TRANSFER TAX

JIMENEZ
What will I know from this
Lecture?
1. Nature and Concept of Transfer Taxes

2. Estate Tax:
a) Gross Estate
b) Deductions from Gross Estate

3. Donor’s Tax

2
 Transfer Tax
TRANSFER TAXES-

These are taxes imposed upon the

gratuitous disposition of private
properties or right

3
NATURE OF TRANSFER
TAX
• Transfer tax is an EXCISE TAX and
not a PROPERTY TAX

4
NATURE OF TRANSFER
TAX
• The subject matter of transfer
tax is the exercise of privilege
of the transferor to transfer
property or rights

5
 Kinds Of Transfer Tax
• Estate Tax
-tax imposed upon the privilege to transmit the
property to the heirs upon death of the owner

• Donor’s Tax
-tax imposed upon the privilege to give property
without consideration during the lifetime of the
owner.

7
 Distinction of Transfer
Taxes Estate Tax Donor’s tax

Effectivity of transfer of Upon death of the During the lifetime of

property decedent donor AND done

Requisites 1. Death of decedent 1. Donative Intent

2. Successor is alive at 2. Capacity to Donate
the time of death of 3. Delivery
the decedent 4. Acceptance
3. Successor is not DQ 5. In proper form
to inherit
Taxpayer The estate of the The Donor
deceased
Basis of tax NET ESTATE NET GIFT

8
 Distinction of Transfer
Governing law
Taxes Estate Tax

Statute in force at the date

Donor’s tax

At the time the gift or

of the death of decedent
Filing and Payment Within 1 from the
decedent’s death
Exempt amount -none-
donation is made or
perfected
Within 30 days after the gift
is made
Net gift below Php 250,000

9
ESTATE TAX
 Nature of Estate Tax
• Object: To tax the transfer of economic benefits
and enjoyment of property from a decedent to the
heir(s).

• The obligation to pay estate tax accrues at the

moment of death of the decedent.

11
 Justification of Estate Tax
• Redistribution of Wealth Theory
• Benefit Received Theory
• State Partnership Theory
• Ability-to- Pay Theory

12
 Tax rate for Estate Tax
• Tax Reform for Acceleration and Inclusion
(TRAIN), R.A. 10963 amended the tax rates for
Estate Taxes under Sec. 84 of the Tax Code, the
amendment provides:

“ xxx a tax at the rate of six percent (6%) based on

the value of such net estate.”

13
 Situs of Properties
CLASSIFICATION COMPOSITION OF GROSS ESTATE

1. Resident Citizen A. Real Property WHEREVER SITUATED

Non-Resident Citizen B. Personal Property (tangible and intangible),
Resident Alien WHEREVER SITUATED

2. Non- Resident Alien A. Real Property in the PH

B. Tangible Personal Property in the PH
C. Intangible Personal Property with Situs in
the PH, unless excluded on the basis of
reciprocity

14
 TEST OF SITUS (Sec. 104 of
NIRC)
INTANGIBLE PROPERTY WITH
SITUS IN THE PHILIPPINES
OTHERS

1. Real and Tangible Personal

1. Franchise Exercised
Property – location of the property
2. Shares, obligations or bonds issued by 2. Receivables – residence of the
any Domestic corporation debtor
3. Shares, obligations, or bonds issued by
3. Bank Deposits – based on the
Foreign corporation (FC) 85% of the
location of the depositary bank
business of which is located in the PH
4. Shares, obligations, or bonds issued by
FC if such were acquired a business situs in
the PH
5. Shares or rights in the partnership
business, or industry established in the PH

15
 Reciprocity Clause
Intangible personal property of Non – Resident Alien
shall be exempt from taxation if:
• if the decedent at the time of his death was a citizen and
resident of a foreign country which at the time of his death
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

• if the laws of the foreign country of which the decedent was

a citizen and resident at the time of his death 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.

16
GROSS ESTATE
 Gross Estate
• SEC. 85. 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.

18
 Inclusions in the Gross
•
•
Estate
TAXABLE TRANSFERS:
Transfers in contemplation of death
• Revocable Transfers
• Transfers under a general power of appointment
• Transfers for insufficient consideration

• OTHERS:
• Proceeds of life insurance
• Decedent’s interest at the date of death
• Unpaid mortgages
• Claims against insolvent person(s)
• Amount received by heirs under R.A. 4917

19
 Valuation of Gross Estate
• General rule : Fair Market Value (FMV) at the time of death

• In case of Real Property, the higher value between:

• FMV determined by the Commissioner – zonal value; and
• FMV as shown in the scheduled values – assessed value
*if there is no zonal value, use the FMV in the latest tax declaration
**if there is an improvement = construction cost per building permit or the FMV
in the last tax declaration

• In case of shares of stocks:

• Unlisted common share: Book Value
• Unlisted preference share: Par Value
• Listed Shares: FMV at time of death, if none, then the mean between the
highest and lowest quotation at a date nearest the date of death
• Right to usufruct, use or habitation, and annuity:
• The probable life of the beneficiary in accordance with the basic
Standard mortality table.
20
General Formula for
Comp. of Estate Tax

21
Transfer in Contemplation
of Death
Controlling motive: thought of death which induces the disposition
of property.

• Transfer in favor of another transfer, but the transfer was intended to take
effect only upon the death of transferor.

• Transfer by gift/donation intended to take effect :

• At death;
• After death; or
• Donor reserved the income or right to designate the person who should
enjoy the income
• In short – Transfer mortis causa

*PURPOSE: prevent evasion from estate tax liability by the use of

other forms of conveyances other than succession/ transfer mortis
cause.
22
 Revocable Transfers
Refers to transfers of property with retention or reservation of rights
over the property by the owner while he still lives.

a) A transfer during the owner’s lifetime however he retained

and reserved for himself the beneficial enjoyment of
the thing or the right over the income from the same.

a) Terms and enjoyment of the property may be altered,

amended, revoked or terminated by the owner. It is
sufficient that the decedent retained the power to revoke
even though he didn’t make use of the said power.

23
 Transfer under General
Power
• “General Power of of Appointment
Appointment” means the decedent must
have had a power exercisable in favor of himself, his estate, or
creditors of his estate.

• Special Power of Appointment – not exercisable in favor of the

decedent, his estate, or creditors of his estate; or he appointed
only a designate class of persons other than himself, his estate,
or creditor of his estate.

REASON for inclusion:

Since it is exercisable in favor of himself, hence in
substance, he owns the property.

24
 Transfer for Insufficient
• Consideration
When the sale or transfer (other than a bona fide sale) was made for
a price less than its FMV at the time of sale, the excess of the
FMV of the property at the time of death over value of the
consideration shall be included in the gross estate.

• If there is no consideration received, and the transfer was made in

contemplation of death, the value to be included in the gross estate
is the FMV at the time of death.

• If there is no consideration received, but the transfer was not

made in contemplation of death, the transfer shall be subject to
donor’s tax.

25
Proceeds of Life Insurance
• Requisites for inclusion in the Gross Estate of the proceeds of life
insurance taken by the decedent for his own life:
• It must be an insurance on the life of the decedent;
• The beneficiary must be either the following:
• His estate; his executor or administrator; any third
person provided in the designation provided it is not
irrevocable.
• If silent, the designation is assumed to be revocable. Life
insurance taken out NOT by the decedent himself is not
part of his gross estate.

26
Proceeds of Life Insurance
BENEFICIARY DESIGNATION GROSS ESTATE

ESTATE Revocable/Irrevocable Included

ADMINISTRATOR Revocable/Irrevocable Included

EXECUTOR Revocable/Irrevocable Included

3RD PARTY (I.E. HEIRS) Revocable/Irrevocable Included

3RD PARTY (AGAINST THE LAW Revocable/Irrevocable Included

I.E. MISTRESS)
3rd Party Irrevocable Excluded

27
 Decedent’s Interest
• Refers to the extent of equity or ownership participation of the
decedent on any property physically existing and present in the
gross estate, whether in his possession, control, or dominion.
• It is also the value of any interest in property owned or
possessed by the decedent at the time of his death.

• Examples:
• Dividends declared before his death but received after death;
• Partnership profit which have accrued before his death;
• Accrued rent or interest on or before the time of his death; and
• Usufructuary & Rights

28
DEDUCTIONS FROM THE
GROSS ESTATE
Deductions from GE – (Citizens and
Resident) – Sec. 86 (a)

NOTE: The following expenses

are now non deductible under
the TRAIN Law:
1. Funeral Expenses
2. Judicial Expenses
3. Medical Expenses
30
Property Previously Taxed/ Vanishing
Deductions
It is the amount allowed to reduce the taxable
estate of a decedent where the property
received by him from a prior decedent by:

(1) gift ; or
(2) bequest, device or inheritance, has
been the object of previous transfer
taxation.

31
Property Previously Taxed/ Vanishing
Deductions
Requisites for Deductibility:
• Death
• Identity of property
• Located in the Philippines
• Inclusion of Property
• Previous taxation of the property
• No previous vanishing deduction on the
property

32
 Family Home
Requisites for Deductibility:
• Decedent is married, if single, must be head of the
family
• Along with the decedent, any of the beneficiaries
must be living with the former.
• Family home as well as the land must be owned by
the decedent.
• Actual residential home of the decedent and his
family as certified by the Barangay Captain
• Must be included as part of Gross Estate
• Deduction must be up to the extent of the
decedent’s interest or P10M whichever is lower
33
Deductions from GE – (Non-Resident
Alien)
Allowable deductions – Sec.
from 86 Estate
the Gross (b) of Non –
Resident Alien ( Sec 86 (b) of NIRC, as amended by TRAIN
Law:
1. Standard deduction in the amount of Php 500,000
(previously no standard deductions for NRA);
2. Value of:
• Claims against the estate
• Claims against insolvent person(s)
• Unpaid Mortgages;
3. Property previously taxed (Vanishing Deduction); and
4. Transfer for public use

*Note: Miscellaneous provision, Sec. 86 (d) is removed.

35
ADMINISTRATIVE PROVISIONS:
ESTATE TAX
 Amendments under the TRAIN Law
The following are the amendments under the TRAIN Law
regarding administrative provisions under Estate Tax:

• The requirement for filing of Notice of Death is

removed (Sec. 89).

• The threshold amount for the requirement of attaching a

statement certified by a CPA is increased to Php 5M from
Php 2M (Sec. 90).

• The filing of estate returns shall be within 1 year from the

decedent’s death (Sec. 90[b] ).

37
 Amendments under the TRAIN Law
The following are the amendments under the TRAIN Law
regarding administrative provisions under Estate Tax:

• In case the available cash of the estate is insufficient to pay the

total estate due, payment by installment shall be allowed
within 2 years from the statutory period without penalty and
interest.

• If a bank has knowledge of the death of a person who

maintained a bank deposit alone, or jointly with another, it shall
allow any withdrawal – subject to final withholding tax of
6% (Sec. 97)

38
DONOR’S TAX
 Donor’s Tax
• It shall be imposed to the transfer of
property by gift inter vivos, whether the
transfer is in trust or otherwise, whether
the gift is direct o indirect, whether the
property is real, personal, tangible.

40
 Nature of Donor’s Tax
• Tax imposed on the right to transfer gratuitously,
directly or indirectly properties out of the owner’s
liberality in favor of another that accepts the gift,
during the lifetime of the former.

• Tax is imposed on the transfer not the value of

the property. Hence it applies even though the
property transferred may be exempted from other
taxes.

42
 Justification of Donor’s
• Taxtax for the loss of the
To supplement the estate
government revenue when estates are split by
donation.

• To prevent non-payment of estate tax since

properties are transferred without consideration
while the property owner is still alive.

43
 Purposes of Donor’s Tax
• To prevent avoidance of estate tax
• The donor’s tax supplements the estate tax by
preventing the avoidance of the latter through the
device of the property during the lifetime of the
decedent.

• To prevent or compensate for the loss of the

income tax when large estates are split up by gifts
to numerous donees.

44
Requisites for Donor’s Tax
• Capacity of the Donor to make donation
• Donative intent or intent make a gift on the part
of the donor
• Delivery
• Acceptance by the donee

45
 Tax rate for Estate Tax
• Tax Reform for Acceleration and Inclusion
(TRAIN), R.A. 10963 amended the tax rates for
Estate Taxes under Sec. 99 (a) and (b) of the Tax
Code, the amendment provides:

“ xxx The tax for each calendar year shall be (6%)

computed on the basis of the total gifts in excess of
Two hundred fifty thousand pesos (₱250,000) exempt
gift made during the calendar year.

46
Donor’s Tax Formula

47
 Valuation of Gross Estate
• General rule : Fair Market Value (FMV) at the perfection of donation

• In case of Real Property, the higher value between:

• FMV determined by the Commissioner – zonal value; and
• FMV as shown in the scheduled values – assessed value
*if there is no zonal value, use the FMV in the latest tax declaration
**if there is an improvement = construction cost per building permit or the
FMV in the last tax declaration

• In case of shares of stocks:

• Unlisted common share: Book Value
• Unlisted preference share: Par Value
• Listed Shares: FMV = he mean between the highest and lowest quotation
of the securities on the valuation date

48
 Situs of Properties
CLASSIFICATION COMPOSITION OF GROSS ESTATE

1. Resident Citizen A. Real Property WHEREVER SITUATED

Non-Resident Citizen B. Personal Property (tangible and intangible),
Resident Alien WHEREVER SITUATED

2. Non- Resident Alien A. Real Property in the PH

B. Tangible Personal Property in the PH
C. Intangible Personal Property with Situs in
the PH, unless excluded on the basis of
reciprocity

49
 Reciprocity Clause
Intangible personal property of Non – Resident Alien
shall be exempt from taxation if (Sec. 104) :
• if the decedent at the time of donation was a citizen and
resident of a foreign country which at the time of the
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

• Allows a similar exemption from transfer of taxes of every

character or description in respect of intangible personal
property owned by citizens of the Philippines not residing in
that foreign country.

50
 TEST OF SITUS (Sec. 104 of
NIRC)
INTANGIBLE PROPERTY WITH
SITUS IN THE PHILIPPINES
OTHERS

1. Real and Tangible Personal

1. Franchise Exercised
Property – location of the property
2. Shares, obligations or bonds issued by 2. Receivables – residence of the
any Domestic corporation debtor
3. Shares, obligations, or bonds issued by
3. Bank Deposits – based on the
Foreign corporation (FC) 85% of the
location of the depositary bank
business of which is located in the PH
4. Shares, obligations, or bonds issued by
FC if such were acquired a business situs in
the PH
5. Shares or rights in the partnership
business, or industry established in the PH

51
 Instances where Donor’s
Taxof is
• Cancellation Applicable
indebtedness

• Renunciation of inheritance in favor of identified

heirs to the exclusion or disadvantage of other
heirs in the hereditary estate

• Beneficiaries of Trust

52
 Transfer for Inadequate
• Consideration
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.

• Where the consideration is fictitious, the entire value of

the property transferred shall be subject to
donor’s tax

54
 Transfer for Inadequate
• Consideration
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.

• Where the consideration is fictitious, the entire value of

the property transferred shall be subject to
donor’s tax

55
 Transfer for Inadequate
• Consideration
Sec. 100 Transfer for Less Than Adequate and
Full Consideration. (additional provision from
TRAIN LAW:
“Even if the sale, exchange or other transfer of
property is for an insufficient consideration, the same will
still be considered made for adequate and full consideration
provided that such transfer is made in the ordinary course
of business, i.e:
• a bona fide sale
• at arm’s length transaction
• Free from donative intent”

56
 Transfer for Inadequate
•
Consideration
Example:
Rennette made it appear that she sold her property to her
boyfriend, Nelson for Php 200,00. The prevailing market price for
such property was Php 1M

• If the property is a real property, 6% CGT shall be imposed on

the market price – P1M, the transfer will be complete and no
need to pay for the donor’s tax

• If the property is a personal property, the amount of Php 800k

would be considered as donation – hence subject to 6%
donor’s tax

• If the consideration is fictitious, Rennette giving her property to

Nelson out of pure love and liberality, the entire value
of the property transferred – Php 1M shall be
subject to donor’s tax.

57
DEDUCTION FROM GROSS GIFTS
 Deductions from Gross
The following deductions Gift apply to all classifications of
taxpayer, whether Citizen or Alien:
• Encumbrances assumed by the done;
• Diminution of gift provided by the donor;
• Donations to national government, and the like; and
• Donation to non-profit organizations

*NOTE: pursuant to train law, the exemption of dowries

(made on account of marriage) is removed

59
 Encumbrance Assumed
An encumbrance is a claim or liability attached to a property.
The law allows an encumbrance as a deduction from gross fit
if assumed by the donee.

Ex. Carlo donated to Kris, his long time crush, a car amounting to
P500K. The car has an unpaid mortgage of P100K, which Kris agreed
to assume. Compute the net gift.

60
 Donation to Non Profit
Organizations
Donations to educational, charitable, religious, cultural, social welfare, accredited
NGOs, trust/ philantrophic organization research institutions are allowed as exemption
provided that not more than 30% of the said donation shall be used for administrative
purposes.
Ex. 1:

Ex. 2

61
 Tax Credits ( Donor’s
Taxes
• In general, tax imposed paid to
upon a donor whoFC)is a citizen or
resident at the time of donation shall be credited with the
amount of donor’s tax of any character and description
imposed by the authority of a foreign country (FC) subject
to tax credit limitation

62
 Tax Credits ( Donor’s
Taxes paid to FC)
LIMITATION ON TAX CREDIT
• The rule applicable to tax credit paid to a FC will be lower of actual
tax paid or the amount derived by computing the tax limit as follows:
• Ex. 1 One Foreign Country

• Ex. 2 Two or More Foreign Country – Same formula except that the
allowable tax credit will be lower of the following:
• Actual Donor’s tax paid to foreign country
• Limit on tax credit computed using donation located at a particular FC
• Limit on tax credit computed using total donations outside the PH

63
END