BUSINESS TAXATION REVIEWER

TRANSFER TAXATION 3. Proportional Tax – Transfer tax under

TRAIN are imposed at 6% of the net
- Any transition of property from one
estate/gift
person to another, a person maybe
4. National Tax
natural person or juridical person.
5. Direct Taxes – Transfer taxes cannot be
TYPES OF TRANSFERS shifted
6. Fiscal Tax – Levied to raise money for
1. Bilateral Transfer (Onerous Transfer) - the support of the government
transmission of property for a
consideration. CLASSIFICATIONS OF TAXPAYERS
a. Sale – Exchange of property to
1. Residents/Citizens – taxable on global
money
transfers of property
b. Barter – Exchange of property
2. Non-Resident Aliens – taxable on
for another property
Philippine Transfers of Property
2. Unilateral Transfers (Gratuitous
transactions) – transfer of property by a Juridical Persons that are organized in the PH
person without consideration are considered PH Citizens. In Donor’s Taxation,
a. Donation (Donation Inter-vivo) resident citizen or alien includes domestic or
– Living donor to a done resident foreign corporation.
b. Succession (Donation Mortis-
RECIPROCITY RULE ON NON-RESIDENT ALIENS
causa) – Deceased person upon
his death to his heirs NOTE : Intangible personal properties of non-
resident aliens are exempt from PH transfers
Donor’s Estate Tax
provided that the country which such alien is a
Tax
Subject Inter-vivo Mortis-Causa citizen also exempts the intangible properties of
Transfer Filipino non-residents therein from transfer
Nature Annual Tax One-time Tax taxes.
(BIR Form (BIR Form No.
SUCCESSION
No. 1800) 1801)
Taxpayer Donor Decedent - Mode of acquisition by virtue of which
Who pays Donor Executor, the property, rights, and obligations to
tax himself Administrator, the extent of the value of the
Heirs
inheritance of a person are transmitted
3. Complex Transfers – Transfers for less
through his death to another or others
than full and adequate consideration
either by his will or operation of law.
• Transfers for adequate
- Inheritance includes all property, rights
consideration are deemed pure
and obligations of a person which are
exchange and are subject to income not extinguished by his death
tax, not transfer tax
- Rights to the succession are transmitted
NATURE of TRANSFER TAX from the moment of death of the
decedent.
1. Privilege tax - Decedent is the deceased person.
2. Ad Valorem Tax – Amount of tax
depends on the value of the properties TYPES OF SUCCESSION
transferred
BUSINESS TAXATION REVIEWER
1. Testate of Testamentary Succession - is
that which results from the designation
of an heir made in a will in the form
prescribed by law.
a. Testate – person who died with
a will
b. Testator – person who died
with a written will
2. Legal or Interstate Succession –
decedent dies without a will or with an
invalid one, the distribution of his
estate shall be in accordance with the
default provision of the Civil Code
3. Mixed Succession – partly by virtue of a
written will and partly by operation of
law
WILL – is an act whereby one person is
permitted, with the formalities prescribed by
law to control to a certain degree the
disposition of his/her estate, to take effect after
his death
TYPES OF WILL
1. Holographic Will – which is entirely
written, dated, and signed by the hand
of the testator himself
2. Notarial Will – Notarized will signed by
the decedent and witnesses
3. Codicil – supplement or addition to a
will, made after the execution of a will
and annexed to be taken as part
thereof
NATURE OF SUCCESSION
- It is a gratuitous transmission of
property from a deceased person in
favor of his successors
- It only involves the net property of the
decedent
- Heirs shall not inherit the debt of the
decedent
ELEMENT OF SUCCESION
1. Decedent – person whose property is
transmitted through succession
2. Estate – property, rights and obligation
of the decedent not extinguished by his
death
3. Heirs – person called to the succession
either by provision of a will or operation
of law.
HERIS UNDER INTERSTATE SUCCESION
Heirs shall be the following in a descending
order of priority:
1. Compulsory Heirs – person who will
inherit the estate by default
2. Relatives up to 5th degree of
consanguinity
3. Republic of the PH
TYPES OF COMPULSORY HEIRS
1. Primary Heirs – legitimate children and
their direct descendants
2. Secondary Heirs –
legitimate/illegitimate parents and
ascendants
3. Concurring Heirs – Surviving spouse and
Illegitimate descendants
• Secondary heirs shall inherit only in
default of primary hers.
IN ABSENT OF COMPULSORY HEIRS
1. Collateral relatives up to 5th Degree of
consanguinity
2. PH Government
BASIC INTERSTATE PARTITION PROCEDURES
1. Decedent the surviving spouse shall first
share in the common properties
2. Determination of the Decedent’s Net
interest
a. Exclusive Property of Decedent
b. Share of the Decedent in the
net common properties
BUSINESS TAXATION REVIEWER
3. Partition of the decedent’s net interest:
a. Surviving Spouse
b. Legitimate Children
c. Illegitimate Children
• Surviving spouse and Legitimate
Children = 1 Share Each
• Illegitimate Children = .5 Share each
HEIRS UNDER TESTAMENTARY DISPOSITION
In testamentary succession, the heirs shall be
the following
1. Compulsory Heirs
2. Other person specified by the decedent
in his will
LEGITIME – part of the testator’s property
which he cannot dispose of because of the law
has reserved it for certain heirs, compulsory
heirs. The excess property of the decedent is
called “free portion”
OTHER PERSONS IN SUCCESION
1. Legatee – person whom gifts of
personal property is given by virtue of a
will
2. Devisee – person whom gifts of real
property is given by virtue of a will
3. Executors- person named by the
decedent who shall carry out the
provisions of his will
4. Administrators – person appointed by
court to manage the distribution of the
estate of the decedent
ESTATE TAXATION
• Taxation of gratuitous transfer of
properties of the decedent to the heirs
upon the decedent’s death
• It is governed by the law in force at the
time of the decedent’s death
• Estate tax accrues as of the decedent’s
death
• The right of the state to tax the
privilege to transmit the estate vests
instantly upon death.
NATURE OF ESTATE TAXATION
1. Excise Tax – tax on the privilege to
transfer property through death
2. Revenue/General Tax – revenue or
fiscal measure
3. Ad Valorem – dependent on the value
of the estate
4. National Tax
5. Proportional Tax – 6% of the net estate
6. One-time Tax
CLASSIFICATION OF DECEDENTS
Taxpayer Inter-vivos Mortis-
causa
Resident/Citizen Global Global
NRA PH PH
Intangible personal property is nontaxable
for NRA if reciprocity rule applies
ESTATE TAX MODEL
Gross Estate – totality of the properties owned
by the decedent at the point of death
Deductions – reductions in the inheritance of
the heirs
Net taxable Estate – net properties of the
decedent after all pertinent deductions
GROSS ESTATE - Consist of all properties of the
decedent, tangible or intangible, real or
personal, and wherever situated at the point of
death. In case of NRA, gross estate includes only
properties situated in the PH except intangible
personal properties when reciprocity rule
applies.
BUSINESS TAXATION REVIEWER

PROCEDURES IN ESTABLISHING GROSS ESTATE 2. Transfer Legally Excluded – owned by

1. Inventory count of existing properties
at the point of death.
2. Adjustments for exempt transfers and
taxable transfers
decedent at the point of death but
excluded by the law
TRANSFER OF PROPERTY NOT OWNED BY THE
DECEDENT

Inventory of Properties – Fair values at the 1. Merger of the usufruct in the owner of
point of death the naked title.
2. The transmission or delivery of the
If the inventory was prepared as of a later date
inheritance or legacy by the fiduciary
after the decedent’s death, the inventory must
heir or legatee to the fideicommissary.
be worked back to establish the list of
3. The transmission from the first heir,
properties present at the point of death.
legatee, or donee, in favor of another
NOTE beneficiary, in accordance with the
desire of the predecessor.
1. Income before death form a part of 4. Proceeds of irrevocable life insurance
gross estate policy payable to beneficiary other than
2. Income accruing after death must be the estate, executor or administrator.
excluded Beneficiary Designation
3. Expenses/Obligations which were paid Revocable Irrevocable
since death must be add back since Estate, Include Include
these were present at the point of Administrator,
death Executor
Other Parties Include Exclude
GROSS ESTATE FORMULA
No Designation – presumed Revocable
Inventory of Properties XXX,XXX
LESS: 5. Properties held in trust by the
EXEMPT TRANSFERS decedent.
PROPERTY XXX,XXX 6. Separate properties of the surviving
NOT spouse of the decedent
OWNED 7. Transfer by way of a bona fide sales.
PROPERTY XXX,XXX (XXX,XXX)
OWNED LEGAL EXCLUSIONS
BUT
1. Proceeds of group insurance taken out by a
EXCLUDED
company for its employees.
BY LAW
2. Proceeds of GSIS policy or benefits from GSIS.
Inventory of Taxable Present XXX,XXX
Properties 3. Accrual from SSS.
ADD: Taxable Transfers XXX,XXX 4. United States Veterans Administration
GROSS ESTATE XXX,XXX (USVA) benefits R.A 136.
5. War damage payments.
6. All bequest, devises, legacies of transfers to
EXCLUSION IN GROSS ESTATE social welfare, cultural, and charitable
1. Transfer of Properties not owned by the institutions, no part of net income of which
decedent inures to the benefit of any individual;
BUSINESS TAXATION REVIEWER
provided, however, that not more than 30% of
the said bequest, devises, legacies or
transfers shall be used by such institutions for
administration purposes.
7. Acquisitions and/or transfers expressly
declared as non-taxable by law.
8. Bank deposits withdrawn from the decedent
account during the settlement of the
estate.
- The TRAIN law allows unlimited withdrawal
from the decedent’s bank account
requires bank with knowledge of the decedent’s
death to withhold 6% final
withholding tax upon withdrawal if made one
year from the decedent’s death (RR 8-
2019).
TAXABLE TRANSFERS – are mortis causa
transfers of properties in the guise and form or
inter-vivo transfers, inclusion in gross estate.
1. Transfer in contemplation of death
2. Revocable Transfers, including
conditional transfers – transfer of
possession over property during the
lifetime of decedent but not ownership
of the said property
3. Property passing under general power
of appointment – included in the gross
estate
PRESENTATION OF GROSS ESTATE IN THE
ESTATE TAX RETURN:
In reporting gross estate under BIR Form 1801,
the composition of the gross estate shall
be classified as:
1. Real properties – all immovable properties of
the decedent, excluding family home.
2. Family Home
3. Personal properties – all movable properties
of the decedent, except rights or interest
in any business.
4. Business interests.
VALUATION OF GROSS ESTATE
• Properties shall be appraised at their
FAIR VALUE at the point of death
VALUATION RULES:
1. The fair value of the property as
of the time of death shall be the
value to include in gross estate.
2. Fair value rules set by law or
revenue regulations must be
followed.
3. In default of such fair values,
reference may be made to fair
value rules under GAAP.
4. Encumbrances on the property
or decrease in value thereof
after death shall be ignored.
For the following assets
Real Properties – whichever is higher between
the zonal value (valuation by commission of
internal revenue) vs assess value (local
assessor)
Stocks
a. Preferred Stocks – Par value
b. Unlisted Common Stocks –
Book Value
c. Listed in stock Exchange – mean
of the Fair market value at the
time of death
Usufruct and Annuities – fair value amount is
included in the gross estate
Other Properties – Fair value
Taxable Transfers
a. Without consideration – fair
value at the time of death
included in gross estate
b. With consideration – Fair value
at the point of death less
consideration paid at the date
of transfer.
BUSINESS TAXATION REVIEWER

GROSS ESTATE OF MARRIED DECEDENTS

- The gross estate of a married decedent
APPLICABALE PROPERTY REGIME IN DEFAULT
is composed of (a) decedent’s exclusive
OF AGREEMENT
properties and (b) common properties
of the spouses. Before August 3, 1998 – Conjugal Property of
COMMON TYPES OF PROPERTIES REGIME Gains
1. Absolute Separation of Property (ASP) – all August 3, 1998 onwards – Absolute Community
properties of the spouses are separate of Property
properties except those properties which they
may acquire jointly
2. Conjugal Partnership of Gains (CGP) – all
properties that accrue as a fruit of their
individual/joint labor or fruits of their
properties during the marriage will be common
properties of the spouses
Classification
Properties before Marriage EXCLUSIVE
Properties Derived During M.
Fruits/Income/Gains COMMON
Gratuitous Acquisitions EXCLUSIVE

3. Absolute Community of Property (ACoP) –

present properties owned by the spouses at the
date of celebration of the marriage shall be
common properties of the spouses
a. Retrospective Feature – properties owned
before marriage become common properties
Exceptions – Properties of the spouse with
descendants in a prior marriage, Properties for
exclusive use for personal use of either spouse
except jewelry
b. Prospective Feature – properties acquire
during marriage are common properties
Exceptions – gratuitous acquisition received by
either spouse, fruits of exclusive property
DATE OF MARRAIGE
All Properties Are All Properties Are
common common
Exceptions Exceptions
Properties of spouse Gratuitous
with descendants in Acquisitions
a prior marriage Fruits of Exclusive
Properties
Properties of personal exclusive use of either
spouse, except jewelry