Metro Pacific Corporation vs.

CIR
CTA Case No. 8318, June 11 2014

DOCTRINE:
In case where property 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 (FMV) of the property exceeded the value of the
consideration shall be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year.

FACTS:
Petitioner MPC sold to ColmbusHoldings, Inc. (CHI) 2,597,197 common shares in Bonifacio Land Corporation
(BLC). Further, petitioner, through Atty. Tagao, requested respondent for "confirmation that the sale
ofBonifacio Land Corporation (BLC) shares of stocks owned by MPC to Columbus Holdings, Inc. (CHI) is not
subject to donor's tax as provided in Section 100 of the Internal Revenue Code] as it is an ordinary business
transaction negotiated in good faith by unrelated parties for legitimate business purposes.

Petitioner, as seller, filed CGT Return with the BIR LTS-Regular and the DST. The said CGT return showed
that there was no tax due or paid for the transaction. The CIR confirmed that the sales transaction over the
BLC shares between petitioner as seller and CHI as buyer is not subject to donor's tax because it is an
ordinary commercial transaction negotiated in good faith between unrelated parties and motivated by
legitimate business reasons.

Later, petitioner received a Notice for Informal Conference (Notice) from respondent BIR LTS-Regular,
informing petitioner that the subject transaction is actually subject to donor's tax.

In response, petitioner wrote respondent requesting for the re-evaluation of the factual information presented
by petitioner and for the cancellation of the tax assessment shown in the Notice, which was received by
respondent through the BIR LTS-Regular. Petitioner received BIR LTSRegular a Final Assessment Notice
(FAN), details of discrepancy and Audit Result/ Assessment Notice, reiterating its demand for payment of
deficiency donor's tax. Petitioner filed its formal protest, however, the same was denied by the respondent.
Thus, the petitioner filed the instant Petition for review.

ISSUE: Whether or not MPC is liable for the deficiency donor's tax assessment.

HELD: YES. Petitioners claim for donor’s tax exemption has no legal basis.

Section 100 of the 1997 NIRC, as amended, is clear that in case where property 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 (FMV) of the property exceeded the value of the consideration shall be deemed a gift, and shall be
included in computing the amount of gifts made during the calendar year. It is thus, important to determine the
"fair market value" (FMV) of the property sold or transferred, and whether it exceeded the value of the
consideration. Petitioner alleges, on the assumption that the subject shares were sold for less than their "fair
market value", that the subject transaction was an ordinary business transaction negotiated in good faith by
unrelated parties for legitimate purposes operate to exclude the subject transaction from the coverage of
Section 100 of the NIRC, the same being a transfer which is bona fide, at arm's length. After a careful
reading of the bases cited by petitioner, the court find that the alleged exemption/exception from the donor's
tax under the said provision of law was not clearly established therein.
GESTOPA VS. CA FACTS- Acceptance in Donation

Acceptance is a mark that the donation is inter vivos. Donations mortis causa, being in the form of a will, are
not required to be accepted by the donee during the donor’s lifetime.

FACTS:

Spouses Danlag own six parcels of land. To four parcels of land, they executed a donation mortis causa in
favor of respondent Mercedes Danlag-Pilapil, reserving donor's rights to amend, cancel, or revoke the
donation and to sell or encumber such properties. Years later, they executed another donation, this time inter
vivos, to six parcels of land in favor of respondents, reserving their rights to the fruits of the land during their
lifetime and for prohibiting the donee to sell or dispose the properties donated. Subsequently, the spouses
sold 2 parcels to herein petitioners, spouses Gestopa, and eventually revoking the donation. Respondent filed
a petition to quiet title, stating that she had already become the owner of the parcels of land. Trial Court ruled
in favor of petitioners, but CA reversed.

ISSUE:

Whether the (second) donation was inter vivos or mortis causa

RULING:

It was donation inter vivos. The spouses were aware of the difference between the two donations, and that
they needed to execute another deed of donation inter vivos, since it has a different application to a donation
mortis causa. Also, the court stated four reasons to the matter: (1) that the spouses donated the parcels of
land out of love and affection, a clear indication of a donation inter vivos; (2) the reservation of a lifetime
usufruct; (3) reservation of sufficient properties for maintenance that shows the intention to part with their six
lot; and (4) respondent's acceptance, contained in the deed of donation. Once a deed of donation has been
accepted, it cannot be revoked, except for officiousness or ingratitude, which the spouses failed to invoke.
TANG HO V BOARD OF TAX APPEALS
97 PHIL 890 November 19, 1955

FACTS
-Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho and their thirteen children
appear to be stockholders of two close family corporations named Li Seng Giap & Sons, Inc. and Li Seng
Giap & Co. Examiners of the Bureau of Internal Revenue made an examination of the books of the two
corporations and found that each of Li Seng Giap's 13 children had a total investment therein of
approximately P63,195.00, in shares issued to them by their father in the years 1940, 1942, 1948, 1949, and
1950 The Collector of Internal Revenue regarded these transfers as undeclared gifts made in the respective
years, and assessed against Li Seng Giap and his children donor's and donee's taxes in the total amount of
P76,995.31, including penalties, surcharges, interests, and compromise fee due to the delayed payment of
the taxes. The petitioners paid P53,434.50 representing the amount of the basic taxes, and put up a surety
bond to guarantee payment of the balance demanded. On June 25, 1951, they requested the Collector of
Internal Revenue for a revision of their tax assessments, and submitted donor's and donee's gift tax returns
Appellants admit that the gifts were not reported; but contend that as the cash donated came from the
conjugal funds, they constituted individual donations by each of the spouses Li Seng Giap and Tang Ho of
one half of the amount received by the donees in each instance They also claimed the benefit of gift tax
exemptions (under section 110 and 112 of the Internal Revenue Code) at the rate of P2000 a year for each
donation, plus P10,000 for each gift propter nuptias made by either parent The Collector refused to revise his
original assessments; and the petitioners appealed to the then Board of Tax Appeals The Board of Tax
Appeals upheld the decision of the respondent Collector of Internal Revenue; hence, this petition for review

ISSUE WON the donations made by petitioner Li Seng Giap to his children from the conjugal property are
taxable against husband and wife, and therefore, exemptions may be claimed twice

HELD No.
Appellants submit that all such donations of community property are to be regarded, for tax purposes, as
donations by both spouses, for which two separate exemptions may be claimed in each instance, one for
each spouse. This presentation should be viewed in the light of the provisions of the Spanish Civil Code of
1889. Arts. 1409 and 1415, reading as follows: Art. 1409. The conjugal partnership shall also be chargeable
with anything which may have been given or promised by the husband to the children born of the marriage
solely in order to obtain employment for them or give them a profession, or by both spouses by common
consent, should they not have stipulated that such expenditures should be borne in whole or in part by the
separate property of one of them. ART. 1415. The husband may dispose of the property of the conjugal
partnership for the purposes mentioned in Art. 1409. In effect, these Articles clearly refute the appellants'
theory that because the property donated is community property, the donations should be viewed as made by
both spouses. First, because the law clearly differentiates the donations of such property "by the husband"
from the "donations by both spouses by common consent" Next, the wording of Arts. 1409 and 1415 indicates
that the lawful donations by the husband to the common children are valid and are chargeable to the
community property, irrespective of whether the wife agrees or objects thereof. Obviously, should the wife
object to the donation, she can not be regarded as a donor at all. Appellants herein are therefore in error
when they contend that it is enough that the property donated should belong to the conjugal partnership in
order that the donation be considered and taxed as a donation of both husband and wife, even if the husband
should appear as the sole donor. There is no blinking the fact that, under the old Civil Code, to be a donation
by both spouses, taxable to both, the wife must expressly join the husband in making the gift; her participation
therein cannot be implied. The consequence of the husband's legal power to donate community