GROSS ESTATE TAX

▰ Act 2601
– first estate tax law in the Philippines
– July 1, 1916
▰ Republic Act 8424
– “Tax Reform Act”
– January 1, 1998
WHAT IS ESTATE
TAX?
ESTATE TAX

▰ tax imposed on the “privilege” that a

person is given in controlling to a certain
extent; the disposition of his property to
take effect upon death.
JUSTIFICATION FOR THE
IMPOSITION OF ESTATE TAX

1. Benefit-Received Theory
2. Privilege or State Partnership Theory
3. Ability to Pay Theory
4. Redistribution of Wealth Theory
CLASSIFICATION OF TAXPAYERS AND
COMPOSITION OF GROSS ESTATE
 RECIPROCITY CLAUSE
There is reciprocity if:
▰ The decedent at the time of his death was
a resident citizen of a foreign country
which at the time of his death did not
impose an estate tax of any character in
respect of intangible personal property of
citizens of the Philippines not residing in
that foreign country; or
RECIPROCITY CLAUSE

▰ The laws of the foreign country of which

the decedent was a resident citizen at the
time of his death allow a similar exemption
from estate taxes of every character, in
respect of intangible personal property
owned by citizens of the Philippines not
residing in that foreign country.
INTANGIBLE ASSETS

▰ “identifiable non-monetary asset without

physical substance”
▰ intellectual or legal rights
 INTANGIBLE ASSETS

“MOBILIA SEQUNTUR PERSONAM”

Provided, that it
▰ situs of intangible personal is not applicable
if the intangible
property is the domicile of the property has a
situs elsewhere
owner. or has acquired
a business situs
in other
only used for jurisdiction.

convenience
 INTANGIBLE ASSETS WITH SITUS
WITHIN THE PHILIPPINES
▰ Franchise
▰ Shares, obligations or bonds issued by:
▻ any corporation or sociedad anomina organized or constituted in
the Philippines
▻ any foreign corporations which 85% of their business is located in
the Philippines
▻ any foreign corporations if such shares/obligations/bonds have
acquired business situs in the Philippines
▰ Shares or rights in any partnership, business or industry
INTANGIBLE ASSETS WITH SITUS WITHIN THE
PHILIPPINES
 VALUATION OF GROSS ESTATE

▰ amended under RA 10963; RR 12-2018

The following rules shall apply in determining the correct valuation of the estate:

1. In General Fair Market Value at the time of death

2. Real Property The higher between:
• FMV determined by the Commissioner; and
• FMV as shown in the schedule of values fixed by the
provincial and city assessors
3. Personal Property Fair Market Value at the time of death
4. Shares of Stocks  Unlisted common share: Book value per share of
the issuing corporation (Appraisal surplus shall not
be considered, as well as the assigned amount to
preference share, if any)
 Unlisted preference share: Par value per share
 Listed shares: FMV shall be the arithmetic mean
between the highest and lowest quotation at a date
nearest the date of death, if none is available on
the date of death itself.
5. Units of participation  The bid price nearest the date of death published
in any association, in any newspaper or publication for general
recreation or amusement circulation.
club (ie. Golf, polo, similar clubs)
6. Right to usufruct, use In accordance with the latest Basic Standard
or habitation, and Mortality Table taking into account the probable life of
annuity the beneficiary, to be approved by the Secretary of
Finance upon recommendation of the Insurance
Commissioner [Section 88(A)-NIRC)
EXEMPTIONS AND
EXCLUSIONS FROM THE
GROSS ESTATE
 EXCLUSIONS UNDER SECTIONS 85 AND
86 OF THE TAX CODE

1. EXCLUSIVE property of the SURVIVING SPOUSE.

 EXCLUDED because the properties are not owned by the
decedent upon his death.

NOTE: The Gross Estate in case of Married Decedents is composed of:

 The EXCLUSIVE PROPERTIES of the DECEDENT
 COMMON PROPERTIES of the decedent and the SURVIVING
SPOUSE
 Exclusive
Properties

CAPITAL (Husband) PARAPHERNAL

(Wife)
 EXCLUSIONS UNDER SECTION 87 OF THE
TAX CODE

1. The merger of usufruct in the owner of the naked title

▻ USUFRUCT – Right by one person over the property of
another
▻ Owner of the naked title – the person who is vested with
the ownership under the usufruct agreement. HE IS NOT
THE ABSOLUTE OWNER because HE HAS TO
RESPECT THE RIGHT of the usufructuary over the fruits
and use of the property
 x

X
Y
(Owner of the
(Usufruct)
Naked title)
 REMEMBER:

▰ The merger of the naked owner title to the usufruct is

DIFFERENT from the merger of usufruct in the owner
of the naked title.
 EXCLUSIONS UNDER SECTION 87 OF THE
TAX CODE

2. Transmission or delivery of the inheritance or legacy

by the fiduciary heir or legatee to the
fideicommissary
Elements of a fideicommissary substitution:
▰ The substitution must NOT go beyond one degree from the
heir originally instituted (i.e. father to son)
▰ The fiduciary and the fideicommissary must be both living at
the time of the testator’s death
ILLUSTRATION:

Grand Papa A, in his last will and testament

devised his parcel of land to Papa P
ILLUSTRATION:

It has a condition that the parcel of land should be

given to his grandson, Kid C when Papa P dies.
ILLUSTRATION:

• Papa P is acting only as a trustee or fiduciary until

such time that the parcel of land is transferred to Kid
C
• The transfer from Papa P to Kid C is known as
“Fideicommissary substitution”
• Upon the death of Grand Papa A, the parcel of land
should be included in his gross estate
• Upon the death of Papa P, the parcel of land should
be “EXCLUDED” in his gross estate because Papa
P is acting only as a trustee of Kid C
 EXCLUSIONS UNDER SECTION 87 OF THE
TAX CODE

3. Transmission from the first heir, legatee or donee in

favor of another beneficiary, in accordance with the
desire of the predecessor.
─ It is the same with the transmission of the inheritance by
the fiduciary heir to the fideicommisary, the difference is
that the relatives are apart by one degree, there is no
fiduciary substitution taking place, but the same rule
applies.
 EXCLUSIONS UNDER SPECIAL LAWS

1. Proceeds of life insurance and benefits received by members

of the GSIS (RA728).
2. Accruals and benefits received by members from the SSS by
reason of death.
3. Life insurance proceeds on life insurance policy taken out by
the decedent himself, upon his own life, where the beneficiary
is a third person and is irrevocably designated.
 EXCLUSIONS UNDER SPECIAL LAWS

4. Life insurance proceeds on Insurance policy (group

insurance) taken out by his employer on the employee’s life,
whoever the beneficiary maybe, whether the designation as
beneficiary is revocable or irrevocable.
5. Amounts received from Philippines and United States
governments for war damages (RA227)
 EXCLUSIONS UNDER SPECIAL LAWS

6. Payments from the Philippines of US government to the legal

heirs of deceased of World War II Veterans and deceased
civilian for supplies/services furnished to the US and
Philippine Army (RA136)
7. Amounts receiver from United States Veterans
Administration.
8. Transfer by way of bona fide sales.
9. Properties held in trust by the decedent.
 EXCLUSIONS UNDER SPECIAL LAWS

10. Acquisition and/or transfer expressly declared as not taxable.

11. Personal Equity and Retirement Account (PERA) assets of
the decedent-contributor (Sec. 14, RA 9505 – Personal Equity
and Retirement Account Act of 2008)
WHAT IS GROSS
ESTATE?
 GROSS ESTATE
- Consists of all properties and
interest in properties of the
decedent at the time of his death
as well as properties transferred
during lifetime (only in form), but
in substance was only
transferred at the time of his
death.
 INCLUSIONS IN THE GROSS ESTATE

A. Real properties and other tangible personal

properties

▰Land
▰Buildings
▰Shares of stock
▰Vehicles
▰Bank deposit
 INCLUSIONS IN THE GROSS ESTATE

B. Decedent’s interest and Intangibles

Decedent’s Interest – extent of equity or ownership

of the decedent on any property physically existing
and present in the gross estate whether or not in his
possession or control.
 INCLUSIONS IN THE GROSS ESTATE

B. Decedent’s interest and Intangibles

▰Dividends
▰Partnership Profit
▰Usufructuary
▰Share or rights in partnership
 INCLUSIONS IN THE GROSS ESTATE

C. Property NOT PHYSICALLY IN

THE ESTATE such as:
1. Transfer in contemplation of
death
• Disposition of property prompted by
thought of death
• Controlling motive
• Donation mortis causa
 INCLUSIONS IN THE GROSS ESTATE

Included in the gross estate the value of property

transferred by the decedent during his lifetime in
anticipation of his death such as:
a. Transfer of property in favor of another person, but the
transfer was intended to take effect only upon the
transferor’s death.
b. Transfer by gift intended to take effect at death, or after
death, or under which is the donor reserved the income right
to designate the persons who should enjoy the income.
 INCLUSIONS IN THE GROSS ESTATE

2. Transfer either retention or reservation of

certain rights
• The descendent have transferred his property
during his lifetime but retained for himself beneficial
enjoyment of the thing or the thing to receive income
from the same.
 INCLUSIONS IN THE GROSS ESTATE

3. Revocable Transfers
▰ Transfer where the terms of enjoyment of the property may
be altered, amended, revoked or terminated by the
decedent. The decedent have the power to revoke though
he did not exercise the power.
▰ It does not actually convey ownership over the property
transferred because it may be revoked anytime by the
testator.
 INCLUSIONS IN THE GROSS ESTATE

4. Transfers under power of appointment

▰ Transfers under a general power of appointment

▻ The power of appointment authorizes the donee of the
power to appoint any person he pleases. May be
exercised in favour of anybody including the done-
decedent.
 INCLUSIONS IN THE GROSS ESTATE

4. Transfers under power of appointment

▰ Transfers under a special power of appointment

▻ The donee can appoint only from a restricted or
designated class of persons other than himself.
 MODES where power of appointment may
be exercised by the donor-decedent:
• By will
• By deed to take effect in possession or enjoyment at or
after his death.
• By deed under which he has retained for his life or any
period not ascertainable without reference to his death or
for any period which does not in fact end before his death.
 MODES where power of appointment may
be exercised by the donor-decedent:
• The possession or enjoyment of, or the right to the income
from the property.
• The right, either alone, or in conjunction with any person to
designate the persons who shall possess or enjoy the
property or the income therefrom.
 INCLUSIONS IN THE GROSS ESTATE

5. Transfer for insufficient fund

▻ When a sale or transfer was made for a price less than
its fair market value at the time of sale or transfer, the
excess of the fair market value of the transferred
property at the time of death over the value of the
consideration received should be included in the gross
estate.
 INCLUSIONS IN THE GROSS ESTATE

5. Transfer for insufficient fund

▻ Fair market values that shall be used:
1. FMV of the property at the time of sale or
transfer
2. FMV of the property at the time of death
46
 INCLUSIONS IN THE GROSS ESTATE

6. Claims against insolvent person

 • A person whose properties are not sufficient
INSOLVENT to satisfy, whether fully or partially, his
debt/s

• Regardless of the amount the debtor is unable to

pay, the full amount of the claim against the
RULE insolvent person should be included in the gross
estate of the decedent

DEDUCTION FROM • The portion of the claim which is not

GROSS ESTATE collectible
 INCLUSIONS IN THE GROSS ESTATE

7. Proceeds of life insurance

 it must be an insurance on
the life of the decedent
His estate, his executor, his
Requisites administrator
The beneficiary must be
either of the ff:
Any third person provided
that the designation is not
The insured should have the right
irrevocable
to change the beneficiary he
Section 11 designated in the policy, unless he
expressly waived this right
 TAX RATES AND NOTICE OF DEATH
(PRIOR TO 2018)

OVER BUT NOT OVER THE TAX PLUS

SHALL BE
- 200,00 EXEMPT -
200,000 500,000 0 5% of excess over 200T

500,000 2,000,000 15,000 8% of excess over 500T

2,000,000 5,000,000 135,000 11% of excess over 2M

5,000,000 10,000,000 465,000 15% of excess over 5M

10,000,000 - 1,215,000 20% of excess over 10M

 TAX RATES AND NOTICE OF DEATH
(PRIOR TO 2018)

• A notice of death shall be filed by the

executor/administrator or any of the legal heirs in all
cases when the transfer mortis causa is subject to
tax. Filing should be made within 2 months after the
decedent’s death, or within 2 months after the
executor or administrator has qualified.
 TAX RATES AND NOTICE OF DEATH
(BEGINNING JANUARY 1, 2018)

▰ RA 10963, provided that the net estate of every

decedent, whether resident or non-resident of the
Philippines, shall be subject to an estate tax of SIX
PERCENT (6%)
▰ The provision about the notice of death was
repealed under RA 10963 (TRAIN Law), hence no
longer required
 WHEN AN ESTATE TAX RETURN
SHALL BE FILED?

 In cases of transfer subject to estate tax

 When an estate, regardless of the gross value
consists of registrable property or property for
which a Certificate of Authorizing Registration from
BIR is required.
 Registrable property such as Real Property, Motor
Vehicles, Shares of stock or other similar property.
 WHEN AN ESTATE TAX RETURN’S
GROSS VALUE EXCEED P5,000,000

 It shall be supported with a state duly certified by a

CPA containing the following:
 Itemized assets of the decedent with their corresponding
value at the time of his death.
 In case of nonresident, and not a citizen of the Philippines,
of that part of his gross estate situated in the Philippines.
 Itemized deduction allowed under Section 86 of Tax Code.
 The amount of tax due, whether paid or still due and
outstanding.
 TIME OF FILING THE ESTATE TAX
RETURN

 1 year from date of death

 The court approving the project of partition shall
furnish the Commissioner with certified copy and
its order within thirty days after promulgation of
that order
 The 1 year time of filing is the allowable period of
filling the return without surcharges/penalties and
interest.
 TIME OF FILING THE ESTATE TAX
RETURN

 Under Section 90 of the Tax Code, the

Commissioner or and Revenue Officer authorized
by him shall have the authority to grant, in
meritorious(deserving) cases, a reasonable
extension not exceeding 30 days for filling the
return
 WHEN IS THE TIME FOR PAYMENT OF
ESTATE TAXES?

 As a general rule, it shall be paid at the time the

return is filed by the executor, administrator, or the
heir.
 WHEN IS THE TIME FOR PAYMENT OF
ESTATE TAXES?

 However, when the Commissioner finds that the

payment of the estate tax or of any part thereof
would impose undue hardship upon the estate or
any part of the heirs, he may extend the time of
payment not exceeding:
 5 years in case the estate is settled through the courts
 2 years in case the estate is settled extrajudicially
 PAYMENT OF ESTATE TAX BY
INSTALLMENT

 The cash installment shall be made within 2 years

from the date of filling.
 The estate tax return shall be filed within 1 year
after decedent’s death.
 Frequency (monthly, quarterly, semi-annually,
annually)
 PAYMENT OF ESTATE TAX BY
INSTALLMENT

 In case 2 years of without payment of the whole,

the entire balance shall become due and
demandable.
 No civil penalties or interest may be imposed on
the estates permitted to pay the estate tax due by
installment.
 PARTIAL DISPOSITION OF ESTATE AND
APPLICATION OF ITS PROCEEDS TO THE ESTATE
TAX DUE

 Disposition for purposes of this option, shall refer

to the conveyance of property whether personal or
real, with cash consideration.
 The estate tax return shall be filed within 1 year
after decedent’s death.
 PARTIAL DISPOSITION OF ESTATE AND
APPLICATION OF ITS PROCEEDS TO THE ESTATE
TAX DUE

 Written request shall be approved by the

BIR.(Notarized that the proceeds shall be
exclusively for payment of the total estate tax due)
 The computed tax due shall be allocated
proportionally to each property.
 The estate shall pay the BIR the proportionate
estate tax due of the property intended to be
disposed of.
 PARTIAL DISPOSITION OF ESTATE AND
APPLICATION OF ITS PROCEEDS TO THE ESTATE
TAX DUE

 A electronic Certificate Authorizing Registration

are shall be issued upon presentation of the proof
of payment of the proportionate estate tax due of
the property.
 Accordingly, eCAR shall be issued as many as
there are properties to be disposed.
 Failure to pay the total estate tax due from the
proceeds of the said disposition, the estate tax
shall become due and demandable subject to the
applicable penalties and interest.
 A request for extension of time for installment
payment and partial disposition of estate shall be
filed with the Regional District Officer, and
approved by the Commissioner or his duly
authorized representative.
 WHERE IS THE PLACE OF FILLING
AND PAYMENT OF ESTATE TAX?

 In case of resident decedent, the administrator or

executor shall file the estate tax return and pay the
corresponding estate tax with the Accredited
Agent Bank.
 In case of non-resident citizen or alien WITH
executor or administrator in the Philippines shall
file and pay at the Revenue District Office.
 WHERE IS THE PLACE OF FILLING
AND PAYMENT OF ESTATE TAX?

 In case of non-resident citizen or alien WITHOUT

executor or administrator in the Philippines, the
return shall be filed and paid on the Office of the
Commissioner though RDO No. 39- South Quezon
City.
 LIABILITY FOR THE PAYMENT OF
ESTATE TAX

 Primary liable – executor or administrator

 Subsidiary liable – the heir or beneficiary. Provided
that the extent of his liability shall not exceed the
value of his share in the inheritance.
 LIABILITY FOR THE PAYMENT OF
ESTATE TAX

 When no executor or administrator, any person in

actual or constructively in possession of any
property shall file the return.
 Estate tax imposed shall be paid first before the
delivery of the distributive share in the inheritance
to any heir or beneficiary.
 CIVIL PENALTIES AND INTEREST

 Any amount paid after the statutory due date of

tax.
▻ Penalty of 25% if there is no false or fraudulent intent on
the taxpayer.
▻ Penalty of 50% if the is false, malice, or fraudulent
intent on the taxpayer.
 Interest of 20% on the unpaid amount of tax from
the date computed until fully paid.
 PAYMENT OF TAX ANTECEDENT TO THE
TRANSFER OF SHARES, BONDS, OR RIGHTS

 There shall be no transfer of new owner, unless a

certification from the Commissioner that the
applicable tax have been paid.
 A bank with a knowledge of death of a person, any
withdrawals of a bank deposit account whether alone
or jointly, shall be subject to 6% withholding tax
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▰ Agapito, Isabel
▰ Alimot, Karen Clarisse
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▰ Santosidad, Kezia
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