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San Beda College Alabang, College of Law | Taxation II - Second Semester, AY 2009-2010
Atty. Deborah S. Acosta-Cajustin

Textbooks:
1. De Leon and De Leon, Jr., The National Internal Revenue Code Annotated Volumes 1 and 2, Eighth Ed.

2. Hector S. De Leon, The Law on Transfer and Business and Taxation (With Illustrations, Problems, and Solutions)

I. Transfer Taxes

NIRC (1997), Sections 84-104

Revenue Regulations No. 02-03, December 16, 2002

A. Definition – taxes imposed upon the gratuitous disposition of private properties. Taxes levied on the transmission of
properties from a prior decedent to his heirs in the case of estate tax or from a donor to a donee in case of the
donor’s tax

B. Kinds

a. Death Taxes or Duties – those levied on the gratuitous transfers of property upon one’s death
b. Gift taxes – imposed on the gratuitous transfers of property during one’s lifetime

Distinctions between donation inter vivos and donation mortis causa

Donation inter vivos Donation Mortis Causa

Consideration Out of Donor’s generosity In consideration of death or mortal
peril
Instrument Contract Embodied in a Last will and
testament, otherwise void.
Effect Produced while donor is alive No title is conveyed before the death
of the transferor
Revocability Revocable
Acceptance Required Never accepted during donor’s
lifetime

2. Estate Tax

NIRC, Secs. 84 – 97, 104

1 De Leon pp. 576-618
2 De Leon, pp. 15-108
RR No. 02-03, Secs. 2-9

a. Definition – Tax on the right to transmit property at death an on certain transfers which are
made by the statue the equivalent of testamentary dispositions

b. Nature and object of estate tax

- Not a direct tax on property, neither is it a capitation tax. It is an excise or privilege tax
- Object of estate tax is to tax the shifting of economic benefits and enjoyment of property
from the dead to the living

c. Purpose and justification of estate tax

- BENEFIT_RECEIVED THEORY – considers the services the government renders in the
distribution of the estate of the decedent, either by law or in accordance with his wishes. For
the performance of these services, the government collects tax.
- PRIVELEGE THEORY or STATE PARTNERSHIP THEORY - inheritance is not a right but a
privilege granted by the stae and large estates have been acquired only with the protection
of the state.
- ABILITY TO PAY THEORY – the receipt of inheritance which is in the nature of unearned wealth
or windfall places assets in the hands of the heirs and beneficiaries thereby creating an
ability to pay the tax and thus to contribute to governmental income.
- REDISTRIBUTION OF WEALTH THEORY – receipt of inheritance is a contributing factor to the
inequalities in wealth and income. It brings about a more equitable distribution of wealth in
the society

d. Power to impose
- Basis – based on the general discretionary taxing power of a state legislature to select the
subjects of taxation and extends to all the usual objects within its sovereignty. It arises
because of the shifting from one to another of the power of or privilege incidental to
ownership or enjoyment of property occasioned by death.
- Scope – Power of legislature is not limited to taxation of transfer at death. But also to those
occasioned by death.

e. Generating source of power (Civil Code, Sec. 777)

- Estate and inheritance tax laws rest in their essence upon the principle that death is the
generating source from which the taxing power takes is being and that it is the power to
transmit, or the transmission from the dead to the living on which the tax is more
immediately based.

Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937

f. Applicable law –taxation is governed by the statute in force at the time of the death of the
decedent. Tax may be made retroactive but legislative intent should be perfectly clear.
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Lorenzo v. Posadas, id.

g. Gross estate (NIRC, Secs. 85 and 104) – shall consist of the value of all property, real or
personal, tangible or intangible, wherever situated (Except nonresident aliens) of the decedent
to the extent of the interest of the decedent at the time of his death.
- Includes:
a. Dividends declared by a corporation before death of stockholder although opaid
after death;
b. Partnership profits even if paid after death of partner
c. Proceeds of life insurance policy payable to a revocable beneficiary
d. Right of usufruct if transferable to the heirs.
e. Properties upon which decedent does not have interest at the time of his death but
still forms part of the gross estate:
i. Transfers in contemplation of death
ii. Revocable transfers
iii. Property passing under the general power of appointment
iv. Proceeds of life insurance
v. Transfers of Insufficient Consideration

Roces, et al. v. Posadas, G.R. No. 34937, March 13, 1933

h. Exclusions and exemptions (NIRC, Secs. 85 [H], 87, 104; P.D. 1146; R.A. 1161, as amended;
R.A. 227; R.A. 360; P.D. 907; P.D. 1616; Constitution, Art. XIV, Sec. 4[4])
Exclusions – separate or exclusive property of the surviving spouse is not deemed part of the
gross estate of the decedent spouse.

Exemptions:
a. Merger of usufruct in the owner of the naked title;
b. Fideicomissary substitution;
c. Transmission from first heir, legatee or done in favor of another beneficiary, in
accordance with the desire of the predecessor;
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutins, no part of the net income of which inures to the benefit of any individual.
Provided that not more than 30% of the said bequests devises, legacies or transfers
shall be used by such institution for administration purposes;
e. Benefits received by members from GSIS and SSS;
f. Amounts received from Philippines and United States governments fro damages
suffered during the last war;
g. Benefits received by beneficiaries residing in the Philippines under laws
administered by the US Veterans Administration;
h. Bequests, legacies or donations mortis causa to social welfare, cultural, or charitable
organizations, bequests to be used ADE for educational purposes;
i. Grants and donations to the Intramuros Administration

i. Deductions (NIRC, Sec. 86)

a. Ordinary Deductions
i. Funeral Expenses;
ii. Judicial Expenses of proceedings;
iii. Claims against the estate;
iv. Claims against insolvent persons;
v. Unpaid mortgages;
vi. Unpaid taxes;
vii. Casualty losses;
b. Vanishing Deductions;
c. Transfers for public use;
d. Family home;
e. Standard deduction equivalent to P1,000,000;
f. Medical Expenses;
g. Retirement benefits received by the heirs under RA 4917;
h. Share of surviving spouse in the conjugal or community property.

Dizon v. Court of Tax Appeals, et al., G.R. No. 140944, April 30, 2008

Commissioner of Internal Revenue v. Court of Appeals, et al., G.R. No. 123206, March 22, 2000

Johannes v. Imperial, 43 Phil. 597 (1922)

j. Valuation of property (NIRC, Sec. 88) – made by the executor, administrator, or heir concerned,
those required to file estate tax return.
- Basis is the fair market value
a. Real Property
i. Fair market value as shown in the schedule of values fixed by provincial
and city assessors; or
ii. Fair market value as determined by the CIR, WHICHEVER IS HIGHER
iii. Valuation must be made at the moment of the death.
b. Personal Property
i. Appraised at the price the property would change hands between a willing
seller and a willing buyer – Fair Market Value
c. Stocks, bonds and other securities
i. Listed – fixed at the mean between highest and lowest quoted selling prices
on the date of death or as of 6 months thereafter
ii. Unlisted – approximation
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k. Tax rates and computation (NIRC, Sec. 84)

a. Tax Rates:

BUT THE OF THE

OVER NOT TAX PLU EXCESS
OVER SHALL S OVER
BE
P Exempt
200,000
P 550,000 0 5% P 200,000
200,000
500,000 2,000,00 P 15,000 8% 500,000
0
2,000,00 5,000,00 135,000 11% 2,000,00
0 0 0
5,000,00 10,000,0 465,000 15% 5,000,00
0 00 0
10,000,0 And Over 1,215,0 20% 10,000,0
00 00 00

b. Computation
i. Get the gross estate
ii. Subtract from gross estate the allowable deductions to get the net
iii. Deduct ½ net share of surviving spouse from properties which are conjugal
or community and the family home allowance
iv. Deduct P200,000 exemption as allowed by law to get the taxable net estate
or the estate subject to tax
v. Apply the tax rates to the amount of the taxable net estate to get the
estate tax

l. Administrative requirements (NIRC, Secs. 90-97)

SEC. 90. Estate Tax Returns. -

(A) Requirements. –

(1) In all cases of transfers subject to the tax imposed herein, or

(2) where, though exempt from tax,

the gross value of the estate exceeds Two hundred thousand pesos (P200,000),

(3) or regardless of the 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 CLEARANCE from the Bureau of Internal Revenue
is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the
executor, or the administrator, or any of the legal heirs, as the case may be,

-> 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 Two million pesos (P2,000,000)
-> 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 due whether paid or still due and outstanding.

(B) Time for Filing. –

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 six (6) months from the
decedent's death.

(1) A certified copy of the schedule of partition

and
(2) the order of the court approving the same

-> shall be furnished the Commissioner within thirty (30) after the promulgation of such order.

(C) Extension of Time. –

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The Commissioner shall have authority to grant,
in meritorious cases,
a reasonable extension not exceeding thirty (30) days for filing the return.

(D) Place of Filing. –

Except in cases where the Commissioner otherwise permits,

the return required under Subsection (A) shall be filed with:

(1) an authorized agent bank,

or
(2) Revenue District Officer,

(3) Collection Officer,

or
(4) duly authorized Treasurer of the city or municipality in which the decedent was domiciled at
the time of his death
or
(5) if there be no legal residence in the Philippines, with the Office of the Commissioner.

SEC. 91. Payment of Tax. -

(A) Time of Payment. –

The estate tax imposed by Section 84 shall be paid AT THE TIME THE RETURN IS FILED by the executor,
administrator or the heirs.

(B) Extension of Time. –

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

(1) not to exceed five (5) years,

- in case the estate is settled through the courts, or

(2) 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:

(a) negligence,
(b) intentional disregard of rules and regulations, or
(c) 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.

(C) Liability for Payment. –

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.

SEC. 92. Discharge of Executor or Administrator from Personal Liability. –

If the executor or administrator makes a written application to the Commissioner for:

(a) determination of the amount of the estate tax and
(b) discharge from personal liability therefore,
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-> the Commissioner

(a) as soon as possible, and in any event within one (1) year after the making of such application,
or
(b) 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 assessment of the tax in Section 203
-> shall 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, :

(1) shall be discharged from personal liability for any deficiency in the tax thereafter found to be due
and
(2) 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.

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.

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 shown,

and they shall immediately notify the:

(a) Commissioner,
(b) Regional Director,
(c) Revenue District Officer, or
(d) Revenue Collection Officer or
(e) 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 inter vivos or mortis causa, legacy or inheritance,
-> shall have the duty of furnishing the:
(a) Commissioner,
(b) Regional Director,
(c) Revenue District Officer or
(d) 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.

SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. –

(1) If after the payment of the estate tax,

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(2) new obligations of the decedent shall appear,

(3) 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

(1) be transferred to any NEW OWNER in the books of
any corporation, sociedad anonima, partnership, business, or industry organized
or
(2) 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 not allow any withdrawal from the
said deposit account,
unless the Commissioner has 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 :

(1) 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

(2) such statement shall be under oath by the said depositors.

Marcos v. Court of Appeals, et al., G.R. No. 120880, June 5, 1997

Ruiz v. Court of Appeals, et al., G.R. No. 118671, January 29, 1996

Estate of the Late Juliana Diez vda. De Gabriel v. CIR, G.R. No. 155541, January 27, 2004

Felisa L. Vda de San Agustin v. CIR, G.R. No. 138485, September 10, 2001

2. Donor’s Tax

2 De Leon, pp. 109-129

NIRC, Secs. 98 -104
RR. No. 02-03, Secs. 10-13

a. Definition – an act of liberality whereby a person disposes gratuitously of a thing or right in favor
of another who accepts it.
b. Nature - excise tax imposed on the privilege of the donor top give or on the privilege of the done
to receive.
c. Purpose:
a. To supplement the estate taxes by preventing their avoidance through taxation of gifts inter
vivos without which the property would be subject to taxes.
b. Prevent avoidance of income taxes through the device of splitting income among numerous
donees who are usually members of the family or into many trusts with the donor thereby
escaping the effect of the progressive rates of income taxation.
d. Power to impose:
a. Constitutional as where the state would levy a tax on the right to use property
b. If a state can impose death taxes, the state can impose gift taxes.
e. Taxable transfers (NIRC, Secs. 98[B], 100) – Tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct, or indirect and whether the property is real or personal,
tangible or intangible.
f. Essentials of a taxable donation :
a. Capacity of the donor;
b. Donative intent;
c. Delivery whether actual or constructive;
d. Acceptance of the gift by the done.

Abello v. CIR, G.R. No. 120721, 23 February 2005

g. Exemptions or deductions (NIRC, Sec. 101; R.A. 1606; P.D. 507; R.A. 1916; R.A. 2707; R.A. 3076;
P.D. 373; P.D. 690; P.D. 1616)
1. Gifts made by a resident:
a. Dowries or gifts made on account of marriage and before its celebration or within 1
year thereafter by parents to each of their:
i. Legitimate,
ii. Recognized natural,
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iii. Adopted children
o To the extent of the first P10,000
b. Gifts made to or for the use of the national government or any entity created by any
of its agencies which is not conducted for profit, or to any political subdivision of the
said government; and
c. Gifts in favor of an educational and/or charitable or religious, cultural, or social
welfare corporation, institution, accredited non-government organization, trust or
organization subject to the condition that not more than 30% of said gifts shall be
used by the done for administration purposes.
2. Gifts made by a non-resident alien – only gifts mentioned in letters b and c are exempt;
3. Specific exemption of P100,000 – net gifts of the amount of P100,000 or less are exempt
from tax.
h. Valuation (NIRC, Sec. 102):
a. Personal Property – FMV at the time of the gift;
b. Real Property – Current FMV as shown in the schedule of values fixed by provincial and city
assessors or the fair market value as determined by the CIR whichever is higher;
c. Cash – If the gift is money, then the amount thereof is the valuation
i. Rates and computation (NIRC, Sec. 99 )

Rates:

OVER BUT NOT THE PLU OF THE

OVER TAX S EXCESS
SHALL OVER
BE

P Exempt
100,000
P 200,000 0 2% P100,000
100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,00 14,000 6% 500,000
0
1,000,00 3,000,00 44,000 8% 1,000,00
0 0 0
3,000,00 5,000,00 204,000 10% 3,000,00
0 0 0
5,000,00 10,000,0 404,000 12% 5,000,00
0 00 0
10,000,0 1,004,0 15% 10,000,0
00 00 00

Computation:
1. Gross Gift less allowable deductions;
2. Net gift less P100,000 exemption;
3. Taxable next gift multiplied by tax rates in Sec. 99;
4. Amount of donor’s tax due.

j. Administrative requirements (NIRC, Sec. 103)

SEC. 103. Filing of Return and Payment of Tax. –

(A) Requirements. –

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.

(B) Time and Place of Filing and Payment. -

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:
(1) an authorized agent bank,
(2) the Revenue District Officer,
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(3) Revenue Collection Officer or

(4) duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of
the transfer, or
(5) 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:
(1) Philippine Embassy or

(2) Consulate in the country where he is domiciled at the time of the transfer, or
(3) directly with the Office of the Commissioner.

SEC. 104. Definitions. –

For purposes of this Title,

the terms "gross estate" and "gifts"
- include real and personal property, whether tangible or intangible, or mixed, wherever situated:

Provided, however, That where the decedent or donor was a NONRESIDENT ALIEN at the time of his death or
donation, as the case may be,
his real and personal property so transferred
but which are situated outside the Philippines
-> shall NOT be included as part of his "gross estate" or "gross gift":

Provided, further,
(1) That FRANCHISE which must be exercised in the Philippines;
(2) shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the
Philippines in accordance with its laws;
(3) shares, obligations or bonds by any foreign corporation eighty-five percent (85%) 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;

(5) shares or rights in any partnership, business or industry established in the Philippines,

-> shall be considered as situated in the Philippines:

Provided, still further,

that NO TAX shall be collected under this Title in respect of intangible personal property:

(a) if the decedent at the time of his death

or the donor at the time of the donation
-> was A CITIZEN AND RESIDENT OF A FOREIGN COUNTRY
which at the time of his death or donation did NOT impose a transfer tax of any character,
in respect of intangible personal property of citizens of the Philippines NOT residing in that foreign country,

or

(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his
death
or
donation allows a similar exemption from transfer or death taxes of every character or description
in respect of intangible personal property owned by citizens of the Philippines NOT residing in that foreign country.

The term "deficiency" means:

(a) the amount by which tax imposed by this Chapter EXCEEDS the amount shown as the tax by the donor upon his
return;

but the amount so shown on the return shall first be increased by the amount previously assessed (or collected
without assessment) as a deficiency,
and decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax,

or

(b) if no amount is shown as the tax by the donor,

then the amount by which the tax EXCEEDS the amounts previously assessed, (or collected without assessment) as
a deficiency,

but such amounts previously assessed, or collected without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such tax.