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TRANSFER TAXES of the decedent and for the benefits

that accrue to the heirs


 TRANSFER TAXES- taxes imposed b. State-partnership theory- tax is in
upon the privilege granted by the state to share of the state as passive and
the taxpayer so that he may transfer silent partner in accumulation of
properties, real or personal, without property
consideration c. Ability to pay theory- tax is based
 Nature are excise or privilege taxes and on act that receipt of inheritance
not taxes on property creates ability to pay and contribute
 Kinds: to governmental income
a. Estate Tax- tax LACP upon transfer d. Redistribution of wealth theory-
of net estate of decedent to his heirs tax is imposed to help reduce undue
b. Donor’s Tax- tax LCP upon privilege concentration of wealth in society
of transferring property gratuitously  Executor or administrator shall not
by way of gift inter vivos deliver distributive share to heirs unless
 Difference of estate and donor: there is certification from CIR that estate
Estate Donor tax has been paid
During  Only natural person are liable for estate
Upon one’s
Tax on: one’s tax as juridical persons cannot die
death
lifetime
 NET ESTATE- value of gross estate less
6% in
Tax rate: 6% excess of the ordinary and special deductions
250k - For RC,NC,RA- equal to gross estate
Net gifts less ordinary and special deductions
Net estate and exclusions
given
transferred - For RA- equal to gross estate less
Computation: during
at the time ordinary deductions and exclusions
calendar
of death
year  GROSS ESTATE- value of all property of
 Law at the time of transfer governs the decedent wherever situated to the extent
imposition of transfer taxes of his interest at the time of his death
- For RC,NC,RA- all properties
ESTATE TAXES
wherever situated
 Estate tax is paid at the time the estate - For NA- only properties situated in
tax return is filed by the executor, PH
administrator or heirs  Intangible property is taxed based on
 Period to file estate tax return is within domicile of owner
one year from death of decedent - Also ff are deemed located in PH:
- Except in meritorious cases, can be a. Franchises being exercised in PH
extended 30 days if granted b. Shares, obligations, or bonds
 ESTATE TAX- tax levied, assessed, issued by entities located in PH
collected and paid upon the privilege of c. Shares, obligations or bonds
gratuitously transferring the net estate of issued by foreign corporation
a decedent to his heirs  At least 85% of business
 Purpose of imposing estate tax: located in PH which have
a. Generate additional revenue for acquired situs in PH
government d. All intangibles owned by
b. Reduce concentration of wealth residents
c. Provide equal distribution of wealth  Reciprocity as applied to intangibles of
d. Most appropriate and effective NA means that a foreign country which
method for taxing the decedent was a citizen or resident at
e. Only method of collecting share time of his death did not impose an estate
which is properly due to state as tax or allowed similar exemption from
partner in the accumulation of estate tax with respect to intangible
property personal property owned by Filipino not
 Different theories: residing in that foreign country
a. Benefit-received theory- tax is in - Reciprocity must be total
return for the services rendered by  Items included in gross estate:
state in the distribution of the estate a. Decedent’s interest at time of death

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b. Transfers in contemplation of death vanishing deduction on
c. Revocable transfers – transfer where property was allowed to
transferor has reserved his right to estate of prior decedent
alter, amend or revoke such transfer 3. Transfer of public use- for
d. Property under general power of exclusively public purpose
appointment- donor gives donee b. Special deductions
power to appoint any person as 1. Family home- up to 10M
successor 2. Standard deduction- up to 5M
 If Special power not form part (500k for NA)
of gross estate 3. Medical expenses- incurred by
e. Proceeds of life insurance taken out decedent within 1 year prior his
by decedent upon his own life where death
beneficiary is the estate or any 4. Amount received by heir under
beneficiary designated as revocable RA 4917
 If irrevocable shall not form  Amounts received from
part of gross estate decedent’s employer as
f. Transfers for insufficient consequence of death of
consideration decedent-employee as
 Deductions from estate: retirement benefits
a. Ordinary deductions: - NA cannot avail of special deductions
1. Expenses, losses, c. Share in conjugal property
indebtedness, taxes, etc.  Exclusions from estate:
 Funeral expenses must be a. Exclusive property of surviving
incurred up to time of spouse
interment b. GSIS proceeds
 Judicial expenses must be c. Accruals from SSS
incurred during settlement of d. Proceeds of life insurance where
estate but not beyond beneficiary is irrevocably appointed
6months or extension of filing e. Proceeds of life insurance under
estate tax return group insurance
 Claims against the estate f. War damage payments
existing at the time of his g. Transfer by way of bona fide sales
death h. Transfer of property to govt
 Claims against insolvent i. Merger or usufruct in owner of naked
persons title
 Unpaid mortgage or j. Properties held in trust by decedent
indebtedness on property k. Acquisition and/or transfer expressly
 Unpaid taxes accrued before declared as not taxable
death  Tax credit against Philippine estate is
 LOSSES are deductible: allowed for estate taxes paid to foreign
a. Incurred during countries
settlement of estate  Acquisitions and transmission
b. Arouse from force exempted:
majeure 1. Merger of usufruct in owner of the
c. Not compensable naked property
d. Not claimed as deduction 2. Transmission or delivery of
for income tax inheritance or legacy by fiduciary
e. Incurred not later than last heirs or legatee to fideicommissary
day for payment of estate 3. Transmission from first heirs in favor
tax of another beneficiary in accordance
2. Vanishing deduction- deduction with desire of testator
allowed on property left behind by 4. All transfers to social welfare, cultural
decedent which he had acquired and charitable institutions, no part of
previously by inheritance or income of which inures to benefit on
donation individual provided that not more than
 Requisites: death, identity 30% of said transfer shall be used for
inclusion and previous admin purpose
taxation of property, no

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 When notice of death required to be  Donor’s tax is imposed on donations inter
given to BIR: vivos at 6% in excess of 250k during
a. All cases of transfers subject to tax calendar year
b. If gross value of estate exceeds 200k  Law governs is the statute in force at time
even exempt from tax of transfer
- To be given 2 months after death or  DONOR’S TAX- excise tax imposed on
within same period after executor or privilege to transfer property by way of
administrator qualifies gift inter vivos based on pure act of
 When estate tax return is required: liberality without any or less than
a. Estate is subject to estate tax adequate consideration and without any
b. Regardless of value of estate when legal compulsion to give
said estate consist of registered  Purpose:
property for which clearance from a. Raise revenues
BIR is required as condition b. Tax the wealthy and reduce certain
precedent for transfer of ownership other excise taxes
- Should be filed within 1 year from c. Discourage inter vivos transfers
death xcp: in meritorious cases d. Reduce incentive to make gifts in
- Estate tax returns showing gross order that distribution of future
value exceeding 5M must be certified income from donated property may
by CPA be to a number of persons
 When estate tax should be paid:  Requisites of valid donation:
- GR: at time return is filed a. Capacity of donor
 Exceptions: b. Donative intent
1. Not to exceed 5 years if c. Delivery of gift
estate is settled judicially d. Acceptance by donee
2. Not to exceed 2 years if e. Form prescribed by law
estate is settled  Donation of movable requisites:
extrajudicially a. Donation may be oral or in writing
- Shall be paid wholly by executor or b. If oral, accompanied by delivery
administrator before delivery of c. If value is more than 5k, donation
distributive share (if not subject to must be in writing and accepted in
criminal liability) writing
- Estate tax with insufficient cash is  Donation of immovable requisites:
allowed to pay estate tax by a. Must be in public instrument
installment within 2 years from b. Property donated and value of
statutory date for its payment without charges which the donee must satisfy
civil penalty and interest must be specified
- Estate tax may be collected even c. Donee must accept through deed or
after distribution to heirs as liability of similar instrument
heir cannot exceed amount of his  Requirements for donation to be
share subject to donor’s tax:
- 2 ways BIR can recover: a. Property is not real property that is a
a. From the heirs who shall share capital asset
proportionately b. Transfer is for less than adequate
b. Against property held by heir if consideration
same is sufficient to cover whole c. Transfer is inter vivos
tax liability (heir who paid can  Transfers constituted as donations:
seek reimbursement) a. Sales, exchanges and other transfers
 Approval of probate court not mandatory of property less than adequate and
requirement in collection of estate taxes full consideration
 Banks shall allow withdrawals from - Except real property considered as
decedent’s deposit account subject to capital assets
6% final withholding tax - Amount by which the FMV of property
DONOR’S TAX exceeded value of consideration is
considered gift

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b. Condonation or remission of debt d. Athlete’s prizes and awards
where debtor did not render service  Political contributions duly reported to
in favor of creditor COMELEC are not subject to donor’s tax
- General renunciation by heir is not (in accordance with RA 7166-
subject to donor’s tax 11/25/1991)
 Except if renunciation is in  Donor is liable for donor’s tax
favor of specific person,  Husband and wife are separate and
subject to tax distinct taxpayer for purposes of donor’s
 Liable are natural (RC,NC,RA,NA) tax
persons and juridical (domestic and
foreign) persons TAX REMEDIES
 GROSS GIFT- all property that is given  ASSESMENT:
by donor to donee by way of gift, without a. Official action of an administrative
benefit of any deductions officer in determining the amount of
 NET GIFT- net economic benefit from the tax due from a taxpayer
transfer that accrues to the donee b. Notice to effect that amount therein
 Same rules in estate tax for gross estate stated is due from taxpayer as tax
determination with a demand for payment of the tax
 Foreign corps donating property located or deficiency stated therein
in PH are subject to donor’s tax  CIR may not be compelled by mandamus
- Donation of foreign corp of its own to impose a certain tax assessment
shares of stock in favor of resident  Types of Assessments:
employees is not subject to donor’s a. Self-assessment- taxpayers himself
tax computes and pays without
 Except if 85% of its business intervention and file tax return
is located in PH or shares b. Deficiency assessment- assessment
donated acquired business made by BIR after conduct of audit
situs in PH when it finds tax return filed by
 Exemptions from gross gifts: taxpayer contains an under-
a. Dowries or donations made on declaration or non-filing
account of marriage before its c. Jeopardy assessment- doubtful
celebration or within one year assessment without benefit of a
thereafter by parents to each of their complete or partial audit by
legitimate, recognized natural or authorized revenue officer who has
adopted children reason to believe that deficient tax
b. Gifts made to or for use of national will be jeopardized by delay
government or any entity not  Requisites of valid assessment:
conducted for profit 1. Formal letter of demand and
c. Gifts in favor of education or assessment notice issued by CIR or
charitable, religious, cultural or social duly authorized representative
welfare corporation, institution, 2. Letter of demand calling for payment
accredited NGO, trust or of deficiency tax and shall state the
philanthropic organization or facts, law, rules and regulations or
research institution provided not jurisprudence which the assessment
more than 30% of said gifts will be is based
used fby such donee for admin 3. Sent to taxpayer by registered mail or
purpose personal delivery
- Only 2 and 3 are allowed as  Assessment must also contain demand
exemptions to non-resident aliens for payment within prescribed period
 Additional exemptions to gross gift:  Assessment is deemed made when BIR
a. Encumbrances on property donated sends such notice to taxpayer
if assumed by donee  Tax assessments by tax examiners are
b. Donations made to entities exempted presumed correct and made in good faith
under special laws - Except when CIR comes out with
c. Amount specifically provided by naked assessment
donor as diminution of property  If revenue officer was not given
donated opportunity to examine taxpayer’s

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documents, they are authorized to gather  Authority of CIR to prescribe real estate
information from third parties values must be done upon consultation
 Constructive methods of income with competent appraisers both from
determination: public and private sectors
a. Percentage method  CIR has no authority to inquire into bank
b. Net worth method- unexplained deposits except:
increase in net worth of taxpayer is a. Decedent to determine his gross
presumed to be derived from taxable estate
sources b. Taxpayer who filed application for
c. Bank deposit method compromise of his tax liability by
d. Cash expenditure method reason of financial incapacity
e. Unit and value method c. Specific taxpayers subject of request
f. Third party information or access to for exchange of info by foreign tax
records method authority pursuant to an agreement
g. Surveillance and assessment on tax matters provided requesting
method foreign tax authority is able to
 When is taxpayer considered delinquent: demonstrate foreseeable relevance
1. Self-assessed tax per return filed by of certain information
taxpayer on prescribed date was not d. Taxpayer has signed waiver
paid at all or only partially paid authorizing CIR to inquire into his
2. Deficiency tax assessed by BIR bank deposits
became final and executory  CIR has authority to accredit and register
 What is tax deficiency: tax agents
1. Amount which tax imposed exceeds  BIR can obtain all relevant records and
the amount shown as the tax by the data in person of taxpayer without his
taxpayer upon his return consent
2. Amount by which the tax exceeds the
amount previously assessed
- If taxpayer is delinquent, he is
subjected to civil penalty or
surcharge or interests
POWERS OF CIR IN ASSESSMENT

 Taxpayer may no longer withdraw tax


return
- But he may amend it provided:
a. It is made 3 years from filing; and
b. No notice for audit or
investigation has been actually
served
 Assessment must be made on “best
evidence obtainable” including the
corporate and accounting records of
taxpayer
 If there is reason to believe that taxpayer
is not declaring his correct income, sales
or receipts, the CIR has authority to
conduct inventory-taking, surveillance
and to prescribe presumptive gross sales
and receipts
 CIR can terminate taxable period of
taxpayer when:
1. Retiring from business
2. Intending to leave country
3. Removing his property
4. Obstructing tax collection