TRANSFER TAXES
that accrue to the heirs
 TRANSFER TAXES- taxes imposed
upon the privilege granted by the state to
the taxpayer so that he may transfer
properties, real or personal, without
consideration
 Nature are excise or privilege taxes and
not taxes on property
 Kinds:
a. Estate Tax- tax LACP upon transfer
of net estate of decedent to his heirs
b. Donor’s Tax- tax LCP upon privilege
of transferring property gratuitously
by way of gift inter vivos
 Difference of estate and donor:
Estate Donor
During
Upon one’s
Tax on: one’s
death
lifetime
6% in
Tax rate: 6% excess of
250k
Net gifts
Net estate
given
transferred
Computation: during
at the time
calendar
of death
year
 Law at the time of transfer governs the
imposition of transfer taxes
ESTATE TAXES
 Estate tax is paid at the time the estate
tax return is filed by the executor,
administrator or heirs
 Period to file estate tax return is within
one year from death of decedent
- Except in meritorious cases, can be
extended 30 days if granted
 ESTATE TAX- tax levied, assessed,
collected and paid upon the privilege of
gratuitously transferring the net estate of
a decedent to his heirs
 Purpose of imposing estate tax:
a. Generate additional revenue for
government
b. Reduce concentration of wealth
c. Provide equal distribution of wealth
d. Most appropriate and effective
method for taxing
e. Only method of collecting share
which is properly due to state as
partner in the accumulation of
property
 Different theories:
a. Benefit-received theory- tax is in
return for the services rendered by
state in the distribution of the estate
of the decedent and for the benefits
b. State-partnership theory- tax is in
share of the state as passive and
silent partner in accumulation of
property
c. Ability to pay theory- tax is based
on act that receipt of inheritance
creates ability to pay and contribute
to governmental income
d. Redistribution of wealth theory-
tax is imposed to help reduce undue
concentration of wealth in society
 Executor or administrator shall not
deliver distributive share to heirs unless
there is certification from CIR that estate
tax has been paid
 Only natural person are liable for estate
tax as juridical persons cannot die
 NET ESTATE- value of gross estate less
the ordinary and special deductions
- For RC,NC,RA- equal to gross estate
less ordinary and special deductions
and exclusions
- For RA- equal to gross estate less
ordinary deductions and exclusions
 GROSS ESTATE- value of all property of
decedent wherever situated to the extent
of his interest at the time of his death
- For RC,NC,RA- all properties
wherever situated
- For NA- only properties situated in
PH
 Intangible property is taxed based on
domicile of owner
- Also ff are deemed located in PH:
a. Franchises being exercised in PH
b. Shares, obligations, or bonds
issued by entities located in PH
c. Shares, obligations or bonds
issued by foreign corporation
 At least 85% of business
located in PH which have
acquired situs in PH
d. All intangibles owned by
residents
 Reciprocity as applied to intangibles of
NA means that a foreign country which
the decedent was a citizen or resident at
time of his death did not impose an estate
tax or allowed similar exemption from
estate tax with respect to intangible
personal property owned by Filipino not
residing in that foreign country
- Reciprocity must be total
 Items included in gross estate:
a. Decedent’s interest at time of death
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 b. Transfers in contemplation of death
c. Revocable transfers – transfer where
transferor has reserved his right to
alter, amend or revoke such transfer
d. Property under general power of
appointment- donor gives donee
power to appoint any person as
successor
 If Special power not form part
of gross estate
e. Proceeds of life insurance taken out
by decedent upon his own life where
beneficiary is the estate or any
beneficiary designated as revocable
 If irrevocable shall not form
part of gross estate
f. Transfers for insufficient
consideration
 Deductions from estate:
a. Ordinary deductions:
1. Expenses, losses,
indebtedness, taxes, etc.
 Funeral expenses must be
incurred up to time of
interment
 Judicial expenses must be
incurred during settlement of
estate but not beyond
6months or extension of filing
estate tax return
 Claims against the estate
existing at the time of his
death
 Claims against insolvent
persons
 Unpaid mortgage or
indebtedness on property
 Unpaid taxes accrued before
death
 LOSSES are deductible:
a. Incurred during
settlement of estate
b. Arouse from force
majeure
c. Not compensable
d. Not claimed as deduction
for income tax
e. Incurred not later than last
day for payment of estate
tax
2. Vanishing deduction- deduction
allowed on property left behind by
decedent which he had acquired
previously by inheritance or
donation
 Requisites: death, identity
inclusion and previous
taxation of property, no
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vanishing deduction on
property was allowed to
estate of prior decedent
3. Transfer of public use- for
exclusively public purpose
b. Special deductions
1. Family home- up to 10M
2. Standard deduction- up to 5M
(500k for NA)
3. Medical expenses- incurred by
decedent within 1 year prior his
death
4. Amount received by heir under
RA 4917
 Amounts received from
decedent’s employer as
consequence of death of
decedent-employee as
retirement benefits
- NA cannot avail of special deductions
c. Share in conjugal property
 Exclusions from estate:
a. Exclusive property of surviving
spouse
b. GSIS proceeds
c. Accruals from SSS
d. Proceeds of life insurance where
beneficiary is irrevocably appointed
e. Proceeds of life insurance under
group insurance
f. War damage payments
g. Transfer by way of bona fide sales
h. Transfer of property to govt
i. Merger or usufruct in owner of naked
title
j. Properties held in trust by decedent
k. Acquisition and/or transfer expressly
declared as not taxable
 Tax credit against Philippine estate is
allowed for estate taxes paid to foreign
countries
 Acquisitions and transmission
exempted:
1. Merger of usufruct in owner of the
naked property
2. Transmission or delivery of
inheritance or legacy by fiduciary
heirs or legatee to fideicommissary
3. Transmission from first heirs in favor
of another beneficiary in accordance
with desire of testator
4. All transfers to social welfare, cultural
and charitable institutions, no part of
income of which inures to benefit on
individual provided that not more than
30% of said transfer shall be used for
admin purpose
 When notice of death required to be
given to BIR:
a. All cases of transfers subject to tax
b. If gross value of estate exceeds 200k
even exempt from tax
- To be given 2 months after death or
within same period after executor or
administrator qualifies
 When estate tax return is required:
a. Estate is subject to estate tax
b. Regardless of value of estate when
said estate consist of registered
property for which clearance from
BIR is required as condition
precedent for transfer of ownership
- Should be filed within 1 year from
death xcp: in meritorious cases
- Estate tax returns showing gross
value exceeding 5M must be certified
by CPA
 When estate tax should be paid:
- GR: at time return is filed
 Exceptions:
1. Not to exceed 5 years if
estate is settled judicially
2. Not to exceed 2 years if
estate is settled
extrajudicially
- Shall be paid wholly by executor or
administrator before delivery of
distributive share (if not subject to
criminal liability)
- Estate tax with insufficient cash is
allowed to pay estate tax by
installment within 2 years from
statutory date for its payment without
civil penalty and interest
- Estate tax may be collected even
after distribution to heirs as liability of
heir cannot exceed amount of his
share
- 2 ways BIR can recover:
a. From the heirs who shall share
proportionately
b. Against property held by heir if
same is sufficient to cover whole
tax liability (heir who paid can
seek reimbursement)
 Approval of probate court not mandatory
requirement in collection of estate taxes
 Banks shall allow withdrawals from
decedent’s deposit account subject to
6% final withholding tax
DONOR’S TAX
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 Donor’s tax is imposed on donations inter
vivos at 6% in excess of 250k during
calendar year
 Law governs is the statute in force at time
of transfer
 DONOR’S TAX- excise tax imposed on
privilege to transfer property by way of
gift inter vivos based on pure act of
liberality without any or less than
adequate consideration and without any
legal compulsion to give
 Purpose:
a. Raise revenues
b. Tax the wealthy and reduce certain
other excise taxes
c. Discourage inter vivos transfers
d. Reduce incentive to make gifts in
order that distribution of future
income from donated property may
be to a number of persons
 Requisites of valid donation:
a. Capacity of donor
b. Donative intent
c. Delivery of gift
d. Acceptance by donee
e. Form prescribed by law
 Donation of movable requisites:
a. Donation may be oral or in writing
b. If oral, accompanied by delivery
c. If value is more than 5k, donation
must be in writing and accepted in
writing
 Donation of immovable requisites:
a. Must be in public instrument
b. Property donated and value of
charges which the donee must satisfy
must be specified
c. Donee must accept through deed or
similar instrument
 Requirements for donation to be
subject to donor’s tax:
a. Property is not real property that is a
capital asset
b. Transfer is for less than adequate
consideration
c. Transfer is inter vivos
 Transfers constituted as donations:
a. Sales, exchanges and other transfers
of property less than adequate and
full consideration
- Except real property considered as
capital assets
- Amount by which the FMV of property
exceeded value of consideration is
considered gift
 b. Condonation or remission of debt
where debtor did not render service
in favor of creditor
- General renunciation by heir is not
subject to donor’s tax
 Except if renunciation is in
favor of specific person,
subject to tax
 Liable are natural (RC,NC,RA,NA)
persons and juridical (domestic and
foreign) persons
 GROSS GIFT- all property that is given
by donor to donee by way of gift, without
benefit of any deductions
 NET GIFT- net economic benefit from the
transfer that accrues to the donee
 Same rules in estate tax for gross estate
determination
 Foreign corps donating property located
in PH are subject to donor’s tax
- Donation of foreign corp of its own
shares of stock in favor of resident
employees is not subject to donor’s
tax
 Except if 85% of its business
is located in PH or shares
donated acquired business
situs in PH
 Exemptions from gross gifts:
a. Dowries or donations made on
account of marriage before its
celebration or within one year
thereafter by parents to each of their
legitimate, recognized natural or
adopted children
b. Gifts made to or for use of national
government or any entity not
conducted for profit
c. Gifts in favor of education or
charitable, religious, cultural or social
welfare corporation, institution,
accredited NGO, trust or
philanthropic organization or
research institution provided not
more than 30% of said gifts will be
used fby such donee for admin
purpose
- Only 2 and 3 are allowed as
exemptions to non-resident aliens
 Additional exemptions to gross gift:
a. Encumbrances on property donated
if assumed by donee
b. Donations made to entities exempted
under special laws
c. Amount specifically provided by
donor as diminution of property
donated
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d. Athlete’s prizes and awards
 Political contributions duly reported to
COMELEC are not subject to donor’s tax
(in accordance with RA 7166-
11/25/1991)
 Donor is liable for donor’s tax
 Husband and wife are separate and
distinct taxpayer for purposes of donor’s
tax
TAX REMEDIES
 ASSESMENT:
a. Official action of an administrative
officer in determining the amount of
tax due from a taxpayer
b. Notice to effect that amount therein
stated is due from taxpayer as tax
with a demand for payment of the tax
or deficiency stated therein
 CIR may not be compelled by mandamus
to impose a certain tax assessment
 Types of Assessments:
a. Self-assessment- taxpayers himself
computes and pays without
intervention and file tax return
b. Deficiency assessment- assessment
made by BIR after conduct of audit
when it finds tax return filed by
taxpayer contains an under-
declaration or non-filing
c. Jeopardy assessment- doubtful
assessment without benefit of a
complete or partial audit by
authorized revenue officer who has
reason to believe that deficient tax
will be jeopardized by delay
 Requisites of valid assessment:
1. Formal letter of demand and
assessment notice issued by CIR or
duly authorized representative
2. Letter of demand calling for payment
of deficiency tax and shall state the
facts, law, rules and regulations or
jurisprudence which the assessment
is based
3. Sent to taxpayer by registered mail or
personal delivery
 Assessment must also contain demand
for payment within prescribed period
 Assessment is deemed made when BIR
sends such notice to taxpayer
 Tax assessments by tax examiners are
presumed correct and made in good faith
- Except when CIR comes out with
naked assessment
 If revenue officer was not given
opportunity to examine taxpayer’s
 documents, they are authorized to gather
information from third parties
 Constructive methods of income
determination:
a. Percentage method
b. Net worth method- unexplained
increase in net worth of taxpayer is
presumed to be derived from taxable
sources
c. Bank deposit method
d. Cash expenditure method
e. Unit and value method
f. Third party information or access to
records method
g. Surveillance and assessment
method
 When is taxpayer considered delinquent:
1. Self-assessed tax per return filed by
taxpayer on prescribed date was not
paid at all or only partially paid
2. Deficiency tax assessed by BIR
became final and executory
 What is tax deficiency:
1. Amount which tax imposed exceeds
the amount shown as the tax by the
taxpayer upon his return
2. Amount by which the tax exceeds the
amount previously assessed
- If taxpayer is delinquent, he is
subjected to civil penalty or
surcharge or interests
POWERS OF CIR IN ASSESSMENT
 Authority of CIR to prescribe real estate
values must be done upon consultation
with competent appraisers both from
public and private sectors
 CIR has no authority to inquire into bank
deposits except:
a. Decedent to determine his gross
estate
b. Taxpayer who filed application for
compromise of his tax liability by
reason of financial incapacity
c. Specific taxpayers subject of request
for exchange of info by foreign tax
authority pursuant to an agreement
on tax matters provided requesting
foreign tax authority is able to
demonstrate foreseeable relevance
of certain information
d. Taxpayer has signed waiver
authorizing CIR to inquire into his
bank deposits
 CIR has authority to accredit and register
tax agents
 BIR can obtain all relevant records and
data in person of taxpayer without his
consent

 Taxpayer may no longer withdraw tax

return
- But he may amend it provided:
a. It is made 3 years from filing; and
b. No notice for audit or
investigation has been actually
served
 Assessment must be made on “best
evidence obtainable” including the
corporate and accounting records of
taxpayer
 If there is reason to believe that taxpayer
is not declaring his correct income, sales
or receipts, the CIR has authority to
conduct inventory-taking, surveillance
and to prescribe presumptive gross sales
and receipts
 CIR can terminate taxable period of
taxpayer when:
1. Retiring from business
2. Intending to leave country
3. Removing his property
4. Obstructing tax collection