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Jessa B.

Regalario BE322 Business Transfer Taxes


IV BSA Maam Tabernilla


1. Concept and Nature of Transfer Taxes
The transfer of private property may be either gratuitous or onerous.
(1) Transfer taxes are taxes imposed upon the gratuitous disposition of private
properties. Under our law, they are taxes levied on the transmissions of
properties from a prior decedent to his heirs in the case of the estate tax or from
a donor to a donee in the case of the donors tax.

(2) Taxes of this general character are predicted on the passing of property as
distinguished from those imposed on property as such because of its ownership
and possesion.


2. Kinds of Transfer taxes
There are thus two kinds:

(1) Death taxes or duties. They are those levied on the gratuitous transfers of
property upon ones death, formerly comprised of the estate and inheritance
taxes. The two were correlative taxes, they having been impose on the right to
transmit and to receive property by succession, respetively, i.e., the existence of
one in any particular case necessarily presupposes the corollary existence of the
other. (BIR Ruling No. 173-84, Nov 6, 1984)
Both taxes are now integrated into an estate tax. Fundamentally
considered, the subject levied upon by all death duties is the power to
transmit, or the transmission or receipt of property at death (Knowlton vs
Moore, 178 US 41); and

(2) Gift Taxes. They are imposed on the gratuitous transfers of property during
ones lifetime, formerly comprised of the donors and donees gift taxes. Both
taxes are now integrated into a donors tax.


3. History of Death Taxes
(1) Existed in ancient times Taxes upon the transmission of property at death are
not new. History reveals that they existed in ancient Egypt (as early as the 7th
century before Christ), Greece and Rome. While the early middle ages showed
no evidence of their imposition, Germany and Italy were known to have instituted
death taxes by the end of the 14th century; and at the close of the 17th century,
many European countries including England, France, Portugal, and Spain had
developed various types of inheritance taxation.
(2) In the United Estates. The first legislation imposing federal estate taxation
system really began during the first World War with the imposition made by
Revenue Act No. 1916 when the U.S. Congress was confronted with the
necessity of an increae in the appropriations for the army and navy and the
fortifications of the United Estates. Subsequently, Congress enacted other
statutes providing for legacy tax and an estate duty.
It is to be noted that in the United States, either the inheritance tax or estate tax or
both are imposed by the various States but currently the only duty provided by federal
law is the estate tax.
(3) In the Philippines. The first inheritance tax law was Act No. 2601 which took
effect on July 1, 1916. Its provisions were subsequently incorporated in the
Revised Administrative Code (Sec. 1536, et. Seq.), then amended by various
acts (Act Nos. 2711, 2835, 3031, and 3606, and C.A. No. 105.) until they were
superseded by Commonwealth Act No. 466, otherwise known as the National
Internal Revenue Code, which took effect on July 1, 1939 except the provisions
of the income tax law which becae effective on January 1, 1939. Subsequent
amendments dealt mostly with the increase in the rates of the taxes and in the
amounts of exemption therefrom.

By virtue of Presidential Decree No. 69 (Nov. 24, 1972), both the estate and
inheritance taxes have been integrated into an estate tax and the donors and donees
taxes, into a donors tax. The said Decree became effective on January 1, 1973. As
amended by R.A. No. 8424, the provisions on estate tax are now found in Chapter 1,
Title III of the National Internal Revenue Code of 1997 (hereafter referred to as the TAX
CODE), more specifically, Sections 84 to 97 and 104 which deal with estate tax.
Sections 98 to 104 in Chapter 2, Title III deal with donors tax.


4. Definition of estate taxes
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 the property.

5. Definition of Inheritance tax
Inheritance tax is a tax on the privilege of inheriting the property of a person upon his
death. It has also been defined as a tax imposed on the legal right or privilege to
succeed to, receive or take property by or under a will, intestacy law, or deed, grant or
gift becoming operative at or after death. It is also referred to as a succession tax or
duty, or legacy tax.
The term inheritance tax is sometimes used in a generic sense as including
estate tax.

6. Reasons for repeal of Inheritance tax
As previously indicated, the inheritance tax is no longer imposed under the Tax
Code. The provisions of the Tax Code pertaining to this tax have been repealed.

The primary virtue of an inheritance tax is that it may be graduated according to
the amount received and the relationship of the recipient to the deceased.

(1) The primary disadvantage is on the practical administrative side and arises
particularly where the will of the testator provides for contingent future interests,
with the result that the persons who will take and the amount they will receive
may remain uncertain for many years after the decedents death. This leads to
difficulties of valuation and collections and loss or the least lag in revenue. These
difficulties are obviated where the tax is imposed upon the estate.

(2) Moreover, the schedule of estate tax rates is much simpler and more easily
administered. The estate tax is not laid upon and not any particular legacy,
devise, or distributive share. The relationship of the beneficiary to the decedent
has no bearing upon the question of liability or the extent thereof. The transfer is
taxable although it escheats to the State for lack of heirs. (US Estate Tax
Regulations No. 80, Art. 3 [1939].)

7. Nature and Objet 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. (28 Am.
Jur. 12.) In other words, it is an excise or privilage tax.

(2) The object of estate tax is to tax the shifting of economic benefits and enjoying of
property from the dead to the living.
8. Purpose and Justification of estate tax
Death taxes are imposed not only to give added income to the government. The
following theories have also been advanced in justification of death taxation:

(1) Benefit-received theory This theory considers the services the government
renders in the distribution of the estate of the decedent, either by law or in
accordance with his wishes. For the performance of these services and other
benefits that accrue to the estate and the heirs, the State collects the tax;

(2) Privilege theory or State partnership theory According to this theory,
inheritance is not a right but a privilege granted by the State, and large estate
have been acquired only with the protection of the State. Consequently, the
State, as a passive and silent partner in the accumulation of property, has the
right to collect the share which is properly due to it;

(3) Ability to pay theory This theory asserts that the receipt of inheritance, which is
in the nature of unearned wealth or a windfall, places asserts in the hands of the
heirs and beneficiaries thereby creating an ability to pay the tax and thus to
contribute to governmental income. The exemption of a minimum amount of
inheritance from the tax can provide for cases of need; and

(4) Redistribution of wealth theory According to this theory, the receipt of
inheritance is a contributing factor to the inequalities in wealth and incomes. The
imposition of death tax reduces the property received by the successor, thus
helping bring about a more equitable distribution of wealth in society. The tax
base is the value of the property and the progressive scheme of taxation is
precisely motivated by the desire to mitigate the evils of inheritance in its original
form.


9. Incidence or Burden of estate tax
There are three (3) views on the question of who is the taxpayer in estate taxation,
namely;

(1) Predecessor. The incidence falls on the predecessor because the object of the
tax is, after all, the property which has been held or accumulated by the
deceased and the tax has fallen upon him in the sense it has affected the amount
of the property which he could dispose.

(2) Successor. The incidence is on the successor because the tax is not paid by
the predecessor who has no liability till he dies and who is free to ignore the duty
if he wishes, while the successor comes into less that he would have, while hs no
kind of redress; and

(3) No personal incidence. - Strictly speaking, the estate tax has no personal
incidence at all, merely falling upon the estate as such.

10. Power of Impose estate tax
(1) Basis. The power to tax estates and inheritances is based on the general
discretionary taxing power of a State legislature to select the subjects of taxation
and this power extends to all the usual objects within its sovereignty. It arises
because of the shifting from one to another of the power of or privilege incidental
to ownership or enjoyment of property occasioned by death.
Apart from the principle that succession to the property of a deceased person is
not a fundamental right and consequently, the legislature can constitutionally
burden such succession with a tax, a death tax is sustainable on the ground of
other benefits accorded a resident decedent or property located within the State,
or a decedent who was a citizen of the State.

(2) Scope. The power of the legislature to impose estate tax is not limited to
taxation of transfer at death. It extends to the creation, exercise acquisition, or
relinquishment of any power or legal privilege or right which is incident to the
ownership of property, whenever any of these is occasioned by death.

11. Death, the generating source of power
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 on which the tax is
more immediately based. Hence, it accrues as of the death of the decedent by
operation of law.

No manual transfer of the property to the heirs is required, but the course and
direction of the property are under the control of the probate court (in case of
testamentary disposition) and the actual transfer is not effected until its recipients
are determined and title is lodged in them.

12. Accrual of, and obligation to pay, the tax distinguished
Ordinarily, an estate or inheritance tax accrues as of the date of the decedents
death, although the amount of the tax may then be unknown, but on determination
thereof, it relates back to the time of death.

The accrual of the tax is to be distinguished from the obligation to pay the same. The
time when the heir legally succeeds to the inheritance may differ from the time when he
actually receives such inheritance. The property belongs to the heir at the moment of
the death of the ancestor as completely as if the latter had executed and delivered to
the former a deed for the same before his death. However, it does not follow that the
obligation to pay the tax arises as of that date. The time for payment is clearly fixed by
law.

13. Law at time of death applicable
It is well-settled that estate (or inheritance) taxation is governed by the statute in
force at the time of the death of the decedent. The taxpayer cannot foresee and ought
not to be required to guess the outcome of pending legislative bills or measures.

Of course, the tax may be made retroactive in its operation. But legislative intent that
a tax statute should operate retroactively should be perfectly clear.