Estate tax

(TRAIN LAW)
C H R I S T O P H E R D E G U Z M A N , C PA , C AT
Donations
1. Donation Inter Vivos – take effect during the lifetime of the donor;
hence subject to donor’s tax.

2. Donation Mortis Causa – take effect at the death of the donor;

hence subject to estate tax.
 Theories on Imposing Estate Tax
1. Benefits – Received Theory –
• Government services as to the distribution of the estate of the decedent;

2. Privilege or State Partnership Theory –

• The State is a silent partner as to the accumulation of property;
• Inheritance is a privilege; it acquired by another thru the protection of the State;

3. Ability to Pay Theory –

◦ The heirs and the beneficiaries must pay the tax;

4. Redistribution of Wealth Theory –

◦ The tax reduces the property received by the successor.
Rate of Estate Tax (Sec. 84)
•The tax rate is 6% of the net estate in excess of P
5,000,000;

•Whether resident or non – resident decedent;

 Gross Estate Inclusions (Sec. 85)
The value of the all property, real or personal, tangible
or intangible, at the time of death of the decedent;
◦ Wherever situated except for;
◦ Non – resident, non – citizen decedent (meaning,
nonresident alien) – within the Philippines only; for
intangible property, it is subject to reciprocity agreement.
Provided…
That amounts withdrawn from the deposit accounts of a
decedent subjected to the 6% final withholding tax imposed
under Sec. 97 of the NIRC, shall be excluded from the gross
estate for purposes of computing tax.
Situs of Gross Estate
Decedent

Filipino Citizen or
Non-resident alien
Resident Alien

With reciprocity
Without reciprocity All properties within
the Philippines EXCEPT All properties within
(All properties within and without
intangible personal
the Philippines only)
property within the
Philippines
 Filipino Citizens/resident Non- resident alien
alien
Real property Wherever situated Within the Philippines
only
Personal property Without reciprocity
Tangible Wherever situated Within-YES
Intangible Wherever situated Within-yes (Sec. 104)
WITH RECIPROCITY
Real property – within
Personal property
Tangible - YES – within
Intangible – None
 Intangible Personal Property Situated in the Philippines
(Sec. 104)

◦ Franchise which must be exercised in the Philippines;

◦ Shares, obligations, or bonds issued by any corporation or sociedad
anima organized or constituted in the Philippines in accordance with
its law;
◦ Shares, obligations, or bonds by any foreign corporation 85% of the
business of which is located in the Philippines;
◦ Shares, obligations, or bonds have acquired a business situs in the
Philippines;
◦ Shares or rights in any partnership, business, or industry established in
the Philippines.
 Reciprocity Agreement When –

1. If the decedent at the time of his death was a citizen and resident of
foreign country which at the time of his death did not impose an estate
tax of any character, in respect of intangible personal property of
citizens of the Philippines not residing in that foreign country, or
2. If the laws of the foreign country of which the decedent was a citizen
and resident at the time of his death 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. (Sec. 104 of the Tax Code)
 Gross Estate Inclusion(Sec. 85)
Decedent’s interest
◦ All interest at the time of decedent’s death;
 Gross Estate Inclusion(Sec. 85)
Transfer in contemplation of death
◦ Transferred them during the lifetime of the decedent
in anticipation of his death.

◦ “Death must be contemplated, and the thought of

death, as distinguished from purposes associated
with life, must be the impelling cause of the transfer.”
 Gross Estate Inclusion(Sec. 85)
Revocable transfer
◦ Enjoyment of property transferred by decedent is
subject at the date of his death to any change
through the exercise of a power to revoke, alter,
amend, or terminate the transfer.
 Gross Estate Inclusion(Sec. 85)
Property Passing Under General power of appointment
◦ “Means that the decedent must have had a power
exercisable in favor of himself, his estate, or creditors
of his estate.”

◦ Special – decedent appointed only among a restricted

or designated class of persons other than himself, his
estate, his creditors, or creditors of his estate.
 Gross Estate Inclusion(Sec. 85)
Proceeds of life insurance
◦ When the beneficiary is the estate, the decedent’s
executor, or administrator, whether revocable or not;

◦ When the beneficiary is other than those mentioned,

provided the designation is revocable;
 Gross Estate Inclusion(Sec. 85)
Transfer for insufficient consideration
◦ Insufficient when fair market value of the property at
the time of sale or transfer is greater than the
consideration.
◦ Part of the gross estate is the excess of the fair
market value at the time of death over the
consideration;
◦ Except those subject to CGT.
Pedro, decedent, owns a property valued at P 1,500,000 at the time of his death. The
said property was sold by Pedro during his lifetime to Juan for P 700,000 when its
value was P 1,200,000. It was agreed by Pedro and Juan that the former will enjoy the
income of the property as long as he lives. For Philippine estate tax purposes, how
much will be included in determining gross estate?
a. P 500,000 c. P 800,000
b. P 1,200,000 d. P 0

Based on the preceding number, if the fair market value of the property at the time of
death is only P 600,000, how much is the gross estate?
a. P 500,000 c. P 800,000
b. P 1,200,000 d. P 0
Yna died on October 20, 2018. During his lifetime, upon knowing that she
had stage 4 cancer, sold her car to her son for P4M. The fair market value of
the car at the time of sale is P 3,000,000 while it is already valued at P
5,000,000 at the time of death. The amount that will be added to gross estate
is:
a. P 1,000,000 c. P 2,000,000
b. P 5,000,000 d. nil

Based on the preceding number, if the consideration is fictitious, how

much is the gross estate?
a. P 1,000,000 c. P 2,000,000
b. P 5,000,000 d. 0
 Gross Estate Inclusion(Sec. 85)
Capital of the surviving spouse
◦ Excluded as part of the gross estate of the decedent.
Claims against insolvent person
◦ Also as allowable deduction from the gross estate
Property undiminished by unpaid mortgage
RA 4917
 Determination of the value (Sec. 88)
Usufruct
◦ Probable life of the beneficiary based on the latest basic mortality
table, to be approved by the secretary of finance, upon
recommendation of the insurance commissioner.
Properties (Real)
◦ Fair market value at the time of death; the higher between the zonal
value or assessed value.
Properties (Personal)
◦ Fair market value at the time of death.
 Determination of the value (RR 12-2018)

Shares of stock:
◦ Listed – arithmetic mean between the lowest and highest
quotation at a date nearest the date of death;
◦ Unlisted common shares – book value of the share;
◦ Unlisted preference shares – par value of the share;
23. Binat died on April 13, 2018, leaving the following properties:

• Common stock of Chris Corporation, 2,000 shares, listed in the

PSE, highest – P 40; lowest – P 39; (40+39)/2 = 39.50 x 2,000 = 79,000
• Common stocks of Cristina Corporation, 1,500 shares, not listed
in the stock exchange. Cost – P 50 per share; book value – P 45 per
share; 1,500 shares x 45 = 67,500
•Preference shares of Christopher Corp., 3,000 shares, not listed in the
stock exchange. Cost – P 70 per share; book value – P 60 per share; par
value – P 50 per share; 3,000 shares x 50 = 150,000
•Car, cost P 600,000; book value – P 350,000; market value – 400,000
• Real Properties, zonal value – P 120,000; assessed value – P 72,000.

The gross estate of Binat is –

a. P 817,500 c. P 824,000
b. P 816,500 d. P 846,500
24. Nila Langaw, Filipina, died in Cambodia
leaving the following properties:
House and lot in Cambodia 1,000,000
Vacant lot in Manila 2,000,000
Shares of stock in a domestic
Corp., 60% of the business is
Located in the Philippines 100,000
Shares of stock in a foreign
Corp., 70% of the business is
Located in the Philippines 200,000
Car in Manila 500,000

How much is the gross estate?

a. P 3,800,000 c. P 2,500,000
b. P 2,600,000 d. P 2,000,000
25. Based on the preceding number, but
assuming the decedent is a non-resident alien,
the gross estate is:
a. P 3,800,000 c. P 2,500,000
b. P 2,600,000 d. P 2,000,000

26. Continuing number 25, and the rule of

reciprocity applies, the gross estate is:
a. P 3,800,000 c. P 2,500,000
b. P 2,600,000 d. P 2,000,000
Property Relations
1. Conjugal partnership of gains – date of marriage before Aug. 3,
1988 –
• Before the marriage – exclusive properties
• During the marriage – conjugal

2. Absolute Community of Property – date of marriage on or after

Aug. 3, 1988
• Before and during the marriage, all properties of the spouses is
absolute community
Mr. J Chavez died leaving the following properties: Conjugal Partnership of Absolute Community of
Gains Property
Exclusive Conjugal Exclusive Community
Rest house in Cebu, acquired before marriage, P 6M
Income from rest house in Cebu, P 600,000
Condominium in Davao, brough to marriage by wife,
P3.6M;
Income from condominium in Davao, P 360,000, -
Town house in Quezon City, acquired during marriage,
P10.5M –
Income from town house in Quezon City, P 1,050,000 –
Car, inherited by wife during marriage (the decedent
provided in his will that it shall form part of the common
properties of the spouses), P 1.3M.
Jewelry, acquired during marriage for exclusive use of the
wife, P 200,000 –
Questions:
How much is the conjugal properties under CPG?
How much is the gross estate under CPG?
How much is the community properties under ACP?
How much is the gross estate under ACP?
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
1. Standard deduction – P 5,000,000
2. Claims against the estate
◦ Debt instrument is notarized, except loans granted by the
financial institutions.
◦ Executor or administrator to submit statement showing the
disposition of the proceeds of the loan, if it is contracted within 3
years before the death of the decedent.
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
◦ Claims against the estate
◦ Arise out of contract, tort or operation of law;
◦ Personal obligation; contracted in good faith;
◦ Adequate and full consideration;
◦ Valid in law and enforceable in court;
◦ Not condoned; Not prescribed.
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
3. Claims against insolvent person
◦ Part of the gross estate;
4. Unpaid mortgage
◦ Property undiminished of mortgage shall be part of the gross
estate
5. Unpaid taxes EXCEPT (1) Income taxes after death; (2)
Property taxes not accrued before death; (3) estate tax.
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
Requisites for claim against the estate, unpaid mortgage or
indebtedness:
Founded upon promise or agreement;
Contracted bona fide
For adequate and full consideration.
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
6. LOSSES
◦ Incurred during the settlement of the estate; and not later than the
last day of payment of estate tax;
◦ Arises from fire, storm, shipwreck, or other casualties, or from
robbery, theft, or embezzlement;
◦ Not compensated by insurance;
◦ Not claimed as deduction from income tax.
ALLOWABLE DEDUCTIONS (Sec.
86)
If the loan is found to be merely an accommodation loan where the loan
proceeds went to another person , the value of the unpaid loan must be
included as a receivable of the estate.

If there is a legal impediment to recognize the same as receivable of the estate,
said unpaid obligations/mortgage payable shall not be allowed as a deduction
from the gross estate.

In all instances, the mortgaged property, to the extent of the decedent’s
interest therein, should always form part of the gross taxable estate.
Question:
Mr. Pobre is in need of money to start a small business.
However, he has no property to secure a loan from a bank so
he sought the help of his good friend, Mr. Rich. Mr. Rich
obtained a loan from Banco de Oro amounting to P1M pesos
secured by a real property worth P2M to accommodate the
request of Mr. Pobre. If subsequent to securing the loan and
delivering to Mr. Pobre the proceeds, Mr. Rich died, how much
gross estate should be reported?
Question:
The following data were taken from estate of Pedro:

 Claims against Juan (insolvent), P 100,000 fully uncollectible.

 Claims against Manuel (insolvent), P 200,000, 50% collectible, 100,000
 Claims against a person who absconded, P 300,000.

Based on the data provided, how much should be deducted from the
gross estate? 200,000
 ALLOWABLE DEDUCTIONS (sec. 86)
A. FOR CITIZEN OR RESIDENT
7. Vanishing deduction (previously taxed), requisites
◦ Property must be situated In the Philippines;
◦ Part of the gross estate of the prior decedent;
◦ Decedent died within five (5) years prior to his death;
◦ Received as gift, bequest, devise, or inheritance, or acquired in
exchange for property so received;
◦ Donors tax or estate tax has been paid;
◦ Not part of the deduction of the prior decedent;
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
7. Vanishing deduction, deductible rate
◦ Amount equal to the following if the prior decedent died within 1 year
prior to the death of the decedent;
◦ 100%, within 1 year;
◦ 80%, more than 1 year but not more than 2 years;
◦ 60%, more than 2 years but not more than 3 years;
◦ 40%, more than 3 years but not more than 4 years;
◦ 20%, more than 4 years but not more than 5 years;
 ALLOWABLE DEDUCTIONS (sec. 86)
A. FOR CITIZEN OR RESIDENT
7. Formula
Value to take (lower amount) P xxx
Less: Assumed mortgage xxx
Initial basis P xxx
Less: proportionate deduction xxx
Final basis P xxx
X Vanishing deduction rate xxx
Vanishing deduction P xxx
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
7. Formula for proportionate deduction
initial basis/ gross estate x allowable deductions

Allowable deductions include: (1) claims against insolvent person;

(2) claims against the estate; (3) unpaid mortgage or indebtedness;
(4) unpaid taxes; (5) losses; (6) transfer for public use. (LIT + TP_
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
8. Transfer for public use
◦ For government or political subdivisions’ use for public purpose
only.
9. Family home
◦ Equal to Current fair market value of decedent family home;
◦ If more than P 10,000,000, then the excess shall be subject to
estate tax.
 ALLOWABLE DEDUCTIONS (Sec. 86)
A. FOR CITIZEN OR RESIDENT
10. Ra 4917, amount received by heirs from the employer for the
death of the decedent; provided it shall be part of the gross
estate.
11.Share of the surviving spouse
. Mr. Sibillo, a resident decedent, married, died, leaving
the following properties:
 Real and personal properties acquired during the
marriage, P 3M
 House and lot inherited from his father one year
and 3 months before he died (FMV when
inherited, P1.5M) used as the decedent’s family
home, P2M
 Car purchased with cash received as gift from his
mother during the year he died, P 500,000
 Cash (inclusive of P 500,000 received as
inheritance from the father), P 1.5M

The following obligations and expenses were also made

available:
 Claims against conjugal properties, P 600,000;
 Unpaid mortgage on the inherited house and lot
(original mortgage was P 600,000), P 100,000;
Te Pok died on November 20, 2018. Some of the properties he left are
the following:
Mode of Date FMV Initial value to take (800T) 80
Asset Acquisition Acquired Acquired Death Paid mortgage (50
Land Purchase 7-3-14 500,000 350,000 Initial basis 75
Car Donation 10-2-17 800,000 980,000 Proportionate deduction
Other information:
750,000/3,000,000 x 95,000 (23,
a. The gross estate of the decedent, P3M. Final basis 72
b. The car was mortgaged for P50,000 when it was acquiredVanishing rate 80
and Te Pok paid the same before he died. VD 58
c. The allowable deductions totaled P125,000, which includes
medical expenses of P 30,000. It excludes bequest to a charitable
institution in the amount of P 50,000.

The vanishing deduction is:

a. P 581,000 c. P 648,783
b. P 571,000 d. P 637,617
 Family home
A decedent died leaving a family home composed of the
following: Conjugal house worth P 8M, and the land which
he exclusively owned valued at P4M. He also owns a Value of the FH 12
vacation house in Baguio worth P7M.
Deductible – 10M
The deductible amount of family home is:

if the house is also an exclusive property, how much is the

deductible family home?
 Tax Credit (Sec. 86)
• Tax credit – estate tax imposed by foreign authority
◦ Limitation
◦ Allowed tax credit
◦ Foreign net estate/ world net estate x Philippine estate tax

◦ The tax due shall be the lower amount between actual tax
credit and the allowed tax credit
 Tax Credit:
Mr. A, died, resident citizen, leaving the following properties:

◦ Properties – USA 5,000,000

◦ Properties – Philippines 10,000,000
◦ Allowable deductions – USA 500,000
◦ Allowable deductions – Phils 1,000,000
◦ Tax paid in USA 200,000

Tax to be paid?
 ALLOWABLE DEDUCTIONS (Sec. 86)
B. For non resident alien decedent (within the Philippines)
1. Standard deduction – P 500,000
2. Proportionate deduction of claims against the estate, claims
against insolvent person, unpaid mortgage or indebtedness,
unpaid taxes and losses (without VD and TPU).
3. Vanishing deduction
4. Transfer for public use
5. Share of the surviving spouse
 Exemptions (Sec. 87)
The following shall not be taxed:
◦ The merger or usufruct in the owner of the naked title;
◦ The transmission or delivery of the inheritance or legacy by
the fiduciary heir or legatee to the fideicommissary;
◦ The transmission from the first heir, legatee, or donee in
favor of another beneficiary, in accordance with the desire
of the predecessor;
Merger of the Usufruct

Predecessor

Owner of the
Usufructuary
Exempt Naked Title
(A)
(B)
Fideicommissary Substitution
Predecessor
(Decedent) -
LOLO

Fiduciary Heir
(Son – Trustee and
usufructuary)

Fideicommissary (Grandson)
Rightful heir upon reaching the age of majority, owner
of the naked title
Desired by the Predecessor
Predecessor
(Decedent)

First Heir
(Son – Trustee and
usufructuary)

Second Heir (Charity)

Not necessarily a relative, but rightful heir as desired
by predecessor
 Exemptions (Sec. 87)
The following shall not be taxed:
◦ All bequests, devises, legacies, or transfers to social welfare,
cultural, and charitable institutions: provided:
◦ That not more than thirty percent (30%) of the said bequest,
devises, legacies, or transfers shall be used for
administration purposes.
 Exclusion under Special Laws

1. Proceeds of life insurance and benefits received by members of the GSIS (RA 728);
2. Accruals and benefits received by members from SSS by reason of death (RA 1792);
3. Life insurance proceeds on life insurance policy taken out by the decedent for
himself, upon his own life, where the beneficiary is a third person and is
irrevocably designated;
4. Life insurance proceeds on insurance policy (group insurance) taken out by his
employer on the employees life, whoever the beneficiary maybe , whether the
designation as beneficiary is revocable or irrevocable.
5. Amount received from the Philippines and the United States governments for war
damages (RA227);
 Exclusion under Special Laws

6. Payments from the Philippines of US government to the legal heirs of deceased

of World War II Veterans and deceased civilian for supplies/ services furnished
to the US and Philippine Army (RA136);
7. Amount received from United States Veterans Administration;
8. Transfer by way of bona fide sales;
9. Properties held in trust by the decedent;
10. Acquisition and/ or transfer expressly declared as not taxable;
11. Personal Equity and Retirement Account (PERA) assets of the decedent –
contributor (Sec. 14, RA9505 – Personal Equity and Retirement Act of 2008).
 Estate tax returns (Sec. 90)
Requirements
◦ When the gross estate, regardless of the value, consists of registered or
registrable property, motor vehicle, shares of stock or other similar property, a
clearance from the BIR is required to transfer the ownership.
◦ In lieu of this, the executor or administrator, or any of the legal heirs, shall file a
return under oath in duplicate, setting forth:
◦ The value of the gross estate;
◦ Allowable deductions;
◦ Other information necessary to establish the correct taxes.
 Estate Tax Returns (Sec. 90)
Requirements
◦ When the gross estate exceeds P 5,000,000, the return shall be
supported with a statement duly certified to by a certified public
accountant containing the following:
◦ Itemized assets of the decedent;
◦ Itemized deductions;
◦ Tax due whether paid or still outstanding.
 Estate Tax Returns (Sec. 90)
Time for filing
◦ Within 1 year from the decedent’s death;
◦ A certified copy of the schedule of partition and the order of the
court approving the same shall be furnished the commissioner within
thirty (30) days after the promulgation of such order.
 Estate Tax Returns (Sec. 90)
Extension of time
◦ In meritorious cases, a reasonable extension not exceeding thirty
(30) days
Place of filing
◦ Authorized agent bank, Revenue district officer, collection officer, or
duly authorized Treasurer of the city or municipality in which the
decedent was domiciled at the time of his death;
◦ If there be no legal residence in the Philippines, with the office of the
commissioner;
 Payment of Tax (Sec. 91)
Time of payment
◦ Pay as you file system
Extension of time
◦ Applicable it there would be undue hardship upon the estate or any of the
heirs;
◦ Judicial settlement – 5 years;
◦ Extra judicial settlement – 2 years;
◦ Statute of limitations as provided in Sec. 203 is suspended;
 Payment of Tax (Sec. 91)
Extension of time
◦ No extension when there is negligence, intentional disregard of rules
and regulations, or fraud on the part of the taxpayer;
◦ When the extension is granted, a bond must be furnished by the
executor, administrator, or beneficiary;
Payment by installment
◦ Within 2 years from the statutory date for its payment without civil
liability and interest.
 Payment of Tax (Sec. 91)
Liability for payment
◦ The estate tax shall be paid by the executor or administrator before
delivery to any beneficiary of the distributive share of the estate.
◦ The beneficiary to the extent of his distributive share shall be
subsidiary liable.
◦ If there are no executor or administrator, then any person in actual
or constructive possession of any property of the decedent.
Discharge of Executor or Administrator (Sec. 92
)

• After payment of the estate tax due;

• Subject to 3 – year period assessment under sec. 203;
• Certification from the commissioner is necessary before the
judge ordered the distribution of the property (sec. 94)
Duties of Certain Officers and Debtors (Sec. 95)

• Register of deeds shall not register the transfer unless a

certification from the commissioner that the estate tax due
has been paid; also, they have to inform revenue officers of
the non payment of tax discovered by them;
• Lawyer, notary public, or government who intervenes shall
furnish the BIR officers with copies of information which will
facilitate the collection of taxes.
Duties of Certain Officers and Debtors (Sec. 95)

• The debtor of the deceased shall not pay the latter’s heirs,
legatee, executor, or administrator or his creditor unless the
certification has been issued;

• However, he may pay the executor or judicial administrator

without certification if the credit is included in the inventory
of the estate of the deceased.
 Restitution of the Tax Upon Satisfaction (Sec.
96)

• If after the payment of the estate tax, new obligation of the

decedent shall appear, and the person interested shall have
satisfied them by order of the court, they shall have the
right to the restitution of the proportional part of the tax
paid.
 Transfer of shares, bonds or rights (Sec. 97)
• Can only be made after the certification has been issued by
the commissioner;
• The heirs, executor, or administrator are allowed to
withdraw from the decedent’s bank account subject to 6%
withholding tax;
• The withdrawn amount will be excluded from the gross
estate subject to estate tax.
 End of Presentation

References:
• NIRC of the Philippines, as amended: Annotated, 5th edition, 2018; Rodelio Dascil, Rex Printing
Company, Manila.
• Transfer and Business Taxation, 2016-2017 Edition, Valencia and Roxas, Valencia Educational
Supply, Baguio City.
• Transfer and Business Taxation, Tabag and Garcia, 2019 Edition.