Business and Transfer Taxes

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Donor’s Tax

Module 9: Donor’s Tax

At the end of this module, you will be able to:

1. Discuss the nature of donor taxes
2. Differentiate onerous transfer from gratuitous transfer of property
3. Distinguish between donor’s tax and estate tax

The term ‘donation’ is more often than not taken synonymously with the concept of having
‘freebies’ or ‘free’. However, donated properties do have their corresponding taxes. There
are different tax rates applicable. Donor’s tax is imposed on donation inter vivos, while
estate tax is imposed on transfer in the nature of testamentary dispositions. The rates of
tax for donor’s tax are lower than those for estate tax.

DONOR'S TAX
SEC. 98. Imposition of Tax. - (A) There shall be levied, assessed, collected and paid upon
the transfer by any person, resident or nonresident, of the property by gift, a tax, computed
as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible or intangible.
SEC. 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

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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 the Election Code, as amended.
SEC. 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.
SEC. 101. 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 philanthropic
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 philanthropic organization
and/or research institution or organization' is a school, college or university and/or
charitable corporation, accredited nongovernment organization, trust or philanthropic
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 philanthropy, to the accomplishment and promotion of the purposes enumerated in its
Articles of Incorporation.
(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, or to 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 philanthropic 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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Donor’s Tax

(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.
SEC. 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.
SEC. 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.
SEC. 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
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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, shall be 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 or 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 in 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.

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
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Donor’s Tax

10,000,000 1,004,000 15% 10,000,000

Let’s Practice:

A. Mr. Otoman donated the following properties:

To Laura, a legitimate daughter, on account of marriage, land with a fair market
value of Php 200,000 but subject to a mortgage of Php 25,000 which was paid by Mr.
Otoman.
To Mario, a legitimate son, on account of marriage, cash of Php 50,000.
Compute for the taxable net gift.

Land, to Laura Php 200,000

Cash, to Mario 50,000
Gross gift Php 250,000
Less allowed deductions
On Laura Php 10,000
On Mario 10,000 Php 10,000
Taxable net gift Php 240,000

B. Mrs. Santos made donation to Baste and Ava Santos, son and daughter-in-law, on
account of marriage, of a real property with market value of Php 1,250,000, but subject to a
mortage of Php 250,000 which was assumed by the donees.
Compute for the donor’s tax.
Gross gift: Relative Stranger
To Baste (Php 1,250,000 x ½ ) Php 750,000
To Carla (1,250,000 x ½) Php 750,000
Less allowable deductions:
Mortgage on property:
Php 500,000 x 50% (125,000) (125,000)
Dowry ( 5,000)
Taxable net gift Php 495,000 Php 500,000
Multiplied by tax rate on stranger 30 %
Tax due on donation to stranger Php 150,000
Tax due on donation to relative Php 21,750
Total donor’s tax due Php 171,700
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Glossary
Consanguinity: A close relation or connection
Lineal: Consisting of or being in a direct male or female line of ancestry
Philanthropic: Dispensing or receiving aid from funds set aside for humanitarian
purposes
Dividend: A share in a pro rata distribution (as of profits) to stockholders
Valuation : The estimated or determined market value of a thing
Gross estate: Real and personal property, whether tangible or intangible, or mixed,
wherever situated
Sociedad Anonima: Incorporated company
Abated : Decreased in amount or value
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Donor’s Tax

References and Supplementary Materials

Books
Revised EVAT Law (R.A. 9337)
The Comprehensive Tax Reform Program (R.A. 8424)
Ampongan, Omar (2012). Transfer and Business Taxation. Philippines.
Valencia and Roxas (2012). Transfer and Business Taxation. Baguio City. Valencia
Educational Supply.
De Leon (2012). Transfer and Business Taxation. Manila. Rex Bookstore

Online Supplementary Reading Materials

Bureau of Internal Revenue website; https://www.bir.gov.ph/; May 10, 2017

Journal
National Tax Journal. ISSN 0028-0283. National Tax Association

Video
http://wealthed.com/videos/estate-tax-vs-gift-tax/#.WdIgQ4-CzIU

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