Transfer Taxes:

Donor’s Taxation
Allan Marquez, CPA
Lecturer
Review on Estate Tax

 Definition Transfer Tax and Kinds of Transfer

 Definition of Estate Tax, Succession, Kinds of Succession and Elements of Succession
 Purpose and Justification of Estate Tax
 Classification of Decedent
 Items Included in Gross Estate
 Intangibles with situs in the Philippines
 Reciprocity Clause Exempting Intangibles with Situs in the Philippines
Review on Estate Tax

 Other Items Included in Gross Estate

 Decedent Interest at a Specific Property
 Transfer in Contemplation of Death
 Revocable Transfer
 Transfer Under General Power of Appointment
 Transfer for Insufficient Considerations
 Proceeds of Life Insurance
 Property Relation between Husband and Wife and Treatment of Properties
 Valuation of Gross Estate
Review on Estate Tax

 Exempt Transfer or Transmission

 Merger of usufruct in the owner of the naked title
 Transmission of delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicomissry
 Transfer from the first heir to the second heir in accordance with the desire of the
predecessor
 All bequest, devises, legacies or transfers to social welfare, cultural and charitable
institution, no part of net income of which inure to the benefit of any individual;
provided, however, that not more than 30% of the said bequest, devises, legacies or
transfers shall be used by such institutions for administration purposes
Review on Estate Tax

 Exclusion in the Gross Estate

 Deductions of Gross Estate
Review on Estate Tax

 Rules for estate tax credit

 Computation of net estate tax and estate tax due
 Tax return preparation, filling and compliance requirements
Learning Objectives

 Describes the principles, nature and concepts involving donor’s tax

 Understand the requisites of donation
 Understand purposes of taxing donations
 Distinguished the classifications of donation
 Identify and analyze the composition and valuation of gross donation
 Familiarize with the allowable deductions from gross donation
 Familiarize donations exempt by special laws
 Compute tax due considering tax credits, if applicable
 Prepare and file tax return
 Familiarize of the compliance requirements
DONOR’S TAX

 Donor’s tax is 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. 
 It is a direct tax because the tax is imposed on the donor and determined with
reference to all the donor’s gift.
 It is an excise tax as tax is imposed to the right of the transmitting the property
from the donor to donee.
DONATION

 It is an act of liberality whereby a living person disposed gratuitously a thing or a

right in favor of another living person, who accepts it.
 It is a gratuitous transfer inter vivos which includes (for tax purposes):
 Any transfer in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible (applying SEC 98
of NIRC)
 The difference between FMV and the consideration received when the property
is transferred for less than an adequate or full consideration is deemed a
donation (applying SEC 100 of NIRC)
 Condonation or remission of debt, where the creditor merely desires to benefit a
debtor and without any consideration therefore cancels the debt.
PARTIES TO A DONOR’S TAX

 Donor - the person, either individual or corporation who disposes his property or
right.
o Citizens or residents
o Non-resident alien or nonresident foreign corporation
 Donee - the person who received the property or right.
REQUISITES OR ELEMENTS OF DONATION

Capacity of the Donor

• Donor must be capable of disposing the object of the donation and must not
be prohibited or disqualified by law from making such donation. The donee,
unlike the donor need not be capacitated.
Example
SOCIAL DISTANCING owns an agricultural lot which transacts illegal activity. It was under
investigation by the NBI. The court order to freeze all his property. SOCIAL DISTANCING abruptly
asked his lawyer to transfer gratuitously all other property to his son in the US. Does the donor
have the capacity to donate?
 
Ans: No, he was disqualified by law.
REQUISITES OR ELEMENTS OF DONATION

Donative Intent
 It is the conscious desire to make a gift.
 This requisite must be present to direct gift but with respect to indirect gift such as transfer
of property for less than an adequate or full consideration, donative intent is superfluous.

Example
CORO NA owns a commercial building. A group of people come and forced her to gratuitously
transfer the right to use for free the commercial building. Out of fear, he agreed to contract. Is there
a donative intent by the donor?

Ans: No, he was forced to agree.

REQUISITES OR ELEMENTS OF DONATION

Delivery, whether actual or constructive, of the subject gift

 Delivery of the property from donor to donee constitute the COMPLETION of
the donation wherein donor’s tax applies.

Example
ALCO HOL is the godfather to the couple, FACE SHIELD and FACE MASK. He donated a house and lot
to the couple. During the wedding he gave the key of the house. Is there a delivery?

Ans: Yes, the key serves as the actual delivery of the object of donation.
Hence, the donation is completed
REQUISITES OR ELEMENTS OF DONATION

Acceptance by the donee

 Acceptance of the donee of the property constitutes the PERFECTION of the
donation.
 Required only in direct donation but not with indirect donation as in the case
of transfer with insufficient consideration.
Example
WORKFROM HOME delivered a brand new computer set to ON LINE. ON LINE right away get the
computer from the delivery man and set it up in his room without signing the delivery receipt. Is
there an acceptance by the donee?
Ans: Yes.
REQUISITES OR ELEMENTS OF DONATION

A gift that is incomplete because of reserved powers becomes complete when either:
• Donor renounces the power, or
• The donor’s right to exercise the power ceases because of the happening of some
event or contingency or fulfillment of some condition, other that death of donor.
MODE OF EXECUTION OF DONATION

 Real or Immovable Property

- Regardless of amount, it must be made in a public document (Deed of Donation)
specifying the property donated and the value of the charges which the donee must
satisfy. If not complied, donation shall be deemed VOID.

 Personal Property
 Tangible
- P5,000 or below in value – oral or writing
- More than P5,000 in value – donation and acceptance should be in writing (for
validity)
 Intangible
- execution of public documents
PURPOSES OF DONOR’S TAXATION

 To supplement estate tax by preventing their avoidance through the taxation of gifts
inter vivos.
 To prevent or compensate for the loss of the progressive rates of income tax when
large estates are split up by gifts to numerous donees.
COMPOSITION OF GROSS GIFT

Gross gift includes all gift or donations made during the calendar year.
Property Citizen or Resident Alien Non-resident Alien
Real Property ALL wherever situated (within ONLY property situated in the Philippines
and outside Philippines)
Personal ALL wherever situated (within Tangible property
Property and outside Philippines) o Only property situated in the Philippines
Intangible Property
o Property with a SITUS in the Philippines, unless
exempted on the basis of reciprocity.

 The rules under estate for the valuation of properties (including the situs of intangibles) are the same with donor’s
taxation.
 However, under Section 100 of the NIRC transfer for insufficient consideration will ONLY be part of the gross gift if
what was transferred is a MOVABLE PROPERTY.
 EXEMPTION ON RECIPROCITY

 The foreign country of the nonresident alien does not impose donor’s tax.
 The foreign country of the non-resident alien to which he or she is a resident
allows the same exemption for intangible properties for non-residents.
COMPOSITION OF GROSS GIFT

LALABAN PA donated all his properties to his relatives in the Philippines.

• Property A in Cebu to MAY PAGASA 1,000,000
• Property B in Australia to BABANGON TAYO 1,500,000
• Total 2,500,000
• Requirements:
• How much is the gross estate if LALAPAN PA is resident?
• How much is the gross estate if LALAPAN PA is nonresident alien without reciprocity
clause?
• How much is the gross estate if LALAPAN PA is nonresident alien with the
reciprocity clause?
TAX TREATMENT OF TRANSFERS
TRANSACTION
Sale, Exchange, or Transfer of Property for Less Than Adequate or Full Consideration
General Rule
Under Section 100 of the NIRC, the amount by which the FMV of the property
transferred exceeded the value of the consideration received shall be deemed gift. The
extent of the consideration received will be treated as sale or transfer as long as it is
not an invalid transaction.
TAX TREATMENT OF TRANSFERS
TRANSACTION
Sale, Exchange, or Transfer of Property for Less Than Adequate or Full Consideration
Exceptions
o Real properties classified as a capital asset (not used in business) even sold for less than adequate
or full consideration are still is exception to the general rule as they were already subjected to
Capital Gains Tax.
o Transfers that are governed by estate tax rather than of donor’s tax.
- Revocable transfer
- Transfers with reservation to the income of the property after death
- Transfer with reservation to the right to the possession or enjoyment of the property until
death.
- Transfer in contemplation of death
TAX TREATMENT OF TRANSFERS
TRANSACTION
Sale, Exchange, or Transfer of Property for Less Than Adequate or Full Consideration

Example
STAY POSITIVE has a brand new car worth P1,000,000. His nephew really like the car but has
only 250,000. The FMV at the time the STAY’s nephew accept the car was 900,000. For tax
purposes, how will you treat the sales?

Ans: The sale is for an inadequate consideration and is partly a donation. Hence, the excess
of consideration received from the FMV at the tome the sale for inadequate consideration
was completed amounting to 650,000 (900K – 250K) would form part of the gross gift.
TAX TREATMENT OF TRANSFERS
TRANSACTION
Condonation or Remission of Debt
 However, real property considered capital assets under the Tax Code are excepted
from this rule. (Sec 100 in relation to Sec 24(d))
 Under Section 24(d), the fair market value itself, if higher than the gross selling price,
is the base for computing the capital gains tax imposed upon the sale of such capital
asset.
TAX TREATMENT OF TRANSFERS
TRANSACTION
Condonation or Remission of Debt

Example
CO VID has an outstanding receivable from CORO NA amounting to P100,000. CORO
NA is in financial crisis. CO VID condone half of the receivables to lessen CORO NA’s
financial burden. It the are gift subject to donor’s tax?

Ans: Yes. The gift is amount condone by CO VID amounting to P50,000 which is half
the outstanding receivables since it is purely condone and there is no condition.
TAX TREATMENT OF TRANSFERS
TRANSACTION
Renunciation of Heirs to the Inheritance
 General renunciation of inheritance in favor of co-heirs is NOT subject to donor’s
tax
 Specific renunciation is favor of a co-heir to the exclusion of others, shall be
subject to donor’s tax.
TAX TREATMENT OF TRANSFERS
TRANSACTION
Renunciation of Heirs to the Inheritance
Example
SUKO NAKO is the father of KAYAPA, LABANPA and DISUSUKO. SUKO NAKO died leaving his
estate to his heirs. DISUSUKO, who is rich among the three siblings waive his right to the
estate and let be divided to his remaining siblings. Is the renunciation subject to donor’s
tax?

Ans: No, it is a general renunciation because DISUSUKO did not named any of his siblings
to benefit the renunciation. Hence, the estate will just be divided accordingly without
DISUSUKO.
TAX TREATMENT OF TRANSFERS
TRANSACTION
Renunciation of Heirs to the Inheritance
Example
SUKO NAKO is the father of KAYAPA, LABANPA and DISUSUKO. SUKO NAKO died leaving his
estate to his heirs. DISUSUKO, who is rich among the three siblings renounce his right to
the estate and give it to KAYAPA his close brother. Is the renunciation subject to donor’s
tax?

Ans: Yes, it is a specific renunciation because DISUSUKO named KAYAPA to enjoy his
share to the inheritance.
TAX TREATMENT OF TRANSFERS
TRANSACTION
 Renunciation of a Surviving Spouse of His or Her Share in the Conjugal Partnership
of Absolute Community after Dissolution of Marriage
 Whether made in favor of the heirs of the deceased spouse or in favor of a third
person, the same is subject to donor’s tax.

 Transfer or Contribution to Candidates of Political Party or Coalition

 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; hence,
this is NOT subject to donor’s tax (report to Comelec).]
VOID DONATION

Void donations are not binding contract; hence, not subject donor’s tax.
 Transfer between husband and wife, even if the relationship has not been solemnized. It
is because husband and wife have common ownership of their property and they cannot
donate a thing to person who already owns it.
 Transfer between persons guilty of adultery or concubinage. It is because the donor does
not have the capacity to transfer due to the immoral act
 Transfer between those guilty of the same criminal offenses. It is because the donor does
not have the capacity to transfer due to its immoral act.
 Transfer between those made to a public officer or his wife, descendants, or ascendants
by reason of his office. It is because of the conflict interest.
VALUATION OF GROSS GIFT

As a general rule, the property donated shall be valued based on their FAIR MARKET VALUE at the
time completion of donation (time the gift was accepted by the donee).
Property Valuation
Real Property  Fair market value between ZONAL VALUE (as per commissioner) or ASSESED
VALUE (shown in the schedule of values fixed by the provincial and city assessors)
WHICHEVER IS HIGHER.
 If there is no zonal value, the taxable base is the FMV that appears in the latest
tax declaration.
Personal Whether tangible or intangible, appraised at FAIR MARKERT VALUE
Property
 If traded in the stock exchange, FMV shall be the mean between the highest and
the lowest quoted selling prices of the securities at valuation date
 If not traded, FMV shall depend on whether the stocks is common (BV on
valuation date or the nearest date) or preferred (par value)
ALLOWABLE DEDUCTION FROM GROSS
GIFT

Encumbrances on the property

 Encumbrances are liens, claims or liability against a property.
 It represents some right or claim of another to a portion of the property.
ALLOWABLE DEDUCTION FROM GROSS
GIFT

Encumbrances on the property

Example
CHEER UP buy a new car and enter a loan agreement with the bank. After 2 years, he decided to give
the car to his son, HAPPY LANG. At the it was given, the car has a FMV of 1,500,000 but the loan has
outstanding balance of 600,000. How much is the net gif?

Ans: The net gift is P900,000. The outstanding deduction of 600,000 is allowed deduction to the gross
gift.
FMV of Gift 1,500,000
Balance of Loan 600,000
Net Gift 900,000
ALLOWABLE DEDUCTION FROM GROSS
GIFT

Diminution in the Value of the Property

 It refers to the decrease in the value of the property donated as a result of a condition made by the
donor to the donee.
ALLOWABLE DEDUCTION FROM GROSS
GIFT

Diminution in the Value of the Property

Example
KAYA KOTO donated 500,000 to POSITIVE AKO on condition that the latter will give 60,000 of the total
gift to the COVID Charity. How much is the net gift?

Ans: The net gift is P440,000. The condition is a diminution to the value of the property which is an is
allowed deduction to the gross gift.
FMV of Gift 500,000
Diminution 60,000
Net Gift 440,000
ALLOWABLE DEDUCTION FROM GROSS
GIFT

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
Requisites
o The donor is engaged in business
o Donee is any in the above.
o Donor must give notice to the RDO on every donation worth at least 50,000
o The notice must be given within 30 days from the issuance by the donee of the
Certificate of Donation.
o The Certificate of Donation must be attached to the notice
ALLOWABLE DEDUCTION FROM GROSS
GIFT
Gifts in favor of educational, charitable, religious, cultural or social welfare corporation,
institutions, foundations, trust or philanthropic organization, research institution or organization
(NCO). Provided, that no more than 30% of said gifts shall be used by such donee for
administration purposes.

Requisites
o The donor is engaged in business
o Donee is any in the above.
o Donor must give notice to the RDO on every donation worth at least 50,000
o The notice must be given within 30 days from the issuance by the donee of the Certificate of
Donation.
o The Certificate of Donation must be attached to the notice
DONATIONS EXEMPT BY SPECIAL LAWS

 Prizes and awards given to athletes

 International Rice Research Institute
 Ramon Magsaysay Award Foundation
 National Health Insurance (R.A. 7875 – National Health Insurance Act of 1995)
 National Commission on Indigenous People (R.A. 8371 – The Indigenous People Right
Act of 1997)
 Donations in accordance with the R.A. 9003 – Ecological Solid Waste Management Act
of 2000.
 Donations to the Pollution Adjudication Board under R.A. 8749 – The Philippine Clean
Air Act of 1999.
DONATIONS EXEMPT BY SPECIAL LAWS

 Southern Philippines Development Administration

 Philippine American Cultural Foundation
 Integrated Bar of the Philippines
 Development Academy of the Philippines
 National Social Action Council
 Museum of Philippine Costumes
 Aqua-Culture Department of South East Asia Fisheries Development Center of the
Philippines
 Intramuros Administration
 Philippine Inventor’s Commission
RULES FOR DONOR’S TAX CREDIT

 Tax credit on donor’s tax is allowed provided ALL the following are met:
 Donor was a Filipino citizen or resident alien, at time of foreign donation
 Donor’s taxes of any character and description are imposed and paid by to
the authority of a foreign country.
RULES FOR DONOR’S TAX CREDIT

Limitations
 For Donor’s Tax Paid to One Foreign Country
- The tax credit is whichever is lower between:
a. Donor’s tax paid to the foreign country
b. Tax Credit Limit
RULES FOR DONOR’S TAX CREDIT

Face Mask donated to his brother his house and lot in US which cost 5,000,000 but has a
fair market value of P6,000,000 at the time of donation. He paid 300,000 donor’s tax to US
authority. The total net taxable gift of Face Mask amounted to 60,000,000. How much is the
allowed tax credit?

Ans: The allowed tax credit is 300,000 which is LOWER.

Donor’s Tax Paid 300,000
Credit Limit (6M/60M * 3.6M) 360,000
(60,000,000 * 6% = 3,600,000)
RULES FOR DONOR’S TAX CREDIT

Limitations
 For Donor’s Tax Paid to More than One Foreign Country
- The credit shall be that which is the lower amount between Limit A and Limit B
• Limit A: Whichever is lower between (computed per country)
a. Donor’s tax paid to a foreign country
b. Tax Credit Limit

• Limit B: Whichever is lower between

a. Total of estate taxes paid to all foreign countries
b. Tax Credit Limit
RULES FOR DONOR’S TAX CREDIT
RULES FOR DONOR’S TAX CREDIT
COMPUTATION OF NET GIFT AND
DONOR’S TAX

 Net gift is the net economic benefits from the transfer that accrues to the donee
at the time of donation.
 The donor’s tax for each calendar year shall be 6% computed on the basis of the
total net gifts in excess of P250,000 exempt gift made during the calendar year
 TRAIN law amended previous donor’s tax rate where in there is a separate
treatment of tax rates for donation made to relatives (progressive rates from 2%
to 15%) and strangers (30% final tax).
 The tax shall not apply until there is a completed gift.
 Computation is on a cumulative basis over one calendar year.
COMPUTATION OF NET GIFT AND
DONOR’S TAX
COMPUTATION OF NET GIFT AND
DONOR’S TAX
COMPUTATION OF NET GIFT AND
DONOR’S TAX
COMPUTATION OF NET GIFT AND
DONOR’S TAX
TAX RETURN PREPRATION, FILLING AND
COMPLIANCE REQUIREMENTS

When Filling of Tax Return Required

 The donor’s tax return is filed and paid within 30 days after the date the gift is
made (payment of tax shall be made upon filling of the return).
 Donation is completed (for tax purposes) at the time the donee accept the
donation from the donor.
 Notice of donation BIR is not required, the donor wishes to claim deduction or
exemption from tax on donation made to donee under Sec 101 A3 and Sec
101 B2.
TAX RETURN PREPRATION, RILLING AND
COMPLIANCE REQUIREMENTS
 Where to File Donor’s Tax Return
 Resident
o Accredited Agent Bank (AAB)
o Revenue District Officer
o Revenue Collection Officer
o Duly authorized Treasurer of the City of Municipality where the donor was domiciled at
the time of his donation
 Non-resident
o Philippine Embassy or Consulate in the country where he is domiciled at the time of the
transfer
o Directly with the Office of the Commissioner
TAX RETURN PREPRATION, RILLING AND
COMPLIANCE REQUIREMENTS

Reporting and Filing Requirement

 BIR Form 1800 is used in filling estate tax return.
 A return under oath in duplicate which shall set forth the following:
o Each gift made during the calendar year which is to be included in computing
net gifts
o The deductions claimed and allowable
o Any previous net gifts made during the same calendar year
o The name of the donee; and
o Such further information as may be required by rules and regulations made
pursuant to law
TAX RETURN PREPRATION, RILLING AND
COMPLIANCE REQUIREMENTS

Person Liable to Pay the Tax

 Every person, whether natural or juridical, resident or non-resident, who
transfers or causes to transfer property by gift, whether in trust or otherwise,
whether the gift is direct or indirect and whether the property is real or
personal, tangible or intangible. (Sec 98)
 COMPARISON BETWEEN ESTATE AND
DONOR’S TAX
Topic Estate Tax Donor’s Tax
Mode of Transfer Succession Donation or Gift
Requites or Elements  Death of the decedent  Capacity of the donor
 Heir or Successor  Donative intent
 Estate or Inheritance  Delivery of subject matter
 Acceptance by the donee
Accrual Period Upon the death of the decedent At the time donation is made or
perfected
Tax Rate 6% of net estate 6% of net gift in excess of 250k
Filling and Payment  Within 1 year from death  Within 30 days from donation
 Extension to file not more than 30  Not extension to file
days  No extension for payment
 With extension to pay
QUESTIONS
THANK YOU!