TAXATION 2 | ATTY.

VASQUEZ -AE&DR-

TRANSFER AND BUSINESS TAXATION

Requisites of Valid Donation
1. Donor’s Tax
 A donation is an act of liberality whereby a
2. Estate Tax
person (donor) disposes gratuitously of a thing or
3. Value-Added Tax
right in favor of another (done) who accepts it.
4. Tax Remedies
(Art. 725, NCC)
5. Local Taxation/Real Property Taxation
6. Tariff and Custom Code The requisites of a valid donation are:
7. Judicial Remedies (R.A. No. 1125)
1. The donor must have CAPCITY.
DONOR’S TAX 2. There must be an INTENT TO DONATE.
Basic Principles 3. DELIVERY of the gift.
The donor’s tax is imposed on donation inter vivos or 4. The done must ACCEPT the donation.
those made between living persons to take effect during
the lifetime of the donor.
Transfers which may be constituted as donation
The donor’s tax supplements the estate tax by
preventing the avoidance of the latter through the device a. Sale/exchange/transfer of property for
of donating the property during the lifetime of the insufficient consideration
deceased. b. Condonation/remission of debt where the
debtor did not render service in favor of the
Nature creditor
Donor’s tax is not a property tax but an excise tax c. Gifts given out of gratitude where the
imposed on the privilege of the owner to give or donate. consideration is not money or anything of
economic value
Purpose d. Renunciation in favor of other heirs

o To supplement estate tax Transfer for less than adequate and full consideration
o To prevent avoidance of income tax through the Where property, other than real property under Sec
device of splitting income among numerous 24(d), is transferred for less than an adequate and full
donees, who are usually members of a family or consideration in money or money’s worth, then the
into many trusts, with the donor thereby amount by which the fair market value of the property
escaping the effect of the progressive rates of exceeded the value of the consideration shall be deemed
income tax. a gift, and shall be included in computing the amount of
gifts made during the calendar year.
Definition
A donor’s tax is levied, assessed, collected and paid upon Sec 29 or RA 10963:
the transfer by any person, resident or non-resident, of Provided, however: A sale, exchange, or other transfer of
the property by gift. property made in the ordinary course of business (i.e.,
bona fide transaction, at arm’s length, and free from
It shall apply whether the transfer is in trust or otherwise, donative intent) will be considered as made for an
whether the gift is direct or indirect, and whether the adequate and full consideration in money or money’s
property is real or personal or intangible. (Sec 98) worth.

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CLASSIFICATION OF DONOR 3. Shares, obligations or bonds issued by any

foreign corporation 85% of the business of
1. Citizens or Residents – all properties located which is located in the Philippines
not only within the Philippines but also in 4. Shares, obligations or bonds issued by any
foreign countries foreign corporation if such shares, obligations or
2. Nonresident Alien – all real and tangible bonds have acquired a business situs in the
properties within the Philippines, and Philippines
intangible personal property, unless there is 5. Shares or rights in any partnership, business or
reciprocity, in which case it is not taxable. industry established in the Philippines (Sec. 104).

GROUP OF DONORS and TAXABLE DONATIONS

RULE ON RECIPROCITY (Sec 104, NIRC)
DONOR: Within the Outside There is reciprocity if the foreign country of which the
Philippines the decedent was a citizen and resident at the time of his
Philippin death:
es
1. Did not impose a transfer tax of any character, in
A.) Citizen or Resident respect of intangible personal property; or
2. Allowed a similar exemption from transfer tax in
 Real property Taxable Taxable respect of intangible personal property.

 Tangible personal Taxable Taxable This rule applies to the transmission by gift of intangible
property personal property located or with a situs within the
Philippines of a non-resident alien.
 Intangible personal Taxable Taxable
property Valuation of gifts made in property

B.) Nonresident Alien  If the gift is made in property, the fair market
value (FMV) at that time will be considered the
 Real property Taxable None amount of gift.
 Real Property
 Tangible personal Taxable None
 Taxable base = FMV as determined by the
property Commissioner of BIR (Zonal Value) or FMV as
shown in the latest schedule of values of the
 Intangible personal Taxable* None
provincial and city assessor (Market Value
property
per Tax Declaration), whichever is higher.
 If there is no zonal value, the taxable base is
*Subject to the rule of
the FMV that appears in the latest tax
reciprocity
declaration.
Intangibles considered situated in the Philippines
Tax credit for donor’s taxes paid in a foreign country
1. Franchise to be exercised in the Philippines
 A situation may arise when the property given as
2. Obligations or bonds issued by any corporation
a gift is located in a foreign country and the
donor may be subject to donor’s tax twice on the

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same property; first, by the Philippine Sec. 28. Section 99 of the NIRC, as amended, is hereby
government and second, by the foreign further amended to read as follows:
government where the property is situated “Sec. 99. Rate of Tax Payable by Donor. –
“(A) In General. – The tax for each calendar year
 The remedy of claiming a tax credit is, therefore,
shall be six percent (6%) computed on the basis of the
aimed at minimizing the burdensome effect of
total gifts in excess of Two hundred fifty thousand pesos
double taxation by allowing the taxpayer to
(P250, 000) exempt gift made during the calendar year.
deduct his foreign tax from his Philippine tax,
subject to the limitations provided by law. “(B) Any contribution in cash or in kind to any
candidate, political party or coalition of parties for
Tax credit for donor’s taxes paid in a foreign country
campaign purposes shall be governed by the Election
 Who may claim tax credit? Code, as amended.”
 Tax credit for donor’s tax may be Persons Liable
claimed only by a resident citizen, non-
Every person, whether natural or juridical, resident or
resident citizen and resident alien.
non-resident, who transfers or causes to transfer
Deductions from Gross Gifts property by gift, whether in trust or otherwise, whether
the gift is direct or indirect and whether the property is
1. Encumbrance assumed by the done real or personal, tangible or intangible.
2. Diminution of gift provided by the donor
3. Donations to the national government and the
like Donor’s Tax Return
4. Donation to non-profit organizations B. When filed
5. P250, 000 deduction
 Filed within thirty (30) days after the date the gift is
Classification of Donors made or completed.
 The tax due thereon shall be paid at the same time
Deductible Items Citizen Nonresident that the return is filed.
or Alien
Resident TANG HO V. BOARD OF TAX APPEALS
Spouses are co-owners of conjugal property. A gift made
1. Dowries X (repealed Yes No by the spouses of conjugal property shall be deemed
by RA 10963) separate donations by the husband and the wife in
proportion to their respective interests. Hence, ½ shall
2. Encumbrance Yes Yes be considered donation of the husband and the other
half of the donation of his wife. Unless the wife joins in
3. Diminution Yes Yes
making the donation, it shall be deemed to have been
made by the husband alone.
4. Donation to Yes Yes
government
New Consolidated Revenue regulations on Estate Tax
5. Donation to NGO Yes Yes and Donor’s Tax
The computation of the donor’s tax is on a cumulative
basis over a period of one calendar year. Husband and
Tax Rate Applicable – 6%
wife are considered as separate and distinct taxpayer’s

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for purposes of the donor’s tax. However, if what was statute the equivalent of testamentary
donated is a conjugal or community property and only dispositions and is measured by the value of
the husband signed the deed of donation, there is only property at time of death.
one donor for donor’s tax purposes, without prejudice to
the right of the wife to question the validity of the
donation without her consent pursuant to the pertinent Nature and Object
provisions of the Civil Code of the Philippines and the Estate tax is laid neither on the property nor on the
Family Code of the Philippines. transferor or the transferee. It is an excise tax or privilege
tax.
METRO PACIFIC CORPORATION V. CIR Its object is to tax the shifting of economic benefits and
The rules clearly define fair market value of unlisted enjoyment of property from the dead to the living.
shares as its book value. Thus, a 30% (now 6%) donor’s
tax is due on the difference between the selling price and
Purpose
the book value/fair market value. The par value and
acquisition cost are irrelevant in determining the 1. Added income to the government
imposition of donor’s tax. Also, it was pointed out that 2. Benefit received theory  for services that the
the lack of any exception/exemption under Section 100 government renders in the distribution of the
(as amended) deprives petitioner of its basis in claiming estate
its defense. 3. Privilege theory or state partnership  not a
right but a privilege, acquired with the
Donor’s Tax protection of the estate
4. Ability to pay theory  transfer assets and
 Sections 98-104 of RA 8424 – The NIRC
makes the transferee able to pay/contribute ti
 Sec 28 RA 10963 – amending Sec. 99-NIRC
the governmental income
 Sec 29 RA 10963 – amending Sec. 100-NIRC
5. Redistribution of wealth theory  receipt of
 Sec 30 RA 10963 – amending Sec. 101-NIRC
inheritance is contributing factor to the
ESTATE TAXATION inequalities in wealth and income, mitigate the
evils of inheritance in its original form
Basic Principles
Estate tax laws in their essence upon the principle that Time and Transfer of Properties
death of an individual is the generating source from
which the taxing power takes its being, and that it is the  The law in force at the time of death of the
power to transmit or the transmission from the dead to decedent governs
the living on which the tax is more immediately based.  The accrual of the inheritance tax is distinct
(Lorenzo v. Posadas, 64 Phil 353) from the obligation to pay the same. The tax
therefore is upon transmission or the transfer or
devolution of property of a decedent, made
Estate Tax – Definition
effective by his death. It is in reality an excise or
 A flat rate of 6% imposed upon the privilege of privilege tax imposed on the right to succeed to,
the decedent to transmit property at death and receive, or take property by or under a will or the
is based on the entire net estate. intestacy law, or deed, grant, or gift to become
operative at or after death. The time when the
 Tax on the right to transmit property at death heirs legally succeed to the inheritance may
and on certain transfers which are made by the differ from the time when the heirs actually
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receive such inheritance. (Lorenzo v. Posadas,  Net Estate: value of the estate after all deductions
64 Phil 353) have been made against the gross estate; subject to
the 6% tax rate.
Taxable Transfers
Valuation of Gross Estate
1. Transfers Mortis Causa – Gratuitous transfers
GENERAL RULE: The properties comprising the gross
after death, either testate or intestate.
estate shall be valued based on FAIR MARKET VALUE
2. Transfers Inter Vivos – Generally attract donor’s
(FMV) as of the time of death.
tax. However, certain transfers inter vivos are
treated as testamentary dispositions and are Real property – FMV as determined by the
accordingly included in the computation of the Commissioner or FMV as shown in the schedule of values
gross estate in order to arrive at the proper fixed by the provincial and city assessors, whichever is
estate tax liability. HIGHER.
a. Transfers in contemplation of death
b. Transfer with retention or reservation of Shares of Stock:
certain rights
c. Revocable transfers  Listed shares – FMV is the arithmetic mean
d. Transfer of property arising under general between the highest and lowest quotation at a
power of appointment date of death, OR the date nearest the date of
e. Transfer for insufficient consideration death, if none is available on the date of death
itself.
Classification of Decedent  Unlisted shares – COMMON shares are valued
The decedent may be classified into: based on BOOK VALUE; while PREFERRED shares
are valued at PAR VALUE
1. Citizen  Right to usufruct, use or habitation, annuity –
2. Resident alien the probable life of the beneficiary in accordance
3. Non-resident alien with the latest basic standard mortality tables is
to be taken into account, to be approved by the
Residence
Secretary of Finance, upon recommendation of
It refers to the permanent home, the place to which the Insurance Commissioner.
whenever absent, for business or pleasure, one intends
(OLD) Tax Rates Applicable
to return, and depends on facts and circumstances, in the
sense that the y disclose intent. (Corre v. Tan Corre, 100
Phil 321) OVER BUT NOT TAX IS PLUS OF THE
OVER EXCESS
 It is, therefore, not necessarily the actual lace of OVER
residence. The term – residence and – domicile are
synonymous and are used interchangeably without 200, 000 Exempt
distinction. (Collector v. Lara, 102 Phil 813; Velilla v.
Posadas, 622 Phil 624). 200, 000 500, 000 0 5% 200, 000

Gross Estate vs. Net Estate 500, 000 2 million 15, 000 8% 500, 000

 Gross Estate: includes all properties and interests in 2 million 5 million 135, 000 11% 2 million
properties of the decedent at the time of his death.
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Whether RESIDENT (citizen or alien) or CITIZEN (resident

5 million 10 million 465, 000 15% 5 million or non-resident):

10 million And Over 1, 215, 20% 10 a. Real Property wherever situated

000 million b. Tangible Personal Property wherever situated
c. Intangible Personal Property wherever situated
Sec. 22. Section 84 of the NIRC, as amended, is hereby
further amended to read as follows:
Items included in Gross Estate
“Sec. 84. Rate of Estate Tax. – There shall be Section 85 – National Internal Revenue Code
levied, assessed, collected and paid upon the transfer of
the net estate as determined in accordance with Sections 1. Decedent’s interest
85 and 86 of every decedent, whether resident or non- 2. Transfer in contemplation of death
resident of the Philippines, a tax at the rate of six percent 3. Revocable transfer
(6%) based on the value of such net estate.” 4. Property passing under general power of
appointment
5. Proceeds of life insurance
6. Prior interests
Determination of Gross Estate and Net Estate
7. Transfers of insufficient consideration
8. Capital of the surviving spouse
Citizen or Non-
Resident resident What is the situs of Intangible Personal Property?
Alien
General Rule: Situs is at the domicile or residence of the
1. Real property in the Included Included owner.
Philippines
Included Exception:
2. Real property outside Not Included
the Philippines  When it is inconsistent with the express
Included provisions of the statue, or
3. Tangible personal Included  Justice does not demand that it should be, as
property in the Philippines where the property has in fact a situs elsewhere.
Included
4. Tangible personal Not Included Intangible Properties considered by law as situated in
outside the Philippines the Philippines
Included
5. Intangible personal Included  Franchise which must be exercised in the
property in the Philippines Philippines
Included  Obligations or bonds issued by any foreign
6. Intangible personal Not Included corporation 85% of the business of which
property outside the located in the Philippines
Philippines  Shares, obligations or bonds issued by any
*unless exempted on the basis of reciprocity foreign corporation if such shares, obligations or
bonds have acquired a business situs in the
Philippines
Composition of Gross Estate
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 Shares or rights in any partnership, business or Jose Ortiz owns 100 hectares of agricultural land
industry established in the Philippines (Sec. 104). planted to coconut trees. He died on May 30, 1994.
Prior to his death, the government, by operation of
Composition of Gross Estate law, acquired under the Comprehensive Agrarian
Reform Law all his agricultural lands except five (5)
Whether RESIDENT (citizen or alien) or CITIZEN hectares. Upon the death of Ortiz, his widow asked
you how she will consider the 100 hectares of
(resident or non-resident):
agricultural land in the preparation of the estate tax
return. What advice will you five her?
a. Real Property wherever situated
b. Tangible Personal Property wherever situated 2.) Transfers in Contemplation of Death
c. Intangible Personal Property wherever situated
 Term does not refer to the general expectation
As to NON-RESIDENT ALIEN:
of death which all entertain.
a. Real Property in the Philippines  The transfers referred to are those impelled by
b. Tangible Personal Property in the Philippines the thought of death (i.e., the motivating factor
c. Intangible Personal Property in the Philippines or controlling motive is the thought of death),
subject to rule on reciprocity  Regardless of whether the transferor was near
the possibility of death or not.
Items included in Gross Estate
Section 85-National Internal Revenue Code
BAR EXAM QUESTION:
1. -
2. Transfer in contemplation of death ESTATE TAX: Donation Mortis Causa (2001)
3. Revocable transfer
4. Property passing under general power of A, aged 90 years and suffering from incurable cancer, on
appointment August 1, 2001 wrote a will and, on the same day, made
5. Proceeds of life insurance a several inter-vivos gifts to his children. Ten days later,
6. Prior interests he died. In your opinion, are the Inter-vivos gifts
7. Transfers of insufficient consideration considered transfers in contemplation of death for
8. Capital of the surviving spouse
purposes of determining properties to be included in his
gross estate? Explain your answer. (5%)
1.) Decedent’s Interest
To the extent of the interest therein of the
decedent at the time of his death Transfer with retention or reservation of certain rights

-Interest in the property possessed (actual or Owner transfers his property during his life but still
constructive possession or enjoyment) retains the economic benefits:

-Interest in property owned 1. The possession or enjoyment of the property

2. The power to designate the persons who may
-Property or interest transferred during his exercise such rights
lifetime which partakes of the nature of
testamentary dispositions. Due to the restriction or encumbrance, transferee is
incapable of freely enjoying and disposing of the
BAR EXAM QUESTION:
property until the transferor’s death.
ESTATE TAX: Comprehensive Agrarian Reform Law
Transfer is regarded as to take effect in possession or
(1994)
enjoyment at the transferor’s death.
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3.) Revocable Transfers Amount receivable by the estate of the deceased,

Transfers where the transferor has reserved the executor or administrator under policies TAKEN
right to alter, amend or revoke such transfer, OUT BY THE DECEDENT:
regardless of whether or not the power is
actually exercised during his lifetime, and 1. upon his OWN LIFE (whether or not insured
whether or not the power should be exercised by retained the power of revocation).
him alone or in conjunction with someone else. 2. receivable by ANY BENEFICIARY (Except:
designation is irrevocable).

4.) Property Passing under General Power of

Appointment 6.) Prior Interests

Requisites: Apply to transfers, trusts, estates, interests, rights,

1. Existence of general power of appointment powers and relinquishment of powers and
2. Exercise of such power by the decedent by will relinquishment of powers whether made, created,
or deed in certain cases arising, existing, exercised or relinquished BEFORE or
3. Passing of property by virtue of such exercise AFTER effectivity of the code.

General Power of Appointment 7.) Transfers for Insufficient Consideration

Nature: DONEE has the power to appoint any person he  Transfers that are not bona fide sales of
chooses who shall possess or enjoy the property without property for an adequate and full
restriction. consideration in money or money’s
worth.
Tax Implication: Makes appointed property, for all legal
 If bona fide sale – no value shall be
intents, the property of the DONEE (included in his
included in the gross estate. (Case A)
estate)
 If not a bona fide sale – the excess of the
Effects: DONEE holds the appointed property with all the fair market value at the time of death
attributes of ownership, under the concept of owner. over the value of the consideration
received by the decedent shall form part
Special Power of Appointment of his gross estate. (Case B)
 If inter vivos transfer is proven
Nature: DONEE must appoint successor to the property fictitious/simulated – total value of the
only within a limited group or class or persons. property at the time of death included in
the gross estate. (Case C)
Tax Implication: NOT includible in the gross estate of the
donee when he dies. Transfers for Insufficient Consideration
The transfer of property must fall under any of the
Effects: DONEE holds the appointed property in trust, or following:
under the concept of trustee.
- Transfer in contemplation of death;
5.) Proceeds of Life Insurance - Revocable transfer;
- Property passing under a General Power
Appointment;

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Otherwise the tax imposed is donor’s tax. Two Hundred Thousand pesos (Php 200, 000) (Sec.
86 (A) (1) (a), NIRC).
EXAMPLE OF TRANSFERS FOR INSUFFICIENT
CONSIDERATION Actual funeral expenses are those which are actually
incurred in connection with the interment or burial
Case A Case B Case C of the deceased. The expenses must be duly
supported by receipts or invoices or other evidence
FMV, transfer 2,000 1,500 2,500 to show that they were actually incurred (Sec. 6 (A)
(1), 6th par., R.R. No. 2-2003).
FMV, death 2,500 2,000 2,000

Consideration 2,000 800 0

Received b. Judicial expenses REPPEALED BY RA 10963

Value 0 1,200 2,000 Judicial expenses of the testamentary or intestate

Included in
proceedings (Sec. 86 (A) (1) (b), NIRC).
the Gross
Estate Expenses allowed as deduction under this category are
those: (i) incurred in the inventory-taking of assets
8.) Capital of the Surviving Spouse
comprising the gross estate; (ii) administration; (iii)
payment of debts of the estate, as well as the distribution
In relation to Sec. 86 (C) of the NIRC, the share of
of the estate among the heirs. These deductible items
the surviving spouse in the conjugal partnership
are expenses incurred during the settlement of the
property is impliedly included in the gross estate
estate but not beyond the last day prescribed by law, or
in order to determine the limitations in funeral
the extension thereof, for the filing of the estate tax
or hospitalization expenses (Sec. 85 (H), NIRC).
return (Sec. 6 (A) (2), 1st par., R.R. No. 2-2003).

c. Claims against the estate

(Se. 86 (A) (1) (c), NIRC)

A claim is generally construed to mean debts or demands

of a pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been
reduced to simple money judgments (Sec. 6 (A) (3), R.R.
No. 2-2003).

Requisites for deductibility [PVN GF]

(RR 2-2003, Sec. 6-A3):

a. Actual Funeral Expenses REPPEALED BY RA 10963 1. Must be a PERSONAL OBLIGATION of the

deceased existing at the time of his death
In an amount equal to five percent (5%) of the gross (except unpaid funeral expenses and unpaid
estate, whichever is lower, but in no case to exceed medical expenses, which are classified into their
own separate categories)

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2. Liability must have been contracted in GOOD - They were unpaid as of the time of death
FAITH and for adequate and full consideration in
money or money’s worth NOTE: This deduction DOES NOT include income tax
3. The claim must be a debt or claim which is VALID upon income received after death, or property taxes not
IN LAW and ENFORCEABLE IN COURT accrued before his death , or the estate tax due from the
4. Indebtedness NOT CONDONED by the creditor transmission of his estate.
or the action to collect from the decedent must
not have prescribed.

f. Transfer for public use (Sec. 86 (A) (3), NIRC)

d. Claims against insolvent persons (Sec. 6 (A) (1) The requisites for deductibility are as follows:
(d), NIRC) (a) The disposition is in a last will and testament;
Requisites to be deductible: (b) Such shall take effect after death;
(c) In favor of the Government of the Philippines or
(a) The amount thereof has been initially included in any political subdivision thereof; and
the value of the decedent’s gross estate; and (d) Exclusively for public purpose.
(b) The incapacity of the debtors to pay their
obligation is proven.

g. Vanishing Dediuctions

e. Unpaid mortgage, casualty losses and taxes Deduction allowed on the property left behind by the
decedent which he had acquired previously by
Unpaid mortgages are deductible from gross estate, inheritance or donation.
provided:
Rationale:
- That the value of the decedent’s interest in the Previously, a transfer tax had already been imposed on
property encumbered by such mortgage or the property, either the estate tax (if property inherited)
indebtedness is included in the value of the gross or the donor’s tax (if property donated).
estate.
Now that the recipient of the inheritance or donation has
LOSSES are deductible from the gross estate if ALL of the died, the same property will again be subjected to a
following conditions are satisfied:
transfer tax, the estate tax.
1. Losses were INCURRED DURING the Thus, to minimize the effects of a double tax on the same
SETTLEMENT of the estate;
property within a short period of time, i.e. five (5) years,
2. Arose from FIRES, STORMS, SHIPWRECK or
OTHER CASUALTIES, or from ROBBERY, THEFT or the law allows a deduction to be claimed on the said
EMBEZZLEMENT; property.
3. Are NOT COMPENSATED BY INSURANCE or
otherwise;
4. Are not claimed as a deduction for income tax REQUISITES FOR DEDUCTIBILITY:
purposes in an income tax return;
5. Were incurred NOT LATER THAN THE LAST DAY 1. Death – the present decedent died within five
FOR PAYMENT OF THE ESTATE TAX (one year) years from the receipt of the property from a
prior decedent or donor.
TAXES – Deductible from the gross estate IF: 2. Identity of the property - The property with
- They have accrued as of the death of the decedent respect to which deduction is sought can be
identified as the one received from the prior
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decedent or the donor, or as the property 1) Value to be taken

acquired in exchange for the original property so
Car 70, 000 (FMV,lower)
received.
Land 800, 000
3. Inclusions of the property – The property must 870, 000
have formed part of the gross estate situated in
2) Initial basis
the Philippines of the prior decedent, or the
total amount of the gifts of the donor. Value taken 870, 000
4. Previous taxation of the property – the donor’s Less: Mortgage paid - 70, 000
tax on the gift or estate tax on the prior 800, 000
succession Mr. B’s succession) was finally
determined and paid. 3) Deduction from the initial basis
5. No vanishing deduction on the property was Initial basis ELIT plus
allowed to the estate of the prior decedent. Gross estate Transfer for Public Use

800, 000 600, 000

SAMPLE PROBLEM: 3, 200, 000
In January 2015, Mr. B inherited a car and a house from
Deduction: 150, 000
his father, Mr. A. On December 8, 2018, Mr. B died of
colon cancer.
4) Basis of Vanishing Deduction
 The FMV of the car was P120, 000 and the FMV of the
Initial basis 800, 000
house was P800, 000 at the time of Mr. A’s death.
Less: Deduction - 150, 000
 At the time Mr. B inherited the land, it was subject to 650, 000
a mortgage of P80, 000. Mr. B paid P70, 000 of the
mortgage during his lifetime.
5) Level of deduction
 The FMV of the properties at the time of Mr. B’s death
were P850, 000 for the land and P70, 000 for the car.
Within one year 100%
 Mr. B’s gross estate amounted to P3, 200, 000 while More than 1 year up to 2 years 80%
total deductions (excluding medical expenses, More than 2 years up to 3 years 60%
standard deductions, family home) amounted to P60, More than 3 years up to 4 years 40%
000. More than 4 years up to 5 years 20%

6) Vanishing Deduction

Problem:
Value taken 870, 000
Less: Mortgage paid - 70, 000
Fair Market Value
Initial basis 800, 000
2015 2018
Less: Proportionate deduction - 150, 000
Car 120, 000 70, 000
Basis of Vanishing Deduction 650, 000
Land 800, 000 850, 000
Multiply by % of deduction level 40%
920, 000 920, 000
Vanishing Deduction 260, 000

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Special Deductions and not gainfully employed or where such children,

brothers or sisters, regardless of age are incapable of
1. Family Home
self-support because of mental or physical defect, or any
2. Standard Deduction
of the beneficiaries mentioned in Article 154 of the
3. Amounts received by the heirs under R.A. 4917
Family Code who is living in the family home and
dependent upon the head of the family for legal support.

1) Family Home

It is the dwelling house, including the land on which it is 2) Standard Deduction

situated, where the husband and wife, or a head of the
Citizen and Resident Alien: An amount equivalent to Five
family, and members of their family reside, as certified to
Million Pesos (P5, 000, 000) shall be deducted from the
by the Barangay Captain of the locality.
gross estate without need of substantiation.
 It is deemed constituted on the house and lot from
Non-Resident Alien: An amount equivalent to Five
the time it is actually occupied as the family residence
Hundred Thousand Pesos (P 500, 000) shall be deducted
and considered as such for as long as any of its
from the gross estate without need of substantiation.
beneficiaries actually resides therein. (Arts. 153 and
153, Family Code) Temporary absence from the
constituted family home due to travel or studies or
Illustration:
work abroad, etc. does not interrupt actual
occupancy. (1) Decedent is unmarried, family home more than P10,
000, 000:

Real & Personal properties P 14, 000, 000

Requisites for Deductibility – Family Home
Family Home 30, 000, 000
1) The family home must be the actual residential Gross Estate P44, 000, 000
home of the decedent and his family at the time
of his death, as certified by the barangay captain Less: Deductions
of the locality. Ordinary Deductions
2) The total value of the family home must be Unpaid real estate tax (2, 000, 000)
included as part of the gross estate of the
decedent. Special Deductions
3) Allowable deduction must be in an amount Family Home (10, 000, 000)
equivalent to the current Fair Market Value of Standard Deduction (5, 000, 000)
the family home. If the FMV exceeds P10.0 Total Deductions (17, 000, 000)
million, the excess shall be subjected to estate
tax. NET TAXABLE ESTATE P27, 000, 000

Unmarried Head of a Family – An unmarried or legally

Although the family home is valued at P30 million, the
separated man or woman with one or both parents, or
maximum allowable deduction for the family home is
with one or more brothers or sisters, or with one or more
P10 million only.
legitimate, recognized natural or legally adopted children
living with and dependent upon him or her for their chief
support, where such brothers or sisters or children are
not more than twenty one (21) years of age, unmarried

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 TAXATION 2 | ATTY. VASQUEZ -AE&DR-

(2) Decedent is married, the family home is conjugal Real and personal properties P14,000,000

property, more than P10, 000, 000: Family Home 9,000,000

Gross Estate P23,000,000
Exclusive Conjugal Total
Conjugal Properties:
Family Home 30,000,000 30,000,000 Less: Deductions
Real and personal properties 14,000,000 14,000,000 Ordinary Deductions 2,000,000
Exclusive Properties: 5,000,000 5,000,000
Special Deductions 14,000,000
Gross Estate 5,000,000 14,000,000 P49,000,000
Family Home 9,000,000
Less:
Standard Deduction 5,000,000
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 42,000,000 Total Deductions (16,000,000)
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000) NET TAXABLE ESTATE P7,000,000
Total Deductions (17,000,000)
Net Estate 32,000,000
Less: ½ Share of Surviving Spouse (21,000,000) (5) Decedent is married, the family home is conjugal
Conjugal Property P44,000,000
Conjugal Deductions (2,000,000)
property and is below P10,000,000:
Net Conjugal Estate P42,000,000
Exclusive Conjugal Total
(P 42,000,000/2)
Conjugal Properties:
NET TAXABLE ESTATE P11,000, 000
Family Home 9,000,000 9,000,000
Real and personal properties 14,000,000 14,000,000
Exclusive Properties: 5,000,000 5,000,000
Gross Estate 5,000,000 23,000,000 P28,000,000
(3) Decedent is married, the family home exclusive
Less:
property, more than P10,000,000: Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Exclusive Conjugal Total
Net Conjugal Estate 21,000,000
Conjugal Properties:
Special Deductions
Real and personal properties 14,000,000 14,000,000
Family Home (4,500,000)
Exclusive Properties:
Standard Deduction (5,000,000)
Family Home 30,000,000 30,000,000
Total Deductions (11,500,000)
Gross Estate 30,000,000 14,000,000 P44,000,000
Net Estate 16,500,000
Less: ½ Share of Surviving Spouse (10,500,000)
Less:
Conjugal Property P23,000,000
Ordinary Deductions
Conjugal Deductions (2,000,000)
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate P21,000,000
Net Conjugal Estate 12,000,000
(P 21,000,000/2)
Special Deductions
NET TAXABLE ESTATE P6,000, 000
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
Net Estate 27,000,000
Less: ½ Share of Surviving Spouse (6,000,000)
Conjugal Property P14,000,000
Conjugal Deductions (2,000,000)
Net Conjugal Estate P12,000,000
(P 12,000,000/2)
NET TAXABLE ESTATE P21,000, 000

(4) Decedent is an unmarried, the family home is blow

P10,000,000:

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 TAXATION 2 | ATTY. VASQUEZ -AE&DR-

Problem: After being married for 10 years, Conjugal Partnership Conjugal Exclusive Total
Kino Lam died as a resident citizen of the of Gains
Philippines. He has the following properties 1. Residential 3,000,000 3,000,000
and deductions. house and
lot
Properties: 2. Jewelry 500,000 500,000
1. Residential house and lot (family 3,000,000.00 3. Vacation 5,000,000 5,000,000
home) house
2. Jewelry acquired by the decedent 500,000.00 4. Investment 600,000 600,000
before marriage in bonds
3. Vacation house in Tagaytay 5,000,000.00 5. Marketable 400,000 400,000
transferred to daughter in securities
contemplation of death (acquired 6. Farm 2,800,000 2,800,000
during marriage) 7. Income from 800,000 800,000
4. Investment in bonds (foreign 600,000.00 farm
corporation) 8. Property of 3,000,000 3,000,000
5. Marketable securities (domestic 400,000.00 wife brought
corporation) to marriage
6. Farm, inherited from his father 2,800,000.00 9. Claims 800,000 800,000
three years ago (value when against
inherited by the decedent, insolvent
P2,500,000) person
7. Income from farm 800,000.00 Gross estate 13,600,000 3,300,000 16,900,000
8. Commercial building inherited by 10,000,000.00
the wife during marriage
9. Rent income from commercial 3,000,000.00
building 3) Amounts received by heirs under R.A. 4917 (Section
10. Property brought to the marriage by 6,000,000.00
86-A7)
his wife.

Any amount received by the heirs from the

Absolute Community Common Exclusive Total
of Properties
decedent’s employer as a consequence of the death
1. Residential 3,000,000 3,000,000 of the decedent-employee in accordance with R.A.
house and No. 4917 (this law provides that retirement benefits
lot
2. Jewelry 500,000 500,000 of private employees shall not be subject to
3. Vacation 5,000,000 5,000,000 attachment, levy execution or any tax), PROVIDED
house
that such amount is included in the gross estate of the
4. Investment 600,000 600,000
in bonds decedent.
5. Marketable 400,000 400,000
securities Tax credit for estate tax paid in a foreign country
6. Farm 2,800,000 2,800,000
7. Income from 800,000 800,000 Tax Credit
farm
8. Property of 6,000,000 6,000,000 It is a remedy against international double taxation. To
wife brought minimize the onerous effect of taxing the same property
to marriage
9. Claims 8000,000 8000,000 twice, tax credit against Philippine estate tax is allowed
against for estate taxes paid to foreign countries.
insolvent
person Who may avail of tax credit?
Gross estate 16,300,000 3,600,000 19,900,000
Only the estate of a decedent who was a citizen or a
resident of the Philippines at the time of his death can
claim tax credit for any state paid to a foreign country.

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 TAXATION 2 | ATTY. VASQUEZ -AE&DR-

Solution-Limitation A

First Get the tax credit per country

Net estate in a country

Phil. Estate = Tax
Net estate worldwide X Tax Credit

Second The result in step 1 is compared to the tax actually paid for each foreign country.

Third The lower of the two amounts for each foreign country will be added to get the total tax credit
allowed under “Limitation A.”

Hence: Country A Amount allowed

(300/1,500 x 15,000) = 3,000 3,000.00
Actual paid to Country A = 5,000

Country B
(150/1,500 x 15,000) = 1,500
Actually paid to Country A = 1,400 1,400.00

Under “Limitation A.” 4,400.00

Solution-Limitation B

Net estate in all foreign countries

Net estate worldwide X Phil. Estate = Tax
Tax Credit

So: Apply the formula and compare to the tax actually paid in total to foreign countries. The lower
amount will be added to get the total tax credit allowed under Limitation B.

Hence 450/1,500 = 4,500 Amount allowed

Total foreign taxes paid = 6,400 4,500.00

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 TAXATION 2 | ATTY. VASQUEZ -AE&DR-

Exemption from certain acquisitions and transmissions death, or in the case of a non-resident , not
a citizen of the Philippines, of that part of his
Exempt Transfers (MTTB) (Sec.87)
gross estate situated in the Philippines;
a. Merger of the usufruct in the owner of
the naked title 1.2 Itemized deductions from gross estate
b. Transmission or delivery of the allowed in Section 86; and
inheritance or legacy by the fiduciary
heirs or legatee to the fideicommissary 1.3 The amount of tax due whether paid or still
c. Transmission from the first heirs, due and outstanding.
legatees or donees in favor of another
beneficiary in accordance with the
Estate tax return
desire of the testator.
d. All bequests, devises, legacies or Contents of the return (continuation) *guys, I just followed atty’s
slides
transfers to social welfare, cultural and
charitable institutions, no part of the d. For estate tax returns showing a gross value
income of which inures to the benefit of exceeding Five Million Pesos (P5,000,000) –
any individual, provided that not more there must be a statement duly certified to by
than 30% of the said bequests, devises, a Certified Public Accountant containing the
legacies or transfers shall be used for following:
administrative purposes.  Itemized assets of the decedent with
their corresponding gross value at the
Time and Place of Filing Estate Tax Return
time of his death, or in the case of a
1. Estate Tax Returns. – In all cases of transfers nonresident, not a citizen of the
subject to the tax imposed herein, or regardless Philippines, of that part of his gross
of the gross value of the estate, where the said estate situated in the Philippines;
estate consist of registered or registrable  Itemized deductions from gross estate
property such as real property, motor vehicle, allowed; and
shares of stock or other similar property for  The amount of tax due whether paid or
which a Certificate Authorizing Registration from still due and outstanding
the Bureau of Internal Revenue is required as a
When filed?
condition precedent for the transfer of
ownership thereof in the name of the transferee, Previous Rule: Must be filed within six (6) months from
the executor, or the administrator, or any of the the decedent’s death.
legal heirs, as the case may be, shall file a return
PREVAILING RULE: Must be filed within One (1) year
under oath.
from the decedent’s death.

Estate tax returns showing a gross value Exception: The Commissioner, or Revenue Officer
exceeding Five million pesos (P5, 000,000) shall authorized by the CIR, shall have authority to grant, in
be supported with a statement duly certified to meritorious cases, a reasonable extension not
by a Certified Public Accountant containing the exceeding thirty (30) days for filing the return.
following:
Extension of Time to Pay Estate tax

1.1 Itemized assets of the decedent with their Extension of time to pay estate tax. - When the
corresponding gross value at the time of his Commissioner finds that the payment of the estate tax or
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 TAXATION 2 | ATTY. VASQUEZ -AE&DR-

of any part thereof would impose undue hardship upon valuation principle and particularly provides that post-
the estate or any of the heirs, he may extend the time for death developments must be considered in determining
payment of such tax or any part thereof not to exceed the net value of the estate. It bears emphasis that tax
five (5) years in case the estate is settled through the burdens are not to be imposed, nor presumed to be
courts, or two (2) years in case the estate is settled imposed, beyond what the statute expressly and clearly
extrajudicially. In such case, the amount in respect of imports, tax statues being construed strictissimi juris
which the extension is granted, and the running of the against the government.
statute of limitations for deficiency assessment shall be
Therefore, the claims existing at the time of death are
suspended for the period of any such extension.
significant to, and should be made the basis of, the
Where the request for extension is by reason of determination of allowable deductions.
negligence, intentional disregard of rules and
FERDINAND R. MARCOS II vs. COURT OF APPELAS, THE
regulations, or fraud on the part of the taxpayer, no
COMMISSIONER OF THE BUREAU OF INTERNAL
extension will be granted by the Commissioner.
REVENUE and HERMINIA D. DE GUZMAN (G.R. No.
2. Cash installment 120880 June 5, 1997)
 The cash installment shall be made
From the foregoing, it is discernable that the approval
within two (2) years from the date of
of the court, sitting in probate, or as a settlement
filing of the estate tax return;
tribunal over the deceased is not a mandatory
 The estate tax return shall be filed within
requirement in the collection of estate taxes. It cannot
one year from the date of decedent’s
therefore be argued that the Tax Bureau erred in
death;
proceeding with the levying and sale of the properties
 The frequency (i.e., monthly, quarterly,
allegedly owned by the late President, on the ground that
semi-annually or annually), deadline and
it was required to seek first the probate court’s sanction.
amount of each installment shall be
There is nothing in the Tax code, and in the pertinent
indicated in the estate tax return,
remedial laws that implies the necessity of the probate
subject to the prior approval by the BIR;
or estate settlement court’s approval of the state’s claim
 In case of lapse of two years without the
for estate taxes, before the same can be enforced and
payment of the entire tax due, the
collected.
remaining balance thereof shall be due
and demandable subject to the COMMISSIONER OF INTERNAL REVENUE vs. MANUEL B.
applicable penalties and interest PINEDA, as one of the heirs of the deceased ATANASIO
reckoned from the prescribed deadline PINEDA (G.R. No. L-22734, September 15, 1967)
for filing the return and payment of the
Thus, the Government has two ways of collecting the
estate tax;*
taxes in question. One, by going after all the heirs and
JURISPRUDENCE: collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial
remedy, pursuant to the lien created by Section 315 of
Administrator of the Estate of the deceased JOSE P.
the Tax Code upon all property and rights to property
FERNANDEZ, vs. COURT OF TAX APPEALS and
belong to the taxpayer for unpaid income tax, is by
COMMISSIONER OF INTERNAL REVENUE (G.R. No.
subjecting said property of the estate which is in the
140944, April 31, 2008)
hands of an heir or transferee to the payment of the tax
There is no law, nor do we discern any legislative intent due the estate.
in our tax laws, which disregards the date-of-death

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 TAXATION 2 | ATTY. VASQUEZ -AE&DR-

(c) Life insurance policies-issued by the GSIS to

government officials or employees.
3. Death benefits received from the SSS, accruing
by reason of death (RA 1161, as amended).
4. Amounts received from the Philippine and the
U.S. Governments from the damages suffered
during the last war (RA 227).
5. Benefits received by beneficiaries residing in the
Philippines under laws administered by the U.S.
Veterans Administration (RA 360).
6. Properties held in Trust by the decedent.
7.
8. Transfers by way of bona fide Sales.
9. Separate or exclusive property of the surviving
spouse is not deemed part of the gross estate of
the decedent spouse (Sec. 85, NIRC).

EXCLUSIONS FROM GROSS ESTATE

1. CAPITAL of surviving spouse

2. PROCEEDS of:
(a) Life Insurance taken out by the decedent
upon his own life when the BENEFICIARY is
OTHER THAN the estate, executor or
administrator and the DESIGNATION is
IRREVOCABLE.
(b) Group life insurance policy taken out by a
company for its employees.

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