Tax II

A. Transfer Taxes
1) Estate Tax
a) Basic Principles, Concept, and Definition –
A. It is an excise tax imposed upon the privilege of transmitting property at the time of death and
the privilege that a person is given in controlling to a certain extent the disposition of his
property to take effect upon death
B. A transmission by inheritance is taxable at the time of the predecessor’s death,
notwithstanding the postponement the actual possession or enjoyment of the state by the
beneficiary (Lorenzo v. Posadas)
b) Nature, Purpose and Object –
A. Characteristics – 1) Transfer tax; 2) Excise Tax; 3) Progressive Tax; 4) National Tax; 5) Ad
Valorem Tax; 6) Direct Tax; and 7) General Tax
B. Purpose –
a. To Generate Additional Revenue
b. To Reduce concentration of wealth
c. To Compensate the government for the protection given to the decedent that enabled
him to prosper and accumulate wealth
C. Time and Transfer of Properties – A transmission by inheritance is taxable at the time of the
predecessor’s death, notwithstanding the postponement the actual possession or enjoyment of
the state by the beneficiary (Lorenzo v. Posadas)
c)
d) Classification of decedent –
e) Gross Estate v. Net Estate –
A. 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
B. Net Estate -
f) Inclusions to the Gross Estate –
A. Decedent’s Interest – To the extent of the interest of the decedent at the time of his death;
a. For residents and citizens, gross estate includes ALL properties, real or personal,
tangible or intangible, WHEREVER situates.
b. For non-residents, gross estate includes only properties situated in the Philippines
c. Except with respect to INTANGIBLE personal property, its inclusion to the gross estate
is the subject to the rule of reciprocity.
i. If the foreign country of the non-resident alien does not impose a transfer tax of
any character on the IPP of Filipino not residents of that foreign country; or
ii. The foreign country of the non-resident alien allows a similar exemption from the
transfer tax in respect of IPP owned by Filipinos not resident of that foreign
country
iii. Reciprocity must be total. If two states or countries collects or imposes and does
not exempt any transfer, death, legacy, or successional tax of any character,
reciprocity does not apply (CIR v. Fisher)
d. Also includes any interest or right in the nature of property, but less than title, having
value or capable of having value, like
i. Dividends declared, but paid after death
ii. Partnership profits
iii. Right of usufruct
e. The following are intangible personal properties located in the Philippines:
i. Franchise which must be exercised in the Philippines
ii. Shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws
iii. Shares, obligations or bonds issued by foreign corporation 85% of this business
of which is located in the Philippines
f. There may be properties which at the time of the decedent’s death, are not in the estate
because they were transferred by him during his lifetime (included in GE)
 i. Transfers in contemplation of death;
ii. Revocable transfers;
iii. Transfers under a general power of appointment
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 a transfer, 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 bona fide sale for an adequate and full consideration in money
or money’s worth
a. A transfer in contemplation of death is a transfer motivated by the thought of death,
although death may not be imminent
C. Revocable Transfer – A revocable transfer is a transfer where the terms of the enjoyment of
the property may be altered, amended, revoked, or terminated by the decedent
a. It is sufficient that the decedent had the power to revoke, though he did not exercise the
power to revoke
D. Property Passing Under General Power of Appointment – A power of appointment refers to the
right to designate the person or persons who will succeed the property of a prior decedent
a. One which may be exercised in favor of anybody (will) *included in the GE
b. A limited power of appointment is one which may be exercised only in favor of a certain
person or persons designated by the prior decedent *not included in the GE
E. Proceeds of Life Insurance – Proceeds of LIFE insurance under policies taken out by the
DECEDENT upon his life shall constitute part of the gross estate if the beneficiary is:
i. The ESTATE of the DECEDENT, his executor, administrator AS SUCH; or
ii. A third person, and the designation of the beneficiary is revocable
iii. **Doesn’t matter if revocable or not. As long as beneficiaries are above
b. The Insurance Code states that the designation of a beneficiary is generally revocable
i. Except when the policy states that the designation is irrevocable. If so, proceeds
aren’t part of the estate.
 ii. **Proceeds are excluded from Estate, provided:
1. Irrevocable; and
2. Payable to beneficiary other than estate, executor, and administrator
F. Prior Interests – (B), (C), and (E) 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 for Insufficient Consideration –
a. In transfers in contemplation of death, revocable transfer, or transfer under a GPA, the
value to include in the gross estate will be determined under the ff rules:
i. If the transfer was in the nature of a bona fide sale for an adequate and full
consideration in money or money’s worth, no value will be included in GE;
ii. If consideration received was LESS THAN adequate and full, the value to include
in the gross estate will be the excess of the fair market value at the time of the
decedent’s death over the consideration received;
iii. If the was NO CONSIDERATION received on the transfer (mortis causa), the
value to include in the gross estate will be the fair market value of the property at
the time of the decedent’s death
H. Capital of the Surviving Spouse – The Capital of the surviving spouse of the decedent shall
not, for the purpose of this Chapter, be deemed part of his or her gross estate
a. When it comes to transfers done during the lifetime of a decedent, there is a disputable
presumption that the transfers are in contemplation of death if the recipients are
compulsory heirs

g) Deductions and Exclusions from the Gross Estate –

A. Deductions – for citizens or residents only
a. Ordinary Deductions –
i. Expenses, losses, indebtedness, taxes, etc.
1. Funeral expenses – Amount of actual funeral expenses, or an amount
equal to 5% of the GE, whichever is LOWER – but not to exceed P200k.
Includes:
 a. Mourning apparel of surviving spouse and the unmarried minor
children of the deceased
b. Expenses for the wake
c. Publication charges for death notices
d. Telecommunication expenses incurred in informing the relatives of
the deceased
e. Cost of burial plot, tombstones, monument or mausoleum (BUT
NOT THEIR UPKEEP)
f. Interment and/or cremation fees and charges, and
g. All other expenses incurred for the performance of the rites and
ceremonies incident to internment.
h. Cut-off point is internment
i. *value of memorial plan should be included in the GE
2. Judicial expenses of testamentary or intestate proceedings – Expenses
incurred during the settlement of the estate, but not beyond the last day
prescribed by law for the filing of the estate tax return, or the extension
period allowed. Includes
a. Fees of the executor or administrator;
b. Attorney’s fees;
c. Court fees;
d. Accountant’s fees;
e. Appraiser’s fees;
f. Clerk hire;
g. Cost of preserving and distributing the estate;
h. Cost of storing or maintaining property of the estate;
i. Brokerage fees for selling property of the estate
3. Claims against the estate - Debt or demands of a pecuniary nature which
could have been enforced against the deceased in his lifetime and could
have been reduced to simple money judgments. If enforceable against
him when he was alive, the obligations will be claims against his estate
when he dies. Requisites:
 i. The liability must represent a personal obligation of the
deceased at the time of his death
ii. Liability was contracted in good faith and for adequate and
full consideration
iii. Claim must be a debt or claim which is valid in law and
enforceable in court, and
iv. Indebtedness must no have been condoned by the creditor
during the lifetime of the decedent, or the actions to collect
must not have prescribed. If debts were condoned AFTER
decedent’s death, the debts are deductible following the
date-of-death valuation rule (Dizon v. CTA)
b. If the claim arose out of a debt instrument, the debt instrument must
be notarized. EXCEPT for loans granted by financial institutions
where notarization is not part of business practice
c. If the loan was granted within three years before the death of the
decedent, the admin or executor must submit a statement showing
the disposition of the proceeds of the loan
d. If a monetary claim against the decedent did not arise out of a debt
instrument, the requirement of a notarized debt instrument does not
apply
e. There is no requirement to add the amount to the gross estate.
DIRECT DEDUCTION
4. Claims against insolvent persons – Claims of the deceased against
insolvent persons where the value of the decedent’s interest therein is
included in the value of the gross estate
a. Subject to the condition that the full amounts of the receivables are
first included in the gross estate
b. Deduction from the GE will be the uncollectible portion
5. Unpaid mortgage or indebtedness on property – The mortgage or
indebtedness will be claimed as a deduction from the gross estate
 a. If the loan is merely an accommodation load, where the proceeds
of the loan went to another person, the value of the unpaid loan
must be included in the receivable of the estate
b. In the cases of claims against insolvent persons and unpaid
mortgage/indebtedness on property, it is imperative that the values
of each are first added to the gross estate
i. Zero-Sum computations – They do not really benefit the
heirs because these transactions were not supposed to be
part of the gross estate anyway
6. Taxes paid – Deductions form the gross estate if such taxes accrued
PRIOR to the decedent’s death. Cannot be deducted:
a. Income tax on income received after death;
b. Property taxes not accrued before death;
c. Estate tax
7. Losses – deductible form the GE if:
a. Arising from fire, storm, shipwreck, or other casualty, robbery, theft,
or embezzlement;
b. Not compensated by insurance or otherwise;
c. Not claimed as a deduction on an income tax return of the estate
subject to income tax;
d. Occurring during the settlement of the estate; and
e. Occurring before the last day for the payment of the estate tax
ii. Transfers for Public Use – Dispositions in a last will and testament, or transfer to
take effect after death, in favor of the Government, or any political subdivision
thereof, for exclusively public purposes
1. You can deduct the value of the property transferred to the gov’t.
iii. Vanishing Deductions – Property may change hands within a very short period of
time by reason of the early death of the owner who received it by inheritance or
donation. Vanishing deductions are allowed when:
1. The present decedent died within 5 years from receipt of the property from
a prior decedent or donor;
 2. The property on which the vanishing deduction is being claimed must be
located in the Philippines;
3. The property must have formed part of the taxable estate of the prior
decedent, or of the taxable gift of the donor;
4. The estate tax on the prior succession or the donor’s tax on the gift must
have been finally determined and paid;
5. The property must be identified as the one received from the prior
decedent or donor, or something acquired in exchange therefore;
6. No vanishing deduction on the property was allowable to the estate of the
prior decedent
b. Special Deductions
i. Family Home – Amount equivalent to the current FMV of the decedent’s family
home, but max of P1M only.
1. Should be certified by the barangay captain of the locality where it is
located
2. For a person married at the time of death, and who was under a system of
conjugal partnership or absolute community, the deduction of the family
home is ½ of the FMV, but should not exceed 1M.
ii. Standard deduction of P1M (removed under TRAIN);
iii. Medical Expenses – All medical expenses incurred, whether PAID or UNPAID,
within 1 YEAR before the death of the decedent shall be allowed as a deduction,
provided:
1. That the same are duly substantiated with OR, and
2. Total amount must not exceed P500k
iv. Amounts received by heirs under RA 4917 – Retirement benefits received by
employees of private firms on accordance with a reasonable benefit plan
maintained by the employer are EXEMPT from all taxes, provided that the retiring
employee has been in the services of the same employer for at least 10 years
and is not less than 50 years old at the time of his retirement. The amount must:
1. Have been received by the heirs of the decedent-employee as a
consequence of the latter’s death, and
 2. Included in the gross estate of the decedent
c. Deductions allowed to Nonresident Estates – A non-resident decedent who was not a
citizen at the time of death, with properties within and outside the Philippines, is subject
tot ax only on his estate within the Philippines.
i. Expenses, losses etc. – (GE, Philippines/GE, World) x World Expenses, losses,
etc.
ii. Non-resident is not allowed deduction for:
1. Family Home;
2. Standard deduction;
3. Medical Expenses; and
4. RA 4917
h) Tax Credit for Estate paid in Foreign Country – The tax imposed shall be credited with the amounts
of any estate tax imposed by the authority of a foreign country. Limitations on credit:
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
a. Tax Credit Limit = (Net Foreign Estate/Entire Net Estate) x Tax here in Ph
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 is taxable
under this Title bears to his entire net estate
a. Tax Credit Limit = (Total Foreign Net Estate/Entire Net Estate) x Tax here in Ph
C. **Choose between A or B
i) Exemption of certain acquisitions and transmissions – The following are exempt from estate tax:
1. Merger of usufruct in the owner of the naked title;
2. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;
3. Transmission from the 1st heir, legatee or done in favor of another beneficiary in accordance
with the desire of the predecessor;
4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income inures to the benefit of any individual, provided that no
 more than 30% of the said bequests, devises, legacies or transfers shall be used by such
institutions for the administration purposes
5. Irrevocable life insurance to someone other than the estate, administrator, or executor;
6. GSIS/SSS benefits;
7. Retirement benefits of private firms approved by the BIR; and
8. Separate property of the surviving spouse
j) Estate Tax Returns – In all cases of transfers subject to the tax imposed herein, or where, though
exempt from tax, the gross value of the estate exceeds P200k, or regardless of the gross value of
the estate, where the said estate consists of registrable property such as real property, motor
vehicle, shares of stock or other similar property for which a clearance from the BIR is required as a
condition precedent for the transfer of ownership thereof in the name of the transferee, the
executor or administrator, or any of the legal heirs, as the case may be, shall file a return under oath
in duplicate, setting forth:
A. Requirements –
a. Value of the Gross estate at the time of the death of the decedent;
b. Deductions allowed from the gross estate;
c. 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
d. Provided, however, that estate tax returns showing a gross value exceeding P2M shal
be supported with a statement duly certified by a CPA containing:
i. 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
the part of his GE in the Ph;
ii. Itemized deductions from the GE allowed in Sec. 86; and
iii. Amount of tax due whether paid or still due and outstanding
B. Time for Filing – Estate tax return required shall be filed within 6 months from the decedent’s
death.
C. Extension of Time – Commissioner shall have to authority to extend 30 days for filing or return
D. Place of Filing – With an authorized agent bank, or Revenue District Officer , or duly
authorized Treasurer of the city where the decedent is domiciled
 E. A return need not be complete in all particulars. It is sufficient if it complies substantially with
the law. There is substantial compliance when:
a. Return is made in GF
b. Covers the entire period involved; and
c. Contains information as to the various items of income, deductions and credits with
such definiteness as to permit the computation and assessment of the tax (CIR v.
Gonzales).

2) Donor’s Tax
a) Basic Principles, concept and definition – Donor’s tax will be levied, assessed, collected and paid
upon the transfer by any person, resident, nonresident of the property by gift
a. Property can be real or personal, tangible or intangible
b. Transfer can be in trust or otherwise
c. Gift can be direct or indirect
B. The donor’s 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 done;
it is completed by delivery, either actually or constructively, of the donated property to the done.
Thus, the law in force at the time of the perfection/completion of the donation shall govern the
imposition of the donor’s tax.
C. A gift that is incomplete because of reserved powers becomes complete when either:
a. The donor renounces the power; or
b. His right to exercise the reserved power ceases because of the happening of some
event or contingency or the fulfillment of some condition, other than because of the
donor’s death
b) Nature, Purpose and Object –
c) Time and Transfer of Properties –
d) Requisites of a Valid Donation –
e) Classification of Donor –
f) Persons Liable –
g) Tax Basis –
h) Determination of Composition of Gross Gift –
 i) Valuaiton of Gifts Made –
j) Transfers which may constitute as donation –
k) Tax Credit for Donor’s Taxes paid in Foreign Country –
l) Exemption from Donor’s Tax –

3) Relevant Jurisprudence and Administrative Issuances

a) Rafael Arsenio Dizon v. CTA GR 140944 April 30, 2008
b) Abello v. CIR GR 120721 February 23, 2005
c) RR 12-2018
d) RR no. 13-98(a)
e) RMC no. 86-2014