VOLCANOTES 2020 | TAXATION 2
TITTLE III – ESTATE AND DONOR’S TAXES
CHAPTER I. ESTATE TAX
Sec. 84. Rates of Estate Tax – There shall be levied,
assessed, collected and paid upon the transfer of
the net estate as determined accordance with
Sections 85 and 86 of every decadent, whether
resident or nonresident of the Philippines, a tax at a
rate of 6% based on the value of such net estate.
ü Estate Tax - Is a tax levied, assessed,
collected and paid upon the transfer of the
net estate of decedent to his or her heirs.
ü Applicability – the estate tax applies to:
1. Citizens of the PH;
2. Residents of the PH; and
3. Non-resident aliens with properties
in the PH
ü Purpose of object or Estate Tax
o Benefits-received Theory – the tax is
in return for the services rendered by
the State in the distribution of the
estate of the decedent and for the
benefits that accrue to the estate and
the heirs.
o State-partnership Relationship
Theory – the tax is the share of the
State as a passive and silent partner
in the accumulation of property.
o Ability to pay theory – the tax is
based on the act that the receipt of
inheritance creates the ability to pay
and contribute to governmental
income.
o Redistribution of wealth theory –
the tax is imposed to help reduce
undue consideration of wealth in
society to which the receipt of
1
inheritance tax is a contributing
factor.
ü Time and transfer of properties –
o Date-of Death Valuation Rule – the
properties and rights are transferred
to the successors at the time of death
of the decedent. (Art. 777 of the Civil
Code)
 Value of Estate – based on its
value at the time of his death,
REGARDLESS of any post-
death development affecting
its value.
ü Governing law – governed by the law in
force at the time of the death of the
decedent (RR No. 2-2003, Sec. 3)
ü Decedent’s residence –
o Residence – permanent home, the
place to which whenever absent, for
business or pleasure, one intends to
return, and depends on facts and
circumstance, in the senses that they
disclose intent.
ü Estate Tax Planning – a device to achieve a
transfer of properties from the testator to
the heirs at the least tax as possible.
ü Classification of decedent –
a) Residents and citizens –
 GROSS ESTATE – ALL the properties
(real or personal, tangible or
intangible), wherever situated and
any interest therein at the time of his
death, including revocable transfers
and transfers for insufficient
consideration.
b) Non-resident aliens –
 GROSS ESTATE – ONLY properties
situated in the PH, provided that
with respect to intangible personal
 VOLCANOTES 2020 | TAXATION 2
property, its inclusion in the gross
estate is subject to the rule of
reciprocity.
 NOTE: The rule of reciprocity
provides that ONLY intangible
personal property located in the PH
shall be taxable UNLESS exempted on
the basis of the following: [Sec. 104]
o The foreign country where
the resident alien was a
citizen at the time of his death
did NOT impose estate tax in
respect of intangible personal
property of citizen of the PH
NOT residing in that foreign
country; or
o If the law of the foreign
country of which the
decedent was a citizen and
resident at the time of his
death allows a similar
exemption form estate taxes
of evert character or
description in respect of
intangible personal property
owned by citizens of the PH
NOT residing in that foreign
country.
ü Gross estate and net estate
o Estate tax formula:
Gross Estate (Sec. 85)
[LESS]
(1) Deduction
(2) Net share of of the surviving
spouse
Net Taxable Estate
[MULTPILY]
Tax Rate (Sec. 84).
{6%}
Estate Tax Due
[LESS]
Tax Credit (if any) (Sec. 86 ( E) or 110
(B))
Estate Tax Due (if any)
o Valuation
 Real Property – fair market
value as determined by the
CIR or FMV shown in schedule
of values fixed by the city or
provincial assessors,
whichever is HIGHER.
 IF NO zonal value –
use the FMV in the
latest Tax Declaration
 Shares of Stock –
 Listed shares: average
of the HIGHEST and
LOWEST quotations at
date of death.
 Unlisted shares: use
book value for
common stocks while
PAR value for
preferred stocks.
 Personal Property – FMV at
date of death.
 Special rules on
intangible properties
o The following intangible personal
properties are considered with
situs in the PH:
 Franchise, must be exercised
in the PH
 Shares, obligations or bonds
issued by any corporation or
Sociedad anonima organized