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Business and Other Transfer

Taxes
Class: Marketing 3
Room: 305T
Days:
Monday-Wednesday
Time: 12:00 1:30 p.m.

Tax 2 Assignment - Nov


12, 2013

Read about and explain briefly:


1) Gross estate
2) Classification of decedent
3) Inclusions to gross estate
4) Disposition of transfers prior to
death
5) Deductions from gross estate
6) Net taxable estate and
7) Estate tax computation
Submit written answers on Nov 17,

Gross Estate
1. Gross estate includes real properties
a) Land
b) Building
c) Anything attached to the soil with
permanence

2. Tangible personal property can be


seen & touched
3. Intangible personal property
cannot be seen and touched

Classification of Decedent
Class A
1) Citizen of the Philippines, residing in
the Philippines
2) Citizen of the Philippines, residing
abroad
3) Citizen of a foreign country, residing in
the Philippines

Class B
)Citizen of a foreign country, residing
abroad

Inclusions to Gross Estate


Gross estate of a resident or citizen of the
Philippines (Class A) consists of
1) real estate and
2) personal property (tangible or intangible),

regardless of location.
Gross estate of a non-resident whos not a
citizen of the Philippines (Class B) consists of
1) real estate located in the Philippines and
2) tangible personal property in the Philippines, and
3) subject to exception (reciprocity clause),
intangible personal property in the Philippines.

Disposition of Transfers Prior to Death


Transfers in contemplation of death
Motivated by the thought of death although
death may not be imminent such as donation
mortis causa.
Revocable transfer terms of enjoyment of
the property may be altered, amended, revoked
or terminated by the decedent. It is sufficient
that the decedent has the power to revoke
though he did not exercise the power to revoke.
Transfer under the general power of
appointment designate person or persons
who will succeed to the property of a prior
decedent.

Insurance Proceeds
Life insurance proceeds are included in
the gross estate if beneficiary is:
1) Estate of the decedent, his executor or
administrator
2) A revocable third person beneficiary

Valuation of Gross Estate


For personal property : at Fair Market
Value at time of death
For real property (whichever is
higher):
Assessed value
Fair Market Value
Zonal value

Deductions from Gross Estate


Ordinary deductions
Expenses, losses, indebtedness, taxes, etc:
Funeral expenses: actual incurred or 5% of gross
estate whichever is lower, but not over P200,000.
Judicial expenses or intestate proceedings : fees
of executor, attorneys fees, court fees, accounts
fees, appraisers fees, cost of preserving the
property, brokerage fees, etc.
Claims
against
the
estate:
enforceable
obligations during his lifetime, notarized debt
instrument, monetary claims
Claims against insolvent persons: after preferred
creditors & ordinary creditors are paid and the
properties are not sufficient to pay the obligations

Deductions from Gross Estate


Ordinary deductions (continuation)
Expenses, losses, indebtedness, taxes, etc:
Unpaid mortgage or indebtedness on property :
Gross FMV reflected & unpaid mortgage
deducted
Unpaid taxes: accrued before death such as
income taxes due and property taxes
Losses: not insured, not claimed as deduction in
the ITR, occurred during settlement of the
estate and before last day of payment (6
months after death)

Transfer for public use in the last will &


testament, transfer in favor of the
government for public purposes

Deductions from Gross Estate


Ordinary deductions (continuation)
Vanishing deduction:

No consecutive deaths within 5 years of a previous


decedent
Property located in the Philippines
Part of the prior decedents estate, finally determined
and paid
Identified as the one received from prior decedent or
something in exchange for
No vanishing deduction on the property claimed by prior
decedents estate
Rates applied as follows:
100% within one year to the death of the decedent
80% >1 <2 years to the death of the decedent
60% >2 <3 years to the death of the decedent
40% >3 <4 years to the death of the decedent
20% >4 <5 years to the death of the decedent

Deductions from Gross Estate


Special deductions (for class A only; not
available to the estate of a nonresident, non-citizen of the Philippines.)
Family home: dwelling house where the
person and his family resides: FMV or
P1,000,000 whichever is lower
Standard deduction: P1,000,000
Medical expenses: within one year from
death substantiated with receipts but not
over P500,000
Amount
receivable
by
heirs:
from
decedents employer

Net Taxable Estate


Gross Estate: real property + tangible
personal property + intangible personal
property
Less: Ordinary deductions (a. Expenses,
losses, indebtedness, taxes, etc; b.
Transfer for public use and c. Vanishing
deduction)
Less: Special deductions (a. Family home;
b. Standard deduction: P1,000,000; c.
Medical
expenses
and
d.
Amount
receivable by heirs from employer)
Equals: Net Taxable Estate

Estate Tax Computation


over

but not
over
200,000

200,000

tax shall
be

of excess
over

plus

exempt

500,000

5%

200,000

500,000 2,000,000

15,000

8%

500,000

2,000,000 5,000,000 135,000


10,000,00
5,000,000
0 465,000
10,000,00
0 and over 1,215,000

11% 2,000,000
15% 5,000,000
10,000,00
20%
0

Tax 2 Assignment
Read about and explain briefly:
1) Donors Tax
2) Business Taxes
3) Business Transactions
4) VAT Taxable Transactions
5) Mixed Business Transactions
6) Other percentage taxes
Submit written answers on Nov 19,
2014

Net Gifts and Donors Tax


Two kinds of donors:
1. Resident or citizen of the Philippines
a. real estate regardless of location
b. tangible personal property regardless of
location
c. intangible personal property regardless of
location
2. Non-resident, not citizen of the Philippines
a. real estate located in the Philippines
b. tangible personal property located in the
Philippines
c. intangible personal property located in the
Philippines, subject to reciprocity clause in the
donors law

Gross gifts:
1. Transfers for insufficient consideration
2. Cancellation of indebtedness
Exemptions - Donations to:
1. International Rice Research Institute (IRRI)
2. Ramon Magsaysay Award Foundation (RMAF)
3. Philippine Inventors Commission (PIC)
4. Integrated Bar of the Philippines (IBP)
5. Development Academy of the Philippines (DAP
6. Social Welfare, cultural or charitable
institution, no part of the net income of which
benefits any individual

Computing for donors tax due on the


net gifts
A. On the first donation of a calendar
year:
Gross gifts
Less: Deductions from these gross gifts
Net gifts
Donors tax due on the net gifts

B. On subsequent donation in the same


calendar year
Gross gifts made on this date
Less: Deductions from these gross gifts
Net gifts on this date
Add: all prior net gifts within the same
calendar year
Aggregate net gifts
Donors tax on aggregate net gifts
Less: Donors tax on all prior net gifts
within the same calendar year
Donors tax due on the net gifts of this date

Valuation Fair market value of property at the time


of the donation
Deductions from gross gifts:
A. Resident or citizen donor:
1. Dowries or gifts made on account of marriage
within one year by parents to legitimate, natural
or adopted children to the maximum of P10,000.
2. Gifts to the national government or its agency
which is not for profit.
3. Gifts in favor of an educational, charitable,
religious, cultural or social welfare institution,
NGO, trust, philanthropic or research organization.
Provided that not more than 30% of said gifts shall
be used for administration purposes

B. Non-resident, not citizen donor:


1. Gifts to the national government
or its agency which is not for profit.
2. Gifts in favor of an educational,
charitable, religious, cultural or social
welfare
institution,
NGO,
trust,
philanthropic or research organization.
Provided that not more than 30% of
said
gifts
shall
be
used
for
administration purposes

C. Other deductions:
1. Encumbrance on the property donated, if
assumed by the donee
2. Those specifically provided by the donor as a
diminution of the property donated
When donee is a stranger, tax shall be 30% of the
net gifts.
Stranger is a person who is:
1. not a brother, sister, spouse, ancestor or
lineal descendant
2. not a relative by consanguinity in the
collateral liner within the fourth degree of
relationship

Donors Tax Return


Must be filed within 30 days after date of
donation
In case of husband and wife as donors, donors
tax return will be filed separately
Donors tax return shall be filed with:

Authorized agent bank


Revenue district officer or collection officer
Duly authorized Treasurer of the city or municipality
Officer of the Commissioner of the BIR
Philippine Embassy or Consulate

if the net gift is


over

but not over

tax shall be

plus

of excess
over

100,000

exempt

100,000

200,000

2%

100,000

200,000

500,000

2,000

4%

200,000

500,000

1,000,000

14,000

6%

500,000

1,000,000

3,000,000

44,000

8%

1,000,000

3,000,000

5,000,000

204,000

10%

3,000,000

5,000,000

10,000,000

404,000

12%

5,000,000

10,000,000

1,004,000

15%

10,000,000

Payment & Credits


Tax will be paid upon filing with the office
where the return is filed
Donors tax credit will only be allowed for
donors who are resident citizens of the
Philippines
Formula on tax credit
Limitation A

Donors tax paid to foreign country


Proportion of foreign donation to total donation x Phil donors
tax
Whichever is lower

Limitation B

Total foreign donors taxes paid


Proportion of foreign donation to total donation x Phil donors
tax
Whichever is lower

if the net gift is


over

but not over

tax shall be

plus

of excess
over

100,000

exempt

100,000

200,000

2%

100,000

200,000

500,000

2,000

4%

200,000

500,000

1,000,000

14,000

6%

500,000

1,000,000

3,000,000

44,000

8%

1,000,000

3,000,000

5,000,000

204,000

10%

3,000,000

5,000,000

10,000,000

404,000

12%

5,000,000

10,000,000

1,004,000

15%

10,000,000

Business Taxes
Business regular conduct or pursuit of
a commercial or economic activity.
Three major business taxes
1) Percentage tax
2) Excise tax
3) Value-added tax
Regular - more than one isolated
transaction.
Requires
repetition
and
continuity of action.
Commercial or economic activity
purpose is profit or income

Not regular activity but with business tax:


1) services rendered by non-resident foreign
persons
2) importation of goods for personal use (VAT)
3) overseas communication (percentage tax)
4) winning in jai-alai (percentage tax)
5) sale of shares of stock (percentage tax)
Not economic activity but with business tax:
1) importation of goods for personal use (VAT)
2) overseas communication (percentage tax)

Percentage Taxes
1) 3% percentage tax on sale of goods,
properties or services (exempt from VAT
because gross sale of preceding year did
not exceed P1,500,000) 3%
2) Common carriers tax on domestic carriers
3%
3) Common carriers tax on international
carriers3%
4) Franchise tax
a) Gas & water facilities
2%
b) Broadcasting companies receipts <P10M
3%

5) Overseas communication tax 10%


6) Tax on banks and non-bank financial
intermediaries
performing
quasibanking functions
a)
b)
c)
d)

Maturities < 5 years 5%


Maturities > 5 years 1%
Royalties, rental, trading gains
Dividends 0%

7) Tax on other
intermediaries

non-bank

a) Maturities < 5 years 5%


b) Maturities > 5 years 1%
c) Other gross income items 5%

7%

financial

8) Tax on insurance companies (on premium


collected) 2%
9) Tax on agents of foreign insurance companies
4%
10)Amusement tax
a) Boxing exhibition
10%
b) Professional Basketball
15%
c) Cockpits, cabarets, night clubs
18%
d) Jai-alai & race tracks
30%
11)Tax on winnings
a) Horse races or race tracks
10%
b) Double, forcast, quinella or trifecta bets
4%

12)Stock transaction tax


a) secondary offering
of 1%
b) IPO
a) Up to 25% of shares issued
4%
b) Over 25% not over 33 1/3%
2%
c) Over 33 1/3%
1%

Generally, percentage taxes are based on


gross receipts (cash actually received)
Percentages taxes are payable by the
sellers of the services except overseas
communications tax, which is paid by the
user.
General rule: percentage taxes are paid
within 20 days after the end of each
taxable month, except
3% percentage tax - when tax was a final tax
through withholding tax system.
within 20 days after the end of the quarter:
Overseas communication tax
Amusement tax

Tax on winnings within 20 days from date.


Stock transaction tax

Excise Taxes
Manufacturing & importing of the
following 10 categories only:
1) distilled spirits
2) wines
3) fermented liquors
4) tobacco products
5) cigars
6) cigarettes
7) automobiles
8) manufactured fuel oils
9) mineral products
10) non-essential goods

Subject to excise tax


Manufacturers
Importers

Two kinds of excise tax


Specific tax
Ad valorem tax

Tax bases of excise tax

Proof of liter
- Liter
Number
- Selling price
Actual market value - Kilogram or metric ton
Wholesale price

Tax rate frequently changed as government need


for revenue arises.
When paid
Manufactured goods before removal from place of
production
Imported articles before release from customs

End of Midterm