupation or employment, wearing apparel, domestic animals, and personal
household effects, provided:
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a. It belongs to persons coming to settle in the Philippines, or Filipinos or
their families and descendants who are now residents or citizens of
other countries such parties herein transferred to as overseas
Filipinos;
b. In quantities and of the class suitable to the profession, rank or
position of the persons importing said items;
c. For their own use and not for sale, barter or exchange;
d. Accompanying such persons, or arriving within a reasonable time.
Provided that, the Bureau of Customs ma, upon production of
satisfactory evidence that such persons are actually coming to settle in
the Philippines and that the goods from payment of duties and taxes.
Provided, further, vehicles, vessels, aircrafts, and machineries and
other similar goods for use in the manufacture and shall not fall within
this classification and shall therefore be subject to duties, taxes and
other charges.
5. Services subject to percentage tax
6. Service by agricultural growers and milling for others of palay into rice, corn
into grits, and sugar cane into raw sugar;
7. Medical, dental, hospital and veterinary services except those rendered by

professionals
Note:
 Laboratory services are exempted. If the hospital or clinic operates
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a pharmacy or drugstore, the sale of drugs and medicines are

subject to VAT
 Hospital bills constitute medical services. The sale made by the
drugstore to the in-patients are included in the hospital bills are part
of medical bills (not subject to VAT)
 The sales of the drugstore to the out-patients are taxable because
they are not part of medical services of the hospital
8. Educational services rendered by:

a. Private educational institution, duly accredited by:
i. Department of Education (DepEd)
ii. Commission on Higher Education ( CHED)
iii. Technical Education and Skills Development Authority (
TESDA)
b. Government Educational Institutions
9. Services rendered by individuals pursuant to an employer-employee

relationship
10. Services rendered by regional or area headquarters
11. Transactions which are exempt under international agreements to which the
Philippines is a signatory under special laws
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12. For agricultural cooperatives:
a. Sales to their members
b. Sales to non-members if the cooperative is the producer ( if not,
subject to VAT)
c. Importation of:
 Direct farm inputs, machineries and equipment, including spare
parts thereof
 To be used directly and exclusively the in the production and/or
processing of their products
13. Gross receipts from lending activities by credit or multi-purpose cooperatives

Gross Receipts Tax
Gross receipts from lending activities to its members Exempt
Gross receipts from lending activities to non-members Exempt
Gross receipts from non-lending activities to its member and non- Subject
members to VAT
14. Sales by non-agricultural, non-electric and non-credit cooperatives provided,

that the share capital contribution of each member does not exceed P 15,000
Note: Importation by non-agricultural, non-electric and non-credit cooperatives
of machineries and equipment including spare parts thereof, to be used by
them are subject to VAT.
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15. Export sales by persons who are not VAT- registered
16. Sale of:

a) Real properties not primarily held for sale to customer or held for lease in
the ordinary course of trade or business. However, even if the real
property is not primarily held for sale to customer or held for lease in the
ordinary course of trade or business but the same is used in trade or
business of the seller, the sale thereof shall be subject to vat being a
transaction incidental to the taxpayer’s main business.
b) Real property utilized for low-cost housing as defined under R.A No.7279,
otherwise known as the “Urban Development and Housing Act of 1992”
and other related laws.
c) Real property utilized for “socialized housing” as defined by Republic Act
No.7279, and other related laws such as R.A No. 7835 and R.A 8763,
wherein the price ceiling per unit is P450,000 or as may from time to time
be determined by HUDCC and the NEDA and other related laws.
d) Real properties primarily held for sale to customers or held for lease in the
ordinary course of trade or business, if:
i. Residential lot valued at:
 Prior to Jan.1,2018: P1,919,500 and below;
 Beg. Jan.1,2018 (TRAIN Law): P1,500,000
ii. House and lot, and other residential dwellings valued at:
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 Prior to Jan.1,2018:P3,199,200 and below;
 Beg. Jan1,2018 (TRAIN Law): P2,500,000
Note:
 If two or more adjacent residential lots are sold or disposed in favor of
one buyer, for the purpose of utilizing the lots as one residential lot, the
sale shall be exempt from vat only if the aggregate value do not exceed
P1,500,000 (as amended). Adjacent residential lots, although covered
by separate titles and/or separate tax declaration, when sold to one
and the same buyer, whether covered by one separate Deed of
Conveyance, shall be presumed as sale of one residential lot.
 Provided, that beginning January 1, 2021, the vat exemption shall only
apply to sale of real properties not primarily held for sale to customers
or held for lease in the ordinary course of trade or business, sale of real
property utilized for socialized housing as defined under RA No. 7279,
sale of house and lot and other residential dwellings with selling price
of not more than two million pesos (P2,000,000); Provided, further ,
that every three (3) years thereafter, the amounts state herein shall be
adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Office (PSA).
17. Lease of a residential unit with a monthly rental not exceeding P15, 000 (P12,
800 prior to Jan.1, 2018), regardless of the amount of aggregated rentals
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received by the lessor during the year.
Notes:
 LEASE of RESIDENTIAL UNITS where the monthly rental per unit
exceeds P15, 000 (previously P12, 800) but the aggregate of such
rentals of the lessor during the year do not exceed P3, 000,000
(previously P1, 919,500) shall likewise be exempt from VAT, however,
the same shall be subjected to three (3%) percentage tax (RR 16-
2011); RR13-2018).
 In case where a lessor has SEVERAL RESIDENTIAL UNITS for
LEASE some are leased out for a monthly rental per unit of not
exceeding P15, 000 beginning Jan. 1, 2018 (previously P12, 800) while
others are leased out for more than P15, 000 or P12, 000, as the case
may be, per unit, his tax liability will be.
- The gross receipts from rentals not exceeding P15, 000 (previously
P12, 800) per month per unit shall be exempt from VAT regardless
of the aggregate annual gross receipts.
- The gross receipts from rentals exceeding P15, 000 (previously
P12, 800) per month per unit shall be subject to VAT if the annual
gross receipts (from said units only – not including the gross
receipts form units leased out for not more than P15, 000
(previously P12, 800) exceed P3, 000, 000 (P1, 919, 500 prior to
2018). Otherwise, the gross receipts shall be subject to three
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percent (3%) percentage tax under section 116 of the tax code (RR
16-2011; RR 13-2018).
18. Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin:
a) Appears at regular intervals;
b) With fixed prices for subscription and sale;
c) Not devoted principally to the publication of paid advertisement.
19. Transport of passengers by international carriers doing business in the

Philippines. The same shall not be subject to Other Percentage Taxes as
amended under RA10378 and Transport of cargo by International carriers
doing business in the Philippines, as the same is subject to 3% common
carrier’s tax (Other Percentage Taxes) as amended under RA10378 and (RR
15-2015).
20. “Sale, importation or lease of passenger or cargo vessels and aircraft,

including engine, equipment and spare parts thereof for domestic or
international transport operations, provide, that the exemption from vat on the
importation and local purchase of passenger and/or cargo vessels shall be
subject to the requirements on restriction on vessel importation and
mandatory vessel retirement program of MARINA (RR 15-2015).
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21. Importation of fuel, goods and supplies by persons engaged in international

shipping or air transport operations, provided that:
 Fuel, goods and supplies shall be exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly
to a foreign port without stopping at any other port in the Philippines.
 Fuel, goods or supplies is used for the purposes other than that mentioned
in the preceding paragraph, such portion of fuel, goods and supplies shall
be subject to 12% vat.
22. “Service of banks, non- bank financial intermediaries performing quasi-

banking functions, and other non-bank financial intermediaries such as money
changers and pawnshops, subject to percentage tax under Sections 121 and
122, respectively, of the Tax Code.
23. Sale or lease of goods and service to senior citizens and persons with
disabilities, as provided under RA No. 9994(Expanded Senior Citizens Act of
2010) and RA No. 10754 ( An Act Expanding the Benefits and Privileges of
Persons with Disability (PWD), respectively.
24. Transfer of property pursuant to Section 40 © (2) of the Tax Code, as

amended (Upon affectivity of RA10963-TRAIN Law only; new provision).
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25. Association dues, membership fees, and other assessment and charges
collected on a purely reimbursement basis by homeowner’s associations and
condominium corporations established under RA No. 9904 (Magna Carta for
Homeowners’ and Homeowners Association) and RA No. 4726 (
Condominium Act), respectively. This provision shall take effect only
beginning January 1, 2018 or upon the effectivity of RA10963-TRAIN Law
(new provision).
26. Sale of Gold to the Bangko Sentral ng Piilipinas (BSP). This provision shall
take effect only beginning January 1, 2018 or upon the effectivity of RA10963-
TRAIN Law (new provision).
27. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2018 (new provision).
28. ” Sale or lease of goods or properties or the performance of services other

than the transactions mentioned in the preceding paragraphs the gross
annual sales and/or receipts do not exceed the amount of P3, 000, 000 as
amended (previously P1, 919, 500).
Persons Allowed of creditable Input Tax
1.) Purchase of local goods or properties upon consummation of the sale
2.) Purchasers of service, lessees or licensees upon payment of compensation,
rental or royalty
3.) Importers of goods upon payment of VAT prior to the release of goods from
customs custody. Do Not Copy
Creditable Input Taxes

1.) VAT on local purchase or importation
2.) Transitional input tax
3.) Presumptive input tax
4.) Standard input tax
Input tax on current transactions

Purchase or importation of goods xxxxxx
Purchase of real
properties xxxxxx
Purchase of services xxxxxx xxxxxx
Input tax on transactions deemed sale xxxxxx

Transitional input tax xxxxxx
Presumptive input tax xxxxxx
Excess input tax carried over from previous period xxxxxx
Input tax on capital goods exceeding P 1,000,000
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Deferred from previous period xxxxxx
Total available input taxes xxxxxx
Deduction from input
Less: tax
Input tax on VAT-exempt sales xxxxxx
Input tax claimed as refund or tax
credit
certificate xxxxxx
Input tax on sale to the Government xxxxxx xxxxx
Allowable creditable input tax xxxxx

Transitional Input Tax
 Taxpayers allowed of transitional input tax:

1. Non-VAT taxpayer who becomes liable to VAT since his/her gross sales or
receipts exceeded P3,000,000
2. Non-VAT taxpayer who elects voluntarily to become VAT liable
 For franchise grantee of radio and/or televisions broadcasting, the threshold is
P10, 000,000.
 The amount of transitional input tax is 2% base on the value of the beginning
inventory or actual VAT paid, whichever is higher.
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 The value of the beginning inventory that is used as the basis for the
computation of the 2% shall be the value allowed for income tax purposes.
Presumptive Input Tax
 Taxpayers allowed of presumptive input tax:

1. Processors of sardines, mackerel, and milk
2. Manufactures of refined sugar and cooking oil
3. Manufactures of packed noodles
 The amount of presumptive input tax is 4% based on the gross value of
primary agricultural products used as input to production.
 Input to production other than primary agricultural product shall not be allowed
the 4% presumptive input tax.
Mantika Corp., a VAT-registered Corp., is a producer of cooking oil from coconut
and corn. It had the following data for the month of January 2018:
Sales, gross of VAT P 784,000

Corn & Coconut, Dec. 31, 2018 50,000
Purchase of Corn & Coconut in 2018 330,000
Corn & Coconut , Jan., 1,2018 20,000
Purchases from VAT suppliers, VAT included:
Packaging Materials 56,000
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Supplies 16,800
OUTPUT VAT (P784,000X3/28) P84,000

LESS INPUT VAT
Presumptive P330,000x4% (13,200)
Materials and supplies (7,800)
Vat payable 63,000
Input Tax on Capital Goods

 Capital goods refer to goods or properties with estimated useful life of
more than one year, and which are treated as depreciable assets under
the Tax Code, used directly or indirectly in the production or sale of
taxable goods or services.
 If the cost of capital goods, exclusive of VAT, is more than P1, 000,000,
input tax is creditable in the month of purchase.
 If the cost of capital goods, exclusive of VAT, is more than P1, 000,000,
input tax shall be computed as follows:
a) With useful life of less than five years – input tax is apportioned
over its useful life in months
b) With useful life of more than five years – input tax is apportioned
over 60 months
 If capital goods with apportioned deprecation or amortization have been sold,
the amortized input tax shall be continued even when the capital gods are no
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longer with the taxpayer or the entire unamortized input tax can be claimed
as input tax credit during the month of sale or quarter when the sale or
transfer was made.
Standard Input Tax
 Standard input tax applies only on sale of goods or services to the

government or any of its political subdivisions, instrumentalities, or agencies,
including government-owned or –controlled corporations which shall deduct
and withhold a final VAT due at the rate of 5% of the gross payment.
 The input tax attributable to VAT on sale to government is not creditable
against output tax on sales to non- government entities.
 The 5% final withholding tax VAT shall represent the net VAT payable of the
seller.
 The remaining 7% effectively accounts for the standard input VAT for sales of
goods or services to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, in lieu of the actual input VAT
directly attributable or ratably apportioned to such sales.
 Should actual input VAT attributable to sale to government exceeds 7% of
gross payments, the excess may form part of the seller’s expense or cost. On
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the other hand, if actual input VAT attributable to sale to government is less
than 7% of gross payment, the difference must be close to expense or cost.
Leomar , a VAT-registered person has the following data:

Export sales, total invoice amount P3,000,000
Domestic sales, total invoice amount 6,720,000
Purchase used to manufacture Goods for
export and domestic sales:
Raw Materials, VAT inclusive 616,000
Supplies, VAT inclusive 448,000
Equipment, VAT exclusive 300,000
The amount of input tax which can be refunded or converted into tax credit
certificates at
the option of Leomar is
Raw Materials (616,000x3/28) P66,000

Supplies (P448,000x3/28) 48,000
Equipment (P300, 000X12%) 36,000
Total input vat P150,000
X '3/9
Input vat attributable to export sale P50,000
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If the refundable input taxes were not refunded but used as tax credit, the VAT due
is:
Output vat P720,000

Total input vat (150,000)
Vat payable P570,000
But assuming further that the taxpayer opted to claim them as refund, the VAT due
is:
ANSWER:
Output vat P720,000

Total input vat (100,000)
Vat Payable P620,000
VAT-registered Person with VAT and Non-VAT Transactions

 All the input taxes that can be directly attributed to transactions subject to VAT
may be treated as creditable input tax.
 Input tax that cannot be directly attribute to VAT or VAT- exempt transactions
shall be prorated based on sales volume, and only the ratable portion
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pertaining to transactions subject to VAT may be treated as creditable nput
tax.
 The ratable portion is computed as follows:
VAT sales x Input tax

Creditable input tax = Total sales
Withholding VAT
1. For purchase of goods or services by the government
 Withholding agent - government or any of its political subdivisions,
instrumentalities or agencies, including GOCC
 5% of gross payments
2. For payment of services rendered by a non-resident alien in the Philippines
 Withholding agent – government or any of its political subdivisions or
individual, estate, trust, or private corporations
 12% final tax of gross payments
Apportionment of input tax on mixed transactions
a. Input tax directly attributed to Vatable transactions may be recognized

for input tax credit
b. Input tax directly attributed to VATable transactions may be recognized
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c. Input tax directly attributed to VATable transactions may be recognized
d. Input tax directly attributed to VATable transactions may be recognized
e. Input tax directly attributed to VATable transactions may be recognized
f. Input tax directly attributed to VATable transactions may be recognized
for
input tax credit
Excess output or input taxes

a. If at the end of any taxable month or quarter the output tax exceeds
the input tax, the difference is VAT payable (current liability).
a. If the input tax at the end of any taxable quarter (inclusive of input tax
carried over from the previous quarter) exceeds the output tax, the
excess input tax (current asset) shall be carried over to the
succeeding taxable month or quarter, provided that any input tax
attributable to 0-rated sales by a VAT-registered person may at his
option be refunded or applied for a tax credit certificate.
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b. Input taxes on zero-rated sales of goods, properties or services
The input taxes on zero-rated sales of goods, properties or services
may at the option of the VAT-registered person be:
i. Refunded (within 2 years after the close of the quarter when
such sales were made); or
ii. Converted into tax credit certificates which may be used in
paying other NIRC taxes (the two-year peremptory period
applies); or
iii. Applied against the output tax of domestic sales.
c. Unused input tax of persons who retired

Unused input taxes of persons whose registration has been cancelled
due to retirement from or cessation of business may be converted into
tax credit certificate which may be used in payment of other NIRC
taxes within 2 years from the date of cancellation or claim for refund if
there be no internal revenue tax liabilities against which the tax credit
certificate may be utilized.
d. Period within which to refund

Refund or tax credit certificate shall be granted within 120 days from
the date of submission of complete documents.
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If the Commissioner fully or partially denies the application for VAT

refund or issuance of tax credit certification (TCC) on the expiration of
120-day period, the taxpayer may appeal to the Court of Tax Appeals
within 30 days from the receipt of the denial; otherwise, the decision
will become final.
e. Manner of giving refunds

Refunds shall be made upon warrants drawn by the Commissioner of
Internal Revenue or by his authorized representative without the
necessity of being countersigned by the COA Chairman.
VAT On importation of goods
Definition
Importation is the act of bringing goods and merchandise into a country from
a foreign country.
It is deemed complete when the duties upon the merchandise have
been paid and returned to be paid at a port of entry and the legal permit for
withdrawal shall have been granted or in case said merchandise is free of duty, until
it has left the jurisdiction of customs .
Importer refers to any person who brings goods into the Philippines, whether
or not made in the course of trade or business. It includes non-exempt persons or
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entities who acquire tax-free imported goods from exempt person, entities or
agencies.
Transaction subject
There shall be levied, assessed and collected on every importation of goods a
value-added tax whether the importation is for (1) sale, (2) for use in business, or (3)
for personal use.
Tax rate and tax base

The tax to be imposed shall be twelve percent (12%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such as postage,
commission and similar charges prior to the release of the goods from customs
custody.
The payment of tax shall be made by the importer prior to the release of such
goods from customs custody.
Where the customs duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any.
Landed cost consist of invoice amount, customs duties, freight insurance and
other charges. If the goods imported are subject to excise tax, the excise tax shall
form part of the tax base.
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ILLUSTRATION
Joyce imported goods from Japan. The following are the data relative to such
importation:
For Sale Own use
Invoice amount ($1.00=P42) $ 9,500 $3,000
Dutiable value 11,200 5,200
Customs duties P10,500 P3,100
Freight 6,000 2,800
Insurance 8,000 2,500
Other charges 12,500 4,000
Facilitation 10,000 -
Freight from customs house to warehouse, net of VAT6,000 2,300
After 20 days, the goods intended for sale were sold to Robin for P812, 000.
Compute the VAT payable on the-
1.) Importation if the tariff and customs duties were based on volume or quantity.
2.) Sale if the input tax based on quantity of goods imported.
1.) Invoice amount

For sale ($9,500x42) P399,000
Own use ($3,000x42) P126,000
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Customs duties 10,500 3,100
Freight 6,000 2,800
Insurance 8,000 2,500
Other charges 12,500 4,000
Landed cost 436,000 138,400
Rate tax 12% 12%
VAT payable 52,320 16,608
2.) Output tax (812,000x3/28) P87,000

Less: Input taxes
On importation
P52,320
Freight (6,000x12%) 720 53,040
VAT payable 33,960
Invoicing Requirements
A VAT-registered person shall issue:

• For every sale, barter or exchange of goods or properties
- VAT invoices
• For every sale, barter or exchange of services or lease of goods or properties
- VAT official receipts
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Information needed in the VAT Invoice or VAT Official Receipt
1. Name and business address of taxpayer who will use the invoice/official receipt;
2. TIN of taxpayer followed by the word “VAT”;
3. The amount of tax shown as a separate item;
4. Date of transaction, quantity, unit cost and description of the goods or properties
or the nature of the service;
5. Authority to Print details and serial number of booklets at the lower left corner of
receipt.
 The word “VAT EXEMPT SALE” written or printed prominently if sale is VAT-
exempt;
• The words “ZERO-RATED SALE” written or printed prominently if sale is

subject to zero percent
• Option to issue combined or separate invoices/receipts of sale in a

combination of VAT-liable and VAT-exempt sale. If the sale is combined, the
invoice or receipt should indicate the break-down of the sale price between
the taxable and the exempt component and the calculation of the VAT
• For sale to VAT-registered persons amounting to P1,000 or more, indicate the

name, business style (if any), address and TIN of the purchaser
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Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt
Penalty
NON-VAT person who issues a VAT  payment of percentage tax, if

invoice/official receipt applicable
 payment of VAT (w/out input tax)
 50% surcharge on the VAT due
 If the invoice/official receipt
contains the required information,
purchaser shall be allowed to
recognize an input tax credit
VAT-registered person who issues a Subject to 12% VAT

VAT invoice/official receipt for a VAT-
exempt sale without the words “VAT-
EXEMPT SALE”
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Educational Supply.
Let’s Check
I Questions:
1. What are the three major business internal revenue taxes under the tax code?
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2. What is meant by the phrase” in the course of trade or business?
3. What is “gross selling price? And what are the deduction from gross selling
price?
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4. What are the transactions considered deemed sale?
5. What Information needed in the VAT Invoice or VAT Official Receipt?
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1. Which statement is correct?
a. An invoice which shows the selling price and the value-added tax
separately, but where the value-added tax is wrong, which is paid by
the buyer, is a violation of the revenue regulations on issuance of sales
invoices.
b. The invoice which shows the selling price and the value-added tax
separately, and with a total which is a correct amount is a properly
prepared invoice.
c. A sales invoice by a VAT taxpayer can be used only on a VAT sale.
d. The sales invoice that shows a total, with an indication that it includes
the value-added tax, even if it does not show the tax separately, is a
correctly prepared invoice
2. Which of the following statements is correct regarding standard input tax?

a. The government or any of its political subdivisions, instrumentalities or
agencies as well as purchasers in the course of trade or business shall
deduct and withhold a final VAT due at the rate of five percent (5%) of
the gross payment
b. Should actual input VAT attributable to sale to government exceeds
seven percent (7%) of gross payments, the excess must be closed to
expense or cost
c. Input tax that can be directly attributable to VAT taxable sales of goods
and services to the Government shall be credited against output taxes
arising from sales to non-Government entities
d. The standard input tax is in lieu of the actual input VAT directly
attributable or ratably apportioned to sales of goods or services to
government or any of its political subdivisions, instrumentalities on
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agencies including GOCCs
3. Which of the following sales will be exempt from the value added tax?
I- Sale of copra
II- Sale of flowers in their original state
III- Sale of cotton in their original state
a. I only b. III only c. II only d. I, II, III
4. Which of the following milling jobs shall not be exempt from VAT?
a. Palay into rice c. Wheat into flour
b. Corn into grits d. Sugar cane into raw sugar
5. First statement: Sales of drugs and medicines of pharmacy run by the hospital to
outpatients are subject to VAT.
Second statement: Pharmacy items used in the performance of medical

procedures in hospital units such as in the operating and delivery rooms and by
other departments are considered part of medical services rendered by the
hospital, hence, not subject to VAT.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct
6. Who is the statutorily liable for the payment of VAT?
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a. Consumer b. Buyer c. Seller d. Buyer or seller
7. Which of the following sale or importation of goods shall not be exempt from
VAT?
a. Fertilizers
c. Fish,prawn,livestock and poultry needs, including ingredients, whether
locally produced or imported, used in the manufacture of feeds
d. Specialty feeds
8. The following shall be considered deemed sale except:

a. A vat registered person withdraws goods from his business for
personal use
b. Distribution or transfer to shareholders or investors of property
dividends taken from theInventory of the business.
c. Consignment of goods if actual sale is not made within 60 days
following the date such goods were Consigned
d. Retirement or cessation of business with respect to all goods on hand,
whether capital goods, stock in-trade, supplies or materials as of the
date of such retirement or cessation whether or not the business is
continued by the new owner or successor
9. The amount of transitional input tax that is allowed as creditable input tax is
a. 4% of beginning inventory or the actual vat paid whichever is
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b. 4% of beginning inventory or the actual vat paid whichever is

lower
c. 2% of beginning inventory or the actual vat paid whichever is
lower
d. 2% of beginning inventory or the actual vat paid whichever is
higher
10. Gross selling price includes all of the following, except one. Which one?
a. Total amount which the purchaser pays to the seller.
b. Total amount which the purchaser is obligated to pay to the seller.
c. Excise tax.
d. Value-added tax
11. Statement 1: The output value-added tax is computed by multiplying the gross
selling price by 12%; or multiplying the total amount indicated in the invoice by
12/112.
Statement 2: The output value-added tax is computed by multiplying the total
amount indicated in the invoice by 12%.
A. Both statements are correct
B. Both statements are wrong
C. The first statement is correct but the second statement is wrong
D. The first statement is wrong but the second statement is correct
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12. S1: in the books of accounts of a VAT-registered taxpayer, sales are recorded
net of output taxes.
S2: in the books of accounts of a VAT-registered taxpayer, purchases are
recorded net of input taxes.
a. Both statements are correct
b. Both statements are wrong
c. The first statement is correct but the second statement is wrong
d. The first statement is wrong but the second statement is correct
13. Which statement is wrong?

a. There is a transitional input tax on sales of goods or properties.
b. There is a transitional input tax on sales of services.
c. There is a presumptive input tax on sales of goods or properties.
d. There is a presumptive input tax on sales of services.
14. Which of the following sale or importation of goods shall not be exempt from
VAT?
a. Fertilizers
c. Fish,prawn,livestock and poultry needs,including ingredients, whether
locally produced or Imported, used in the manufacture of feeds
d. Specialty feeds
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15. West Star Realty Corp. Sells a commercial lot in the month of November 2013
under the following terms ( including VAT)
Total contract price P 1,120,000
Downpayment, 11-01-2018 112,000
First installment,12,-01-2018 112,000
Zonal value P 1500,000
The output VAT in November 2018 is:
a. P 12,000 b. P 120,000 c. P 18,000 d. P 180,000
16. Magnifico Corp. Is a Vat registered dealer of appliances. The following data are
for the last quarter of 2016
Sales, total invoice value 6,920,000
Purchases, net of input taxes 5,500,000
Sales return, total invoice value 200,000
Purchase return, net of vat 300,000
Deferred input taxes (carried over from the third quarter of 2018) 12,000
The value added tax payable for the last quarter of 2018 by Magnifico Corp is
a. P 84,000 c. P 108,000
b. P 96,000 d. P 130,
17. Lavinia had the following data in July:

Sale of goods (excluding VAT) P 2,540,000
Purchases of goods (net of VAT) 1,450,000
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Purchases of capital goods (Invoice amount)
Machine 1(Useful life: 6 yrs) 974,400
Machine 2(Useful life: 3 yrs) 67,200
The VAT payable in July is-
a. P 120,860 b. P 19,200 c P 33,600 d. P (40,000)
18. Azucarera de Papa is a processor of refined sugar. It purchases sugarcane from

farmers for processing into intermediate stages until it becomes refined sugar. In
a month, it had the following sales and purchases, no tax included:
Sales P 880 000
Purchases of sugarcane 220 000
Purchases of containers and paper labels 100 000
The value-added tax payable is:
A. P 67 200 C. P 84,800
B. P 89 200 D. P 69 200
19. In a month, total invoice prices/costs:

Domestic sales P 672 000
Export sales 1 500 000
Purchases from VAT-registered persons of:
Goods exported 560 000
Goods sold in the Philippines 224 000
Operating expenses 112 000
The input taxes attributable to export sales which may be refunded or credited
against other internal revenue taxes, including any value-added tax on domestic
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sales, is:
A. P 60,000 C. P 84 000
B. P 24 000 D. P 96 000
Japayuki Corp. imported an article from Japan. The invoice value of the following
article was P 1 000 000 Yen (1 Yen= P0.50). the following were incurred in
connection with the importation:
Insurance P 15 000
Freight 10 000
Postage 5 000
Wharfage dues 7 000
Arrastre charges 8 000
Brokerage fee 25 000
Facilitation fee 3 000
The imported article was subject to P 50 000 customs duty and P 30 000 excise tax.
Japayuki Corp. spent P 5 000 for trucking from the customs warehouse in Quezon
City.
20. The VAT on importation is:
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A. P 65 800 C. P 65 000
B. P 78,000 D. P 50 000
21. Assuming that the imported article was sold for P 950 000, VAT exclusive, the
VAT payable is:
A. P 36,000 C. P 30 000
B. P 29 200 D. P 114 000
Sale of services by a VAT-registered contractor:

Collections on total invoice price for contracts completed
(including P 448 000 for materials) P 1 120 000
Receivables on billings (VAT included) 336 000
Advances on contracts (VAT not included) 200 000
Retentions on contracts made by clients out of contract price
already earned 90 000
Purchases of:
Materials (VAT included) 224 000
Services of sub-contractor (VAT not included) 448 000
Services of persons subject to percentage taxes 56 000
Salaries of employees 60 000
22. Output taxes are:

A. P 158 400 C. P 132 000
B. P 144 000 D. P 154 000
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23. The input taxes are:

A. P 67 200 C. P 77 760
B. P 72 000 D. P 80 640
24. The value-added tax payable is:
A. P 64 800 C. P 86 400
B. P 86 400 D. P 66 240
25. The following first quarter data pertain to a value-added taxpayer whose
purchases were all from value-added taxpayers:
Output taxes, January P 132 000
Input taxes, January 240 000
Output taxes, February 348 000
Input taxes, February 144 000
Sales, total invoice price, March 3 360 000
Purchases, total invoice cost, March 1 456 000
The value-added tax payable for March is:
A. P190 400 C. P 204 000
B. P 192 000 D. P 260 400
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Let’s Analyze
Identify the transactions below as transaction subject to VAT at 12%, Zero rated or
VAT exempt.
Transaction 1- An agricultural food processor sells his products in their original

state to a foodprocessor who also buys packaging materials and containers from a
manufacturer / supplier.
Transaction 2- The food processor transform the food products into processed and
sells to Wholesaler/ exporter
Transaction 3- The exporter sells the good to a foreign buyer
Transaction 4 - The wholesaler delivers merchandise to retailers
Transaction 5- The retailers sell the goods to households or ultimate consumers
Transaction 1
Transaction 2
Transaction 3
Transaction 4
Transaction 5 _
In a Nutshell
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Leomar a Vat-registered person has the following data:

 Export sale, total invoice amount P 3,000,000
 Domestic sales,total invoice amount P 6,720,000
Purchases used to manufacture goods for export and domestic sales

 Raw Materials, Vat inclusive P 616,000
 Supplies, Vat inclusive 448,000
 Equipment, Vat exclusive 300,000
Answer the following:
1. The amount of input tax which can be refunded or converted into tax credit
certificates at the option of Leomar is
2. Based on the preceding number, if the refundable input taxes were not refunded
but used as tax credit the vat due is
3. But assuming further that the taxpayer opted to claim them as refund the tax due
is
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Q&A List
1.
2.
3.
4.
5.
Keyword Index Do Not Copy
 Value-added tax
 Input tax
 Output ta
B
\ ig Picture in Focus: ULOb. Apply taxation rules in determining
Other Percentage Tax (OPT).
Metalanguage
The terms used for this specific unit learning outcome are already discussed and
explained in the essential knowledge section as part of the discussion. Hence,
having separate presentation will mean redundancy.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully
understand the following essential knowledge laid down in the succeeding pages.
Please note that you are not limited to exclusively refer to these resources. Thus,
you are expected to utilize other books, research articles and other resources that
are available in the university’s library e.g. ebrary, search.proquest.com etc., and
even online tutorial websites.
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Topic: Other Percentage Tax (OPT)
Percentage taxes are taxes imposed on the sale, barter or exchange or importation
of goods, or the sale of services bases upon the gross sales, value in receipts
derived by the manufacturer, producer, importer, or seller ( De Leon Comprehensive
Review of Taxation,p.324,1998 Ed)
These are usually measured by a certain percentage of the gross selling price or
gross receipts and are on the sale of goods or services and not on their
manufacture, production or importation.
Other percentage taxes are in addition to income and other taxes paid, unless
specifically exempted. Generally, if the transaction or establishment is subject to
other percentage taxes, then it is exempt from valued added tax, and vice-versa.
It is possible; however, that an individual engaged in business or business is exempt

from both from the payment of value-added tax and from any percentage tax
imposed by the National Internal Revenue Code.
PERCENTAGE TAXES
Section Particulars Tax Base Tax rate

116 Tax on persons exempt from VAT
Do Not Copy
Monthly gross sales 3%

(except or receipts
Beginning January 1, 2019 , annual

gross receipts not exceeding Php
500,000.0 shall be exempt from 3%
Exempt effective January 1, 2019 if

annual gross receipts not exceeding
Php 500,000.00
Purely self-employed and/or

professionals has option to avail an
8% tax on gross sales/receipts and
other non-operating income in
excess of P250,000
Illustration 1
Gross receipts Registered? ANSWER

Case 1 P 1,200,000 YES 12% VAT
107
Case 2 2,000,000 YES 12% VAT
Case 3 3,500,000 NO 12%VAT
Case 4 900,000 NO 3% Non-VAT
Case 5 90,000 NO Exempt
Case 6 15,000 YES 12% VAT
Illustration 2
Marino is an owner of a small variety store. His gross sales in any one year do not
exceed P3,000,000. He is not VAT-registered. The following data are taken from the
books of the variety store for the quarter ending March 31, 2019:
Merchandise inventory, Dec. 31, 2018 P 10 000

Gross sales 45 000
Purchases from VAT-registered supplier 38 500
The percentage tax due is:
45,000 x 3% = 1,350
Section Particulars Tax Base Tax

rate
119 Tax on franchises:
1. On gas and water utilities Monthly gross sales 2%
or receipts
2.On radio and/or television Monthly gross

Do Not Copy
broadcasting companies with annual receipts or pay VAT 3%

GR of not more than P10,000,000 at their option. Once
exercised, it becomes
irrevocable.
Illustration 3
Korakuta Company, a television broadcasting company had the following data in its
books.
Gross receipts during the month P2,000,000

Purchase of materials and services (subject to VAT) 165,000
Purchase of materials and services(not subject to VAT) 130,000
COMPUTE the following:

a. The Other Percentage Tax due if the gross receipts last year amounted to P9,
750,000.
b. The VAT payable if the gross receipts last year amounted to P13, 600,000.
a.) Gross receipts P2,000,000

Rate of tax 3%
Franchise tax 60,000
b.) Output tax (2,000,000x12%) 240,000

Less: Input tax (165,000x12%) 19,800
108
VAT payable 220,200

Amusement taxes from operators of:
Boxing exhibitions Quarterly gross 10%
Exempt, if a World or Oriental receipts
championship in any division is at
stake, promoted
125 by a Filipino citizen or Corporation,
at least 60% Filipino owned, and
one of the
Professional basketball games Quarterly gross 15%

receipts
Cockpits Quarterly gross 18%
receipts
Cabarets, night or day clubs Quarterly gross 18%
receipts
Jai-alai and race tracks Quarterly gross 30%
receipts
For the purpose of the amusement tax, the term “gross receipts” embraces all the
receipts of the proprietor, lessee or operator of the amusement place. Said gross
receipts also include income from television, radio, and motion picture rights, if any.
Do Not Copy
Illustration 4
Carrie Rista operates a racetrack. Other than the restaurant that it operates, it also
allows “Burger ka Dyan Burger” a burger stand operated by a concessionaire, to sell
foods inside its premises. The gross receipts during the month are as follows:
From operation of race track P 1,200,000

From restaurant 600,000
From television coverage 400,000
The gross receipts of “Burger ka Dyan Burger” amount to P450, 000.
Question 1: How much amusement tax is payable by Carrie Rista.

Race track P 1,200,000
Restaurant 600,000
Television coverage 400,000
Gross receipts 2,200,000
Rate of tax 30%
Amusement tax 660,000
When a restaurant is owned or operated by a person other than the proprietor,

lessee or operator of the amusement place, the receipts derived from the operation
109
of the restaurant is subject to either value-added tax or to 3% “Percentage Tax On
Persons Exempt VAT”.

Winner of the prizes in double 4% of
forecast/quinella & trifecta bets the net
126 Tax on winnings prize
Person winning not in double 10% of
forecast/quinella & trifecta bets the net
prize
Owners of winning race horses 10% of

the prize

123 Tax on life insurance premium, Insurance premiums 5%
except purely cooperative collected
companies or associations

 Owners of property who obtain On premiums paid 5%
124
insurance
Do Not Copy
directly with foreign companies

Insurance premiums 10%
 Agents of foreign insurance collected
companies
(fire, marine or miscellaneous
insurance agents)
Illustration 5
Nanny Niguro insured his life with Filipino Life Insurance Company. The total amount
of premiums paid to the company during the month was P 20,000. Out of this
amount, P 7,000 was paid in cash and the balance in a promissory note.
How much is the tax on life insurance premiums?
Gross premiums collected P 20,000

Rate of tax 2%
Tax on life insurance premiums 400
127-A Tax on sale, barter or exchange of shares of stock listed and traded through
the local stock exchange (LSE), other than sale by a dealer in securities –
.006 or .60% of gross selling price or gross value in money of the shares of
stock sold, bartered, exchanged or otherwise disposed of.
110
127-B Tax on shares of stock sold or exchanged through the LSE in an initial public offering
of shares of stock of a closely held corporation in accordance with the proportion of
shares of stock sold, bartered or exchanged or disposed of to the total outstanding
shares of stock after the listing in the LSE:
Up to 25% 4% of GSP
Over 25% to 33 1/3% 2% of GSP
Over 33 1/3% 1% of GSP
Illustration 6
Celeste sold 10,000 shares of stock costing P 95, 000 for P 100, 000. The par value
of the stocks is P 9 per share.
Q. If the shares are listed and traded in the Philippines Stock Exchange, how much
is the Stock Transaction Tax on the sales?
Gross selling price P 100,000

Rate of tax .006
Stock transaction tax 600
Q2. If the shares are not listed and traded in the Philippine Stock Exchange, how
much is the Stock Transaction Tax on the sale?
Do Not Copy
None. However, the sale is subject to a final withholding tax, computed as follows:
Gross selling price P100,000
Less: Cost 95,000
Net capital gain 5,000
Rate of tax 15%
Final withholding tax (income tax) 750
Illustration 7
Printers Corporation closely held, has an authorized capital stock of 10, 000
shares with par value of P 1.00 per share as of January 1, 2011. Of the 10, 000
authorized shares, 2, 500 thereof is subscribed and fully paid up by the following
stockholders:
Galog 500
Oyang 500
Idong 500
Kulas 500
Manay 500
Total shares outstanding 2500
111
Printer Corporation finally decides to conduct an initial public offering and
initially offers 2,500 of its unissued shares to the investing public. After the IPO in
March 2009, Printers Corporation’s total issued shares increased from 2,500 to
5,000 shares.
At the IPO, one of the existing stockholders, Manay, has likewise decided to
sell her entire 500 shares to the public.
Q1: If he unissued shares were offered at P10 per share, how much is the tax due
on the primary offering?
Shares offered to the public 2,500
Divide by number of shares outstanding 5,000
Ratio of percentage 50%
Initial offer price (2,500xP10) 25,000

Rate (over 33 1/3%) 1%
Initial Public Offering Tax 250
Q2. If the shares of Manay were offered also at P10 per share, how much is the total
tax due on the Initial Public Offering?
On primary offering P 250
On secondary offering:
Shares offered by Manay to the
public 500
Do Not Copy
Divide by number of shares

outstanding 5,000
Ratio of percentage (not over
25%) 10%
Offer price (500xP10) 5,000

Rate (not over
25%) 4% 200
Total tax on initial Public Offering 450
On primary P250
offering
On secondary offering:
Shares offered by Manay to the 500
public
Divide by number of shares 5,000
outstanding
Ratio of percentage (not over 25%) 10%
Offer price (500xP10) 5,000

Rate (not over 4% 200
25%)
112
Total tax on initial Public Offering 450
Q3. In case Oyang decides to offer his existing 500 shares to the public subsequent
to the IPO at P20 per share, will the sale be subject to IPO tax?
No. In case another stockholder decides to offer his existing shares to the
public subsequent to the IPO, he shall subject to a tax of ½ of 1% of the gross selling
price.

123 Tax on life insurance premium, Insurance premiums 5%
except purely cooperative collected
companies or associations

117 Monthly gross 3%
Percentage tax on domestic receipts
common carriers by land for the
transport of passengers and
keepers of garages, except owners
of bancas and animal-drawn two-
wheeled vehicles. Do Not Copy
In computing the percentage tax provided in Section 117 (Common Carrier’s Tax) of
the National Revenue code, the following shall be considered the minimum
quarterlygross receipts in each particular case (RR 9-2007)
Minimum Minimum
Quarterly Monthly
Jeepney for hire-

1.Manila P 65,700 P 21,900
2.Provincial 32,900 10,967
Public utility bus
Not exceeding 30 passengers 98,600 32,867
Exceeding 30 but not exceeding 50 164,200 54,733
Exceeding 50 197,100 65,700
Taxis
1.Manila 98,600 32,867
113
2.Provincial 65,700 21,900
Car for hire (with chauffeur) 82,100 27,637
Car for hire (w/o chauffeur 49,300 16,434
Illustration 8
Barbosa Lines operates seven (7) buses with a capacity of 40 passengers, playing
the routeNaga City to Iriga City, and Iriga to Naga. During the month, it had the
following data:
Gross receipts from passengers P250,000

Gross receipts from carriage of goods, net
of tax 50,000
Purchase of spare parts (inclusive of tax) 38,640
Purchase of supplies from VAT suppliers (invoice
value) 1,400
REQUIRED: Compute the business taxes payable by Barbosa

Lines:
a. From carriage of
passengers
Gross receipts Do Not Copy
P250,000
Minimum (54,733x7) 383,131
Rate of tax 3%
Common carrier's tax 11,493.93
b. From carriage of
goods
Output tax
(50,000x12%) 6,000
Less: Input tax
Spare parts
(38,640x3/28) 4,140
Supplies (1,400x3/28) 150
Total 4,290
(50,000/300,000*)x4,290 715
VAT payable 5,285
*Gross receipts from passengers 250,000

Gross receipts from carriage of
goods 50,000
114
Total gross
receipts 300,000

123 OPT on international carriers (air & Monthly gross 3%
shipping) receipts
Illustration 9
Air Philippines Express, a domestic airline company is engaged in domestic and international
transports. During the month, it had the following gross receipts:
Place of Travel Passenger Cargo

From Philippines to other Asian countries P 10,000,000 P1,000,000
From other Asian countries to the Philippines 12,000,000 1,500,000
Domestic operation only 20,000,000 2,000,000
Is the airline company subject to Common Carrier's Tax or to VAT?
It is subject to value-added tax. The output tax is computed as follows:

Do Not Copy
From domestics operation:

Passenger
(20,000,000x12%) 2,400,000
Cargo (2,000,000x12%) 240,000 2,640,000
From Philippines to other Asian countries

(10,000,000+1,000,000)x0%
Output tax 2,640,000

123 Tax on overseas dispatch, message or Quarterly gross 10%
conversation originating from the receipts from
Philippines such services
Exempted from Sec. 120 are:

 Diplomatic services
 International organizations
 News services
 Government

Tax on banks and non-bank
financial
115
intermediaries performing quasi-
banking functions:
Monthly gross
122 On interests, commissions and receipts
discounts from lending activities as
well as income from financial
leasing, based on remaining
maturities of the instruments, as
follows:
1%
Maturity period of more than 5 years 5%
Maturity period of 5 years or less
Note: In case of pretermination, the

maturity period shall be reckoned to
end as of the date of pretermination
for purposes of classifying the
transaction and applying the correct
rate of tax.
On royalties, rental of property (real Monthly gross 7%

or personal), profit from exchange receipts
and all other items treated as gross
income under Section 32 of the tax
Do Not Copy
code.
On trading gains within a taxable Monthly gross 7%
month on foreign currency, debt receipts
securities, derivations and other
similar financial instruments
On dividends and equity shares in 0%
the net income of subsidiaries

Tax on other non-bank financial
intermediaries,including finance
companies, money changers
and pawnshops:
Monthly gross
125 On interests, commissions and receipts
discounts from lending activities as
well as income from financial
leasing, based on remaining
maturities of the instruments, as
follows:
1%
Maturity period of more than 5 years 5%
Maturity period of 5 years or less
116
Note: In case of pretermination, the
maturity period shall be reckoned to
end as of the date of pretermination
for purposes of classifying the
transaction and applying the correct
rate of tax.
On royalties, rental of property (real Monthly gross 7%

or personal), profit from exchange receipts
and all other items treated as gross
income under Section 32 of the tax
code.
On trading gains within a taxable Monthly gross 7%
month on foreign currency, debt receipts
securities, derivations and other
similar financial instruments
On dividends and equity shares in 0%
the net income of subsidiaries
Illustration 10
The Filipino Bank has the following income/loss:
Do Not Copy
March April
Interest income with maturity of less than 5years P50,000 P100,000
Rentals 50,000 50,000
Net trading gain (loss) (10,000) 20,000
REQUIRED: Compute the gross receipts tax for the month of March and April.
March:
Interest income with maturity of less than 5 P2,500
years
(P50,000x5%) 3,500
Rentals
(50,000x7%) 6,000
Gross receipts tax, March
April:
Interest income with maturity of less than 5
years
(100,000x5%) 5,000
Rentals
(50,000x7%) 3,500
Net trading gain, April 20,000
Less: Net trading loss,
March (10,000)
Adjusted net trading gain 10,000
117
X Rate of tax 7% 700
Gross receipts tax, April 9,200
Return and payment of other percentage taxes

a. General rule: Every person liable to pay percentage taxes shall file a monthly
return of the amount of his gross sales, receipts or earnings and pay the tax
thereon within twenty (20) days after the end of each taxable month. The
taxpayer may file a separate return for each branch or place of business, or a
consolidated return for all branches or places of business with the authorized
agent bank, Revenue District Officer, Collection Agent or duly authorized
Treasurer of the City or Municipality where said business or principal place of
business is located, as the case maybe.
b. Exceptions:
 The tax on overseas dispatch, message or conversation originating from the
Philippines shall be paid by the person rendering the service within twenty (20)
days after the end of each quarter.
 Amusement taxes shall be paid by the proprietor, lessee, operator or any party
liable within twenty (20) days after the end of each quarter.
 The tax on winnings shall be deducted and withheld by the operator, manager
or person in charge of the horse races and remitted to the Bureau of Internal
Revenue within twenty (20) days from the date the tax was deducted and
withheld.
 The stock transaction tax of 1/2 of 1%, shall be collected by the stock broker
and remitted to the Bureau of Internal Revenue within five (5) banking days
Do Not Copy
from the date of collection.

 The stock transaction tax of 4%, 2% and 1%, in case of primary offering, shall
be paid by the corporation within thirty (30) days from the date of listing of the
shares of stock in the local stock exchange. In case of secondary offering, the
tax shall be collected by the stockbroker and remitted to the Bureau of Internal
Revenue within five (5) banking days from the date of collection.
Any person retiring from a business subject to percentage tax shall notify the nearest
internal revenue officer, file his return and pay the tax due

Educational Supply.
Let’s Check
118
From the list of possible answers below (Letter A to D) choose the LETTER that
best describes the following statements:
A. SUBJECT TO VAT
B. SUBJECT TO OTHER PERCENTAGE TAXES
C. EXEMPT FROM VAT AND OTHER PERCENTAGE TAXES
D. NOT SUBJECT TO BUSINESS TAX
2.
1. Sales of goods by Ana worth P 450,000,not-VAT registered, not exempt. Its
gross sales is P 650,000.
2. Sales of medicine by hospital pharmacy to in-patients
3. Export sales by persons who are not VAT registered.
4. Gross receipts earned by a cockpit on a “ 2-cock Derby”
5. Interest earned on loans granted by a lending institution.
6. Sales or importation of books.
7. Gross selling price from the sale of share of stocks in the Philippine stock
exchange.
8. Sale of mango fruits by a mango plantation.
9. Gross receipts from carriage of goods and cargo.
10. Export sales by persons who are VAT registered.
II- MULTIPLE CHOICE QUESTIONS
1. Which of the following statements is incorrect?

a. The percentage tax is basically on sale of services
Do Not Copy
b. The percentage tax may be imposed on sale of goods

c. The percentage tax may be imposed together with the value added tax
d. The percentage tax maybe imposed together with the excise tax
2. The operator of one of the following places is not subject to amusement tax:
A. Cockpits C. bowling alleys
B. Racetracks D. KTV karaoke joints
3. One of the following is subject to 3% percentage tax

a. Establishments whose annual gross sales or receipts exceed P 3,000,000
and who are VAT registered
b. Business whose annual gross sales receipts or sales exceed P 3,000,000
and who are not VAT Registered
c. VAT registered establishment whose annual gross receipts do not exceed P
3,000,000
d. Establishments whose annual gross sales do not exceed P 3,000,000 and
who are not VAT registered.
4. The franchise tax of grantees of radio and/or television broadcasting whose

annual gross receipts of the preceding year do not exceed P 10 000 000 shall be:
b. 2% of the gross receipts C. 10% of the gross receipts
c. 3% of the gross receipts D. 12 % of the gross receipts
119
4. Banks and non-bank financial intermediaries performing quasi-banking functions
are subject to:
A. Value-added tax C. Franchise tax
B. Gross receipts tax D. Amusement tax
5. Which of the following is subject to 0% gross receipts tax?
a. Gross receipts on interest, commissions and discounts from lending
activities and income from financial leasing.
b. Dividends and equity shares in net income of subsidiaries.
c. Royalties, rentals of property, real or personal, profits from exchange
and all other items treated as gross income in the Tax Code.
d. Net trading gains within the taxable year on foreign currency, debt
securities, derivatives and other similar financial instruments.
6. First statement: The 10% tax on winnings is based on actual amount paid for
every winning ticket after deducting the cost of ticket.
Second statement: The rate of tax on winnings in case of double forecast/
quinella and trifecta bets shall be four (4%) of the actual amount paid for every
winning ticket after deducting the cost of the ticket.
a. Both statements are correct c. only the first statement is correct
b. Both statements are incorrect d. only the second statement is
correct
7. A common carrier by land is engaged in the transport of passengers, goods and

cargoes. He is not VAT-registered. What business taxes is he liable to the
Do Not Cp
o
y
government?
a. 12% VAT
b. 3% common carrier’s tax
c. 3% tax on VAT-exempt persons on gross receipts from transport of goods
and cargoes and 3% common carrier’s tax on gross receipts from
transport of passengers.
d. 12% VAT on gross receipts from transport of goods and cargoes and 3%
common carrier’s tax on gross receipts
8. An international carrier is subject to the following tax-

a. 12% value-added tax and ordinary income tax on gross receipts within the
Philippines.
b. 0% VAT and 2.5% income tax on gross receipts within the Philippines.
c. 3% other percentage tax on gross receipts
d. 3% other percentage tax on gross receipts and ordinary income tax on gross
income
9. A telephone company, Vat-registered, provides services for domestic and

overseas calls. What business taxes will be due from the services offered?
A. VAT on both services
B. Overseas communications tax on both services
C. VAT on domestic calls and overseas communications tax on overseas
calls.
D. Franchise tax on both services
120
10. Boxing exhibitions shall be exempt from amusement tax when the following
conditions are present:
1- Involves World, Oriental or Philippine Championships in any division.
2- Both of the contenders are citizens of the Philippines.
3- Promoted by citizens of the Philippines, or association at 60% of the
capital is owned by Filipino citizens.
A. All of the three conditions are correct.
B. None of the three conditions are correct.
C. Only conditions 1 and 2 are correct.
D. Only condition 3 is correct.
11. Gloria invested P 500 000 in the shares of stock of Tabako Corp. the
corporation’s shares are listed and are traded in the local stock exchange. Gloria
sold the shares for P 350 000 through the local stock exchange. The percentage
tax on the sale is:
a. P 6 000 b. 2,100 c. 3 000 d. 2 500
12. WateGas Company who operates a gas and radio/television broadcasting

franchise provides the following receipts:
Gas franchise P 2,000,000
Radio franchise 10,000,000
Operating expenses (5,000,000)
Net Income P 7,000,000
The total percentage tax on franchise is:
Do Not Copy
a. P340,000 c. P210,000
b. P360,000 d. P240,000
13. Banco Deposito had the following data for the first month of the current year:
Interest commissions and discounts from lending activities
(remaining maturity of instrument is 5 years) P 5,000,000
Income from financial leasing
(remaining maturity is more than five years )
3,000,000
Dividends and equity shares in net income of subsidiaries 1,000,000
Rentals of properties 500,000
Net trading gains within the taxable year on foreign currency 300,000
How much is the gross receipts tax?

A. P 386,000 C. P 336,000
B. P 250,000 D. P 326,000
14. Tintin Dera is the owner of a small grocery store with a gross sales in any (one)
year period do not exceed P 3,000,000. She is not a VAT registered taxpayer.
She submits the following data for the month of January 2018.
Merchandise Inventory, December 31, 2017 P 123,450
Gross sales 67,800
Purchases from VAT registered suppliers 156,980
The percentage tax is
a. P 34,823
b. P 6,870
121
c. P 2,034
d. P 9,876
15. Henares , a Filipino citizen, promoted a word boxing championship in Manila
featuring Ahas a Filipino champion. Gate receipts amounted to P 3,000,000 and
additional receipts from television coverage was P 2,000,000. The amusement
tax is :
a. 0 b. 300,000 c. 200,000 d. 500,000
P 400 000
16. Revenues from the current period
Collections during the period of:
Revenues of prior periods 50 000
Revenues of the current period 300 000
Revenues of the succeeding period 10 000
(advances)
The business tax if a race track:
a. P 64,800 c. P 90 000
b. P 54,000 d. P 108 000
17. A, operates a ferryboat. During a particular quarter, its receipts consist of the
following:
Gross receipts: (without VAT)
Transport of passengers P1,000,000
Transport of goods 1,500,000
Transport of cargoes 500,000
Do Not Copy
The common carrier’s tax payable is

a. .P 30,000
b. P 90,000
c. P100,000
d. None
18. Using the data above, the output VAT is
A. P360,000 B. P 90,000 C. P100,000 D. P240,000
In the second quarter of 2019, a taxpayer engaged in the sale of services and
whole annual gross receipts do not exceed P 3,000,000 has the following data:
Accounts receivable, beginning of the quarter P 50 000
Sales during the quarter 100 000
Accounts receivable, end of quarter 75 000
Purchase of supplies, total invoice amount 11 200
19. The percentage tax due for the quarter is:
A. P 2 250 C. P 1 914
B. 3 000 D. 2 664
20. Assuming the taxpayer is VAT-registered, the VAT payable is:

A. P 2 250 C. 7 656
B. 9 000 D. 7 800
122
Let’s Analyze
1. Dugong Trans, is a common carrier by sea. During a particular quarter its receipts
consist of the following( Figures are net of any business taxes)
Transport of passengers P 3,000,000
Transport of cargoes 6,500,000
The total business taxes payable is
2. Dugong Trans, is a common carrier by land. During a particular quarter its

receipts consist of the following( Figures are net of any business taxes)
Transport of passengers P 3,000,000
Transport of cargoes 6,500,000
The total business taxes payable is
In a Nutshell
Che-che is a CPA. The following are her data during the period (amounts are net of
tax):
Salary as accounting teacher and reviewer P 20 000
Motel business (amounts are exclusive of tax):
Gross receipts from business (VAT 250 000
Do Not Copy
registered) 25 000
Discounts
Purchases: 28 000
From VAT-registered suppliers 27 500
From non-VAT suppliers 25 000
Business expenses (60% VAT)
Practice of profession (not VAT-registered):
Gross receipts 47 500
Purchases
From VAT registered sellers 21 200
From non-VAT sellers 18 000
Expenses- profession 24 000
1. The VAT payable is-

2. The percentage tax payable is
123
Q&A List
1.
2.
3.
4.
5.
Keyword Index
 Other percentage tax Do Not Copy
 Gross Receipts
 Gross Selling price
124
Course Schedules
Activities Date Where to Submit

Big Picture A (Week 1-3) ULOa: Let’s Check Oct. 27, 2020 CF email/ Quipper
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125
Davao del Norte
Telefax: (084) 655-9591, Local 116
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Analyze Activities
FINAL EXAM Dec. 17-18, Quipper
2020
Online Code of Conduct
1) All teachers/Course Facilitators and students are expected to abide by an

honor code of conduct, and thus everyone and all are exhorted to exercise
self-management and self-regulation.
2) Faculty members are guided by utmost professional conduct as learning

facilitators in holding OBD and DED conduct. Any breach and violation shall
be dealt with properly under existin g guidelines, specifically on social media
Do Not Copy
conduct (OPM 21.15) and personnel discipline (OPM 21.11).
3) All students are likewise guided by professional conduct as learners in

attending OBD or DED courses. Any breach and violation shall be dealt with
properly under existing guidelines, specifically in Section 7 (Student
Discipline) in the Student Handbook.
4) Professional conduct refers to the embodiment and exercise of the

University’s Core Values, specifically in the adherence to intellectual
honesty and integrity; academic excellence by giving due diligence in virtual
class participation in all lectures and activities, as well as fidelity in doing
and submitting performance tasks and assignments; personal discipline in
complying with all deadlines; and observance of data privacy.
5) Plagiarism is a serious intellectual crime and shall be dealt with accordingly.

The University shall institute monitoring mechanisms online to detect and
penalize plagiarism.
6) All borrowed materials uploaded by the teachers/Course Facilitators shall be

properly acknowledged and cited; the teachers/Course Facilitators shall be
professionally and personally responsible for all the materials uploaded in
the online classes or published in SIM/SDL manuals.
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Davao del Norte
Telefax: (084) 655-9591, Local 116
7) Teachers/Course Facilitators shall devote time to handle OBD or DED

courses and shall honestly exercise due assessment of student
performance.
8) Teachers/Course Facilitators shall never engage in quarrels with students

online. While contentions intellectual discussions are allowed, the
teachers/Course Facilitators shall take the higher ground in facilitating and
moderating these discussions. Foul, lewd, vulgar and discriminatory
languages are absolutely prohibited.
9) Students shall independently and honestly take examinations and do

assignments, unless collaboration is clearly required or permitted. Students
shall not resort to dishonesty to improve the result of their assessments (e.g.
examinations, assignments).
10) Students shall not allow anyone else to access their personal LMS account.
Students shall not post or share their answers, assignment or examinations
to others to further academic fraudulence online.
11) By handling OBD or DED courses, teachers/Course Facilitators agree and

abide by all the provisions of the Online Code of Conduct, as well as all the
requirements and protocols in handling online courses.
12) By enrolling in OBD or DED courses, students agree and abide by all the
provisions of the Online Code of Conduct, as well as all the requirements
Do Not Copy
and protocols in handling online courses.
Monitoring of OBD and DED

(1) The Deans, Asst. Deans, Discipline Chairs and Program Heads shall be
responsible in monitoring the conduct of their respective OBD classes through
the Blackboard LMS. The LMS monitoring protocols shall be followed, i.e.
monitoring of the conduct of Teacher Activities (Views and Posts) with
generated utilization graphs and data. Individual faculty PDF utilization reports
shall be generated and consolidated by program and by college.
(2) The Academic Affairs and Academic Planning & Services shall monitor the
conduct of LMS sessions. The Academic Vice Presidents and the Deans shall
collaborate to conduct virtual CETA by randomly joining LMS classes to check
and review online the status and interaction of the faculty and the students.
(3) For DED, the Deans and Program Heads shall come up with monitoring
instruments, taking into consideration how the programs go about the conduct
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Davao del Norte
Telefax: (084) 655-9591, Local 116
of DED classes. Consolidated reports shall be submitted to Academic Affairs

for endorsement to the Chief Operating Officer.
Course prepared by:
JON D. INOCENTES,CPA
Name of Course Facilitator/Faculty
Course reviewed by:
MARIA TERESA A. OZOA, CPA, MBA

Name of Program Head
Approved by:
GINA FE G. ISRAEL, ED D
Name of Dean
Do Not Copy
128
Davao del Norte
Telefax: (084) 655-9591, Local 116
Work Plan for Lecture

Days
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Modality Synchronous Asynchronous Synchronous Asynchronous Synchronous Asynchronous
Type of  Teacher to  Learner to Learner to  Learner to
Learner to Learner Teacher to Learner
interaction Learner Content Content Content
 Uploading of  Utilization of SIM  Group Sharing  Utilization of  Discussion  Utilization of
Learning a. Collab SIM (Clarification or New SIM
Materials  Videos b. Forum lessons)
c. Zoom  Videos a. Collab  Videos
 Discussion  Self-directed b. Forum
a.Collab Activities  Consultation  Self-directed c. Zoom  Self-directed
b.Forum Activities Activities
Suggested c. Zoom  Supplementary Rest
Activities Activities Day
 Giving of
Formative  Quiz
Assessment
 Consultation
 Giving of
Performance
Task
Prepared by: Reviewed by:

JON D. INOCENTES,CPA MARIA TERESA A. OZOA, CPA,MBA
Faculty Program Head
Approved by:
GINA FE G. ISRAEL, EdD
Dean of College
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UNIVERSITY OF MINDANAO

Department of Accounting Education

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for Self-Directed Learning (SDL)

Course/Subject: ACC 321 – Business Taxation

Name of Teacher: Jon D. Inocentes,CPA

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

Big Picture in Focus: ULOa. Discuss the basic concept of succession.

Topic: ESTATE TAXATION

INTRODUCTION TO TRANSFER TAX

Basic Concepts of Succession

 Decedent – the person whose property is transmitted through succession, whether

a. Testamentary – results from the designation of an heir, made in a will executed in

Persons authorized to manage the estate

dated in front of reuired number of wtnesses ( 3 or more witnesses) and

The following are the compulsory heirs:

1. Legitimate children and descendants, which include legally adopted children

In the absence of compulsory heirs, the successors would be:

Legitimate Legitimate Surviving Illgitimate Free

a. 1/2 excluded Same as 1/2 legitime of a Varies

b. None surviving 1/2 None surviving None surviving 1/2

c. None surviving 1/2 1/4 None surviving 1/4

d. None surviving None surviving 1/2 None surviving 1/2

e. None surviving None surviving 1/3 1/3 1/3

1. Hereditary estate - P 1,500,000

The distribution of the state is

2. Hereditary estate - P 1,500,000

3. Hereditary estate - P 1,500,000

The distribution of the estate is

4. Hereditary estate - P 1,500,000

The distribution of the estate is

5. Hereditary estate - P 1,500,000

6. Hereditary estate - P 1,500,000

7. Hereditary estate - P 1,500,000

8. Hereditary estate - P 1,500,000

Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his

(6) Maltreatment of the testator by word or deed, by the child or descendant;

(7) When a child or descendant leads a dishonourable or disgraceful life;

LEGAL OR INTESTATE SUCCESSION

Art. 960. Legal or intestate succession takes place:

Art. 963. Proximity of relationship is determined by the number of generations. Each

Consider the illustration:

Order of Intestate Succession

1. Descending direct line ( legitimate children/descendants)

legitimate Legitimate Illegitimate Surviving Brothers, Other

a. entire excluded None surviving excluded excluded excluded excluded

Ampongan, O. (2013).Business & transfer taxes. (2nd ed.).Manila: Conanan Educational

1. What is the meaning of the term succession?

2. Identify and differentiate the kinds of succession.

3. When does legal or intestate succession takes place?

4. What is meant by the word legitime?

5. What are the sufficient causes for disinheriting a spouse?

II. True or False:

1. Estate tax is an excise tax.

8. Representation is a right created by fiction of law, by virtue of which the

III. Multiple Choice:

2. Who is the taxpayer in estate tax

How much could be designated to the sister-in-law?

Big Picture in Focus: ULOb. Apply taxation rules in determining estate

Resident Citizen, Non-Resident Citizen and Resident Alien decedents

The following shall comprise the gross estate of the decedent:

a. Transfer in contemplation of death

Transfer in contemplation of death