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PART I

TRANSFER TAXATION
I. Introduction (pp.346-350 Banggawan)
A. Definition and kinds of transfer
B. Concept, nature and kinds of transfer taxes
II. Estate Tax (pp.376-382 Banggawan)
A. Basic concepts of succession
1. Succession, defined – Art. 774, New Civil Code of the Philippines (NCC)
ARTICLE 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to the
extent of the value of the inheritance, of a person are transmitted through his death to another or others
either by his will or by operation of law. (n)
2. Time of succession – Art. 777, NCC
ARTICLE 777. The rights to the succession are transmitted from the moment of the death of the decedent.
3. Kinds of succession – Art. 778, NCC
ARTICLE 778. Succession may be:
(1) Testamentary;
(2) Legal or intestate; or
(3) Mixed. (n)
a. Testamentary – Art. 779, NCC
ARTICLE 779. Testamentary succession is that which results from the designation of an heir, made in a will
executed in the form prescribed by law. (n)
b. Legal or intestate – Art. 960, NCC
ARTICLE 960. Legal or intestate succession takes place:
(1) I f a person dies without a will, or with a void will, or one which has subsequently lost its validity;
(2) When the will does not institute an heir to, or dispose of all the property belonging to the testator. In
such case, legal succession shall take place only with respect to the property of which the testator has not
disposed;
(3) If the suspensive condition attached to the institution of heir does not happen or is not fulfilled, or if
the heir dies before the testator, or repudiates the inheritance, there being no substitution, and no right
of accretion takes place;
(4) When the heir instituted is incapable of succeeding, except in cases provided in this Code. (912a)
c. Mixed – Art. 780, NCC
ARTICLE 780. Mixed succession is that effected partly by will and partly
by operation of law. (n)
4. Will
a. Definition – Art. 783, NCC
ARTICLE 783. A will is an act whereby a person is permitted, with the formalities prescribed by law, to
control to a certain degree the disposition of his estate, to take effect after his death. (667a)
b. Form, in general – Art. 804, NCC
ARTICLE 804. Every will must be in writing and executed in a language or dialect known to the testator.
(n)
c. Types
i. Holographic – Art. 810, NCC
ARTICLE 810. A person may execute a holographic will which must be entirely written, dated, and
signed by the hand of the testator himself. It is subject to no other form, and may be made in or out
of the Philippines, and need not be witnessed. (678, 688a)
ii. Attested or notarial – Art. 805, NCC
ARTICLE 805. Every will, other than a holographic will, must be subscribed at the end thereof by the
testator himself or by the testator's name written by some other person in his presence, and by his
express direction, and attested and subscribed by three or more credible witnesses in the presence of
the testator and of one another.
The testator or the person requested by him to write his name and the instrumental witnesses of the
will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left margin, and
all the pages shall be numbered correlatively in letters placed on the upper part of each page.
The attestation shall state the number of pages used upon which the will is written, and the fact that
the testator signed the will and every page thereof, or caused some other person to write his name,
under his express direction, in the presence of the instrumental witnesses, and that the latter
witnessed and signed the will and all the pages thereof in the presence of the testator and of one
another.
If the attestation clause is in a language not known to the witnesses, it shall be interpreted to them.
(n)
5. Elements of succession
a. Decedent – Art. 775, NCC
ARTICLE 775. In this Title, "decedent" is the general term applied to the person whose property is
transmitted through succession, whether or not he left a will.
If he left a will, he is also called the testator. (n)
b. Successor
i. Heir, devisee, legatee – Art. 782, NCC
ARTICLE 782. An heir is a person called to the succession either by the provision of a will or by
operation of law.
Devisees and legatees are persons to whom gifts of real and personal property
are respectively given by virtue of a will. (n)
ii. Compulsory heirs – Art. 887, NCC
ARTICLE 887. The following are compulsory heirs:
(1) Legitimate children and descendants, with respect to their legitimate parents and ascendants;
(2) In default of the foregoing, legitimate parents and ascendants, with respect to their legitimate
children and descendants;
(3) The widow or widower;
(4) Acknowledged natural children, and natural children by legal fiction;
(5) Other illegitimate children referred to in article 287.
Compulsory heirs mentioned in Nos. 3, 4 and 5 are not excluded by those in
Nos. 1 and 2; neither do they exclude one another.
In all cases of illegitimate children, their filiation must be duly proved.
The father or mother of illegitimate children of the three classes mentioned,
shall inherit from them in the manner and to the extent established by this Code.
(807a)
c. Inheritance or estate – Arts. 776 and 781, NCC
ARTICLE 776. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death. (659)
ARTICLE 781. The inheritance of a person includes not only the property and the transmissible rights and
obligations existing at the time of his death, but also those which have accrued thereto since the opening
of the succession. (n)
i. Legitime – Art. 886, NCC
ARTICLE 886. Legitime is that part of the testator's property which he cannot dispose of because the
law has reserved it for certain heirs who are, therefore, called compulsory heirs. (806)
6. Executor, administrator
B. Basic principles of estate tax
1. Estate tax, defined
2. Inheritance tax, defined
3. Nature and object of estate tax
4. Purpose and justification of estate tax
5. Incidence or burden of estate tax
6. Generating source of power; time of transfer of properties
7. Governing law – Sec. 3, Revenue Regulations (RR) No. 12-18
SECTION 3. The Law That Governs the Imposition of Estate Tax. — It is a well-settled rule that estate taxation
is governed by the statute in force at the time of death of the decedent. The estate tax accrues as of the death
of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of
the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests
instantly upon death.
Accordingly, the tax rates and procedures prescribed under these Regulations shall govern the estate of
decedent who died on or after the effectivity date of the TRAIN Law.
C. Determination of Gross Estate (pp.388-405 Banggawan)
1. Classification of decedent – Sec. 85, NIRC; Sec. 4, RR 12-18
SECTION 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.
SECTION 4. Composition of the Gross Estate. — The gross estate of a decedent shall be comprised of the
following properties and interest therein at the time of his/her death, including revocable transfers and
transfers for insufficient consideration, etc.:
1. Residents and citizens — all properties, real or personal, tangible or intangible, wherever situated.
2. Non-resident aliens — only properties situated in the Philippines provided, that, with respect to intangible
personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under
Section 104 of the NIRC.
Provided, That amounts withdrawn from the deposit accounts of a decedent subjected to the 6% final
withholding tax imposed under Section 97 of the NIRC, shall be excluded from the gross estate for purposes
of computing the estate tax.
a. Citizen and resident – Resident Citizen (RC), Nonresident Citizen (NRC) and Resident Alien (RA)
b. Nonresident Alien (NRA)
2. Composition of Gross Estate, in general – Sec. 4, RR 12-18
a. RC, NRC, RA – all properties, real or personal, tangible or intangible, wherever situated
b. NRA – only properties situated in the Philippines, except for intangible property which is subject to rule
on reciprocity
i. Situs of intangible personal properties
ii. Intangible properties which are considered situated in the Philippines – Sec. 104, NIRC
iii. Rule on reciprocity – Sec. 104, NIRC
SECTION 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 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 the 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 amount
previously assessed, or collected without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such tax.
3. Concept of “residence” for estate tax purposes
4. Items to be included in determining Gross Estate – Secs. 85(A)-(G), NIRC
SECTION 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.
(A) Decedent's Interest. — To the extent of the interest therein of the decedent at the time of his death;
(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.
(C) Revocable Transfer. —
(1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in
case of bona fide sale for an adequate and full consideration in money or money's worth) by trust or otherwise,
where the enjoyment thereof was subject at the date of his death to any change through the exercise of a
power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any
other person (without regard to when or from what source the decedent acquired such power), to alter,
amend, revoke or terminate, or where any such power is relinquished in contemplation of the decedent's
death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the
date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice
or even though the alteration, amendment or revocation takes effect only on the expiration of a stated period
after the exercise of the power, whether or not on or before the date of the decedent's death notice has been
given or the power has been exercised. In such cases, proper adjustment shall be made representing the
interests which would have been excluded from the power if the decedent had lived, and for such purpose if
the notice has not been given or the power has not been exercised on or before the date of his death, such
notice shall be considered to have been given, or the power exercised, on the date of his death.
(D) Property Passing Under General Power of Appointment. — To the extent of any property passing under a
general power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation
of, or intended to take effect in possession or enjoyment at, or after his death, or (3) 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 (a) the possession or enjoyment of, or the right to the income from, the
property, or (b) 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; except in case of a bona fide sale for an adequate and
full consideration in money or money's worth.
(E) Proceeds of Life Insurance. — To the extent of the amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the power of revocation, or to the extent of the amount
receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that
the designation of the beneficiary is irrevocable.
(F) Prior Interests. — Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this
Section 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. — If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and
full consideration in money or money's worth, there shall be included in the gross estate only the excess of
the fair market value, at the time of death, of the property otherwise to be included on account of such
transaction, over the value of the consideration received therefor by the decedent.
a. Properties, real or personal, tangible or intangible
b. Decedent’s interest
 BIR Ruling 186‐81
c. Prior interests
d. Proceeds of life insurance
 BIR Ruling 423‐87
i. Beneficiary is the estate, executor or administrator regardless of designation
ii. Beneficiary is other than the estate, executor or administrator designated as revocable
e. Transfers inter vivos (distinguished against transfers mortis causa; reasons for taxability of transfers
inter vivos)
i. Transfers in contemplation of death
 Roces v. Posadas, Jr., G.R. No. 34937 March 13, 1933
ii. Transfers with retention or reservation of certain rights
iii. Revocable transfers
 BIR Ruling UN-041-95
iv. Property passing under a general power of appointment
v. Transfers for insufficient consideration
5. Specific items to be included in Gross Estate – Sec. 104, NIRC
6. Valuation of the Gross Estate
 Sec. 88, NIRC
SECTION 88. Determination of the Value of the Estate. —
(A) Usufruct. — To determine the value of the right of usufruct, use or habitation, as well as that
of annuity, there shall be taken into account the probable life of the beneficiary in accordance
with the latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.
(B) Properties. — The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is the
higher of —
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors.
 Sec. 5, RR 12-18
SECTION 5. Valuation of the Gross Estate. — The properties comprising the gross estate shall be
valued according to their fair market value as of the time of decedent's death.
If the property is a real property, the appraised value thereof as of the time of
death shall be, whichever is the higher of —
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the provincial and city
assessors, whichever is higher.
For purposes of prescribing real property values, the Commissioner is authorized to divide the
Philippines into different zones or areas and shall, upon consultation with competent appraisers,
both from the private and public sectors, determine the fair market value of real properties
located in each zone or area.
In the case of shares of stocks, the fair market value shall depend on whether the shares are
listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their book
value while unlisted preferred shares are valued at par value. In determining the book value of
common shares, appraisal surplus shall not be considered as well as the value assigned to
preferred shares, if there are any. On this note, the valuation of unlisted shares shall be exempt
from the provisions of RR No. 06-2013, as amended.
For shares which are listed in the stock exchanges, the fair market value 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.
The fair market value of units of participation in any association, recreation or amusement
club (such as golf, polo, or similar clubs), shall be the bid price nearest the date of death published
in any newspaper or publication of general circulation.
To determine the value of the right to usufruct, use or habitation, as well as that of annuity,
there shall be taken into account the probable life of the beneficiary in accordance with the latest
basic standard mortality table, to be approved by the Secretary of Finance, upon recommendation
of the Insurance Commissioner.
 Lorenzo v. Posadas, Jr., G.R. No. 43082, June 18, 1937
a. General rule
b. Real property
c. Personal property
d. Stocks, bonds and other securities
 Revenue Audit Memorandum Order (RAMO) No. 01-82
e. Right to usufruct, use or habitation, annuity
f. Properties transferred inter vivos
7. Gross Estate of married decedents (pp.429-443 Banggawan)
a. Common types of property regimes – Art. 75, Family Code (FC) of the Philippines, as amended
ARTICLE 75. The future spouses may, in the marriage settlements, agree upon the regime of absolute
community, conjugal partnership of gains, complete separation of property, or any other regime. In
the absence of a marriage settlements, or when the regime agreed upon is void, the system of
absolute community of property as established in this Code shall govern. (119a)
i. Absolute community of property (ACP) – Arts. 91 and 93, FC
ARTICLE 91. Unless otherwise provided in this Chapter or in the marriage settlements, the community
property shall consist of all the property owned by the spouses at the time of the celebration of the
marriage or acquired thereafter. (199a)
ARTICLE 93. Property acquired during the marriage is presumed to belong to the community, unless
it is proved that it is one of those excluded therefrom. (160a)
ii. Conjugal partnership of gains (CPG) – Arts. 106 and 116-120, FC
ARTICLE 106. Under the regime of conjugal partnership of gains, the husband and wife place in a
common fund the proceeds, products, fruits and income from their separate properties and those
acquired by either or both spouses through their efforts or by chance, and, upon dissolution of the
marriage or of the partnership, the net gains or benefits obtained by either or both spouses shall be
divided equally between them, unless otherwise agreed in the marriage settlements. (142a)
iii. Separation of property – Arts. 143-145, FC
ARTICLE 116. All property acquired during the marriage, whether the acquisition appears to have been
made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless
the contrary is proved. (160a)
ARTICLE 117. The following are conjugal partnership properties:
(1) Those acquired by onerous title during the marriage at the expense of the common fund, whether
the acquisition be for the partnership, or for only one of the spouses;
(2) Those obtained from the labor, industry, work or profession of either or both of the spouses;
(3) The fruits, natural, industrial or civil, due or received during the marriage from the common
property, as well as the net fruits from the exclusive property of each spouse;
(4) The share of either spouse in the hidden treasure which the law awards to the finder or owner of
the property where the treasure is found;
(5) Those acquired through occupation such as fishing or hunting;
(6) Livestock existing upon the dissolution of the partnership in excess of the number of each kind
brought to the marriage by either spouse; and
(7) Those which are acquired by chance, such as winnings from gambling or betting. However, losses
therefrom shall be borne exclusively by the loser-spouse. (153a, 154, 155, 159)
ARTICLE 118. Property bought on installments paid partly from exclusive funds of either or both
spouses and partly from conjugal funds belongs to the buyer or buyers if full ownership was vested
before the marriage and to the conjugal partnership if such ownership was vested during the marriage.
In either case, any amount advanced by the partnership or by either or both spouses shall be
reimbursed by the owner or owners upon liquidation of the partnership. (n)
ARTICLE 119. Whenever an amount or credit payable within a period of time belongs to one of the
spouses, the sums which may be collected during the marriage in partial payments or by installments
on the principal shall be the exclusive property of the spouse. However, interests falling due during
the marriage on the principal shall belong to the conjugal partnership. (156a, 157a)
ARTICLE 120. The ownership of improvements, whether for utility or adornment, made on the
separate property of the spouses at the expense of the partnership or through the acts or efforts of
either or both spouses shall pertain to the conjugal partnership, or to the original owner-spouse,
subject to the following rules:
When the cost of the improvement made by the conjugal partnership and any resulting increase in
value are more than the value of the property at the time of the improvement, the entire property of
one of the spouses shall belong to the conjugal partnership, subject to reimbursement of the value of
the property of the owner-spouse at the time of the improvement; otherwise, said property shall be
retained in ownership by the owner-spouse, likewise subject to reimbursement of the cost of the
improvement.
In either case, the ownership of the entire property shall be vested upon the reimbursement, which
shall be made at the time of the liquidation of the conjugal partnership. (158a)
b. Property regime of unions without marriage – Arts. 147 and 148, FC
ARTICLE 147. When a man and a woman who are capacitated to marry each other, live exclusively with
each other as husband and wife without the benefit of marriage or under a void marriage, their wages
and salaries shall be owned by them in equal shares and the property acquired by both of them through
their work or industry shall be governed by the rules on co-ownership.
In the absence of proof to the contrary, properties acquired while they lived together shall be presumed
to have been obtained by their joint efforts, work or industry, and shall be owned by them in equal shares.
For purposes of this Article, a party who did not participate in the acquisition by the other party of any
property shall be deemed to have contributed jointly in the acquisition thereof if the former's efforts
consisted in the care and maintenance of the family and of the household.
Neither party can encumber or dispose by acts inter vivos of his or her share in the property acquired
during cohabitation and owned in common, without the consent of the other, until after the termination
of their cohabitation.
When only one of the parties to a void marriage is in good faith, the share of the party in bad faith in the
co-ownership shall be forfeited in favor of their common children. In case of default of or waiver by any
or all of the common children or their descendants, each vacant share shall belong to the respective
surviving descendants. In the absence of descendants, such share shall belong to the innocent party. In
all cases, the forfeiture shall take place upon termination of the cohabitation. (144a)
ARTICLE 148. In cases of cohabitation not falling under the preceding Article, only the properties acquired
by both of the parties through their actual joint contribution of money, property, or industry shall be
owned by them in common in proportion to their respective contributions. In the absence of proof to the
contrary, their contributions and corresponding shares are presumed to be equal. The same rule and
presumption shall apply to joint deposits of money and evidences of credit.
If one of the parties is validly married to another, his or her share in the co-ownership shall accrue to the
absolute community or conjugal partnership existing in such valid marriage. If the party who acted in bad
faith is not validly married to another, his or her share shall be forfeited in the manner provided in the
last paragraph of the preceding Article.
The foregoing rules on forfeiture shall likewise apply even if both parties are in bad faith. (144a)
c. Common vs. exclusive properties