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Transfer refers to any transmission of property from one person to another
A person maybe natural(individuals) or a juridical person (corporaon, partnership or joint venture)

Types of Transfers:
1. Bilateral – transmission of property for a consideraon (referred to as onerous transacon or exchanges:
Ex: Sales – exchange for money
Barter – exchange of property for another property

Tax Rules on Sales and Barters If the seller is

Business Not Business
This is subject to
Consideraon P 1,000 Business tax No tax
Less: Cost of property given (600)
Realized gain P 400 Income tax Income tax

2. Unilateral – transmission of property without consideraon (referred to as gratuitous or simply, transfers).

The right or privilege to transfer Is subject to “transfer tax”.
Types of Unilateral Transfers
a. Donaon – gratuitous transfer of property from living donor to a donee.(donaon Inter vivos)
b. Succession – transfer of property of a deceased person upon his death to his heirs. The
decedent’s properes transfer to his successors either by operaon of the law or by virtue of a
wrien will. Transfer is caused by the death of the original owners, hence, this is called
donaon mors causa.

Comparison between Inter Vivos and Mors Causa transfer

Inter Vivos Mors Causa
Transferor Living donor Decedent
Nature Voluntary Involuntray
Reason Gratuity Death
Scope of transfer of property Only properes All properes of the
selected by donor decedent at death
Property given Gif Estate
Transferee Donee Heir
Transfer Tax Donor’s tax Estate tax
Timing of valuaon of donaon Date of Donaon Date of death

3. Complex – transfers for less than full and adequate consideraon. These are sales made at prices which are
signicantly lower than the Fair Value of the property sold.
Tax rules:
a. Adequate consideraon: Deemed pure exchanges and are subject to income tax, not to transfer tax
b. Less than full and adequate consideraon: transacon is split into two components, transfer element
and exchange element
Illustraon:
Fair Value P 50,000 This is subject to
Gratuity(indirect donaon) 20,000 Transfer tax Transfer element
Consideraon(SP) 30,000
Less: Cost or tax basis 10,000
Realized Gain 20,000 Income tax Exchange element

The transfer element is generally considered as an inter vivos donaon, but it is a donaon mors
causa if:
a. sale is made in contemplaon of death of the seller
b. the tle to the property is agreed to be transferred upon the death of the seller

RATIONALE of Transfer Taxaon

1. Tax evasion or minimizaon theory – exchanged may be intenonally priced to evade or minimize taxes, to
avoid this loophole, the gratuity is subject to tax.
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2. Tax recoupment theory – Even without deliberate intent to evade income tax, transfers have a natural
eect of decreasing future income tax collecons of the govt.
Illustraon:
Mr. A owns a P10M property, earning a 10% annual income(subject to RIT) or P1M yearly income.
He divided the enre properes to his 5 children. Each child received P5M property and each child earns a
roughly P200,000 yearly income.

Note that the split of the properes will result to lesser tax collecon by the govt. BECAUSE of the
progressive tax imposed upon individuals. To recoup on future losses in income taxes caused by transfers,
the gov’t. taxes the transfer of the properes.

3. Tax Benet Theory – this is the most dominant raonalizaon of transfer taxaon.
When a person transfers property by donaon or succession, the gov’t. is a party in the orderly transfer of
property to the done or heir. This is made possible by government laws which enforce or eectuate
donaon and succession.

4. The State Partnership Theory - The govt. is an indirect partner behind all forms of wealth accumulaon.
Since the government ensures a civilized and orderly society where wealth accumulaon and commercial
undertaking, the govt, should take its fair share by taxing the transfer of the wealth to other persons .

5. Wealth Redistribuon Theory – equitable distribuon of wealth is widely accepted as an element of social
progress and stability. Taxaon is a common tool in redistribung wealth to society.

6. Ability to pay Theory – The ability to transfer property is an indicaon of an ability to pay tax.
Comparison of two types of transfer tax
Donor’s Tax Estate Tax
Subject transfer Inter-vivos Mors Causa
Nature Annual One me tax
Taxpayer Donor Decedent
Who actually pay Donor himself Executor, administrator or heirs in behalf
the tax of the decedent

Nature of Transfer taxes

1. Privilege tax – Imposed because the transferor (donor or decedent) is exercising a privilege in the form of
assistance rendered by the government in eecng the transfer of properes.
2. Ad valorem tax – the amount of tax is dependent on the value of the properes transferred, thus,
valuaon of property transferred is needed in order to determine the tax liability.
3. Proporonal tax – under the TRAIN LAW, , transfer tax is at at rate of 6% of net estate or gif.
4. Naonal tax – levied by the naonal government, LGUs are pre-cluded from imposing the same.
5. Direct tax – it cannot be shifed
6. Fiscal tax – this is in support of the government

Classicaon of Transfer Taxpayers and their extent of Taxaon

1. Resident OR Cizens – taxable on global transfers of properes
2. Non-Resident Aliens - taxable on Philippine transfers of property
The cizenship of juridical persons is determined by incorporaon tests.
Corporaons are not subject to Estate Tax, only on donors tax

Situs of Taxaon:
Transfer occur in the locaon of the property.
In mors causa, properes are transferred at the place they are located at the point of death of the decedent, not
the place of decedent’s death.
Likewise, properes transferred inter-vivos in the place where they are located at the date of donaon, not in the
place the donor executed the deed of donaon.

General Rule in Transfer Taxaon

Taxpayer Inter-vivos Mors causa
Resident or Cizen Global donaon Global Estate
Non-resident Philippine donaon Philippine Estate
Estate - properes of decedent at the point of death
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Properes Located in the Philippines:

1. Interest in a domesc business
a. Shares, obligaons, or bonds issued by any corporaon or sociedad anonima organized or
constuted in the Philippines in accordance with its law.
b. Shares or rights in nay partnership, business or industry established in the Philippines
2. Foreign securies, under certain condions
a. Shares, obligaons, or bonds issued by any foreign corporaon 85% of the business of which is
located in the Phils.
b. Shares, obligaons, or bonds issued by any foreign corporaon if such share, obligaons, or bonds
have acquired business situ in the Phils.
3. Franchise exercisable in the Philippines
4. Any personal property, whether tangible or intangible, located in the Philippines.

Reciprocity rule on Non-resident Aliens

The intangible personal properes of non-resident aliens are exempt from Philippines transfer taxes provided that
the country in which such alien is a cizen also exempts the intangible personal properes of a Filipino non-
residents thein from transfer taxes.

Classifying Donaon as Inter-vivos or Mors causa

If Gratuitous transfer of ownership occurs Type of Transfer
During lifeme of the transferor Inter-vivos
Upon death of Decedent Mors causa
Donaon inter-vivos are valued at the date of donaon
Donaon Mors causa are valued at the date of death of the decedent

Exceponal rules on the transfers Inter-vivos Mors causa

Transfer in contemplaon of death No Yes
Transfer intended to take eect at death No Yes
Incomplete transfer Yes Yes

Transfer in contemplaon of death

A donaon that is inspired or movated by the thought of death of the decedent is a donaon mors causa, if
inspired by the moves associated with life, it is a donaon inter-vivos. The move of inter vivos transfer is very
important in determining whether it is actually an inter vivos or a mors causa transfer. The donor’s move is
established out of the wordings of the deed of donaon prepared by the donor to eect the donaon. The
evaluaon of the decedent’s move is done in parcular when the decedent made a donaon just several months
prior to his death and had a severe illness, suering from crical injury, or of too advanced age.
Moves associated with life:
1. To reward services rendered
2. To relieve the donor of the burden of management of the property
3. To save on income tax
4. To see children nancially independent
5. To see children enjoy property while decedents sll lives
6. To sele family disputes.

Transfer intended to take eect upon death

A donaon that is made on the decedent’s last will and testament is a donaon mors causa.. the last will and
testament is a document on how the decedent desire his properes will be distributed.
Incomplete transfer
This involves the transmission or delivery of properes from one person to another, but ownership is not
transferred at the point of delivery. The actual transfer of ownership will take eect in the future upon the
happening of certain future event or sasfacon of certain condions. These transfers are subject to tax in the
future when the actual transfer of ownership occurs.
Types of incomplete transfer and how are they completed
1. Condional Transfer
a. Fulllment of the condion by the transferee or
b. Waiver of the condion by the transferor
2. Revocable Transfer
a. Waiver by the transferor to exercise his right of revocaon
b. The lapse of his reserved right to revoke
3. Transfer with reservaon of tle to property unl death – completed upon the death of the decedent