Tax 2 Midterms

7/28/2019 Tax 2 Midterms

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Taxation 2 Midterms reviewer

Prof. O. Carag

2ndSemester A.Y. 2011-2012

Janz Hanna Ria N. SerranoPart I. Estate and Donors Tax

ESTATE TAX

I. Basic Principles of Estate Tax

A. Estate Tax Defined

Estate Tax is the tax on the right to transmit property at death and on certain transfers which are made by the statute the equivalent of

testamentary dispositions, and is measured by the value of property at the time of death.

B.

Nature and Purpose of Estate Tax

(1) Estate tax is not a direct tax on property. Neither is it a capitation tax; that is the tax is laid neither on the property nor on the transferor or the

transferee. in other words, it is an excise or privilege tax.

(2) The object of estate tax is to tax the shifting of economic benefits and enjoyment of property from the dead to the living

Purpose: to add income/ benefits-received theory/ privilege theory / ability to pay theory / redistribution of wealth theory

C. Time of Transfer of Properties

Lorenzo v. Posadas. Estate and inheritance tax laws rest in their essence upon the principle that death is the generating source from which the

taxing power takes it being and that it is the power to transmit, or the transmission from the dead to the living in which the tax is more immediately

based. Hence, it accrues as of the death o the decedent by operation of law.

D. Governing Law statute in force at the time of death of the decedent

II. Determination of Gross Estate

NIRC, 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property,

real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of his death

was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate.

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death;

(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or

otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of which he has at any time made atransfer, by trust or otherwise, under which he has retained for his life or for any period which does not in fact end before his death (1) the

possession or enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any person, to

designate the person who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale for an adequate and full

consideration in money or money's worth.

(C)

Revocable Transfer. (1)

To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate

and full consideration in money or money's worth) by trust or otherwise, where the enjoyment thereof was subject at the date of his death to

any change through the exercise of a power (in whatever capacity exerciseable) by the decedent alone or by the decedent in conjunction with

any other person (without regard to when or from what source the decedent acquired such power), t o alter, amend, revoke, or terminate, or

where any such power is relinquished in contemplation of the decedent's death.

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date of the decedent's death even

though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment or revocation takes effect

only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent's death notice

has been given or the power has been exercised. In such cases, proper adjustment shall be made representing the interests which would have

been excluded from the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not been

exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of hisdeath.

(D) Property Passing Under General Power of Appointment. - To the extent of any property passing under a general power of appointment

exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after

his death, or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period

which does not in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b) the right, either

alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case

of a bona fide sale for an adequate and full consideration in money or money's worth.

(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as insurance

under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the power of revocation, or to the

extent of the amount receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation

of the beneficiary is irrevocable.

(F)

Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section shall apply to the transfers, trusts,

estates, interests, rights, powers and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising,

existing, exercised or relinquished before or after the effectivity of this Code.

(G)

Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or powers enumerated and described in Subsections

(B), (C) and (D) of this Section is made, created, exercised or relinquished for a consideration in money or money's worth, but is not a bona fide salefor an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market

value, at the time of death, of the property otherwise to be included on account of such transaction, over the value of the consideration received

therefor by the decedent.

(H)

Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be deemed a part of

his or her gross estate.

A. Classification of Decedent

1. Citizen and Resident Resident and non-resident citizens and resident aliens

2. Non-resident Alien

B. Composition of Gross Estate, in General

RR 02-03, Sec. 4. COMPOSITION OF THE GROSS ESTATE. The gross estate of a decedent shall be comprised of the following properties andinterest therein at the time of his death, including revocable transfers and transfers for insufficient consideration, etc.:

A) Residents and citizens all properties, real or personal, tangible or intangible, wherever situated.

B) Non-resident aliens only properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the

gross estate is subject to the rule of reciprocity provided for under Section 104 of the Code.

1. Citizen and Resident all properties, real or personal, tangible or intangible, wherever situated

2.

Non-resident Alien only properties situated in the Philippines, except for intangible property which is subject to the rule on reciprocity

a. Rule on Reciprocity

NIRC, 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 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; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is

located in the Philippines; shares, obligations or bonds issued by any foreign corporation if such 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, shallbe 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


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Janz Hanna Ria N. Serranoor 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.

The term 'deficiency'means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by

the donor upon his return; but the amount so shown on the return shall first be increased by the amount previously assessed (or

Collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded or otherwise repaid i n respect

of such tax, or (b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the amounts previously

assessed, (or collected without assessment) as a deficiency, but such amounts previously assessed, or collected without assessment, shall

first be decreased by the amount previously abated, refunded or otherwise repaid in respect of such tax.

C. Concept of Residence for Estate Tax Purposes

For purposes of estate taxation, residencerefers to the permanent home, the place to which whenever absent, for business or pleasure, one

intends to return, and depends on the facts and circumstances, in the sense that they disclose intent.It is therefore, not necessarily the actual place

of residence.

D. Items to be included in determining Gross Estate

NIRC 85(A-G),supra.

1. Decedents interest

2. Transfers in contemplation of death

3. Revocable transfers

4. Property passing under a general power of appointment

5. Proceeds of life insurance

6. Prior interests

7. Transfers of insufficient consideration

E.

Specific Items to be included in the Gross EstateNIRC, 104,supra.

F.

Valuation of the Gross Estate

NIRC, 88. Determination of the Value of the Estate. -

(A)

Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there shall be taken into account the

probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon

recommendation of the Insurance Commissioner.

(B) Properties. - The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of

the time of death shall be, whichever is higher of

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.

RR 02-03, Sec. 4,supra.

III. Determination of Net Estate/Allowable Deductions from Gross Estate

NIRC, 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter, the value of the net estate shall be determined:

(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident of the Philippines, by deducting from the value of

the gross estate

(1)

Expenses, Losses, Indebtedness, and taxes. - Such amounts (a) For actual funeral expenses or in an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed

Two hundred thousand pesos (P200,000);

(b) For judicial expenses of the testamentary or intestate proceedings;

(c) For claims against the estate: Provided, That at the time the indebtedness was incurred the debt instrument was duly notarized and, if

the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement

showing the disposition of the proceeds of the loan;

(d) For claims of the deceased against insolvent persons where the value of decedent's interest therein is included in the value of the gross

estate; and

(e) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's interest therein, undiminished by

such mortgage or indebtedness, is included in the value of the gross estate, but not including any income tax upon income received after

the death of the decedent, or property taxes not accrued before his death, or any estate tax. The deduction herein allowed in the case of

claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the

extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. There shall also be

deducted losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery,

theft or embezzlement, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return

such losses have not been claimed as a deduction for the income tax purposes in an income tax return, and provided that such losseswere incurred not later than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91.

(2)

Property Previously Taxed. - An amount equal to the value specified below of any property forming a part of the gross estate situated in the

Philippines of any person who died within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five

(5) years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from

such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property so

received:

One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the

property was transferred to him by gift within the same period prior to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death of

the decedent, or if the property was transferred to him by gift within the same period prior to his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the death

of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4) years prior to the death


Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the death


These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was finally determined and paid by or

on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of

such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such

property is included in the decedent's gross estate, and only if in determining the value of the estate of the prior decedent, no deduction was

allowable under paragraph (2) in respect of the property or properties given in exchange therefor. Where a deduction was allowed of any

mortgage or other lien in determining the donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the

decedent's death, then the deduction allowable under said Subsection shall be reduced by the amount so paid. Such deduction allowable shall

be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as

the amount otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the property referred to consists

of two or more items, the aggregate value of such items shall be used for the purpose of computing the deduction.(3)

Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to or for the use of the Government of the Republic of

the Philippines, or any political subdivision thereof, for exclusively public purposes.


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Janz Hanna Ria N. Serrano(4) The Family Home. - An amount equivalent to the current fair market value of the decedent's family home: Provided, however, That if the said

current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the

exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality.

(5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).

(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1) year prior to his death which shall be duly substantiated with

receipts: Provided, That in no case shall the deductible medical expenses exceed Five Hundred Thousand Pesos (P500,000).

(7)

Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by the heirs from the decedent - employee as a consequence

of the death of the decedent-employee in accordance with Republic Act No. 4917: Provided, That such amount is included in the gross estate of

the decedent.

(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of the Philippines, by deducting from the value of that part

of his gross estate which at the time of his death is situated in the Philippines:

(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions specified in paragraph (1) of Subsection (A) of this Section

which the value of such part bears to the value of his entire gross estate wherever situated;

(2) Property Previously Taxed. - An amount equal to the value specified below of any property forming part of the gross estate situated in the

Philippines of any person who died within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five

(5) years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from

such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property so

received:

One hundred percent (100%) of the value if the prior decedent died within one (1) year prior to the death of the decedent, or if the

property was transferred to him by gift, within the same period prior to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death of

the decedent, or if the property was transferred to him by gift within the same period prior to his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the deathof the decedent, or if the property was transferred to him by gift within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4) years prior to the death

of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and

Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the death

of the decedent, or if the property was transferred to him by gift within the same period prior to his death.

These deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title is finally determined and paid by or on

behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such

property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property

is included in that part of the decedent's gross estate which at the time of his death is situated in the Philippines; and only if, in determining

the value of the net estate of the prior decedent, no deduction is allowable under paragraph (2) of Subsection (B) of this Section, in respect of

the property or properties given in exchange therefore. Where a deduction was allowed of any mortgage or other lien in determining the

donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction

allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears

the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible

under paragraph (2) bears to the value of that part of the decedent's gross estate which at the time of his death is situated in the Philippines.

Where the property referred to consists of two (2) or more items, the aggregate value of such items shall be used for the purpose of computingthe deduction.

(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the

Philippines or any political subdivision thereof, for exclusively public purposes.

(C) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal partnership property as diminished by the obligations

properly chargeable to such property shall, for the purpose of this Section, be deducted from the net estate of the decedent.

(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines, unless the executor,

administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 the value at the time of his

death of that part of the gross estate of the nonresident not situated in the Philippines.

(E) Tax Credit for Estate Taxes paid to a Foreign Country .

(1)

In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the authority of a foreign country.

(2)

Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following limitations:

(a)

The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such

credit is taken, which the decedent's net estate situated within such country taxable under this Title bears to his entir net estate; and

(b)

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's

net estate situated outside the Philippines taxable under this Title bears to his entire net estate.

A.

Net Estate of Decedent who is either Citizen or Resident of the PhilippinesNIRC, 86(A),supra.

value of estate shall be determined by deducting from the value of gross estate:

1.

Expenses, losses, indebtedness and taxes

RR 02-03, Sec. 6(A)(1). The value of the net estate of a citizen or resident alien of the Philippines shall be determined by deducting from the

value of the gross estate the following items of deduction :

(A)

Expenses, losses, indebtedness, and taxes- Such amounts for:

(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five percent (5%) of

the gross estate, whichever is lower, but in no case to exceed P200,000.

Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been paid or still payable, shall

not be allowed as a deduction under this Subsection. Neither shall the unpaid portion of the funeral expenses incurred which is in

excess of the P200,000 threshold be allowed to be claimed as a deduction under claims against the estate provided under

Subsection (C) hereof.

The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include:

i. The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion

of the burial;

ii. Expenses for the deceaseds wake, including food and drinks;

iii. Publication charges for death notices;

iv. Telecommunication expenses incurred in informing relatives of the deceased;

v. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or

several burial lots, only the value corresponding to the plot where he is buried is deductible;

vi. Interment and/or cremation fees and charges; and

vii. All other expenses incurred for the performance of the rites and ceremonies incident to interment.

Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of thefuneral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible.

Medical expenses as of the last illness will not form part of funeral expenses but should be claimed under subsection (F) of this

section.


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Janz Hanna Ria N. Serrano

Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased.

The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred.

Illustrations on how to determine the amount of allowable funeral expenses

(a) If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed as

deduction;

(b) If the expenses actually incurred amount to P90,000 and five percent (5%) of the gross estate is P70,000, only P70,000 will be

allowed as deduction;

(c) If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is P215,000, the maximum amount that

may be deducted is only P200,000;

(d) If five percent (5%) of the gross estate is P 100,000 and the total amount incurred is P150,000 where P20,000 thereof is still unpaid, the only

amount that can be claimed as deduction for funeral expenses is P100,000. The entire P50,000 excess amount consisting of P30,000 paid

amount and P20,000 unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted

from the gross estate as CLAIMS AGAINST THE ESTATE under Subsection (C) hereof.

a. Funeral expenses lower between actual and 5% of gross estate; ceiling: PhP 200,000

b. Judicial expenses of the testamentary and intestate proceedings

Rule 81.

Rule 86.

c. Claims of deceased against insolvent persons

d. Casualty losses

e. Claims against the estate

(1)

Requisites for deductibilityRR 02-03, Sec 6(A)(3)(i). Claims against the estate. The word claims is generally construed to mean debts or demands of apecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple

money judgements. Claims against the estate or indebtedness in respect of property may arise out of : (1) Contract; (2) Tort; or (3)

Operation of Law.

i.

Requisites for Deductibility of Claims Against the Estate

(a)

The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations

incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of interment) and

unpaid medical expenses which are classified under a different category of deductions pursuant to these Regulations;

(b) The liability was contracted in good faith and for adequate and full consideration in money or moneys worth;

(c) The claim must be a debt or claim which is valid in law and enforceable in court;

(d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have

prescribed.

(2) Substantiation requirements

RR 02-03, Sec 6(A)(3)(ii). Substantiation Requirements. - All unpaid obligations and liabilities of the decedent at the time of his

death (except unpaid funeral or medical expenses which are deductible under a different category) are allowed as deductions from

gross estate. Provided, however, that the following requirements/documents are complied with/submitted:(a) In case of simple loan (including advances):

(1) The debt instrument must be duly notarized at the time the indebtedness was incurred, such as promissory note or

contract of loan, except for loans granted by financial institutions where notarization is not part of the business

practice/policy of the financial institution-lender;

(2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of

death. If the creditor is a corporation, the sworn certification should be signed by the President, or Vice-President, or

other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any

of the general partners. In case the creditor is a bank or other financial institutions, the Certification shall be executed by

the branch manager of the bank/financial institution which monitors and manages the loan of the decedent-debtor. If the

creditor is an individual, the sworn certification should be signed by him. In any of these cases, the one who should

certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity, except

when the requirement below is complied with. When the lender, or the President/Vice-president /principal officer of the

creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree

mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having

jurisdiction over the borrower within fifteen days from the execution thereof.

(3)

In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, proof of financialcapacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance sheet

with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. In case the creditor is an

individual who is no longer required to file income tax returns with the Bureau, a duly notarized Declaration by the

creditor of his capacity to lend at the time when the loan was granted without prejudice to verification that may be made

by the BIR to substantiate such declaration of the creditor. If the creditor is a non-resident, the executor/administrator or

any of the legal heirs must submit a duly notarized declaration by the creditor of his capacity to lend at t he time when the

loan was granted, authenticated or certified to as such by the tax authority of the country where the non-resident

creditor is a resident;

(4) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds

of the loan if said loan was contracted within three (3) years prior to the death of the decedent;

(b) If the unpaid obligation arose from purchase of goods or services:

(1) Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of

goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and

signed by decedent/debtor and creditor, and statement of account given by the creditor as duly received by the

decedent/debtor;

(2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of

death. If the creditor is a corporation, the sworn Certification should be signed by the President, or Vice-President, or

other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any

of the general partners. If the creditor is a sole proprietorship, the sworn certification should be signed by the owner of

the business. In any of these cases, the one who issues the certification must not be a relative of the decedent-debtor

within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with .

When the lender, or the President/Vice-President/principal officer of the creditor-corporation, or the general partner of

the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other

evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from

the execution thereof.

(3) Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showingthe unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary

ledger/records of the debt of the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding

paragraphs) should likewise be submitted.


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Janz Hanna Ria N. Serrano(c) Where the settlement is made through the Court in a testate or intestate proceeding, pertinent documents filed with the Court

evidencing the claims against the estate, and the Court Order approving the said claims, if already issued, in addition to the

documents mentioned in the preceding paragraphs.

f. Unpaid mortgages

g. Taxes

2. Property Previously Taxed (Vanishing Deduction)

a.

Requisites for Vanishing Deductions

3. Transfers for Public Use

4. Family Home

RR 02-03, Sec 6(D). The family home - An amount equivalent to the current fair market value of the decedents family home: Provided,

however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine

qua non condition for the exemption or deduction, said family home must have been the decedents family home as certified by the barangay

captain of the locality.

a) Definition of terms-

Family home The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and

members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the

house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries

actually resides therein. (Arts. 152 and 153, Family Code)

For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall not be

considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies

or work abroad, etc.

In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business or

pleasure, one still intends to return.

The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the exclusive properties

of either spouse depending upon the classification of the property (family home) and the property relations prevailing on the properties

of the husband and wife. It may also be constituted by an unmarried head of a family on his or her own property. (Art. 156, Ibid)

For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home. (Art. 161,

Ibid)

Husband and Wife Legally married man and woman.

Unmarried Head of a Family An unmarried or legally separated man or woman with one or both parents, or with one or more brothers

or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and dependent upon him or her for

their chief support, where such brothers or sisters or children are not more than twenty one (21) years of age, unmarried and not

gainfully employed or where such children, brothers or sisters, regardless of age are incapable of self-support because of mental orphysical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent

upon the head of the family for legal support.

The beneficiaries of a family home are:

(1) The husband and wife, or the head of a family; and

(2) Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be

legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. ( Art. 154,

Ibid)

b) Conditions for the allowance of FAMILY HOME as deduction from the gross estate-

1.

The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the

Barangay Captain of the locality where the family home is situated;

2.

The total value of the family home must be included as part of the gross estate of the decedent; and

3.

Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in

the gross estate, or the extent of the decedents interest (whether conjugal/community or exclusive property),whichever is lower,

but not exceeding P1,000,000.

a.

Ceiling on value of family home (P1M)b.

Definition of family home/when deemed constituted

c.

Beneficiaries of a family home

d.

Conditions for deductibility

5.

Standard deduction

RR 02-03, Sec. 6(E). Standard deduction. - A deduction in the amount of One Million Pesos (P1,000,000) shall be allowed as an additional

deduction without need of substantiation. The full amount of P1,000,000 shall be allowed as deduction for the benefit of the decedent. The

presentation of such deduction in the computation of the net taxable estate of the decedent is properly illustrated in these Regulations.

6. Medical expenses

RR 02-03, Sec. 6(F). Medical expenses. - All medical expenses (cost of medicines, hospital bills, doctors fees, etc.) incurred (whether paid or

unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly substantiated

with official receipts for services rendered by the decedents attending physicians, invoices, statements of account duly certified by the

hospital, and such other documents in support thereof and provided, further, that the total amount thereof, whether paid or unpaid, does not

exceed Five Hundred Thousand Pesos (P500,000).

Any amount of medical expenses incurred within one year from death in excess of Five Hundred Thousand Pesos (P500,000) shall no longer

be allowed as a deduction under this subsection. Neither can any unpaid amount thereof in excess of the P500,000 threshold nor any unpaid

amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as

claim against the estate.

Illustrations on how to determine the amount of allowable medical expenses given the P500,000 threshold amount:

a. If the actual amount of medical expenses incurred is P250,000, then only P250,000 shall be allowed as deduction and not to the extent of

the P500,000 threshold amount;

b. If the actual amount of medical expenses incurred within the year prior to decedents death is P600,000, only the maximum amount of

P500,000 shall be allowed as deduction. If in case the excess of P100,000 (P600,000-500,000) is still unpaid, such amount shall not be

allowed to be deducted from the gross estate as claims against the estate.Ceiling: PhP 500,000.

7.

Amounts received by Heirs under RA 4917

8.

Net Share of Surviving Spouse in the Conjugal Partnership or Community Property

B.

Net Estate of Decedent who is a Non-Resident Alien of the Philippines


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Janz Hanna Ria N. SerranoNIRC, 86(B),supra.

RR 02-03, Sec. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A NON-RESIDENT ALIEN OF THE PHILIPPINES. - The value of

the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross

estate which at the time of his death is situated in the Philippines the following items of deductions:

(1) Expenses, losses, indebtedness, and taxes That proportion of the total expenses, losses, indebtedness, and taxes which the value of such

part bears to the value of his entire gross estate wherever situated. The allowable deduction under this subsection shall be computed using the

following formula:

.(, , = (2) Property previously taxed - xxx xxx xxx(3) Transfers for public use - xxx xxx xxx(4) Net share of the surviving spouse in the conjugal property or community property . - xxx xxx xxxNo deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor, administrator, or anyone

of the heirs, as the case may be, includes in the return required to be filed under Section 90 of the Code the value at the time of the decedents death

of that part of his gross estate not situated in the Philippines.

1. Value of estate shall be determined by deducting from the value of gross estate:

a. Expenses, losses, indebtedness, and taxes

b. Property previously taxed

c. Transfers for public use

d. Net share of surviving spouse in the conjugal partnership or community property

2. Condition for deductibility

NIRC, 86(D). Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines, unlessthe executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 the value at

the time of his death of that part of the gross estate of the nonresident not situated in the Philippines.

IV. Exclusions from Gross Estate/Exemptions of Certain Acquisitions and Transmissions

B. Capital of Surviving Spouse

NIRC, 85(H). Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be

deemed a part of his or her gross estate.

CC, 148. The following shall be the exclusive property of each spouse:

(1)

That which is brought to the marriage as his or her own;

(2)

That which each acquires, during the marriage, by lucrative title;

(3)

That which is acquired by right of redemption or by exchange with other property belonging to only one of the spouses;

(4)

That which is purchased with exclusive money of the wife or of the husband.

CC, 150. . Property donated or left by will to the spouses, jointly and with designation of determinate shares, shall pertain to the wife as

paraphernal property, and to the husband as capital, in the proportion specified by the donor or testator, and in the absence of designation, share

and share alike, without prejudice to what is provided in Article 753.

CC, 201. The following shall be excluded from the community:

(1)

Property acquired by gratuitous title by either spouse, when it is provided by the donor or testator that it shall not become a part of thecommunity;

(2) Property inherited by either husband or wife through the death of a child by a former marriage, there being brothers or sisters of the full

blood of the deceased child;

(3) A portion of the property of either spouse equivalent to the presumptive legitime of the children by a former marriage;

(4) Personal belongings of either spouse.

However, all the fruits and income of the foregoing classes of property shall be included in the community.

FC, 91. Unless otherwise provided in this Chapter or in the marriage settlements, the community property shall consist of all the property owned by

the spouses at the time of the celebration of the marriage or acquired thereafter.

FC, 92. The following shall be excluded from the community property:

(1) Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as the income thereof, if any, unless it is

expressly provided by the donor, testator or grantor that they shall form part of the community property;

(2) Property for personal and exclusive use of either spouse. However, jewelry shall form part of the community property;

(3) Property acquired before the marriage by either spouse who has legitimate descendants by a former marriage, and the fruits as well as the

income, if any, of such property.

FC, 109. The following shall be the exclusive property of each spouse:

(1)

That which is brought to the marriage as his or her own;(2) That which each acquires during the marriage by gratuitous title;

(3) That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the spouses; and

(4) That which is purchased with exclusive money of the wife or of the husband.

C. Proceeds of life insurance where designation of beneficiary is irrevocable

NIRC, 85(E). Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as

insurance under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the power of revocation,or to the extent of the amount receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the

designation of the beneficiary is irrevocable.

D.

Exemptions of Certain Acquisitions/Transmissions

NIRC, 87. Exemption of Certain Acquisitions and Transmissions. - The following shall not be taxed:

(A)

The merger of usufruct in the owner of the naked title;

(B)

The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;

(C)

The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and

(D)

All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures to

the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or transfers

shall be used by such institutions for administration purposes.

E.

Exemptions under Special LawsV. Computation of Estate Tax

A. Tax Rate

NIRC, 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance

with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as

computed in accordance with the following schedule:

If the net estate is:


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Janz Hanna Ria N. Serrano

Over But Not Over The Tax shall be Plus Of the Excess Over

P 200,000 Exempt

P 200,000 550,000 0 5% P 200,000

500,000 2,000,000 P 15,000 8% 500,000

2,000,000 5,000,000 135,000 11% 2,000,000

5,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 And Over 1,215,000 20% 10,000,000

1.

Tax Credit for Estate Taxes paid to a foreign country

NIRC, 86(E). Tax Credit for Estate Taxes paid to a Foreign Country.

(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the authority of a foreign

country.

(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following limitations:(a)

The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such

credit is taken, which the decedent's net estate situated within such country taxable under this Title bears to his entire net estate;and

(b)

The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the

decedent's net estate situated outside the Philippines taxable under this Title bears to his entire net estate.

VI.

Filing of Notice of Death/Filing of Returns/Payment of Estate Tax

A.

Requirement of Filing for Notice of Death

NIRC, 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate

exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the

decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice t hereof to the Commissioner.

- Within 2 months after death of decedent

B. Estate Tax Returns

1. Requirements

2. Time for Filing

3. Extension of Time to File

4. Place of Filing Return

NIRC, 90. Estate Tax Returns.

(A)

Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value of the estateexceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of the estate, where the said estate consists of registered or

registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the Bureau of

Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, th e executor, or the

administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth:

(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the Philippines, of that

part of his gross estate situated in the Philippines;

(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and

(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the

correct taxes.

Provided, however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall be supported with a

statement duly certified to by a Certified Public Accountant containing the following:

(a)

Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident, not a

citizen of the Philippines, of that part of his gross estate situated in the Philippines;

(b) Itemized deductions from gross estate allowed in Section 86; and

(c)

The amount of tax due whether paid or still due and outstanding.(B)

Time for filing.- For the purpose of determining the estate tax provided for in Section 84 of this Code, the estate tax return required under

the preceding Subsection (A) shall be filed within six (6) months 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) after the promulgation of such order.

(C)

Extension of Time. - The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30)

days for filing the return.

(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the return required under Subsection (A) shall be filed with an

authorized agent bank, or 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 or if there be no legal residence in the Philippines, with the Office of the Commissioner.

RR 02-03, Sec. 9(A-C). TIME AND PLACE OF FILING ESTATE TAX RETURN AND PAYMENT OF ESTATE TAX DUE.

(A) Time for filing estate tax return. For purposes of determining the estate tax, the estate tax return shall be filed within six (6) months from

the decedents death.

The Court approving the project of partition shall furnish the Commissioner with a certified copy thereof and its order within thirty (30) days

after promulgation of such order.

(B) Extension of time to file estate tax return. - The Commissioner or any Revenue Officer authorized by him pursuant to the Code shall have

authority to grant, in meritorious cases, a reasonable extension, not exceeding thirty (30) days, for filing the return. The application for the

extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is required to secure its

Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO, likewise, has jurisdiction over the donors tax return

required to be filed by any party as a result of the distribution of the assets and liabilities of the decedent.

(C) Place of filing the return and payment of the tax. In case of a resident decedent, the administrator or executor shall register the estate of

the decedent and secure a new TIN therefor from the Revenue District Office where the decedent was domiciled at the time of his death and

shall file the estate tax return and pay the corresponding estate tax with theAccredited Agent Bank (AAB), Revenue District Officer, Collection

Officer or duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of his death, whichever is

applicable, following prevailing collection rules and procedures.


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Janz Hanna Ria N. SerranoIn case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in the Philippines, the

estate tax return shall be filed with and the TIN for the estate shall be secured from the Revenue District Office where such executor or

administrator is registered: Provided, however, that in case the executor or administrator is not registered, the estate tax return shall be filed

with and the TIN of the estate shall be secured from the Revenue District Office having jurisdiction over the executor or administrators legal

residence. Nonetheless, in case the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return

shall be filed with and the TIN for the estate shall be secured from the Office of the Commissioner through RDO No. 39 South Quezon City.

The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may continue to exercise his power to allow a different

venue/place in the filing of tax returns.

C. Payment of Estate Tax

1. Time for Payment

2. Extension of time to pay Estate Tax

3. Payment of Estate Tax by Installment

4. Liability for Payment

NIRC, 91. Payment of Tax. (A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return is filed by the executor, administrator or the

heirs.

(B) Extension of Time. - When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose

undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5)

years, in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in

respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of

the Statute of Limitations for assessment as provided in Section 203 of this Code shall be suspended for the period of any such extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no

extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond

in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon

the payment of the said tax in accordance with the terms of the extension.

(C) Liability for Payment- The estate tax imposed by Section 84 shall be paid by the executor or administrator before delivery to any beneficiary

of his distributive share of the estate. Such beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the

payment of such portion of the estate tax as his distributive share bears to the value of th e total net estate.

For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or administrator of the decedent, or if there is no

executor or administrator appointed, qualified, and acting within the Philippines, then any person in actual or constructive possession of any

property of the decedent.

RR 02-03, Sec. 9(D-G).

(D) Time for payment of the estate tax. As a general rule, the estate tax imposed under the Code shall be paid at the time the return is filed by

the executor, administrator or the heirs.(E) Extension of time to pay estate tax. When the Commissioner finds that the payment of the estate tax or of any part thereof would impose

undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5)

years in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in

respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of

the statute of limitations for deficiency assessment shall be suspended for the period of any such extension.

For purposes of these Regulations, the application for extension of time to file the return and extension of time to pay estate tax shall be filed

with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the estate tax return. This application shall be

approved by the Commissioner or his duly authorized representative.

Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer,

no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary,

as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner

deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension.

Any amount paid after the statutory due date of the tax, but within the extension period, shall be subject to interest but not to surcharge.

(F)

Payment of the estate tax by installment. In case the available cash of the estate is not sufficient to pay its total estate tax liability, the

estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property the

corresponding/computed tax on which has been paid. There shall, therefore, be as many clearances (Certificates Authorizing Registration) as

there are as many properties released because they have been paid for by the installment payments of the estate tax. The computation of the

estate tax, however, shall always be on the cumulative amount of the net taxable estate. Any amount paid after the statutory due date of the tax

shall be imposed the corresponding applicable penalty thereto. However, if the payment of the tax after the due date is approved by the

Commissioner or his duly authorized representative, the imposable penalty thereon shall only be the interest. Nothing in this paragraph,

however, prevents the Commissioner from executing enforcement action against the estate after the due date of the estate tax provided that

all the applicable laws and required procedures are followed/observed.

(G) Liability for payment The estate tax imposed under the Code shall be paid by the executor or administrator before the delivery of the

distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are

severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having

jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir

or beneficiary.

The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability

for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability,

however, shall in no case exceed the value of his share in the inheritance.DONORS TAX

I. Basic Principles of Donors Tax

A. Concept of Donors Tax

Lladoc v. CIR. Donors tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos.

B. Nature of Donors Tax

It is an excise tax imposed on the privilege of the donor to give or on the privilege of the donee to receive. It is not a tax on property as suchbecause its imposition does not rest upon general ownership although the amount the tax is measured by the value of the property donated.

C.

Purpose of Donors Tax

(1)

To supplement the estate taxes by preventing their avoidance through the taxation of gifts inter vivos, without which the properties would be

subject to tax


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Janz Hanna Ria N. Serrano(2) To prevent avoidance of income tax through the device of splitting income among numerous donees who are usually members of a family

D. Requisites of a valid Donation

1. Capacity of Donor

NCC, 735. All persons who may contract and dispose of their property may make a donation.

2. Donative intent

3. Delivery

4.

Acceptance

NCC, 745. The donee must accept the donation personally, or through an authorized person with a special power for the purpose, or with a

general and sufficient power; otherwise, the donation shall be void.

E. Transfers which may be constituted as donation

1. Sale/exchange/transfer of property for less than adequate and full consideration

NIRC, 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.

2. Condonation/remission of debt

3. Renunciation of inheritance

- exception

F. Law governing Imposition of Donors Tax

RR 02-03, Sec. 11. THE LAW THAT GOVERNS THE IMPOSITION OF DONORS TAX. - The donors tax is not a property tax, but is a tax imposed on

the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L- 19201, June 16, 1965; 14 SCRA, 292) The donors

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, the law inforce at the time of the perfection/completion of the donation shall govern the imposition of the donors tax.

In order that the donation of an immovable may be valid, it must be made in a public document specifying therein the property donated.

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.

A gift that is incomplete because of reserved powers, becomes complete when either: (1) the donor renounces the power; or (2) his right

to exercise the reserved power ceases because of the happening of some event or contingency or the fulfilment of some condition, other than

because of the donors death.

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the

marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donors tax whereas general renunciation by an heir,

including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donors 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.

Where property, other than a real property that has been subjected to the final capital gains tax, is transferred for less than an adequate

and full consideration in money or moneys worth, then the amount by which the fair market value of the property at the time of the execution of

the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual

consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.The law in force at the time of the completion of the donation shall govern the imposition of donors tax.

For purposes of the donors tax, NET GIFT shall mean the net economic benefit from the transfer that accrues to the donee. Accordingly,

if a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is

measured by deducting from the fair market value of the property the amount of mortgage assumed.

II. Determination of Gross Gift

A. Classification of Donor

1. Citizens/Residents Resident and non-resident Citizens and Resident Aliens

2. Non-resident Alien

B. Composition of Gross Gift

1.

Citizens/Resident real property located in the Philippines

-

Tangible property located within and without the Philippines

-

Intangible property located within and without the Philippines

NIRC, 104,supra.

2.

Non-resident alien - real property located in the Philippines

-

Tangible property located within and without the Philippines

-

Intangible property located within and without the Philippines unless theres reciprocityNIRC, 104,supra.

-

Rule on Reciprocity

C.

Exemptions of Gifts from Donation Tax

1.

Gifts made by Residents

NIRC, 101(A). 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 philanthrophic 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

philanthrophic organization and/or research institution or organization' is a school, college or university and/or charitable

corporation, accredited nongovernment organization, trust or philanthrophic 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 philanthrophy, to the accomplishment

and promotion of the purposes enumerated in its Articles of Incorporation.

b. Services/gifts made on account of marriage by parents to children (first P10,000)

c. Gifts made to or for the use of national government

d. Gifts in favor of educational/charitable institution

Condition: not more than 30% of the gift will be used by done for admin purposes

2. Gifts made by a non-resident alien

NIRC, 101(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, orto 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

philanthrophic 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.


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Janz Hanna Ria N. Serranoa. Same as (b) above

b. Same as (c) above

3. Exemptions from donors tax under special laws

D. Valuation of Gifts Made in Property

NIRC, 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.

NIRC, 88(B). (B) Properties. - The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real

property as of the time of death shall be, whichever is higher of

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.

1. FMV at time of Gift

2. Real property = higher of FMV determined by CIR or FMV fixrf by provincial and city assessor

3. Valuation of Particular Gifts

a. Personal property

b. Real property

c. Cash

E. Computation of donors tax

1. Person liable (donors)

2. Tax basis

NIRC, 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

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 theElection Code, as amended.

RR 02-03, Sec. 10. RATES OF DONORS TAX. (A) Schedular rates of donors tax imposable on donation made to a donee who is not astranger. The transfer of the total net gifts made during the calendar year shall be subject to tax in accordance with the schedule provided in

Section 99 of the Code. The entire value of the net gifts for each calendar year is divided into brackets and each rate is imposed on the

corresponding brackets as shown below:

If the net gift is: [see table above]

(B)

Tax payable by the donor if donee is a stranger. - When the donee or beneficiary is a stranger, the tax payable by the donor shall be

thirty per cent (30%) of the net gifts. For purposes of the donor's 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.

A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him

shall not be considered as donation made to stranger.

Donation made between business organizations and those made between an individual and a business organization shall be considered

as donation made to a stranger.

(C) Contribution for election campaign. - 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. The application of the rates as provided above is imposed on

donations made beginning January 1, 1998, which is the effectivity date of Republic Act No. 8424, otherwise known as The Tax Reform

Act of 1997.

3. Tax Rates

NIRC, 99(A),supra.

NIRC, 99(B),supra.

a. Graduated if done is not a stranger as defined in NIRC, 99(B)

b. 30% of net gifts if done is stranger

(3) Who is a stranger

4. Computation of Tax

RR 02-03, Sec. 12. COMPUTATION OF THE DONORS TAX. For donors tax purposes, donations made before January 1, 1998 shall besubject to the donors tax computed on the basis of the old rates imposed under Section 92 of the National Internal Revenue Code of 1977 (R.A.


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Janz Hanna Ria N. SerranoNo. 7499), while donations made on or after January I, 1998 shall be subject to the donors tax computed in accordance with the amended

schedule of rates prescribed under Section 99 of the National Internal Revenue Code of 1997 (R.A. No. 8424). THE COMPUTATION OF THE

DONORS TAX IS ON A CUMULATIVE BASIS OVER A PERIOD OF ONE CALENDAR YEAR. Husband and wife are considered as separate and

distinct taxpayers for purposes of the donors tax. However, if what was donated is a conjugal or community property and onl y the husband

signed the deed of donation, there is only one donor for donors tax purposes, without prejudice to the right of the wife to question the validity

of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of the

Philippines. (see illustration in RR)

a. Cumulative basis over a period of 1 calendar year

5. Tax Credit for Donors Taxes Paid to a Foreign Country

NIRC, 101(C). Tax Credit for Donor's Taxes Paid to a Foreign Country.

(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be credited with the

amount of any donor's tax of any character and description imposed by the authority of a foreign country.

(2) Limitations on Credit.- The amount of the credit taken under this Section shall be subject to each of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such

credit is taken, which the net gifts situated within such country taxable under this Title bears to his entire net gifts; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the donor's

net gifts situated outside the Philippines taxable under this title bears to his entire net gifts.

F. Returns/Payment

NIRC, 103. Filing of Return and Payment of Tax. (A) Requirements.- any individual who makes any transfer by gift (except those which, under Section 101, are exempt from the tax provided

for in this Chapter) shall, for the purpose of the said tax, make a return under oath in duplicate. The return shall set forth:

(1) Each gift made during the calendar year which is to be included in computing net gifts;

(2)

The deductions claimed and allowable;(3)

Any previous net gifts made during the same calendar year;

(4)

The name of the donee; and

(5)

Such further information as may be required by rules and regulations made pursuant to law.

(B)

Time and Place of Filing and Payment.- The return of the donor required in this Section shall be filed within thirty (30) days after the

date the gift is made and the tax due thereon shall be paid at the time of filing. Except in cases where the Commissioner otherwise permits,

the return shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly

authorized Treasurer of the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence

in the Philippines, with the Office of the Commissioner. In the case of gifts made by a nonresident, the return may be filed with the

Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the

Commissioner.

RR 02-03, Sec. 13. FILING OF RETURNS AND PAYMENT OF DONORS TAX. (A) Requirements. Any person making a donation (whether direct or indirect), unless the donation is specifically exempt under the Code or

other special laws, is required, for every donation, to accomplish under oath a donors tax return in duplicate. The return shall set forth:

(1) Each gift made during the calendar year which is to be included in computing net gifts;

(2) The deductions claimed and allowable;

(3)

Any previous net gifts made during the same calendar year;(4) The name of the donee;

(5) Relationship of the donor to the donee; and

(6) Such further information as the Commissioner may require.

(B) Time and place of filing and payment. The donors tax return shall be filed within thirty (30) days after the date the gift is made orcompleted and the tax due thereon shall be paid at the same time that the return is filed. Unless the Commissioner otherwise permits, the

return shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized

Treasurer of the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence in the

Philippines, with the Office of the Commissioner. In the case of gifts made by a non-resident, the return may be filed with the Philippine

Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner. For this

purpose, the term OFFICE OF THE COMMISSIONER shall refer to the Revenue District Office (RDO) having jurisdiction over the BIR-National Office Building which houses the Office of the Commissioner, or presently, to the Revenue District Office No. 39 South Quezon City.

(C)

Notice of donation by a donor engaged in business. In order to be exempt from donors tax and to claim full deduction of the donationgiven to qualified donee institutions duly accredited by the Philippine Council for NGO Certification, Inc. (PCNC), the donor engaged in

business shall give a notice of donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District Office (RDO)

which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee institutions 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/giftsfor 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.Requirements.

1.

Time/Place of Filing and Payment

a.

Time of Filing 30 days after date of gift is made/completed

Payment coincides with the filing of return

b.

Place of filing/payment

(2) Residence/domicile of donor resident/citizen

(3) Phil. Embassy/consulate where he is domiciled at the time of transfer non-resident Alien

Part 2. Business Taxes

VALUE-ADDED TAX

I. Nature and Characteristics of VAT

A. Tax on value added

It is based on the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged or the gross receipts

derived from the sale or exchange of the services including the lease of goods or properties, or in the case of imported goods, on the total value or

landed cost thereof plus taxes and other charges, if any.

B. Sales Tax

C.

Tax on Consumption

RR 16-05, Sec. 4.105-2. Nature and Characteristics of VATVAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or

properties and services in the Philippines and on importation of goods into the Philippines. The seller is the one statutorily liable for the payment of

the tax but the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall

likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA 9337. However, in the case of

importation, the importer is the one liable for the VAT

VAT is a consumption tax imposed at every stage of the distribution process on the sale, barter, exchange (including transactions

deemd by law as a sale), or lease of goods or properties and rendition of services in the course of trade or business, or the

importation of g

Tax 2 Midterms

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