DONOR’S TAX

SEC. 98. Imposition of Tax. –

(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the property by gift, a
tax, computed as provided in Section 99.

(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible.
 DONOR’S TAX

- Donor’s tax is one that is imposed on the gratuitous transfer of property by

way of gift inter vivos (during the lifetime of the donor).

- Donation or gift refers to:

a. Direct gift or those transfers without compensation or consideration (with donative

intent) or

b. Indirect gift or those transfers made for less than adequate or full consideration ,
even without donative intent (also called “deemed gift”).

- Donations or gifts that are subject to tax are only those that are complete
and valid . Void,
 Donations that are not subject to donor’s tax:
1. Donations that do not comply with the requirements under the Civil Code, to wit:
a. Capacity of the donor to make donation
b. Donative intent or intent to make a gift on the part of the donor
c. Delivery, whether actual or constructive and
d. Acceptance of the gift by the done

Formal requisites:

1. For movable property - donation may be made orally or in writing. An oral donation requires the simultaneous delivery
of the thing or of the document representing the right donated. If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be made in writing, otherwise, the donation shall be void. (Art. 748,
Civil Code)

2. For Immovable property - t must be made in a public document, specifying therein the property donated and the value
of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate
public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a
separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.
(Art. 749, Civil Code)

2. Donations between husband and wife and unmarried couples.

Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage shall
be void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition
shall also apply to persons living together as husband and wife without a valid marriage” (Art. 87 of the Family Code)

3. Donation of a corporation to a political party or candidate.

Sec. 36[9], BP 68 - A corporation incorporated under the Code has the power and capacity “to make reasonable donations,
including those for the public welare or for hospital, charitable cultural, scientific, civic or similar purposes: Provided, that no
corporation, domestic or foreign, shall give donations in aid of any political party of candidate or for purposes of partisan
political activity.
 Donations that are not subject to donor’s tax:
Continued..

Contribution to political party or candidate for campaign purposes (not by a Corporation)

Under Sec. 99(C) any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes
shall be governed by the Omnibus Election Code (the Election Code, as amended). Under the Omnibus Election Code, such
contributions are not subject to donor’s tax provided that the donor complies with the requirement of filing of returns of
contribution with the COMELEC.
Completed gift
The donor’s tax shall not apply unless and until there is a completed gift. The transfer of property by gift is
perfected from the moment the donor knows of the acceptance by the donee; it is completed by the delivery,
either actually or constructively, of the donated property to the donee. Thus, :

Donor’s tax accrues upon the completion of a gift. If the donated property is destroyed after the delivery of
the gift (the gift is already complete), the donor is still liable to pay the tax (because donor’s tax has already
accrued).

The law in force at the time of the perfection/completion of the donation shall govern the imposition of the
donor’s tax.

Donation arises from a pure act of liberality and when there is no legally demandable obligation on the part
of the donor to give. Illustrations:

1. Juan and Pedro agreed that the latter will raise the former’s 1 year old son, Juanito, until he finishes
college. Juan also agreed that he will donate P1M to Pedro if and when Juanito gets employed in a multi-
national firm. Juanito got employed and Juan gave the P1M to Pedro. What kind of tax will be imposed?

2. Juana and Pedro maintains an illicit relationship. Although, they mutually enjoy each other’s company,
Pedro compensates for Juana’s time by giving her P5,000 everytime they go out. For the entire taxable year,
the total cash that Pedro gave Juana amounted to P1M. What kind of tax will be imposed?
Condonation of a debt

The condonation or remission of debt (or cancellation and forgiveness of indebtedness) is

deemed a donation or gift if it arises from the liberality of the creditor, i.e, he merely desires to
benefit a debtor and without any consideration therefor, cancels the debt. However, it may also
amount to a payment of income if it is made as a consideration for something that was given or
provided by the debtor, such as services, etc. If a corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of the payment of a dividend.

Renunciation of share

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage is subject to donor’s tax.

General renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate is not subject to tax, unless specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.

Sec. 50, RR No.02-40 Income Tax Regulations

RR 2-2003
Purpose of Donor’s Tax

The purpose of donor’s tax is to prevent the (valid) avoidance of the following taxes:

1. Estate tax -Taxpayers may opt to donate their property during their lifetime
inorder to avoid paying estate tax.

2. Income tax - Taxpayers may split their income tax base by donating their
property among numerous donees and avoid the progressive rates of income
taxation.
 SITUS OF TRANSFER TAXES

SEC. 104. Definitions. - For purposes of this Title, the terms "gross estate" and "gifts" include real and
personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That
where the decedent or donor was a nonresident alien at the time of his death or donation, as the case
may be, his real and personal property so transferred but which are situated outside the Philippines
shall not be included as part of his "gross estate" or "gross gift":

Provided, further, That

1. franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any
corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws;
2. shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of
which is located in the Philippines;
3. shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines;
4. shares or rights in any partnership, business or industry established in the Philippines, shall be
considered as situated in the Philippines:

Provided, still further, that no tax shall be collected under this Title in respect of intangible personal
property:
(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and
resident of a foreign country which at the time of his death or donation did not impose a transfer tax of
any character, in respect of intangible personal property of citizens of the Philippines not residing in that
foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the
time of his death or donation allows a similar exemption from transfer or death taxes of every character
or description in respect of intangible personal property owned by citizens of the Philippines not residing
in that foreign country.
COMPUTATION OF DONOR’S TAX

SEC. 99. Rates of Tax Payable by Donor. -

(A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in
accordance with the following schedule:

If the net gift is:

OVER BUT NOT OVER THE TAX SHALL BE PLUS OF THE EXCESS OVER

0 P 100,000 Exempt
P 100,000 200,000 0 2% P100,000

200,000 500,000 2,000 4% 200,000

500,000 1,000,000 14,000 6% 500,000

1,000,000 3,000,000 44,000 8% 1,000,000

3,000,000 5,000,000 204,000 10% 3,000,000

5,000,000 10,000,000 404,000 12% 5,000,000

10,000,000 1,004,000 15% 10,000,000

(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger, the tax
payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose of this tax, a "stranger",
is a person who is not a:

(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or

(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.

(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as amended.
Illustration:

First donation on July 13, 2016 is P2M. Donor’s tax is P124,000.

Second donation on November 16, 2016 is P1M. Donor’s tax will be computed as follows:

November 16, 2016 donation – P 2,000,000

Add: July 13, 2016 donation - 1,000,000
Cumulative net gift 3,000,000
Tax due (on 3M) 204,000
Less: tax paid on 07/13/2016 donation 124,000
Tax payable on 11/16/2016 donation 80,000

This method of taxation provides an avenue for tax avoidance through gift splitting, whereby a donor may opt to divide his gift between
two calendar years, instead of giving it in lump sum, to avoid high tax rates (tax rates are progressive) or even to avoid the donor’s tax
entirely.

Example: On December 25, 2009 Juan wants to give Juanita a cash gift in the amount of P200,000. Instead of giving the entire amount in
December 25, he opted to give only P100,000 and the remaining P100,000 on January 1, 2010. He will not be subjected to donor’s tax
because gifts amounting to P100,000 or less are exempt.
 EXEMPTION FROM DONOR’S TAX

SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the tax provided for in
this Chapter:

(A) In the Case of Gifts Made by a Resident. –

(1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to
each of their legitimate, recognized natural, or adopted children to the extent of the first Ten thousand pesos (P10,000):

(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision of the said Government; and

(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided,
however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the
purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment
organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university
and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research
institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no
compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to
the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation.

(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines. -

(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted
for profit, or to any political subdivision of the said Government.

(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation,
trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for administration purposes.
Valuation of Property Donated

SEC. 102. Valuation of Gifts Made in Property. - 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 provisions of Section 88(B) shall apply to the valuation thereof

Valuation of the Gross Estate (Sec. 88)

The properties comprising the gross estate shall be valued based on their fair market value as of the time of death (Sec.
85). This is known as the “date-of-death” valuation principle. Applying this rule to particular classes of properties:

1. Real properties are valued at:

the current FMV as shown in the schededule of values fixed by the Provincial/City Assessors; or
The FMV as determined by the BIR commissioner, whichever is higher. (Sec. 88)

2. Personal properties are reported at:

the acquisition cost for the recently acquired properties, or
The current market price for the previously acquired properties

3. Stocks, bonds, and other securities

If listed in the stock exchange – the value is the mean between the highest and the lowest quoted selling prices
on the date of death or at the date nearest the date of death.
If not listed in the stock exchange:
Common shares at their book value
Preferred shares at their par value

4. Right of usufruct and annuity (use or habitation is unknown in the Philippines) – the probable life of the beneficiary
(the person to whom the usufruct will be passed on) in accordance with the latest Basic Standard Mortality Table should
be taken into account. The table shall be approved by the Secretary of Finance, upon recommendation of the Insurance
Commissioner. (Sec. 88)
Transfer for less than adequate and full consideration
SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other than real property referred to in Section
24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.

In this kind of transfer, the difference between the fair market value of the property donated and the value of the
consideration shall be considered the amount of the donation or gift (that will be included in computing the amount of
gifts during the year to determine the donor’s tax).

• This rule does not apply to real property that are classified as capital assets because the sale of these kinds of
property are subject to capital gains tax.

• Does not apply to sale of shares of stocks classified as capital asset because RR No. 2-82, as amended already provides
that the selling price of the shares of stock shall not be less than the fair market value of the shares of stocks transferred
or exchanged.

Examples:
1. Juan sold his 1 year old car which has a fair market value of 1.5million for only P500,000 to his girlfriend Juana and
executed a deed of sale for such sale transaction. What tax/es and how much shall be paid?

2. Juan sold his house and lot which has a fair market value of 1.5million for only P500,000 to his girlfriend Juana and
executed a deed of sale. What tax/es and how much shall be paid?
Tax Credit

The provisions for tax credits for donor’s taxes are similar to estate taxes, including the
limitations thereto.
Administrative provisions on donor’s tax.

1. A donor’s tax return shall be filed by the donor within 30 days after the gift is made. The return shall be under oath in
duplicate setting forth:
Each gift made during the calendar year which is to be included in computing net gifts;
The deductions claimed and allowable
Any previous net gifts made during the same calendar year
The name of the donee and the relationship of the donor to such donee
Such further information as may be required by rules and regulations made pursuant to law.

2. The tax shall be paid at the time the return is filed. Payment must be made:
For resident donor – to an accredited agent bank, RDO, revenue collection officer or duly authoritized treasurer of the
city or municipality where the donor is domiciled at the time of the transfer.

For non-resident donor – to the Philippine embassy or consulate in the country where he is domiciled at the time of
the transfer or or directly with the Office of the Commissioner.

3. A separate return will be filed for each donation made on the different dates during the year reflecting therein any
previous net gifts made during the same calendar year.

4. If the donation involves conjugal or community property, each spouse will file separate returns corresponding to his/her
respective share in the conjugal/community property. The same rule applies in the case of co-ownership over the property.
(RR 2-2003) , SEC. 13. FILING OF RETURNS AND PAYMENT OF DONOR’S TAX. –

5. Generally, notice of donation is not required (unlike in the case of estate tax where notice of death is always required).
Notice of donation is required only:
In order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified donee
institutions duly accredited by the Philippine Council for NGO Certification, Inc., the donor engaged in business shall
give a notice of donation on every donation worth at least P50,000 to the RDO which has jurisdiction over his place of
business within thirty (30) days after receipt of the qualified donee institution’s duly issued Certificate of Donation,
which shall be attached to the said Notice of Donation, stating that not more than thirty percent (30%) of the said
donation/gifts for the taxable year shall be used by such accredited non-stock, non-profit corporation/NGO institution
(qualified-donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3) and (B)(2) of
the Code.