GUIDE&NOTES&and&CASES&ON&TRANSFER&TAXES&&(ESTATE&TAX&AND&
DONORS&TAX)&&(&with&amendments&introduced&by&RA&10963&or&the&
TRAIN&Law.)&
TRANSFER&TAXES&IN&GENERAL!
Q:!What!is!a!transfer!tax?!
*!A!transfer!tax!is!a!tax!imposed!on!the!privilege!of!transferring!
properties,!real!or!personal,!without!consideration.!
Q:!What!is!the!nature!of!a!transfer!tax?!
*!A!transfer!tax!is!an!excise!tax!or!privilege!tax!that!is!imposed!on!
the!act!of!passing!ownership!of!property,!and!is!not!a!tax!on!the!
property!transferred.!
Q:!What!are!the!kinds!of!transfer!tax?!
*!These!are!estate!tax!and!donor’s!tax.!Estate!tax!is!a!tax!that!is!
levied,!assessed,!collected,!and!paid!upon!the!transfer!of!the!net!
estate!of!a!decedent!to!his!or!her!heirs.!On!the!other!hand,!
donor’s!tax!is!an!excise!tax!levied,!collected,!and!paid!upon!the!
privilege!of!transferring!property!gratuitously!by!way!of!gift!inter!
vivos!by!any!person,!resident!or!nonEresident.!
Q:!Differentiate!between!estate!tax!and!donor’s!tax.!
!(1)!Estate!tax!is!a!tax!on!the!privilege!to!transfer!property!upon!
one’s!death!(mortis!causa);!donor’s!tax!is!a!tax!on!the!privilege!to!
transfer!property!during!one’s!lifetime!(inter!vivos).!!
(2)!The!maximum!tax!rate!of!estate!tax!is!6%!on!net!estates!;!the!!
maximum!tax!rate!of!donor’s!tax!is!also!6!%!on!the!total!gifts.!IN!
Prof.&L.K.&Gruba&SY201832019&
excess!of!the!two!hundred!fifty!thousand!pesos!(P250,000)!
exempt!gift!made!during!the!calendar!year.!
Q:!How!are!transfer!taxes!distinguished!from!business!taxes?!
*!Transfer!taxes!are!taxes!imposed!on!the!privilege!of!
transferring!properties,!real!or!personal,!without!consideration.!
On!the!other!hand,!business!taxes!are!imposed!upon!a!person,!
who!is!engaged!in!trade!or!business!or!in!the!exercise!of!
profession,!including!but!not!limited!to!valueEadded!tax,!other!
percentages!taxes,!excise!taxes!and!documentary!stamp!tax.!
Take&note&of&the&remaining&relevant&provisions&RR&No.&02303&dated&
17&January&2003&which&supposed&to&consolidates&all&RRs&issued&on&
estate&tax&and&donor’s&tax.&But&this&will&now&be&read&together&with&
the&various&amendments&provided&for&in&RA&10963&or&the&TRAIN&Law.&
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%in%accordance%with%
Sections%85%and%86%of%every%decedent,%whether%resident%or%
nonresident%of%the%Philippines,%a%tax%%AT%THE%RATE%OF%SIX%PERCENT%
(6%)%based%on%the%value%of%such%net%estate!
Q:!What!is!an!estate!tax?!
*!Estate!tax!is!a!tax!that!is!levied,!assessed,!collected,!and!paid!
upon!the!transfer!of!the!net!estate!of!a!decedent!to!his!or!her!
heirs.!The!net!estate!is!computed!as!follows:!
1"
 Gross!estate!standard!!deductions,!minus!the!share!of!the!
surviving!spouse,!minus!special!deductions!equals!the!net!
taxable!estate.!
Q:!Define!real!property!and!personal!property.!
Q:!What!are!the!factors!considered!in!computing!estate!tax?!
*%To!determine!estate!tax,!the!following!must!first!be!
considered:!(1)!who!the!taxpayer!is,!based!on!nationality!and/or!
domicile;!(2)!the!nature!and!location!of!the!assets;!(3)!the!
computation!and!valuation!of!the!assets,!including!deductions;!
and!(4)!the!tax!rates.!
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.!
Q:!What!kind!of!assets,!properties,!and!interest!should!be!part!of!
the!gross!estate?!
*!Generally,!gross!estate!includes:!(1)!real!property;!(2)!
intangible!personal!property;!and!(3)!tangible!personal!
property.!Specific!rules!are!followed!depending!on!who!the!
taxpayer!is,!based!on!nationality!and/or!domicile.!For!residents!
and!citizens:!all!assets,!real!or!personal,!tangible!or!intangible,!
wherever!located.!For!nonEresident!aliens:!only!properties!
located!in!the!Philippines,!provided!that!in!the!case!of!
Prof.&L.K.&Gruba&SY201832019&
intangible!personal!property,!the!same!is!subject!to!the!rule!of!
reciprocity!under!Section!104!of!the!1997!Tax!Code.!
*!Definition!of!real!property!follows!that!in!Article!415!of!the!
Civil!Code.!Definition!of!personal!property!follows!that!
provided!in!Article!417!also!of!the!Civil!Code.!
Article!415!of!the!Civil!Code!considers!the!following!as!
immovable!property:!
1. Land,!buildings,!roads!and!constructions!of!all!kinds!adhered!
to!the!soil;!
2. Trees,!plants,!and!growing!fruits,!while!they!are!attached!to!
the!land!or!form!an!integral!part!of!an!immovable;!
3. Everything!attached!to!an!immovable!in!a!fixed!manner,!in!
such!a!way!that!it!cannot!be!separated!therefrom!without!
breaking!the!material!or!deterioration!if!the!object;!
4. Statues,!reliefs,!paintings!or!other!objects!for!use!or!
ornamentation,!placed!in!buildings!or!on!lands!by!the!owner!of!
the!immovable!in!such!a!manner!that!it!reveals!the!intention!to!
attach!them!permanently!to!the!tenements;!
5. Machinery,!receptacles,!instruments!or!implements!
intended!by!the!owner!of!the!tenement!for!an!industry!or!
works!which!may!be!carried!on!in!a!building!or!on!a!piece!of!
land,!and!which!tend!directly!to!meet!the!needs!of!the!said!
industry!or!works;!
6. Animal!houses,!pigeonEhouses,!beehives,!fish!ponds!or!
breeding!places!of!similar!nature,!in!case!their!owner!has!
placed!them!or!preserves!them!with!the!intention!to!have!
them!permanently!attached!to!the!land,!and!forming!a!
2"
 permanent!part!of!it;!the!animals!in!these!places!are!included;!
7. Fertilizer!actually!used!on!a!piece!of!land;!
8. Mines,!quarries,!and!slag!dumps,!while!the!matter!thereof!
forms!part!of!the!bed,!and!waters!either!running!or!stagnant;!
9. Docks!and!structures!which,!though!floating,!are!intended!
by!their!nature!and!object!to!remain!at!a!fixed!place!on!a!river,!
lake,!or!coast;!and!
10. Contracts!for!public!works,!and!servitudes!and!other!real!
rights!over!immovable!property.!
Article!416!of!the!Civil!Code!considers!the!following!as!personal!
property:!
1. Those!movables!susceptible!of!appropriation!which!are!not!
included!in!Article!415;!
2. Real!property!which!by!any!special!provision!of!law!is!
considered!as!personal!property;!
3. Forces!of!nature!which!are!brought!under!control!by!
science;!and!
4. In!general,!all!things!which!can!be!transported!from!place!to!
place!without!impairment!of!the!real!property!to!which!they!
are!fixed.!
Intangible!personal!properties!which!are!considered!as!situated!
in!the!Philippines!under!Section!104!of!the!1997!Tax!Code!
include:!
1. Franchise!which!must!be!exercised!in!the!Philippines;!
2. Shares,!obligations!or!bonds!issued!by!any!corporation!or!
sociedad!anonima!organized!and!constituted!in!the!Philippines!
in!accordance!with!its!laws;!
3. Shares,!obligations!or!bonds!by!any!foreign!corporation!85%!
Prof.&L.K.&Gruba&SY201832019&
of!the!business!of!which!is!located!in!the!Philippines;!
4. Shares,!obligations!or!bonds!issued!by!any!foreign!
corporation!if!such!shares,!obligations!or!bonds!have!acquired!
a!business!situs!in!the!Philippines;!and!
5. Shares!or!rights!in!any!partnership,!business!or!industry!
established!in!the!Philippines.!
Q:!Explain!the!dateEofEdeath!rule.!
*!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.!If!death!is!the!generating!source!
from!which!the!power!of!the!state!to!impose!inheritance!taxes!
takes!its!being!and!if,!upon!the!death!of!the!decedent,!
succession!takes!place!and!the!right!of!the!state!to!tax!vests!
instantly,!the!tax!should!be!measured!by!the!value!of!the!
estate!as!it!stood!at!the!time!of!the!decedent’s!death,!
regardless!of!any!subsequent!contingency!affecting!value!of!
any!subsequent!increase!or!decrease!in!value.!
The!right!of!the!state!to!a!inheritance!tax!accrues!at!the!
moment!of!death,!and!hence!is!ordinarily!measured!as!to!any!
beneficiary!by!the!value!at!the!time!of!such!property!passes!to!
him.!Subsequent!appreciation!or!depreciation!is!immaterial.!
**!The!properties!and!rights!are!transferred!to!the!successors!
at!the!time!of!death.![Article!777,!Civil!Code]!
***!However,!the!Register!of!Deeds!shall!not!transfer!the!title!
to!the!properties!without!the!Certificate!Authorizing!
Registration!issued!by!relevant!RDO!evidencing!filing!of!estate!
3"
 tax!return!and!payment!of!applicable!estate!tax.![RR!No.!24E02]!
Q:!How!are!properties!valued!for!purposes!of!computing!the!gross!
estate?!
*!Real!property:!fair!market!value,!as!determined!by!the!CIR!or!
as!shown!in!the!schedule!of!values!fixed!by!the!provincial!and!
city!assessors,!whichever!is!higher.!!
Shares!of!stock:!if!listed!–!arithmetic!mean!between!the!highest!
and!the!lowest!quotation!at!the!date!nearest!the!date!of!the!
death;!if!unlisted!–!book!value!for!common!shares,!and!par!
value!for!preferred!shares.!
Personal!property:!fair!market!value.!
Q:!What!are!those!interests!which!may!be!included!as!part!of!the!
gross!estate!of!the!decedent?!
*!These!are:!(1)!decedent’s!interest;!(2)!transfer!in!
contemplation!of!death;!(3)!revocable!transfer;!(4)!property!
passing!under!general!power!of!appointment;!(5)!proceeds!of!
life!insurance;!(6)!prior!interests;!(7)!transfer!for!insufficient!
consideration;!and!(8)!capital!of!the!surviving!spouse.!
85(A)%Decedent’s%Interest%T%To%the%extent%of%the%interest%therein%of%
the%decedent%at%the%time%of%his%death.%
Q:!What!is!covered!by!the!decedent’s!interest?!
*!The!interests!referred!to!in!this!provision!are!those!interests!
which!have!already!accrued!to!the!decedent!during!his!lifetime!
although!not!yet!received!at!the!time!of!death.!
Prof.&L.K.&Gruba&SY201832019&
85(B)%Transfer%in%Contemplation%of%Death%T%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%bonafide%sale%for%an%
adequate%and%full%consideration%in%money%or%money's%worth.%
Q:!What!are!the!two!kinds!of!transfer!in!contemplation!of!death?!
*!These!are:!
1. Transfer!is!made!by!trust!or!otherwise,!in!contemplation!of!
or!intended!to!take!effect!in!possession!or!enjoyment!at!or!
after!death;!and!
2. Transfer!is!made!by!trust!or!otherwise,!under!which!the!
decedent!has!retained!for!his!life!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!person!who!shall!possess!or!enjoy!the!property!
or!the!income!therefrom.!
Q:!Differentiate!between!a!donation!inter!vivos!(subject!to!donor’s!
tax)!and!a!donation!mortis!causa!(or!a!transfer!in!contemplation!of!
death,!subject!to!estate!tax).!
4"
 *!In!the!case!of!Alejandro&v.&Geraldez,!the!Gavino!Spouses!
owned!a!parcel!of!land!which,!in!1949,!was!the!subject!matter!
of!a!deed!of!donation.!As!a!result!of!the!execution!of!said!deed,!
the!parcel!of!land!was!divided!into!three!equal!parts:!(1)!1/3!
was!donated!to!their!granddaughter,!Andrea!Diaz;!(2)!1/3!was!
given!to!their!grandson,!Angel!Diaz;!and!(3)!the!last!1/3!was!
reserved!and!retained!by!the!Gavino!Spouses!for!their!support.!
In!dispute!was!the!nature!of!the!deed!of!donation,!i.e.,!whether!
it!was!inter!vivos!or!mortis!causa.!
[NOTE:!See!the!text!of!the!decision!for!an!extensive!
differentiation!between!donations!inter!vivos!and!mortis!
causa.]!Relevant!portion!of!the!decision!read:!“If!the!donation!
is!made!in!contemplation!of!the!donor's!death,!meaning!that!
the!full!or!naked!ownership!of!the!donated!properties!will!pass!
to!the!donee!only!because!of!the!donor's!death,!then!it!is!at!
that!time!that!the!donation!takes!effect,!and!it!is!a!donation!
mortis&causa&which!should!be!embodied!in!a!last!will!and!
testament!(Bonsato!vs.!Court!of!Appeals,!95!Phil.!481).!
But!if!the!donation!takes!effect!during!the!donor's!lifetime!or!
independently!of!the!donor's!death,!meaning!that!the!full!or!
naked!ownership!(nuda&proprietas)!of!the!donated!properties!
passes!to!the!donee!during!the!donor's!lifetime,!not!by!reason!
of!his!death!but!because!of!the!deed!of!donation,!then!the!
donation!is!inter&vivos&(Castro!vs.!Court!of!Appeals,!LE!20122,!
April!28,!1969,!27!SCRA!1076).”!
The!Supreme!Court!held!that!it!was!a!donation!inter!vivos,!
upon!examination!of!the!warranty,!acceptance,!and!
reservation!clauses!of!the!deed.!Particularly!as!regards!the!
acceptance!clause,!the!Supreme!Court!said:!“The!acceptance!
Prof.&L.K.&Gruba&SY201832019&
clause!is!another!indication!that!the!donation!is!inter!vivos.!
Donations!mortis&causa,!being!in!the!form!of!a!will,!are!never!
accepted!by!the!donees!during!the!donors'!lifetime.!
Acceptance!is!a!requirement!for!donations!inter!vivos.”!
[Alejandro!v.!Geraldez,!GR!Nos.!LE33849!&!LE33968,!18!Aug.!
1977.]!
**!In!the!case!of!Gestopa&v.&CA,!Spouses!Diego!Danlag!and!
Catalina!Danlag!owned!six!parcels!of!land.!With!the!consent!of!
his!wife,!Diego!Danlag!executed!a!deed!of!donation!over!said!
parcels!of!land!in!favor!of!his!illegitimate!child,!Mercedes!
Danlag.!Controversy!arose!as!to!whether!the!deed!of!donation!
was!inter!vivos!or!mortis!causa.!The!Supreme!Court!held!that!it!
was!a!donation!inter!vivos!for!the!following!reasons:!(1)!the!
granting!clause!of!the!deed!showed!that!Diego!donated!the!
properties!out!of!love!and!affection!for!Mercedes;!(2)!the!
reservation!clause!in!respect!of!the!lifetime!usufruct!indicated!
that!Diego!intended!to!transfer!the!naked!ownership!over!the!
properties;!(3)!Diego!reserved!sufficient!properties!for!his!
maintenance!in!accordance!with!his!standing!in!society;!and!(4)!
Mercedes!accepted!the!donation.![Gestopa!v.!CA,!GR!No.!
111904,!5!Oct.!2000]!
***!As!a!general!rule,!donations!mortis!causa!are!subject!to!
estate!tax!while!donations!inter!vivos!are!subject!to!donor’s!
tax.!However,!donations!inter!vivos!may!be!subject!to!estate!
tax!if!the!transferor’s!control!over!the!property!subject!of!the!
donation!extends!up!to!the!death!of!the!transferor,!such!as!
transfers!in!contemplation!of!death!or!revocable!transfers.!
85(C)%Revocable%Transfer.%T%(1)%To%the%extent%of%any%interest%
therein,%of%which%the%decedent%has%at%any%time%made%a%transfer%
5"
(except%in%case%of%a%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),%t%o%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.%
Q:!What!are!considered!as!revocable!transfers?!
*!The!fact!that!the!exercise!of!the!power!to!revoke!was!not!
done!during!the!life!of!the!decedent!is!of!no!moment!or!
immaterial.!The!revocable!nature!of!the!transfer!remains.!In!
effect,!the!subject!property!is!considered!as!part!of!the!gross!
estate.!!
Prof.&L.K.&Gruba&SY201832019&
85(D)%Property%Passing%Under%General%Power%of%Appointment.%T%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.!
85(E)%Proceeds%of%Life%Insurance.&3&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.!
Q:!When!are!life!insurance!proceeds!included!in!the!computation!of!
gross!estate?!
*!Life!insurance!proceeds!are!always!excluded!from!gross!
income,!whether!the!designation!of!the!beneficiary!is!
revocable!or!irrevocable.!However,!the!irrevocability!of!the!
designation!of!the!beneficiary!is!material!in!determining!
whether!or!not!the!proceeds!will!form!part!of!the!estate!
because!if!the!designation!is!irrevocable,!it!means!therefore!
6"
 that!the!decedent!has!not!retained!any!interest!which!passed!
on!after!death.!Being!the!case,!the!proceeds!should!be!
excluded&from!the!gross!estate.!
Proceeds&of&life&insurance&under&a&policy:&(1)&taken&out&by&the&
decedent&upon&his&own&life;&(2)&where&the&beneficiary&of&which&is&
his&estate;&or&(3)&where&the&designation&of&the&beneficiary&is&
revocable,&are&to&be&included%in&the&gross&estate.&The&source&of&
premium&is&also&important&in&determining&whether&the&proceeds&
will&be&excluded&or&included&in&the&gross&estate.&
85(F)%Prior%Interests.%T%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.!
85(G)%Transfers%of%Insufficient%Consideration.%T%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.!
85(H)%Capital%of%the%Surviving%Spouse.%T%The%capital%of%the%surviving%
spouse%of%a%decedent%shall%not,%for%the%purpose%of%this%Chapter,%be%
deemed%a%part%of%his%or%her%gross%estate.!
Prof.&L.K.&Gruba&SY201832019&
Sec.%86,%Computation%of%Net%Estate%For%the%purpose%of%the%tax%
imposed%in%this%Chapter,%the%value%of%the%net%estate%shall%be%
determined:!
86(A)%Deductions%Allowed%to%the%Estate%of%a%Citizen%or%a%Resident%T%
In%the%case%of%a%citizen%or%resident%of%the%Philippines,%by%deducting%
from%the%value%of%the%gross%estate%T!
)(1)%STANDARD%DEDUCTION.%–%AN%AMOUNT%EQUIVALENT%TO%FIVE%
MILLION%PESOS%(P5,000,000.)%!
!
)(2)%For%claims%against%the%estate:%Provided,%That%at%the%time%the%
indebtedness%was%incurred%the%debt%instrument%was%duly%notarized%
and,%if%the%loan%was%contracted%within%three%(3)%years%before%the%
death%of%the%decedent,%the%administrator%or%executor%shall%submit%
a%statement%showing%the%disposition%of%the%proceeds%of%the%loan;!
Q:!What!are!the!requisites!for!deductibility!of!claims!against!the!
estate?!
*&In!general,!claims!against!the!estate!may!arise!out!of:!(1)!
contract;!(2)!tort;!or!(3)!operation!of!law.!!
The!requisites!for!deductibility!of!claims!against!the!estate!are:!
(1)!liability!represents!a!personal!obligation!of!the!deceased!
existing!at!the!time!of!his!death;!(2)!liability!was!contracted!in!
good!faith!and!for!adequate!and!full!consideration!in!money!or!
money’s!worth;!(3)!claim!must!be!a!debt!or!claim!which!is!valid!
in!law!and!enforceable!in!court;!and!(4)!the!indebtedness!must!
not!have!been!condoned!by!the!creditor!or!the!action!to!collect!
7"
 from!the!decedent!must!not!have!prescribed.!
Q:!What!are!the!requirements!to!substantiate!claims!against!the!
estate?!
*!In!case!of!a!simple!loan:!(1)!debt!instrument!must!be!duly!
notarized!at!the!time!the!debt!was!incurred;!(2)!duly!notarized!
certification!from!the!creditor!as!to!the!balance;!(3)!proof!of!
capacity!of!the!lender!or!creditor!to!lend;!and!(4)!proof!of!
disposition!of!proceeds!of!loan!from!the!executor!or!
administrator!if!loan!was!contracted!3!years!before!the!death.!
If!the!unpaid!obligation!arose!from!a!purchase!of!goods!or!
services:!(1)!pertinent!documents!evidencing!the!purchase!of!
goods!or!services;!(2)!duly!notarized!certification!from!the!
creditor!as!to!balance;!(3)!certified!true!copy!of!the!latest!
audited!balance!sheet!of!the!creditor!with!the!detailed!
schedule!of!its!receivable!showing!unpaid!balance!of!the!
decedent!debtor.!
Q:!What!are!claims!against!the!estate?!How!are!they!filed?!
*!The!case!of!Johannes&v.&Imperial&pertained!to!the!settlement!
of!the!estate!of!Carmen!Johannes!who!at!the!time!of!her!death!
was!a!resident!of!Singapore!and!a!citizen!of!Great!Britain.!The!
Supreme!Court!explained!that!claims!against!the!estate!should!
only!be!for!just!debts,!or!expenses!for!administration!of!the!
estate!itself.!
[NOTE:!This!case!was!decided!in!1922.!Under!the!1997!Tax!
Code,!expenses!for!administration!of!the!estate!may!be!
claimed!as!“judicial!expenses”!under!the!immediately!
Prof.&L.K.&Gruba&SY201832019&
preceding!section.]!It!was!held!that!where!the!issue!was!
whether!the!brothers!and!sisters!of!the!deceased!were!entitled!
to!share!in!her!estate,!or!whether!the!surviving!husband!was!
entitled!to!all!of!it,!“that!question!is!not!one!of!administration,!
and!any!expense!and!attorney’s!fees!incurred!by!either!party!
for!the!settlement!of!that!question!is!a!personal!matter!to!
them,!and!should!not!be!allowed!as!claims!against!the!estate.”!
[Johannes!v.!Imperial,!GR!No.!LE19153,!30!June!1922.]!
**!In!Domingo&v.&Garlitos,&it!was!held!that!the!ordinary!
procedure!by!which!to!settle!claims!against!the!estate!was!for!
the!claimant!to!present!a!claim!before!the!probate!court!so!
that!said!court!could!order!the!payment!thereof.![Domingo!v.!
Garlitos,!GR!No.!LE18994,!29!June!1963.]!
***!In!the!case!of!Philippine&Deposit&Insurance&Corporation&v.&
BIR,&the!Supreme!Court!had!occasion!to!say!that!the!settlement!
of!estate!of!deceased!persons!resembled!a!liquidation!
proceeding.!“The!two!have!a!common!purpose:!the!
determination!of!all!the!assets!and!the!payment!of!all!the!debts!
and!liabilities!of!the!insolvent!corporation!or!the!estate.!The!
Liquidator!and!the!administrator!or!executor!are!both!charged!
with!the!assets!for!the!benefit!of!the!claimants.!In!both!
instances,!the!liability!of!the!corporation!and!the!estate!is!not!
disputed.!The%court's%concern%is%with%the%declaration%of%
creditors%and%their%rights%and%the%determination%of%their%order%
of%payment.”%[Philippine!Deposit!Insurance!Corporation!v.!BIR,!
GR!No.!158261,!18!Dec.!2006.]!
****!In!the!case!of!Gabin&v.&Melliza,&Melliza,!during!his!lifetime,!
entered!into!an!agreement!with!Gabin!whereby!the!former!
employed!the!latter!to!administer!his!haciendas!for!a!period!of!
8"
 thirty!years!from!said!sate.!As!compensation!for!the!personal!
services,!Melliza!agreed!to!pay!Gabin!150!cavans!of!palay!every!
agricultural!year.!One!year!later,!Melliza!died.!Gabin!presented!
to!the!probate!court!a!claim!against!the!estate!of!the!deceased!
for!the!payment!and!implementation!of!the!thirtyEyear!
agreement.!The!Supreme!Court!denied!Gabin’s!claim,!on!the!
ground!that:!(1)!Gabin’s!claim!arose!after!the!death!of!the!
decedent;!and!(2)!her!claim!was!not!for!money,!debt,!or!
interest!thereon!but!for!150!cavans!of!palay!a!year!for!29!
agricultural!years!(one!agricultural!year!having!elapsed!before!
the!death!of!Melliza).![Gabin!v.!Melliza,!GR!No.!LE1849,!25!Oct.!
1949.]!
*****!The!case!of!Vera&v.&Fernandez&pertained!to!the!
settlement!of!the!estate!of!Luis!Tongoy.!The!Supreme!Court!
stated!that!as!a!general!rule,!claims!against!the!estate!and!
claims!for!funeral!expenses!and!expenses!for!the!last!sickness!
of!the!decedent!must!be!filed!within!a!specified!time.!
Otherwise,!they!are!barred!forever.!As!an!exception,!claims!for!
taxes!against!the!estate!“may!be!collected!even!after!the!
distribution!of!the!decedent’s!estate!among!his!heirs!who!shall!
be!liable!therefore!in!proportion!of!their!share!in!the!
inheritance.”![Vera!v.!Fernandez,!GR!No.!LE31364,!30!Mar.!
1979.]!
******!In!Dizon&v.&CTA,!the!issue!was!whether!the!actual!claims!
of!the!creditors!might!be!fully!allowed!as!deductions!from!the!
gross!estate!of!the!decedent,!despite!the!fact!that!said!claims!
were!reduced!or!condoned!through!compromise!agreements!
entered!into!by!the!estate!with!its!creditors.!The!Supreme!
Court!ruled!in!this!wise:!
Prof.&L.K.&Gruba&SY201832019&
“We!express!our!agreement!with!the!dateEofEdeath!valuation!
rule,!made!pursuant!to!the!ruling!of!the!U.S.!Supreme!Court!in!
Ithaca&Trust&Co.&v.&United&States.!First.!There!is!no!law,!nor!do!
we!discern!any!legislative!intent!in!our!tax!laws,!which!
disregards!the!dateEofE!death!valuation!principle!and!
particularly!provides!that!postEdeath!developments!must!be!
considered!in!determining!the!net!value!of!the!estate.!It!bears!
emphasis!that!tax!burdens!are!not!to!be!imposed,!nor!
presumed!to!be!imposed,!beyond!what!the!statute!expressly!
and!clearly!imports,!tax!statutes!being!construed!strictissimi&
juris&against!the!government.!Any!doubt!on!whether!a!person,!
article!or!activity!is!taxable!is!generally!resolved!against!
taxation.!Second.!Such!construction!finds!relevance!and!
consistency!in!our!Rules!on!Special!Proceedings!wherein!the!
term!"claims"!required!to!be!presented!against!a!decedent's!
estate!is!generally!construed!to!mean!debts!or!demands!of!a!
pecuniary!nature!which!could!have!been!enforced!against!the!
deceased!in!his!lifetime,!or!liability!contracted!by!the!deceased!
before!his!death.&Therefore,!the!claims!existing!at!the!time!of!
death!are!significant!to,!and!should!be!made!the!basis!of,!the!
determination!of!allowable!deductions.”![Dizon!v.!CTA,!GR!No.!
140944,!30!Apr.!2008.]!
)((3)For%claims%of%the%deceased%against%insolvent%persons%where%
the%value%of%decedent's%interest%therein%is%included%in%the%value%of%
the%gross%estate;%!
)(4)For%unpaid%mortgages%upon,%or%any%indebtedness%in%respect%to,%
property%where%the%value%of%decedent's%interest%therein,%
undiminished%by%such%mortgage%or%indebtedness,%is%included%in%the%
value%of%the%gross%estate,%but%not%including%any%income%tax%upon%
income%received%after%the%death%of%the%decedent,%or%property%taxes%
9"
not%accrued%before%his%death,%or%any%estate%tax.%The%deduction%
herein%allowed%in%the%case%of%claims%against%the%estate,%unpaid%
mortgages%or%any%indebtedness%shall,%when%founded%upon%a%
promise%or%agreement,%be%limited%to%the%extent%that%they%were%
contracted%bona%fide%and%for%an%adequate%and%full%consideration%in%
money%or%money's%worth.%There%shall%also%be%deducted%losses%
incurred%during%the%settlement%of%the%estate%arising%from%fires,%
storms,%shipwreck,%or%other%casualties,%or%from%robbery,%theft%or%
embezzlement,%when%such%losses%are%not%compensated%for%by%
insurance%or%otherwise,%and%if%at%the%time%of%the%filing%of%the%return%
such%losses%have%not%been%claimed%as%a%deduction%for%the%income%
tax%purposes%in%an%income%tax%return,%and%provided%that%such%
losses%were%incurred%not%later%than%the%last%day%for%the%payment%of%
the%estate%tax%as%prescribed%in%Subsection%(A)%of%Section%91.!
(5)%Property%Previously%Taxed.%T%An%amount%equal%to%the%value%
specified%below%of%any%property%forming%a%part%of%the%gross%estate%
situated%in%the%Philippines%of%any%person%who%died%within%five%(5)%
years%prior%to%the%death%of%the%decedent,%or%transferred%to%the%
decedent%by%gift%within%five%(5)%years%prior%to%his%death,%where%such%
property%can%be%identified%as%having%been%received%by%the%decedent%
from%the%donor%by%gift,%or%from%such%prior%decedent%by%gift,%
bequest,%devise%or%inheritance,%or%which%can%be%identified%as%having%
been%acquired%in%exchange%for%property%so%received:!
One%hundred%percent%(100%)%of%the%value,%if%the%prior%decedent%
died%within%one%(1)%year%prior%to%the%death%of%the%decedent,%or%if%
the%property%was%transferred%to%him%by%gift%within%the%same%period%
prior%to%his%death;%Eighty%percent%(80%)%of%the%value,%if%the%prior%
decedent%died%more%than%one%(1)%year%but%not%more%than%two%(2)%
years%prior%to%the%death%of%the%decedent,%or%if%the%property%was%
transferred%to%him%by%gift%within%the%same%period%prior%to%his%
Prof.&L.K.&Gruba&SY201832019&
death;!
Sixty%percent%(60%)%of%the%value,%if%the%prior%decedent%died%more%
than%two%(2)%years%but%not%more%than%three%(3)%years%prior%to%the%
death%of%the%decedent,%or%if%the%property%was%transferred%to%him%by%
gift%within%the%same%period%prior%to%his%death;!
Forty%percent%(40%)%of%the%value,%if%the%prior%decedent%died%more%
than%three%(3)%years%but%not%more%than%four%(4)%years%prior%to%the%
death%of%the%decedent,%or%if%the%property%was%transferred%to%him%by%
gift%within%the%same%period%prior%to%his%death;%Twenty%percent%
(20%)%of%the%value,%if%the%prior%decedent%died%more%than%four%(4)%
years%but%not%more%than%five%(5)%years%prior%to%the%death%of%the%
decedent,%or%if%the%property%was%transferred%to%him%by%gift%within%
the%same%period%prior%to%his%death;!
These%deductions%shall%be%allowed%only%where%a%donor's%tax%or%
estate%tax%imposed%under%this%Title%was%finally%determined%and%
paid%by%or%on%behalf%of%such%donor,%or%the%estate%of%such%prior%
decedent,%as%the%case%may%be,%and%only%in%the%amount%finally%
determined%as%the%value%of%such%property%in%determining%the%value%
of%the%gift,%or%the%gross%estate%of%such%prior%decedent,%and%only%to%
the%extent%that%the%value%of%such%property%is%included%in%the%
decedent's%gross%estate,%and%only%if%in%determining%the%value%of%the%
estate%of%the%prior%decedent,%no%deduction%was%allowable%under%
paragraph%(2)%in%respect%of%the%property%or%properties%given%in%
exchange%therefor.%Where%a%deduction%was%allowed%of%any%
mortgage%or%other%lien%in%determining%the%donor's%tax,%or%the%
estate%tax%of%the%prior%decedent,%which%was%paid%in%whole%or%in%
part%prior%to%the%decedent's%death,%then%the%deduction%allowable%
under%said%Subsection%shall%be%reduced%by%the%amount%so%paid.%
Such%deduction%allowable%shall%be%reduced%by%an%amount%which%
10"
bears%the%same%ratio%to%the%amounts%allowed%as%deductions%under%
paragraphs%(1)%and%(3)%of%this%Subsection%as%the%amount%otherwise%
deductible%under%said%paragraph%(2)%bears%to%the%value%of%the%
decedent's%estate.%Where%the%property%referred%to%consists%of%two%
or%more%items,%the%aggregate%value%of%such%items%shall%be%used%for%
the%purpose%of%computing%the%deduction.!
Q:!Explain!the!concept!of!vanishing!deduction.!
*!It!is!a!way!of!reducing!the!tax!on!property!received!from!a!
prior!decedent!where!the!deceased!died!within!five!years!after!
the!death!of!the!prior!decedent,!to!wit:!100%!of!the!value!if!the!
prior!decedent!died!within!one!year!prior!to!the!death!of!the!
decedent,!or!if!the!property!was!transferred!to!him!by!gift!
within!the!same!period!prior!to!his!death;!
80%!of!the!value!if!the!prior!decedent!died!more!than!one!year!
but!not!more!than!2!years!prior!to!the!death!of!the!decedent,!
or!if!the!property!was!transferred!to!him!by!gift!within!the!
same!period!prior!to!his!death;!60%!of!the!value!if!the!prior!
decedent!died!more!than!2!years!but!not!more!than!3!years!
prior!to!the!death!of!the!decedent,!or!if!the!property!was!
transferred!to!him!by!gift!within!the!same!period!prior!to!his!
death;!
40%!of!the!value!if!the!prior!decedent!died!more!than!3!years!
but!not!more!than!4!years!prior!to!the!death!of!the!decedent,!
or!if!the!property!was!transferred!to!him!by!gift!within!the!
same!period!prior!to!his!death!20%!of!the!value!if!the!prior!
decedent!died!more!than!4!years!but!not!more!than!5!years!
prior!to!the!death!of!the!decedent,!or!if!the!property!was!
transferred!to!him!by!gift!within!the!same!period!prior!to!his!
Prof.&L.K.&Gruba&SY201832019&
death.!
(6)%Transfers%for%Public%Use.%T%The%amount%of%all%the%bequests,%
legacies,%devises%or%transfers%to%or%for%the%use%of%the%Government%
of%the%Republic%of%the%Philippines,%or%any%political%subdivision%
thereof,%for%exclusively%public%purposes.!
)(7)%The%Family%Home.%T%An%amount%equivalent%to%the%current%fair%
market%value%of%the%decedent's%family%home:%Provided,%however,%
That%if%the%said%current%fair%market%value%exceeds%TEN%MILLION%
PESOS%(P10,000,000.00)%the%excess%shall%be%subject%to%estate%tax.%!
Q:!What!is!the!limit!for!the!family!home?!
*!The!deductible!amount!shall!be!the!current!fair!market!value!
10,000,000.00!shall!be!subject!to!estate!tax.!
!
!
)(8)%Amount%Received%by%Heirs%under%RA%No.%4917.&T%Any%amount%
received%by%the%heirs%from%the%decedent%T%employee%as%a%
consequence%of%the%death%of%the%decedentTemployee%in%accordance%
with%Republic%Act%No.%4917:%Provided,%That%such%amount%is%
included%in%the%gross%estate%of%the%decedent.!
86(B)%Deductions%Allowed%to%Nonresident%Estates.%T%In%the%case%of%a%
nonresident%not%a%citizen%of%the%Philippines,%by%deducting%from%the%
value%of%that%part%of%his%gross%estate%which%at%the%time%of%his%death%
is%situated%in%the%Philippines:!
(1)STANDARD%DEDUCTION.%–%AN%AMOUNT%EQUIVALENT%TO%FIVE%
11"
HUNDRED%THOUSAND%%PESOS%%(P500,000.)!
(2)THAT%PROPORTION%OF%THE%DEDUCTIONS%SPECIFIED%IN%
PARAGRAPHS%(2),%(3),%AND%(4)%OF%THE%SUBSECTION%(A)%OF%THIS%
SECTION%WHICH%THE%VALUE%OF%HIS%ENTIRE%GROSS%ESTATE%
WHEREVER%SITUATED;!
((3)%Property%Previously%Taxed.&T%An%amount%equal%to%the%value%
specified%below%of%any%property%forming%part%of%the%gross%estate%
situated%in%the%Philippines%of%any%person%who%died%within%five%(5)%
years%prior%to%the%death%of%the%decedent,%or%transferred%to%the%
decedent%by%gift%within%five%(5)%years%prior%to%his%death,%where%such%
property%can%be%identified%as%having%been%received%by%the%decedent%
from%the%donor%by%gift,%or%from%such%prior%decedent%by%gift,%
bequest,%devise%or%inheritance,%or%which%can%be%identified%as%having%
been%acquired%in%exchange%for%property%so%received:!
One%hundred%percent%(100%)%of%the%value%if%the%prior%decedent%died%
within%one%(1)%year%prior%to%the%death%of%the%decedent,%or%if%the%
property%was%transferred%to%him%by%gift,%within%the%same%period%
prior%to%his%death;%Eighty%percent%(80%)%of%the%value,%if%the%prior%
decedent%died%more%than%one%(1)%year%but%not%more%than%two%(2)%
years%prior%to%the%death%of%the%decedent,%or%if%the%property%was%
transferred%to%him%by%gift%within%the%same%period%prior%to%his%
death;!
Sixty%percent%(60%)%of%the%value,%if%the%prior%decedent%died%more%
than%two%(2)%years%but%not%more%than%three%(3)%years%prior%to%the%
death%of%the%decedent,%or%if%the%property%was%transferred%to%him%by%
gift%within%the%same%period%prior%to%his%death;%Forty%percent%(40%)%
of%the%value,%if%the%prior%decedent%died%more%than%three%(3)%years%
but%not%more%than%four%(4)%years%prior%to%the%death%of%the%
Prof.&L.K.&Gruba&SY201832019&
decedent,%or%if%the%property%was%transferred%to%him%by%gift%within%
the%same%period%prior%to%his%death;%and!
Twenty%percent%(20%)%of%the%value,%if%the%prior%decedent%died%more%
than%four%(4)%years%but%not%more%than%five%(5)%years%prior%to%the%
death%of%the%decedent,%or%if%the%property%was%transferred%to%him%by%
gift%within%the%same%period%prior%to%his%death.!
These%deductions%shall%be%allowed%only%where%a%donor's%tax,%or%
estate%tax%imposed%under%this%Title%is%finally%determined%and%paid%
by%or%on%behalf%of%such%donor,%or%the%estate%of%such%prior%decedent,%
as%the%case%may%be,%and%only%in%the%amount%finally%determined%as%
the%value%of%such%property%in%determining%the%value%of%the%gift,%or%
the%gross%estate%of%such%prior%decedent,%and%only%to%the%extent%that%
the%value%of%such%property%is%included%in%that%part%of%the%decedent's%
gross%estate%which%at%the%time%of%his%death%is%situated%in%the%
Philippines;%and%only%if,%in%determining%the%value%of%the%net%estate%
of%the%prior%decedent,%no%deduction%is%allowable%under%paragraph%
(2)%of%Subsection%(B)%of%this%Section,%in%respect%of%the%property%or%
properties%given%in%exchange%therefore.%Where%a%deduction%was%
allowed%of%any%mortgage%or%other%lien%in%determining%the%donor's%
tax,%or%the%estate%tax%of%the%prior%decedent,%which%was%paid%in%
whole%or%in%part%prior%to%the%decedent's%death,%then%the%deduction%
allowable%under%said%paragraph%shall%be%reduced%by%the%amount%so%
paid.%Such%deduction%allowable%shall%be%reduced%by%an%amount%
which%bears%the%same%ratio%to%the%amounts%allowed%as%deductions%
under%paragraphs%(1)%and%(3)%of%this%Subsection%as%the%amount%
otherwise%deductible%under%paragraph%(2)%bears%to%the%value%of%
that%part%of%the%decedent's%gross%estate%which%at%the%time%of%his%
death%is%situated%in%the%Philippines.%Where%the%property%referred%to%
consists%of%two%(2)%or%more%items,%the%aggregate%value%of%such%
items%shall%be%used%for%the%purpose%of%computing%the%deduction.!
12"
(4)Transfers%for%Public%Use.&T%The%amount%of%all%bequests,%legacies,%
devises%or%transfers%to%or%for%the%use%of%the%Government%of%the%
Republic%of%the%Philippines%or%any%political%subdivision%thereof,%for%
exclusively%public%purposes.!
! *!Article!562!of!the!Civil!Code!provides:!“Usufruct!gives!a!right!
(C)%Share%in%the%Conjugal%Property%T%The%net%share%of%the%surviving%
spouse%in%the%conjugal%partnership%property%as%diminished%by%the%
obligations%properly%chargeable%to%such%property%shall,%for%the%
purpose%of%this%Section,%be%deducted%from%the%net%estate%of%the%
decedent.!
(D)%Tax%Credit%for%Estate%Taxes%Paid%to%a%Foreign%Country!
(1)%In%General.%T%The%tax%imposed%by%this%Title%shall%be%credited%with%
the%amounts%of%any%estate%tax%imposed%by%the%authority%of%a%
foreign%country.%(2)%Limitations%on%Credit.%T%The%amount%of%the%
credit%taken%under%this%Section%shall%be%subject%to%each%of%the%
following%limitations:!
(a)%The%amount%of%the%credit%in%respect%to%the%tax%paid%to%any%
country%shall%not%exceed%the%same%proportion%of%the%tax%against%
which%such%credit%is%taken,%which%the%decedent's%net%estate%
situated%within%such%country%taxable%under%this%Title%bears%to%his%
entire%net%estate;%and!
(b)%The%total%amount%of%the%credit%shall%not%exceed%the%same%
proportion%of%the%tax%against%which%such%credit%is%taken,%which%the%
decedent's%net%estate%situated%outside%the%Philippines%taxable%
under%this%Title%bears%to%his%entire%net%estate.!
Sec.%87,%Exemption%of%Certain%Acquisitions%and%Transmissions%The%
Prof.&L.K.&Gruba&SY201832019&
following%shall%not%be%taxed:%87(A)%The%merger%of%usufruct%in%the%
owner%of%the%Naked%Title:%%
Q:!What!is!the!concept!of!usufruct?!
to!enjoy!the!property!of!another!with!the!obligation!of!
preserving!its!form!and!substance,!unless!the!title!constituting!
it!or!the!law!otherwise!provides.”!Related!terms!are!
usufructuary!(the!person!that!enjoys!the!property)!and!naked!
owner!(the!person!that!owns!the!property).!
87(B)%The%transmission%or%delivery%of%the%inheritance%or%legacy%by%
the%fiduciary%heir%or%legatee%to%the%fideicommissary;!
87(C)%The%transmission%from%the%first%heir,%legatee%or%donee%in%
favor%of%another%beneficiary,%in%accordance%with%the%desire%of%the%
predecessor;%and!
87(D)%All%bequests,%devises,%legacies%or%transfers%to%social%welfare,%
cultural%and%charitable%institutions,%no%part%of%the%net%income%of%
which%insures%to%the%benefit%of%any%individual:%Provided,%however,%
That%not%more%than%thirty%percent%(30%)%of%the%said%bequests,%
devises,%legacies%or%transfers%shall%be%used%by%such%institutions%for%
administration%purposes.!
Q:!What!are!the!requisites!for!tax!exemption!of!bequests,!devises,!
legacies,!or!transfers!to!charitable!or!similar!institutions?!
*!Section!87(D)!of!the!1997!Tax!Code!mandates!compliance!
with!the!following!conditions:!(1)!the!bequest,!devise,!legacy,!
or!transfer!must!be!given!to!a!social!welfare,!cultural,!or!
13"
 charitable!institution;!(2)!no!part!of!the!net!income!of!such!
institution!inures!to!the!benefit!of!any!individual;!and!(3)!not!
more!than!30%!of!said!bequest,!devise,!legacy,!or!transfer!shall!
be!used!by!such!institution!for!administration!purposes.!
Sec.%88,%Determination%of%the%Value%of%the%Estate!
88(A)%Usufruct.%T%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.!
88(B)%Properties.%T%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%higher%of%T!
. (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.%89,%Notice%of%Death%to%be%Filed%(Repealed%by%TRAIN%LAW)!
Sec.%90,%Estate%Tax%Returns!
90(A)%Requirements.%T%In%all%cases%of%transfers%subject%to%the%tax%
imposed%herein,%or%where,%though%exempt%from%tax%,regardless%of%
gross%value%of%the%estate,%where%the%said%estate%consists%of%
registered%or%registrable%property%such%as%real%property,%motor%
vehicle,%shares%of%stock%or%other%similar%property%for%which%a%
Prof.&L.K.&Gruba&SY201832019&
clearance%from%the%Bureau%of%Internal%Revenue%is%required%as%a%
condition%precedent%%for%the%transfer%of%owenrship%thereof%in%the%
name%of%the%transferee,%the%executor,%or%the%admisntrator,%or%any%
of%the%legal%heirs,%as%the%case%maybe%shall%file%a%return%under%oath%
in%duplicate,%setting%forth:%!
(1)%The%value%of%the%gross%estate%of%the%decedent%at%the%time%of%his%
death,%or%in%case%of%a%nonresident,%not%a%citizen%of%the%Philippines,%
of%that%part%of%his%gross%estate%situated%in%the%Philippines;%(2)%The%
deductions%allowed%from%gross%estate%in%determining%the%estate%as%
defined%in%Section%86;%and%(3)%Such%part%of%such%information%as%may%
at%the%time%be%ascertainable%and%such%supplemental%data%as%may%
be%necessary%to%establish%the%correct%taxes.!
Provided,%however,%That%estate%tax%returns%showing%a%gross%value%
exceeding%Five%%million%pesos%(P5,000,000)%shall%be%supported%with%
a%statement%duly%certified%to%by%a%Certified%Public%Accountant%
containing%the%following:!
. (a)%%Itemized%assets%of%the%decedent%with%their%corresponding%
gross%value%at%the%time%of%his%death,%or%in%the%case%of%a%
nonresident,%not%a%citizen%of%the%Philippines,%of%that%part%of%
his%gross%estate%situated%in%the%Philippines;%!
. (b)%%Itemized%deductions%from%gross%estate%allowed%in%Section%86;%
and%!
. (c)%%The%amount%of%tax%%!
90(B)%Time%for%filing.%T%For%the%purpose%of%determining%the%estate%
tax%provided%for%in%Section%84%of%this%Code,%the%estate%tax%return%
required%under%the%preceding%Subsection%(A)%shall%be%filed%within%
14"
one%year%%from%the%decedent's%death.%!
90(C)%Extension%of%Time.%T%The%Commissioner%shall%have%authority%
to%grant,%in%meritorious%cases,%a%reasonable%extension%not%
exceeding%thirty%(30)%days%for%filing%the%return.%%
90(D)%Place%of%Filing.%T%Except%in%cases%where%the%Commissioner%
otherwise%permits,%the%return%required%under%Subsection%(A)%shall%
be%filed%with%an%authorized%agent%bank,%or%Revenue%District%Officer,%
Collection%Officer,%or%duly%authorized%Treasurer%of%the%city%or%
municipality%in%which%the%decedent%was%domiciled%at%the%time%of%
his%death%or%if%there%be%no%legal%residence%in%the%Philippines,%with%
the%Office%of%the%Commissioner.!
Q:!How!are!estate!tax!returns!filed?!
Q:!When!are!estate!tax!returns!filed?!
*!For!purposes!of!determining!the!estate!tax,!the!estate!tax!
return!shall!be!filed!within!one!year!!from!the!decedent’s!death.!
The!CIR!or!any!revenue!officer,!in!meritorious!cases,!can!grant!a!
reasonable!extension,!not!exceeding!30!days,!for!filing!the!
return.!
When!the!CIR!finds!that!the!payment!of!the!estate!tax!or!of!any!
part!thereof!would!impose!undue!hardship!upon!the!estate!or!
any!of!the!heirs,!he!may!extend!the!time!for!payment!of!such!tax!
or!any!part!thereof!not!to!exceed!5!years!in!case!the!estate!is!
settled!through!the!courts,!or!2!years!in!case!the!estate!is!settled!
extraEjudicially.!Estate!tax!can!also!be!paid!by!installment.!As!a!
general!rule,!the!estate!tax!imposed!under!the!Code!shall!be!paid!
at!the!time!the!return!is!filed!by!the!executor,!administrator!or!
the!heirs.!
Prof.&L.K.&Gruba&SY201832019&
Q:!Where!must!estate!tax!returns!filed?!
*!Except!in!cases!where!the!CIR!otherwise!permits,!the!estate!tax!
return!must!be!file!in!the!city!or!municipality!in!which!the!
decedent!was!domiciled!at!the!time!of!his/her!death,!or!if!there!
be!no!legal!residence!in!the!Philippines,!with!the!CIR’s!office.!
For!estate!tax!purposes,!“residence”!refers!to!the!permanent!
home,!the!place!to!which!whenever!absent,!for!business!or!
pleasure,!one!intends!to!return,!and!depends!on!facts!and!
circumstances,!in!the!sense!that!they!disclose!intent.![Corre!v.!
Tan!Corre,!100!Phil.!321,!1956]!
*!The!case!Elegado&v.&CTA&pertained!to!the!settlement!of!the!
estate!of!Warren!Taylor!Graham,!an!American!national!who!
died!in!the!United!States!but!left!certain!shares!of!stock!in!the!
Philippines.!His!son,!through!his!lawyers,!filed!an!estate!tax!
return!for!said!shares!of!stock!with!the!Philippine!Revenue!
Representative!in!the!United!States.!In!February!1978!and!on!
the!basis!of!said!return,!the!CIR!assessed!the!decedent’s!estate!
an!estate!tax.!This!first!assessment!became!final!and!executory.!
Meanwhile,!Elegado!was!appointed!as!ancillary!administrator!
in!the!Philippines!and!in!such!capacity,!filed!a!second!tax!return!
in!June!1980.!On!the!basis!of!said!return,!the!CIR!issued!a!
second!assessment!for!estate!tax.!Subsequently,!the!second!
assessment!was!cancelled!by!the!CIR.!
One!of!Elegado’s!contentions!was!that!the!issuance!of!the!
second!assessment!had!the!effect!of!cancelling!the!first!
15"
 assessment,!and!the!subsequent!cancellation!of!the!second!
assessment!did!not!have!the!effect!of!automatically!reviving!
the!first.!Moreover,!the!first!assessment!was!not!binding!on!
him!because!it!was!based!on!a!return!filed!by!foreign!lawyers!
who!had!no!knowledge!of!the!Philippine!tax!laws!or!access!to!
the!Philippine!Court!of!Tax!Appeals.!
The!Supreme!Court!struck!down!Elegado’s!contentions!and!
held!that!the!first!assessment!had!long!become!final!and!
executory!and!that!the!estate!of!the!decedent!was!liable!
thereunder.![Elegado!v.!CTA,!GR!No.!LE68385,!12!May!1989.]!
Q:!What!is!the!consequence!for!nonEfiling!of!an!estate!tax!return?!
*!The!eldest!son!of!former!President!Marcos!initiated!filing!of!
the!case!of!Marcos&II&v.&CA&questioning!the!actuations!of!the!
CIR!in!relation!to!the!settlement!of!the!estate!of!the!late!
President.!Here,!it!was!found!that!the!estate!of!the!deceased!
failed!to!file!an!estate!tax!return.!On!this!point,!the!Supreme!
Court!ruled!thus:!
“The!omission!to!file!an!estate!tax!return,!and!the!subsequent!
failure!to!contest!or!appeal!the!assessment!made!by!the!BIR!is!
fatal!to!the!petitioner's!cause,!as!under!the!aboveEcited!
provision,!in&case&of&failure&to&file&a&return,&the&tax&may&be&
assessed&at&any&time&within&ten&years&after&the&omission,&and&
any&tax&so&assessed&may&be&collected&by&levy&upon&real&
property&within&three&years&following&the&assessment&of&the&
tax.&Since!the!estate!tax!assessment!had!become!final!and!
unappealable!by!the!petitioner's!default!as!regards!protesting!
the!validity!of!the!said!assessment,!there!is!now!no!reason!why!
the!BIR!cannot!continue!with!the!collection!of!the!said!tax.!Any!
Prof.&L.K.&Gruba&SY201832019&
objection!against!the!assessment!should!have!been!pursued!
following!the!avenue!paved!in!Section!229!of!the!NIRC!on!
protests!on!assessments!of!internal!revenue!taxes.”!(Emphasis!
supplied.)![Marcos!II!v.!CA,!GR!No.!120880,!5!June!1997.]!
Sec.%91,%Payment%of%Tax!
91(A)%Time%of%Payment.%T%The%estate%tax%imposed%by%Section%84%
shall%be%paid%at%the%time%the%return%is%filed%by%the%executor,%
administrator%or%the%heirs.!
91(B)%Extension%of%Time.%T%When%the%Commissioner%finds%that%the%
payment%on%the%due%date%of%the%estate%tax%or%of%any%part%thereof%
would%impose%undue%hardship%upon%the%estate%or%any%of%the%heirs,%
he%may%extend%the%time%for%payment%of%such%tax%or%any%part%
thereof%not%to%exceed%five%(5)%years,%in%case%the%estate%is%settled%
through%the%courts,%or%two%(2)%years%in%case%the%estate%is%settled%
extrajudicially.%In%such%case,%the%amount%in%respect%of%which%the%
extension%is%granted%shall%be%paid%on%or%before%the%date%of%the%
expiration%of%the%period%of%the%extension,%and!the%running%of%the%
Statute%of%Limitations%for%assessment%as%provided%in%Section%203%of%
this%Code%shall%be%suspended%for%the%period%of%any%such%
extension.%Where%the%taxes%are%assessed%by%reason%of%negligence,%
intentional%disregard%of%rules%and%regulations,%or%fraud%on%the%part%
of%the%taxpayer,%no%extension%will%be%granted%by%the%Commissioner.!
If%an%extension%is%granted,%the%Commissioner%may%require%the%
executor,%or%administrator,%or%beneficiary,%as%the%case%may%be,%to%
furnish%a%bond%in%such%amount,%not%exceeding%double%the%amount%
of%the%tax%and%with%such%sureties%as%the%Commissioner%deems%
necessary,%conditioned%upon%the%payment%of%the%said%tax%in%
accordance%with%the%terms%of%the%extension.%
16"
©%PAYMENT%BY%INSTALLMENT%–%IN%CASE%THE%AVAILABLE%CASH%OF%
THE%ESTATE%IS%INSUFFICIENT%TO%PAY%THE%TOTAL%ESTATE%TAX%DUE,%
PAY,MENT%BY%INSTALLMENT%SHALL%BE%ALLOWED%WITHIN%TWO%(2)%
YEARS%FRON%THE%STATUTORY%DATE%FOR%ITS%PAYMENT%WITHOUT%
CIVIL%PENALTY%AND%INTEREST.!
91(C)%Liability%for%Payment%T%The%estate%tax%imposed%by%Section%84%
shall%be%paid%by%the%executor%or%administrator%before%delivery%to%
any%beneficiary%of%his%distributive%share%of%the%estate.%Such%
beneficiary%shall%to%the%extent%of%his%distributive%share%of%the%
estate,%be%subsidiarily%liable%for%the%payment%of%such%portion%of%the%
estate%tax%as%his%distributive%share%bears%to%the%value%of%the%total%
net%estate.!
For%the%purpose%of%this%Chapter,%the%term%'executor'%or%
'administrator'%means%the%executor%or%administrator%of%the%
decedent,%or%if%there%is%no%executor%or%administrator%appointed,%
qualified,%and%acting%within%the%Philippines,%then%any%person%in%
actual%or%constructive%possession%of%any%property%of%the%decedent.!
Q:!Describe!the!process!of!estate!tax!collection.!
*!The!case!of!Marcos&II&v.&CA&described!the!nature!of!the!process!
of!estate!tax!collection!as!follows:!“Strictly!speaking,!the!
assessment!of!an!inheritance!tax!does!not!directly!involve!the!
administration!of!a!decedent's!estate,!although!it!may!be!viewed!
as!an!incident!to!the!complete!settlement!of!an!estate,!and,!
under!some!statutes,!it!is!made!the!duty!of!the!probate!court!to!
make!the!amount!of!the!inheritance!tax!a!part!of!the!final!decree!
of!distribution!of!the!estate.!It!is!not!against!the!property!of!
decedent,!nor!is!it!a!claim!against!the!estate!as!such,!but!it&is&
against&the&interest&or&property&right&which&the&heir,&legatee,&
Prof.&L.K.&Gruba&SY201832019&
devisee,&etc.,&has&in&the&property&formerly&held&by&decedent.&
Further,!under!some!statutes,!it!has!been!held!that!it!is!not!a!suit!
or!controversy!between!the!parties,!nor!is!it!an!adversary!
proceeding!between!the!state!and!the!person!who!owes!the!tax!
on!the!inheritance.!However,!under!other!statutes!it!has!been!
held!that!the!hearing!and!determination!of!the!cash!value!of!the!
assets!and!the!determination!of!the!tax!are!adversary!
proceedings.!The!proceeding!has!been!held!to!be!necessarily!a&
proceeding&in%rem.”!(Emphasis!supplied.)![Marcos!II!v.!CA,!GR!
No.!120880,!5!June!1997.]!
Take!note:!Under!the!TRAIN!Law,!payment!of!estate!tax!is!now!
allowed!in!cases!where!the!available!cash!of!the!estate!is!
insufficient!to!pay!the!total!estate!tax!due,!then!payment!by!
installment!shall!be!allowed!within!two!(2)!years!from!the!statutory!
date!for!its!poayment!without!civl!penalty!and!interest.!
Q:!Section!91(D)!of!the!1997!Tax!Code!provides!in!part:!“The!estate!
tax!imposed!by!Section!84!shall!be!paid!by!the!executor!or!
administrator!before&delivery!to!any!beneficiary!of!his!distributive!
share!of!the!estate.!Such!beneficiary!shall,!to!the!extent!of!his!
distributive!share!of!the!estate,!be!subsidiarily!liable!for!the!
payment!of!such!portion!of!the!estate!tax!as!his!distributive!share!
bears!to!the!value!of!the!total!net!estate.”!May!estate!tax!be!
collected!even!after!distribution!to!the!heirs?!
*!The!case!of!Vera&v.&Fernandez&pertained!to!the!settlement!of!
the!estate!of!Luis!Tongoy.!The!Supreme!Court!stated!that!as!a!
general!rule,!claims!against!the!estate!and!claims!for!funeral!
expenses!and!expenses!for!the!last!sickness!of!the!decedent!
must!be!filed!within!a!specified!time.!Otherwise,!they!are!barred!
forever.!As!an!exception,!claims!for!taxes!against!the!estate!“may!
17"
 be!collected!even!after!the!distribution!of!the!decedent’s!estate!
among!his!heirs!who!shall!be!liable!therefore!in!proportion!of!
their!share!in!the!inheritance.”![Vera!v.!Fernandez,!GR!No.!LE
31364,!30!Mar.!1979.]!
**!In!another!case,!Pastor&v.&CA,!the!Supreme!Court!found!that!
the!probate!court!committed!grave!abuse!of!discretion!when!it!
ordered!the!payment!of!legacy!prior!to!the!liquidation!of!the!
estate!of!the!deceased!and!before!payment!of!the!estate!
tax.![Pastor!v.!CA,!GR!No.!LE56340,!24!June!1983.]!
***!In!summary,!there!are!three!important!dates!to!remember!
in!the!event!of!death!of!an!individual,!to!wit:!
1. Filing!of!the!notice!of!death!–!within!60!days!from!date!of!
death;!!(!no!need!under!the!TRAIN!Law)!!
2. Filing!of!estate!tax!return!E!within!one!year!!from!date!of!
death![Section!90!of!the!1997!Tax!Code];!and!
3. Payment!of!estate!tax!due!–!within!6!months!from!date!of!
death,!unless!extension!is!allowed!as!approved!by!the!CIR!
[Section!91(A)!of!the!1997!Tax!Code.]!
Sec.%92,%Discharge%of%Executor%or%Administrator%from%Personal%
Liability!
If%the%executor%or%administrator%makes%a%written%application%to%the%
Commissioner%for%determination%of%the%amount%of%the%estate%tax%
and%discharge%from%personal%liability%therefore,%the%Commissioner%
(as%soon%as%possible,%and%in%any%event%within%one%(1)%year%after%the%
making%of%such%application,%or%if%the%application%is%made%before%the%
return%is%filed,%then%within%one%(1)%year%after%the%return%is%filed,%but%
not%after%the%expiration%of%the%period%prescribed%for%the%
Prof.&L.K.&Gruba&SY201832019&
assessment%of%the%tax%in%Section%203%shall%not%notify%the%executor%
or%administrator%of%the%amount%of%the%tax.%The%executor%or%
administrator,%upon%payment%of%the%amount%of%which%he%is%
notified,%shall%be%discharged%from%personal%liability%for%any%
deficiency%in%the%tax%thereafter%found%to%be%due%and%shall%be%
entitled%to%a%receipt%or%writing%showing%such%discharge.!
Sec.%93,%Definition%of%Deficiency!
As%used%in%this%Chapter,%the%term%'deficiency'%means:!
(a)%The%amount%by%which%the%tax%imposed%by%this%Chapter%exceeds%
the%amount%shown%as%the%tax%by%the%executor,%administrator%or%any%
of%the%heirs%upon%his%return;%but%the%amounts%so%shown%on%the%
return%shall%first%be%increased%by%the%amounts%previously%assessed%
(or%collected%without%assessment)%as%a%deficiency%and%decreased%by%
the%amount%previously%abated,%refunded%or%otherwise%repaid%in%
respect%of%such%tax;%or!
(b)%If%no%amount%is%shown%as%the%tax%by%the%executor,%administrator%
or%any%of%the%heirs%upon%his%return,%or%if%no%return%is%made%by%the%
executor,%administrator,%or%any%heir,%then%the%amount%by%which%the%
tax%exceeds%the%amounts%previously%assessed%(or%collected%without%
assessment)%as%a%deficiency;%but%such%amounts%previously%assessed%
or%collected%without%assessment%shall%first%be%decreased%by%the%
amounts%previously%abated,%refunded%or%otherwise%repaid%in%
respect%of%such%tax.!
Q:!What!is!the!consequence!for!delayed!payment!of!deficiency!
estate!tax?!
*!On!this!point,!the!case!of!San&Agustin&v.&CIR&held!that:!“The!
18"
 delay!in!the!payment!of!the!deficiency!tax!within!the!time!
prescribed!for!its!payment!in!the!notice!of!assessment!justifies!
the!imposition!of!a!25%!surcharge!in!consonance!with!Section!
248A(3)!of!the!Tax!Code.!The!basic!deficiency!tax!in!this!case!
being!P538,509.50,!the!twentyEfive!percent!thereof!comes!to!
P134,627.37.!Section!249!of!the!Tax!Code!states!that!any!
deficiency!in!the!tax!due!would!be!subject!to!interest!at!the!rate!
of!twenty!percent!(20%)!per!annum,!which!interest!shall!be!
assessed!and!collected!from!the!date!prescribed!for!its!payment!
until!full!payment!is!made.”![San!Agustin!v.!CIR,!GR!No.!138485,!
10!Sept.!2001.]!
Sec.%94,%Payment%before%Delivery%by%Executor%or%Administrator!
No%judge%shall%authorize%the%executor%or%judicial%administrator%to%
deliver%a%distributive%share%to%any%party%interested%in%the%estate%
unless%a%certification%from%the%Commissioner%that%the%estate%tax%
has%been%paid%is%shown.!
Q:!Who!has!control!over!the!collection!of!estate!tax,!the!CIR!or!the!
probate!court?!
*!The!case!of!Marcos&II&v.&CA&answers!this!query,!to!wit:!“There!is!
nothing!in!the!Tax!Code,!and!in!the!pertinent!remedial!laws!that!
implies!the!necessity!of!the!probate!or!estate!settlement!court's!
approval!of!the!state's!claim!for!estate!taxes,!before!the!same!
can!be!enforced!and!collected.!On!the!contrary,!under!Section!87!
[now!Section!94]!of!the!NIRC,!it!is!the!probate!or!settlement!
court!which!is!bidden!not!to!authorize!the!executor!or!judicial!
administrator!of!the!decedent's!estate!to!deliver!any!distributive!
share!to!any!party!interested!in!the!estate,!unless!it!is!shown!a!
Certification!by!the!Commissioner!of!Internal!Revenue!that!the!
Prof.&L.K.&Gruba&SY201832019&
estate!taxes!have!been!paid.!This!provision!disproves!the!
petitioner's!contention!that!it!is!the!probate!court!which!
approves!the!assessment!and!collection!of!the!estate!
tax.”![Marcos!II!v.!CA,!GR!No.!120880,!5!June!1997.]!
Sec.%95,%Duties%of%Certain%Officers%and%Debtors!
Registers%of%Deeds%shall%not%register%in%the%Registry%of%Property%any%
document%transferring%real%property%or%real%rights%therein%or%any%
chattel%mortgage,%by%way%of%gifts%inter%vivos%or%mortis%causa,%
legacy%or%inheritance,%unless%a%certification%from%the%Commissioner%
that%the%tax%fixed%in%this%Title%and%actually%due%thereon%had%been%
paid%is%show,%and%they%shall%immediately%notify%the%Commissioner,%
Regional%Director,%Revenue%District%Officer,%or%Revenue%Collection%
Officer%or%Treasurer%of%the%city%or%municipality%where%their%offices%
are%located,%of%the%non%payment%of%the%tax%discovered%by%them.%
Any%lawyer,%notary%public,%or%any%government%officer%who,%by%
reason%of%his%official%duties,%intervenes%in%the%preparation%or%
acknowledgment%of%documents%regarding%partition%or%disposal%of%
donation%intervivos%or%mortis%causa,%legacy%or%inheritance,%shall%
have%the%duty%of%furnishing%the%Commissioner,%Regional%Director,%
Revenue%District%Officer%or%Revenue%Collection%Officer%of%the%place%
where%he%may%have%his%principal%office,%with%copies%of%such%
documents%and%any%information%whatsoever%which%may%facilitate%
the%collection%of%the%aforementioned%tax.%Neither%shall%a%debtor%of%
the%deceased%pay%his%debts%to%the%heirs,%legatee,%executor%or%
administrator%of%his%creditor,%unless%the%certification%of%the%
Commissioner%that%the%tax%fixed%in%this%Chapter%had%been%paid%is%
shown;%but%he%may%pay%the%executor%or%judicial%administrator%
without%said%certification%if%the%credit%is%included%in%the%inventory%
of%the%estate%of%the%deceased.!
19"
Sec.%96,%Restitution%of%Tax%upon%Satisfaction%of%Outstanding%
Obligations!
If%after%the%payment%of%the%estate%tax,%new%obligations%of%the%
decedent%shall%appear,%and%the%persons%interested%shall%have%
satisfied%them%by%order%of%the%court,%they%shall%have%a%right%to%the%
restitution%of%the%proportional%part%of%the%tax%paid.!
Sec.%97,%Payment%of%Tax%antecedent%to%the%Transfer%of%Shares,%
Bonds,%or%Rights!
There%shall%not%be%transferred%to%any%new%owner%in%the%books%of%
any%corporation,%sociedad%anonima,%partnership,%business,%or%
industry%organized%or%established%in%the%Philippines%any%share,%
obligation,%bond%or%right%by%way%of%gift%inter%vivos%or%mortis%causa,%
legacy%or%inheritance,%unless%a%certification%from%the%Commissioner%
that%the%taxes%fixed%in%this%Title%and%due%thereon%have%been%paid%is%
shown.!
If%a%bank%has%knowledge%of%the%death%of%a%person,%who%maintained%
a%bank%deposit%account%alone,%or%jointly%with%another,%it%shall%
ALLOW%any%withdrawal%from%the%said%deposit%account,%SUBJECT%TO%
A%FINAL%WITHHOLDING%TAX%OF%SIX%PERCENT%(6%)%For%this%purpose,%
all%withdrawal%slips%shall%contain%a%statement%to%the%effect%that%all%
of%the%joint%depositors%are%still%living%at%the%time%of%withdrawal%by%
any%one%of%the%joint%depositors%and%such%statement%shall%be%under%
oath%by%the%said%depositors.%%Read%also%RR%12T2018!
Q:!What!is!the!rule!regarding!withdrawals!from!bank!deposit!
accounts?!
*!In!the!case!of!Polido&v.&CA,!after!the!death!of!her!husband!
Prof.&L.K.&Gruba&SY201832019&
Jacinto!Polido,!Eugenia!Polido!tried!to!withdraw!the!joint!savings!
deposit!they!maintained!at!the!Philippine!National!Bank,!but!
failed!to!do!so!because!one!Mariano!Gasat,!who!claimed!to!be!
the!couple’s!adopted!child,!objected!thereto.!Gasat!invoked,!
among!others,!Section!97!of!the!1997!Tax!Code.!This!argument!
was!upheld!by!the!Supreme!Court.!
The!last!paragraph!of!Section!97!of!the!1997!Tax!Code!reads:!“If!
a!bank!has!knowledge!of!the!death!of!a!person,!who!maintained!
a!bank!deposit!account!alone,!or!jointly!with!another,!it!shall!not!
allow!any!withdrawal!from!the!said!deposit!account!unless!the!
Commissioner!had!certified!that!the!taxes!imposed!thereon!by!
this!Title!have!been!paid;!Provided,!however,!That!the!
administrator!of!the!estate!or!any!one!(1)!of!the!heirs!of!the!
decedent!may,!upon!authorization!by!the!Commissioner,!
withdraw!an!amount!not!exceeding!Twenty!thousand!pesos!
(P20,000)!without!the!said!certification.!For!this!purpose,!all!
withdrawal!slips!shall!contain!a!statement!to!the!effect!that!all!of!
the!joint!depositors!are!still!living!at!the!time!of!withdrawal!by!
any!one!of!the!joint!depositors!and!such!statement!shall!be!
under!oath!by!the!said!depositors.”![Polido!v.!CA,!GR!No.!170632,!
10!July!2007.]!
Read&RR&12V2018.&&
&
DONOR’S&TAX&
&
Q:!What!is!donor’s!tax?!
!
*! Donor’s! tax! is! a! tax! imposed! upon! the! right! or! privilege! ! to!
gratuitously! ! transfer! property,! real! ! or! personal,! tangible! or!
20"
 intangible,!between!two!or!more!!persons!who!are!living!at!the! Relevant!portion!of!the!decision!reads:!
time!of!transfer.! !!
! “If!the!donation!is!made!in!contemplation!of!the!donor's!death,!
**! In! the! 1940s,! Enrico! Pirovano! was! President! and! General! meaning! that! the! full! or! naked! ownership! of! the! donated!
Manager! of! de! la! Rama! Steamship! Co.! The! corporation! insured! properties! will! pass! to! the! donee! only! because! of! the! donor's!
the! life! of! Pirovano! with! various! insurance! companies! death,!then!it!is!at!that!time!that!the!donation!takes!effect,!and!
designating! itself! as! the! beneficiaries! of! said! policies.! Pirovano! it!is!a!donation!mortis&causa&which!should!be!embodied!in!a!last!
died.!The!corporation!received!a!certain!sum!as!proceeds!of!the! will!and!testament!(Bonsato!vs.!Court!of!Appeals,!95!Phil.!481).!
life! insurance! policies.! Such! amount! was! later! donated! by! the! !
corporation! to! Pirovano’s! minor! children.! Ultimately,! the! issue! But! if! the! donation! takes! effect! during! the! donor's! lifetime! or!
was! whether! the! sum! was! subject! to! donor’s! tax.! According! to! independently! of! the! donor's! death,! meaning! that! the! full! or!
Pirovano&v.&CIR,!a!donation!made!by!a!corporation!to!the!heirs!of! naked! ownership! (nuda& proprietas)! of! the! donated! properties!
a!deceased!officer!out!of!gratitude!for!his!past!services!is!subject! passes!to!the!donee!during!the!donor's!lifetime,!not!by!reason!of!
to!the!donees’!gift!tax.![Pirovano!v.!CIR,!GR!No.!LE19865,!31!July! his! death! but! because! of! the! deed! of! donation,! then! the!
1965.]! donation!is!inter&vivos&(Castro!vs.!Court!of!Appeals,!LE20122,!April!
& 28,!1969,!27!SCRA!1076).”!
Q:!Differentiate!between!a!donation!inter!vivos!(subject!to!donor’s! !
tax)!and!a!donation!mortis!causa!(or!a!transfer!in!contemplation!of! The!Supreme!Court!held!that!it!was!a!donation!inter!vivos,!upon!
death,!subject!to!estate!tax).! examination! of! the! warranty,! acceptance,! and! reservation!
! clauses! of! the! deed.! Particularly! as! regards! the! acceptance!
*!In!the!case!of!Alejandro&v.&Geraldez,!the!Gavino!Spouses!owned! clause,!the!Supreme!Court!said:!!
a!parcel!of!land!which,!in!1949,!was!the!subject!matter!of!a!deed! !
of!donation.!!As!a!result!of!the!execution!of!said!deed,!the!parcel! “The!acceptance!clause!is!another!indication!that!the!donation!is!
of!land!was!divided!into!three!equal!parts:!(1)!1/3!was!donated! inter! vivos.! Donations! mortis& causa,! being! in! the! form! of! a! will,!
to! their! granddaughter,! Andrea! Diaz;! (2)! 1/3! was! given! to! their! are! never! accepted! by! the! donees! during! the! donors'! lifetime.!
grandson,! Angel! Diaz;! and! (3)! the! last! 1/3! was! reserved! and! Acceptance! is! a! requirement! for! donations! inter! vivos.”!
retained! by! the! Gavino! for! their! support.! In! dispute! was! the! [Alejandro! v.! Geraldez,! GR! Nos.! LE33849! &! LE33968,! 18! Aug.!
nature!of!the!deed!of!donation,!i.e.,!whether!it!was!inter!vivos!or! 1977.]!!
mortis!causa.!! !
! **!In!the!case!of!Gestopa&v.&CA,!Diego!Danlag!owned!six!parcels!
[NOTE:! See! the! text! of! the! decision! for! an! extensive! of! land.! With! the! consent! of! his! wife,! he! executed! a! deed! of!
differentiation!between!donations!inter!vivos!and!mortis!causa.]! donation! over! said! parcels! of! land! in! favor! of! his! illegitimate!

Prof.&L.K.&Gruba&SY201832019& 21"
 child,! Mercedes! Danlag.! Controversy! arose! as! to! whether! the!
deed!of!donation!was!inter!vivos!or!mortis!causa.!The!Supreme!
Court! held! that! it! was! a! donation! inter! vivos! for! the! following!
reasons:! (1)! the! granting! clause! of! the! deed! showed! that! Diego!
donated! the! properties! out! of! love! and! affection! for! Mercedes;!
(2)! the! reservation! clause! in! respect! of! the! lifetime! usufruct!
indicated! that! Diego! intended! to! transfer! the! naked! ownership!
over! the! properties;! (3)! Diego! reserved! sufficient! properties! for!
his!maintenance!in!accordance!with!his!standing!in!society;!and!
(4)! Mercedes! accepted! the! donation.! [Gestopa! v.! CA,! GR! No.!
111904,!5!Oct.!2000.]!
! assignment!of!his!rights!and!interests!in!the!subject!property!to!
***! The! case! of! Austria3Magat& v.& CA! differentiated! between! a!
donation! inter! vivos! and! donation! mortis! causa.! Sometime! in!
1975,! Basilisa! Comerciante,! mother! of! 5,! executed! a! document!
entitled!“Donation”!in!favor!of!her!4!living!children.!The!issue!lies!
on! the! characterization! of! the! Donation.! Citing! jurisprudence,!
the! Supreme! Court! laid! out! the! characteristics! of! a! donation!
mortis!causa,!to!wit:!
(1)!It!conveys!no!title!or!ownership!to!the!transferee!before!the!
death! of! the! transferor;! or,! what! amounts! to! the! same! thing,!
that! the! transferor! should! retain! the! ownership! (full! or! naked)!
and!control!of!the!property!while!alive;!
(2)! That! before! his! death,! the! transfer! should! be! revocable! by!
the! transferor! at! will,! ad! nutum;! but! revocability! may! be!
provided! for! indirectly! by! means! of! a! reserved! power! in! the!
donor!to!dispose!of!the!properties!conveyed;!and!
(3)! That! the! transfer! should! be! void! if! the! transferor! should!
survive!the!transferee.!
! features! concordantly! indicated! that! the! conveyance! was! not!
Essentially! ruling! that! all! the! above! characteristics! were! not!
present,! the! Supreme! Court! categorized! the! Donation! as! one!
Prof.&L.K.&Gruba&SY201832019&
inter! vivos,! and! stated! that! the! prohibition! to! alienate! in! said!
Donation! did! not! necessarily! defeat! the! inter! vivos! character! of!
the!donation.![AustriaEMagat!v.!CA,!GR!No.!106755,!1!Feb.!2002.]!
!
****! In! del& Rosario& v.& Ferrer,! in! August! 1968,! the! Gonzales!
Spouses!executed!a!document!entitled!“Donation!Mortis!Causa”!
in! favor! of! their! 2! children,! Asuncion! and! Emiliano,! and! 1!
granddaughter,! Jarabini! covering! a! property.! The! deed!
specifically! stated! that! the! donation! was! irrevocable! and!
contained! an! acceptance! clause.! In! September! 1968,! the! wife!
died.! In! December! 1968,! the! husband! executed! a! deed! of!
their!daughter!Asuncion.!The!husband!died!in!June!1972.!
!
The! Supreme! Court! ruled! that! although! the! deed! was!
denominated! as! “Donation! Mortis! Causa,”! “irrevocability”! is! a!
quality! absolutely! incompatible! with! the! idea! of! conveyances!
mortis!causa,!where!“revocability”!is!precisely!the!essence!of!the!
act.!“Given!that!the!donation!in!this!case!was!irrevocable!or!one!
given! inter! vivos,! the! husband’s! subsequent! assignment! of! his!
rights! and! interests! in! the! property! to! Asuncion! should! be!
regarded! as! void! for,! by! then,! he! had! no! more! rights! to! assign.!
He! could! not! give! what! he! no! longer! had.! Nemo& dat& quod& non&
habet.”![del!Rosario!v.!Ferrer,!GR!No.!187056,!20!Sept.!2010.]!
!
******! In! Puig& v.& Peñaflorida,! Doña! Carmen! Ubalde! expressly!
and!consistently!declared!her!conveyance!to!be!one!of!donation!
mortis! causa! and! further! forbade! the! registration! of! the! deed!
until!after!her!death.!The!Supreme!Court!held!that!“[a]all!these!
intended!to!produce!any!definitive!effects,!nor!to!finally!pass!any!
22"
 interest! to! the! grantee,! except! from! and! after! the! death! of! the! (ii)! His! right! to! exercise! ceased! because! of! the! happening! of!
grantor.”![Puig!v.!Peñaflorida,!GR!No.!LE15939,!31!Jan,!1966.]! some! event! or! contingency! or! the! fulfillment! of! some!
! condition,!other!than!the!death!of!the!donor.![RR!No.!02E03]!
*******!BIR!Ruling!No.!089E2011!addressed!the!issue!of!whether! &
a! general! renunciation! made! by! the! sole! heir! of! the! decedent,! Q:!What!transfer!may!be!considered!as!donations?!
which!made!the!four!grandchildren!the!heirs!next!in!line!as!the! !
direct!heirs,!created!a!taxable!event!for!which!donor’s!tax!should! *!The!following!transfers!may!be!treated!as!donations:!
be! paid.! The! BIR! ruled! that! in! the! transaction! above,! there! was! (a)! debt! condoned! or! remitted! (in! which! case! the! amount! of!
no! donation! to! speak! of.! Hence,! no! donor’s! tax! could! be! the!debt!is!a!gift!from!the!creditor!to!the!debtor!and!need!not!
assessed! on! the! transaction.! [BIR! Ruling! No.! 089E2011,! 21! Mar.! be! included! in! the! latter’s! gross! income)! [Sec.! 50,! RR! No.! 02E
2011.]! 40];!
! (b)!transfers!made!in!trust!for!another!person;!and!
********!BIR!Ruling!No.!109E2011!interpreted!certain!provisions! (c)!renunciation!by!the!surviving!spouse!of!his/her!share!in!the!
of!the!Special!Purpose!Vehicle!Act!of!2002!in!relation!to!the!1997! conjugal! partnership! or! absolute! community! after! the!
Tax! Code.! It! ruled! that! the! transfer! of! property! from! the! dissolution!of!the!marriage!in!favor!of!the!heirs!of!the!deceases!
Philippine!Distressed!Asset!Asia!Pacific,!Inc.,!pursuant!to!the!SPV! spouse!or!any!other!person.!
Law,!as!amended,!was!not!subject!to!donor’s!tax.![BIR!Ruling!No.! !
109E2011,!7!Apr.!2011.]! **! Further! to! item! (c)! above,! note,! however,! that! a! general!
! renunciation! by! an! heir,! including! the! surviving! spouse,! of!
Q:!What!is!the!law!that!governs!the!imposition!of!donor’s!tax?! his/her! share! in! the! hereditary! estate! left! by! the! decedent! is!
& not! subject! to! donor’s! tax,! unless! the! renunciation! is!
*!The!gift!is!perfected!from!the!moment!of!acceptance!by!the! specifically! and! categorically! done! in! favor! of! identified! heir/s!
donee,!and!it!is!completed!at!the!time!of!delivery.!The!delivery! to! the! exclusion! or! disadvantage! of! the! other! coEheirs! in! the!
can!either!be!constructive!or!actual.!!Hence,!it!is!the!law!at!the! hereditary!estate.![RR!No.!02E03]!
time! of! the! perfection! and/or! completion! that! will! govern! the! &
imposition!of!the!donor’s!tax.! Sec.%98,%Imposition%of%Tax%
! %
**! A! gift! that! is! incomplete! because! of! reserved! powers! (A)%There% shall% be% levied,% assessed,% collected% and% paid% upon% the%
becomes!complete!when!either:! transfer%by%any%person,%resident%or%nonresident,%of%the%property%by%
(i) The!donor!renounces!the!power;!or! gift,%a%tax,%computed%as%provided%in%Section%99.%
(B)%The%tax%shall%apply%whether%the%transfer%is%in%trust%or%otherwise,%
whether% the% gift% is% direct% or% indirect,% and% whether% the% property% is%

Prof.&L.K.&Gruba&SY201832019& 23"
real%or%personal,%tangible%or%intangible.%% !!
% Q:! Are! political! contributions! considered! gifts! and! therefore! liable!
Sec.%99,%Rates%of%Tax%Payable%by%Donor% for!donor’s!tax?!
% !
. 99(A)% In% General% T% The% tax% for% each% calendar% year% shall% be% SIX% *! In! the! case! of! Abello& v.& CIR,! partners! of! the! ACCRA! law! firm!
PERCENT%(6%)%computed%on%the%basis%of%the%total%net%gifts% contributed! amounts! to! the! 1987! senatorial! campaign! fund! of!
IN% EXCESS% OF% TWO% HUNDRED% FIFTY% THOUSAND% PESOS% Angara.!The!issue!at!bar!was!whether!such!political!contributions!
(P250,000.)%EXEMPT%GIFT%made%during%the%calendar%year.%% were! subject! to! donor’s! tax.! The! Supreme! Court! found! that! all!
! the! elements! of! donation! were! present,! namely:! (1)! the!
! reduction!of!the!patrimony!of!the!donor;!(2)!the!increase!in!the!
Q:!What!are!the!factors!that!affect!the!determination/computation! patrimony! of! the! donee;! and! (3)! the! intent! to! do! an! act! of!
of!gross!gift?! liberality! or! animus& donandi.! Hence,! the! political! or! electoral!
! contributions!were!subject!to!donor’s!tax.![Abello!v.!CIR,!GR!No.!
*!These!are:! 120721,!23!Feb.!2005.]%
(1)! citizenship! and! residency! of! the! donor! at! the! time! of! !
donation;!and! Sec.%100,%Transfer%for%Less%than%Adequate%and%Full%Consideration%
(2)!location!of!the!property!donated.! %
! Where% property,% other% than% real% property% referred% to% in% Section%
Q:!How!does!one!arrive!at!the!valuation!of!a!donation?! 24(D),% is% transferred% for% less% than% an% adequate% and% full%
! consideration% in% money% or% money's% worth,% then% the% amount% by%
*! The! same! rules! apply! as! in! valuation! of! a! decedent’s! gross! which%the%fair%market%value%of%the%property%exceeded%the%value%of%
estate.! the%consideration%shall,%for%the%purpose%of%the%tax%imposed%by%this%
! Chapter,%be%deemed%a%gift,%and%shall%be%included%in%computing%the%
(1)!Gross!gifts!is!computed!on!a!cumulative!basis.!! amount% of% gifts% made% during% the% calendar% year.% PROVIDED,%
(2)!Donor’s!tax!is!based!on!the!net!gifts.! HOWEVER,% THAT% A% SALE% ,% EXCHANGE,% OR% OTHER% TRANSFER% OF%
! PROPERTY% MADE% IN% THE% ORDINARY% COURSE% OF% BUSINESS% (% A%
Net! gifts! is! computed! as! follows:! gross! gifts! minus! allowable! TRANSACTION% WHICH% IS% A% BONA% FIDE,% AT% ARM’S% LENGTH,% AND%
deductions.! FREE% FROM% ANY% DONATIVE% INTENT),% WILL% BE% CONSIDERED% AS%
! MADE% FOR% AN% ADEQUATE% AND% FULL% CONSIDERATION% IN% MONEY%%
99%(B)%Political%Contributions%T%Any%contribution%in%cash%or%in%kind%to% OR%MONEY’S%WORTH.%%
any%candidate,%political%party%or%coalition%of%parties%for%campaign% !
purposes%shall%be%governed%by%the%Election%Code,%as%amended.%%

Prof.&L.K.&Gruba&SY201832019& 24"
Q:! Cite! an! example! of! a! transfer! for! less! than! adequate! and! full! International! Airport! Project! in! Misamis! Oriental! was! not!
consideration.! included! among! those! donations! exempt! from! donor’s! tax!
! under!Section!101!of!the!1997!Tax!Code.![BIR!Ruling!No.!124E
*!The!case!of!CIR&v.&B.F.&Goodrich&Phils.,&Inc.!dealt!with!the!sale! 2011,!12!Apr.!2011]!
by! B.F.! Goodrich! to! Siltown! Realty! of! a! rubber! plantation! in! %
Basilan!for!a!price!less!than!its!declared!fair!market!value.!The! 101(A)%In%the%Case%of%Gifts%Made%by%a%Resident%
BIR! wanted! to! assess! BF! Goodrich! for! deficiency! donor’s! tax! &
representing!the!difference!between!the!fair!market!value!and! %(1)%Gifts%made%to%or%for%the%use%of%the%National%Government%or%any%
the! actual! purchase! price! of! the! property.! The! BIR! also! entity% created% by% any% of% its% agencies% which% is% not% conducted% for%
contended!that!BF!Goodrich!filed!a!“false”!income!tax!return.! profit,%or%to%any%political%subdivision%of%the%said%Government;%and%%%%%
The!Supreme!Court!said!that!real!property!may!be!sold!for!less! 2)% Gifts% in% favor% of% an% educational% and/or% charitable,% religious,%
than!adequate!consideration!for!a!bona!fide!purpose!and!that! cultural% or% social% welfare% corporation,% institution,% accredited%
in! such! event,! the! sale! remains! an! “arm’s! length”! transaction.! nongovernment% organization,% trust% or% philanthropic% organization%
On! the! issue! of! falsity! of! the! return! filed,! the! Supreme! Court! or% research% institution% or% organization:% Provided,% however,% That%
ruled! that! although! donor’s! tax! is! different! from! capital! gains! not% more% than% thirty% percent% (30%)% of% said% gifts% shall% be% used% by%
tax!(as!reported!in!the!income!tax!return),!the!1974!income!tax! such% donee% for% administration% purposes.% For% the% purpose% of% the%
return!was!sufficient!compliance!with!the!legal!requirement!to! exemption,% a% 'nonTprofit% educational% and/or% charitable%
file!a!donor’s!tax!return.!“In!other!words,!the!fact!that!the!sale! corporation,% institution,% accredited% nongovernment% organization,%
transaction! may! have! partly! resulted! in! a! donation! does! not! trust% or% philanthropic% organization% and/or% research% institution% or%
change!the!fact!that![BF!Goodrich]!already!reported!its!income! organization'% is% a% school,% college% or% university% and/or% charitable%
for! 1974! by! filing! an! income! tax! return.”! [CIR! v.! B.F.! Goodrich! corporation,% accredited% nongovernment% organization,% trust% or%
Phils.,!Inc.,!GR!No.!104171,!24!Feb.!1999.]! philanthropic% organization% and/or% research% institution% or%
% organization,% incorporated% as% a% nonstock% entity,% paying% no%
Sec.%101,%Exemption%of%Certain%Gifts% dividends,%governed%by%trustees%who%receive%no%compensation,%and%
% devoting% all% its% income,% whether% students'% fees% or% gifts,% donation,%
The% following% gifts% or% donations% shall% be% exempt% from% the% tax% subsidies% or% other% forms% of% philanthropy,% to% the% accomplishment%
provided%for%in%this%Chapter:%%%% and% promotion% of% the% purposes% enumerated% in% its% Articles% of%
% Incorporation.%
*!BIR!Ruling!No.!124E2011!ruled!that!the!donation!of!lots!by! %
Diamond! Cement! and! Industrial! Corporation! –! Ayala! Q:! What! are! the! tax! implications! of! a! donation! in! favor! of! an!
Corporation! (DCICEAC)! to! relocatees! of! the! Department! of! educational! and/or! charitable,! religious,! cultural! or! social! welfare!
Transportation! and! Communications’! Laguindingan! corporation,! institution,! accredited! nongovernment! organization,!

Prof.&L.K.&Gruba&SY201832019& 25"
trust! or! philanthropic! organization! or! research! institution! or!
organization?!
! !
*! (1)! Such! donation! is! exempt! from! payment! of! donor’s! tax!
subject! to! the! condition! that! not! more! than! 30%! of! said!
donation! shall! be! used! by! the! done! for! administration!
purposes.!In!case!of!donation!of!real!property,!the!Register!of!
Deeds!shall!annotate!this!condition!at!the!back!of!the!TCT/OCT!
because!failure!to!comply!with!said!condition!shall!be!a!ground!
for! the! revocation! of! the! exemption! from! the! payment! of! the!
donor’s!tax.!
! *!Gifts,!donations,!and!other!contributions!made!by!residents!to!
(2)! The! deed! of! donation! is! likewise! not! subject! to!
documentary! stamp! tax! prescribed! under! Section! 196! of! the!
1997!Tax!Code!(Stamp!Tax!on!Deeds!of!Sale!and!Conveyances!
of! Real! Property),! but! only! to! the! documentary! stamp! tax! of!
PhP! 15! imposed! under! Section! 188! of! the! same! code! (Stamp!
Tax!on!Certificates).!
! educational!institution!or!foundation!by!accrediting!entities,!
(3)!If!the!donor!is!a!VATEregistered!person!and!the!donation!is!
an! ordinary! asset,! the! donation! is! subject! to! VAT! pursuant! to!
RR! No.! 16E2005,! as! amended,! the! same! being! considered! a!
transaction! deemed! sale.! If! the! donor! is! not! a! VATEregistered!
person,!the!donation!is!exempt!from!VAT.!
!
(4)!If!the!same!property!acquired!by!donation!is!subsequently!
conveyed!by!way!of!sale!or!exchange,!the!sale!will!be!subject!to!
corporate!income!tax!on!the!gain!realized!which!is!determined!
by!deducting!from!the!gross!selling!price!the!historical!cost!or!
the! adjusted! basis! thereof,! as! it! would! be! in! the! hands! of! the!
donor,!pursuant!to!Sections!27!and!101!of!the!1997!Tax!Code,!
Prof.&L.K.&Gruba&SY201832019&
and! consequently! to! creditable! expanded! withholding! tax!
under!Section!2E98,!as!amended.!
If!the!doneeEinstitution!donates!the!subject!property!to!a!nonE
exempt! done,! it! shall! be! liable! for! donor’s! tax! pursuant! to!
Section! 98! of! the! 1997! Tax! Code.! [BIR! Ruling! No.! 128E2013,! 4!
Apr.!2013.]!
!
Q:! What! is! the! benefit! derived! by! a! donor! in! case! the! donee! is!
accredited!by!the!Philippine!Council!for!NGO!Certification!(PCNC)?!
!
an!educational!institution!or!a!foundation!are!exempt!from!
donor's!tax,!subject!to!the!condition!that!not!more!than!30%!of!
said!gift!shall!be!used!for!administration!purposes.![Sec.!
101(A)(3),!1997!Tax!Code.]!
Moreover,!for!income!tax!purposes,!an!accreditation!of!the!
such!as!the!PCNC,!allows!a!donor!to!deduct!the!charitable!
contribution!as!a!business!expense.![RR!No.!13E98!dated!8!Dec.!
1998;!BIR!Ruling!No.!029E10,!12!Aug.!2010;!BIR!Ruling!No.![NSNPE
(S30HE010)061E10],!5!July!2010;!BIR!Ruling!No.!017E10,!1!July!
2010]!
The!PCNC!is!a!private,!voluntary,!nonEstock,!nonEprofit!
corporation!established!by!six!of!the!country's!largest!NGO!
networks.!
"The!PCNC,!duly!registered!with!the!Securities!and!Exchange!
Commission,!shall!be!the!government's!partner!in!a!system!of!
accreditation,!to!determine!the!qualification!of!domestic!
26"
 corporations!or!associations!or!NGOs!organized!and!operated!
exclusively!for!religious,!charitable,!scientific,!youth!and!sports!
development,!cultural!or!educational!purposes,!or!for!the!
rehabilitation!of!veterans,!or!to!NGOs!for!accreditation!as!donee!
institutions."![EO!No.!720,!11!Apr.!2008]!

A!PCNC!accreditation!endows!an!entity!with!a!"donee!institution!
status"!such!that!charitable!contributions!to!these!qualified!
donee!institutions!are!allowed!as!business!deductions!for!income!
tax!purposes.!

Q:!What!are!the!requirements!for!the!above?!

*!A!donor!engaged!in!business!shall!give!a!Notice!of!Donation!on!
every!donation!worth!at!least!PhP!50,000!to!the!Revenue!District!
Office!which!has!jurisdiction!over!his!place!of!business!within!30!
days!after!receipt!of!the!qualified!donee!institution’s!duly!issued!
Certificate!of!Donation,!which!shall!be!attached!to!said!Notice!of!
Donation.!

On!the!other!hand,!the!Certificate!of!Donation!states!that!not!
more!than!30%!of!the!donation/gifts!for!the!taxable!year!shall!be!
used!by!the!qualified!donee!institution!for!administration!
purposes.!

**! The! Certificate! of! Donation! must! indicate/contain! (1)! donee!

certification,! and! (2)! donor’s! certificate! of! values.! (RMC! No.! 86E
14]&

Prof.&L.K.&Gruba&SY201832019& 27"
101(B)% In% the% Case% of% Gifts% Made% by% a% Nonresident% not% Citizen% OF% Philippines% taxable% under% this% title% bears% to% his% entire% net%
THE%PHILIPPINES% gifts.%
& &
(1)%Gifts%made%to%or%for%the%use%of%the%National%Government%or%any% *!The!case!of!CIR&v.&Central&Luzon&Drug&Corporation&dealt!with!
entity% created% by% any% of% its% agencies% which% is% not% conducted% for% the!20%!discount!required!by!law!to!be!given!to!senior!citizens.!
profit,%or%to%any%political%subdivision%of%the%said%Government.%% The! Supreme! Court! held! that! the! 20%! discount! is! a! tax! credit!
(2)%Gifts% in% favor% of% an% educational% and/or% charitable,% religious,% for! the! establishment! concerned.! [NOTE:! This! was! the! old!
cultural%or%social%welfare%corporation,%institution,%foundation,%trust% doctrine.!Today,!the!20%!discount!is!a!tax!deduction!from!the!
or% philanthropic% organization% or% research% institution% or% gross! income! or! gross! sales! of! the! establishment! concerned.!
organization:% Provided,% however,% That% not% more% than% thirty% However,!the!discussion!on!tax!credit!for!donor’s!taxes!paid!to!
percent% (30%)% of% said% gifts% shall% be% used% by% such% donee% for% a!foreign!country!remains!instructive.]!It!stated:!
administration%purposes.% “While!a!tax!liability!is!essential!to!the!availment!or!use!of!any!
% tax!credit,!prior!tax!payments!are!not.!!On!the!contrary,!for!the!
101(C)%Tax%Credit%for%Donor’s%Taxes%Paid%to%a%Foreign%Country% existence! or! grant! solely! of! such! credit,! neither! a! tax! liability!
& nor! a! prior! tax! payment! is! needed.!! The! Tax! Code! is! in! fact!
101(C)(1)%In%General.%T%The%tax%imposed%by%this%Title%upon%a%donor% replete! with! provisions! granting! or! allowing! tax! credits,! even!
who% was% a% citizen% or% a% resident% at% the% time% of% donation% shall% be% though!no!taxes!have!been!previously!paid.!
credited%with%the%amount%of%any%donor's%tax%of%any%character%and% For! example,! in! computing! the! estate! tax! due,! Section! 86(E)!
description%imposed%by%the%authority%of%a%foreign%country.%%%%% allows!a!tax!credit!EE!subject!to!certain!limitations!EE!for!estate!
% taxes!paid!to!a!foreign!country.!!Also!found!in!Section!101(C)!is!
101(C)(2)%Limitations% on% Credit.% T% The% amount% of% the% credit% taken% a! similar! provision! for! donor’s! taxes! EE! again! when! paid! to! a!
under% this% Section% shall% be% subject% to% each% of% the% following% foreign! country! EE! in! computing! for! the! donor’s! tax! due.!! The!
limitations:%%%%%% tax! credits! in! both! instances! allude! to! the! prior! payment! of!
% taxes,! even! if! not! made! to! our! government.”! [CIR! v.! Central!
(a)%The% amount% of% the% credit% in% respect% to% the% tax% paid% to% Luzon!Drug!Corporation,!GR!No.!159647,!15!Apr.!2005.]!
any% country% shall% not% exceed% the% same% proportion% of% the% &
tax%against%which%such%credit%is%taken,%which%the%net%gifts% Sec.%102,%Valuation%of%Gifts%Made%in%Property%
situated%within%such%country%taxable%under%this%Title%bears% %
to%his%entire%net%gifts;%and%% If%the%gift%is%made%in%property,%the%fair%market%value%thereof%at%the%
% (b)% The% total% amount% of% the% credit% shall% not% exceed% the% time%of%the%gift%shall%be%considered%the%amount%of%the%gift.%In%case%
same% proportion% of% the% tax% against% which% such% credit% is% of%real%property,%the%provisions%of%Section%88(B)%shall%apply%to%the%
taken,% which% the% donor's% net% gifts% situated% outside% the% valuation%thereof.%

Prof.&L.K.&Gruba&SY201832019& 28"
% !
Sec.%103,%Filing%of%Return%and%Payment%of%Tax%
% by! B.F.! Goodrich! to! Siltown! Realty! of! a! rubber! plantation! in!
103(A)%Requirements.%T%Any%individual%who%makes%any%transfer%by%
gift%(except%those%which,%under%Section%101,%are%exempt%from%the%
tax%provided%for%in%this%Chapter)%shall,%for%the%purpose%of%the%said%
tax,%make%a%return%under%oath%in%duplicate.%The%return%shall%se%
forth:%
. %
. (1)%Each%gift%made%during%the%calendar%year%which%is%to%be%
included%in%%computing%net%gifts;%
%%%%%(2)%The%deductions%claimed%and%allowable;%%
%%%%%(3)%Any%previous%net%gifts%made%during%the%same%calendar%year;%%%
%%%%%(4)%The%name%of%the%donee;%and%%%
%%%%%(5)%Such%further%information%as%may%be%required%by%rules%and%
regulations%made%pursuant%to%law.%%%%%
% transaction! may! have! partly! resulted! in! a! donation! does! not!
103(B)%Time%and%Place%of%Filing%and%Payment.%T%The%return%of%the%
donor%required%in%this%Section%shall%be%filed%within%thirty%(30)%days%
after%the%date%the%gift%is%made%and%the%tax%due%thereon%shall%be%
paid%at%the%time%of%filing.%Except%in%cases%where%the%Commissioner%
otherwise%permits,%the%return%shall%be%filed%and%the%tax%paid%to%an%
authorized%agent%bank,%the%Revenue%District%Officer,%Revenue%
Collection%Officer%or%duly%authorized%Treasurer%of%the%city%or%
municipality%where%the%donor%was%domiciled%at%the%time%of%the%
transfer,%or%if%there%be%no%legal%residence%in%the%Philippines,%with%
the%Office%of%the%Commissioner.%In%the%case%of%gifts%made%by%a%
nonresident,%the%return%may%be%filed%with%the%Philippine%Embassy%
or%Consulate%in%the%country%where%he%is%domiciled%at%the%time%of%
the%transfer,%or%directly%with%the%Office%of%the%Commissioner.%
% taxes,!which!the!Supreme!Court!considered!as!“mandatory.!In!
Q:!How!and!when!are!donor’s!tax!returns!filed?!
Prof.&L.K.&Gruba&SY201832019&
*!The!case!of!CIR&v.&B.F.&Goodrich&Phils.,&Inc.!dealt!with!the!sale!
Basilan!for!a!price!less!than!its!declared!fair!market!value.!The!
BIR! wanted! to! assess! BF! Goodrich! for! deficiency! donor’s! tax!
representing!the!difference!between!the!fair!market!value!and!
the! actual! purchase! price! of! the! property.! The! BIR! also!
contended!that!BF!Goodrich!filed!a!“false”!income!tax!return.!
The!Supreme!Court!said!that!real!property!may!be!sold!for!less!
than!adequate!consideration!for!a!bona!fide!purpose!and!that!
in! such! event,! the! sale! remains! an! “arm’s! length”! transaction.!
On! the! issue! of! falsity! of! the! return! filed,! the! Supreme! Court!
ruled! that! although! donor’s! tax! is! different! from! capital! gains!
tax!(as!reported!in!the!income!tax!return),!the!1974!income!tax!
return!was!sufficient!compliance!with!the!legal!requirement!to!
file!a!donor’s!tax!return.!“In!other!words,!the!fact!that!the!sale!
change!the!fact!that![BF!Goodrich]!already!reported!its!income!
for! 1974! by! filing! an! income! tax! return.”! [CIR! v.! B.F.! Goodrich!
Phils.,!Inc.,!GR!No.!104171,!24!Feb.!1999.]!
!
**!The!case!of!Sumipat&v.&Banga!discussed!the!time!and!place!
of!filing!and!payment!of!donor’s!tax.!Sumipat,!with!the!consent!
of! his! wife,! executed! a! document! entitled! “Deed! of! Absolute!
Transfer!and/or!Quitclaim”!over!three!parcels!of!land,!in!favor!
of! his! five! illegitimate! children! with! another! woman.! The!
Supreme! Court! found! that! the! deed! was! actually! a! deed! of!
donation,!but!that!it!was!patently!void!for!nonEcompliance!with!
certain! requirements.! There! was! also! no! proof! of! filing! of! a!
donor’s! tax! return! and! payment! of! the! applicable! donor’s!
fact,! the! registrar! of! deeds! is! mandated! not! to! register! in! the!
29"
 registry!of!property!any!document!transferring!real!property!by! decedent% or% donor% was% a% citizen% and% resident% at% the% time% of% his%
way!of!gifts!inter!vivos!unless!a!certification!that!the!taxes!fixed! death% or% donation% allows% a% similar% exemption% from% transfer% or%
and! actually! due! on! the! transfer! has! been! paid! or! that! the! death% taxes% of% every% character% or% description% in% respect% of%
transaction! is! tax! exempt! from! the! Commissioner! of! Internal! intangible% personal% property% owned% by% citizens% of% the% Philippines%
Revenue,! in! either! case,! is! presented.”! [Sumipat! v.! Banga,! GR! not%residing%in%that%foreign%country.%
No.!155810,!13!Aug.!2004.]! The%term%'deficiency'%means:%(a)%the%amount%by%which%tax%imposed%
! by%this%Chapter%exceeds%the%amount%shown%as%the%tax%by%the%donor%
Sec.% 104,% Definitions% T% For% purposes% of% this% Title,% the% terms% 'gross% upon%his%return;%but%the%amount%so%shown%on%the%return%shall%first%
estate'% and% 'gifts'% include% real% and% personal% property,% whether% be% increased% by% the% amount% previously% assessed% (or% Collected%
tangible% or% intangible,% or% mixed,% wherever% situated:% Provided,% without% assessment)% as% a% deficiency,% and% decreased% by% the%
however,% That% where% the% decedent% or% donor% was% a% nonresident% amounts% previously% abated,% refunded% or% otherwise% repaid% in%
alien%at%the%time%of%his%death%or%donation,%as%the%case%may%be,%his% respect%of%such%tax,%or%(b)%if%no%amount%is%shown%as%the%tax%by%the%
real% and% personal% property% so% transferred% but% which% are% situated% donor,% then% the% amount% by% which% the% tax% exceeds% the% amounts%
outside% the% Philippines% shall% not% be% included% as% part% of% his% 'gross% previously% assessed,% (or% collected% without% assessment)% as% a%
estate'%or%'gross%gift':%Provided,%further,%That%franchise%which%must% deficiency,% but% such% amounts% previously% assessed,% or% collected%
be%exercised%in%the%Philippines;%shares,%obligations%or%bonds%issued% without% assessment,% shall% first% be% decreased% by% the% amount%
by%any%corporation%or%sociedad%anonima%organized%or%constituted% previously%abated,%refunded%or%otherwise%repaid%in%respect%of%such%
in% the% Philippines% in% accordance% with% its% laws;% shares,% obligations% tax.%
or% bonds% by% any% foreign% corporation% eightyTfive% 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%

Prof.&L.K.&Gruba&SY201832019& 30"