MODES OF ACQUIRING OWNERSHIP

1.) Occupation
2.) Intellectual creation
3.) Law
4.) Donation
5.) Tradition
6.) Contract
7.) Prescription
8.) Succession

TRANSFER AND BUSINESS TAXES

TRANSFER TAXES
Imposed upon gratuitous disposition of private properties or rights.

Estate Tax Donor’s Tax

“Donation mortis causa” “Donation inter vivos”
Succession = mode of acquisition by Donation = is an act of liberality
virtue of which the property, rights and whereby a person disposes gratuitously
obligations to the extent of the value of of a thing or right in favor of another,
the inheritance of a person are who accepts it
transmitted through his death to
another or others either by his will or by
operation of law.
Classified as excise tax or privilege It is a direct tax because it is imposed
tax but not a property tax. on the donor and determined with
reference to all the donor’s gifts. It is an
excise tax not a property tax.

A. ESTATE TAX

KINDS OF SUCCESSION
1.)Testamentary or testate succession
A type of succession that results from the designation of an heir, made in a will
executed in a form prescribed by law.
2.)Legal or intestate succession
A type of succession which is effected by operation of law since the decedent did
not execute a will or the last will and testament executed by him is VOID.
3.)Mixed succession
A type of succession which is effected partly by will and partly by operation of law.

ELEMENTS OF SUCCESSION
1.) Decedent
Persons whose properties are transmitted through succession, whether or not he left
a will.
- Testator = if the decedent left a will.
- Executor = a person designated in the last will and testament to carry out the
provisions
of the decedent’s will.
- Administrator = a person appointed by the court and performs the same duty, in lieu
of an executor.

2.) Inheritance
 Includes all the properties, rights and obligations of a person which are not
extinguished by death and all which have accrued thereto since the opening of

PRIMARY COMPULSORY SECONDARY COMPULSORY

a. legitimate children and descendants d. Legitimate parents and legitimate
b. Surviving spouse ascendants
c. illegitimate children and descendants e. Illegitimate parents

succession. Personal rights are not transmissible.

3.) Successors
a.) Compulsory Heirs = those who succeed by force of law to some portion of the
inheritance in an amount predetermined by law known as the legitime.
o Primary – who have precedence over and exclude other compulsory heirs.
o Secondary – who succeed only in the absence of the primary compulsory heirs.

TABLE OF COMPULSORY HEIRS

Brothers and sisters are neither compulsory nor strangers but they may be voluntary heirs.

ORDER OF INTESTATE SUCCESSION

1. Legitimate children and descendants
2. Legitimate parents and legitimate ascendants
3. Illegitimate children and descendants
4. Surviving spouse
5. Brothers and sisters, nephews and nieces
6. Other collateral relatives within the 5th degree
7. State
Consanguinity - is the relation of persons descending from the same stock or common
ancestors.
- Lineal consanguinity = which may be descending or ascending, is that which subsists
between persons of whom
one is descended in a direct line from the other.
- Collateral consanguinity = is that which subsists between persons who have the same
ancestors but who not
descend one from the other.

KINDS OF WILLS
1. Notarial/Ordinary/Attested Will
o It must be in writing and executed in a language known to the testator
o It must be subscribed at the end by the testator or by someone in his presence and
by his express direction.
o It must be attested and subscribed by 3 or more credible witnesses in the presence
of the testator and one another.
2. Holographic Will
Written will which must be entirely written, dated and signed by the hand of the
testator himself. It need not to be witnessed.

GROSS ESTATE
COMPOSITION OF GROSS ESTATE
DECEDENT/TAXPAYERS GROSS ESTATE
 Resident citizen 1. Real property wherever situated
 Nonresident citizen 2. Tangible personal property wherever
 Resident alien situated
3. Intangible personal property wherever
situated
 Nonresident alien 1. Real and tangible personal property
 situated in the Philippines.
2. If there is reciprocity, exclude all
Intangible personal property.
3. If without reciprocity, include
intangible personal property with situs
in the Philippines.

INTANGIBLE These transfers do not PERSONAL PROPERTIES WITH SITUS IN

THE PHILIPPINES: actually convey full
1. Franchise must ownership over the be exercised in the Philippines.
2. Shares, property transferred. Hence, obligations or bonds issued by any
corporation still part of the gross estate organized or constituted in the
Philippines in of the transferor. accordance with its laws or foreign
corporation which 85% is located in the
Philippines.

INCLUSIONS IN THE GROSS ESTATE

1. Decedent’s Interest
2. Transfer in the contemplation of death
3. Transfer with retention or reservation of certain rights.
4. Revocable transfers
5. Transfers under a general power of appointment.
6. Transfer for insufficient consideration.
7. Claims against insolvent persons.
8. Proceeds of life insurance.
 It must be an insurance on the life of the decedent
 The beneficiary must be either of the following:
 His estate
 His executor or administrator
 3rd persons provided that the designation is irrevocable.
PROCEEDS OF LIFE INSURANCE
BENEFICIARY DESIGNATION GROSS ESTATE
Estate Revocable or Irrevocable Included
Executor Revocable or Irrevocable Included
Administrator Revocable or Irrevocable Included
3rd party (i.e. wife) Revocable Included
rd
3 party Irrevocable Excluded

EXCLUSIONS
1. Exclusive property of the surviving spouse
2. Property outside the Philippines of a nonresident alien decedent.
3. Intangible personal property in the Philippines of a nonresident alien under the Reciprocity
Law.
EXEMPTIONS (the ff. shall not be taxed.)
1. The merger of usufruct in the owner of the naked title.
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir(1 st heir) or
legatee to the fideicommisary(2nd heir).
3. The transmission from the first heir, legatee or done in favor of another beneficiary, in
accordance with the desire of the predecessor.
4. 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 30% of the said bequests, devises, legacies or
transfers shall be used by such institutions for administration purposes.
VALUATION OF GROSS ESTATE
In general: FMV @ the time of death
Real Property: HIGHER between FMV:
 Determined by the Commissioner
 as shown in the schedule of values fixed by the provincial and city
assessors
Personal Property: FMV @ the time of death
Shares of stock: Unlisted common shares: BV per share of the issuing corporation.
Unlisted preference shares: Par value per share
Listed shares: arithmetic mean between the highest and
lowest quotation at a
date nearest the date of death, if none is available
on the date
of death itself.
Right to usufruct: In accordance with the latest Basic Standard Mortality Table
DEDUCTIONS FROM THE GROSS ESTATE
1. Expenses, Loses, Indebtedness, and Taxes:
a. Funeral Expense: whichever is lower but not exceeding P200,000:
i. actual funeral expense(paid or unpaid) or
ii. 5% of the gross estate
b. Judicial Expense
c. Claims against the estate
d. Claims of the deceased against insolvent persons
e. Unpaid mortgages or indebtedness on property
2. Vanishing Deductions or deduction for “property previously taxed”
o To minimize the effect of or as a remedy against double taxation.
3. Transfers for Public Use
4. Family Home
o Equivalent to the FMV of the decedent’s family home not exceeding P1,000,000.
5. Standard Deduction
o Equivalent to P1,000,000.
6. Medical Expenses
o Incurred within 1 year prior to his death and not exceeding P500,000
7. Amount received by Heirs Under Republic Act No. 4917.

B. DONOR’S TAX
REQUISITES Donation is perfected at the
1. Capacity of the donor to make donation. time the donor knows that
2. Donative intent or intent to make a gift on the part of the the donee accepted the gift
donor. made by the donor.
3. Delivery
4. Acceptance

FORMALITIES
Donation of movable property can be made orally or in
writing.
In writing – if the value of the personal property exceeds P 5,000. Otherwise, the
donation shall be VOID.
Donation of immovable property must be made in a public document. Otherwise, the
donation shall be
VOID.

CLASSIFICATION OF DONATION
As to motive or purpose:
1. Simple. The cause is pure liberality.
2. Renumeratory. Donations made due to past services rendered or future services or
charges and burdens.
3. Modal. Consideration is less than the value of the thing donated.
As to time of taking effect:
1. Inter vivos
2. Mortis causa

INCLUSION IN THE GROSS GIFTS

1. Transfer for insufficient consideration (other than real property subjected to the final
capital gains tax)
o The amount by which the FMV of the property at the time of the execution of the
Contract to Sell exceeded the consideration or selling price.
 o If the transfer is made in the ordinary course of business and free from donative
intent, it shall not be subject to donor’s tax.
2. Renunciation of inheritance
o Renunciation of the surviving spouse of his/her share in the conjugal or absolute
community after the dissolution of the marriage in favor of the heirs of the
deceased spouse or any other persons.
3. Condonation of Indebtedness.

VOID DONATIONS
1. Those made between persons who were guilty of adultery or concubinage at the time of
the donation.
2. Those made between persons found guilty of the same criminal offense, in consideration
thereof.
3. Those made to a public officer or his wife, descendants and ascendants, by reason of his
office.
EXEMPT GIFTS
1. Dowries
o made on account of marriage
o before celebration or within one year thereafter
o by parents to each of their legitime, recognized natural or adopted children
o to the extent of the first P 10,000
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation: Provided, however , that not more than 30% of said gifts shall be used by
such done for administration purposes.
3. Encumbrances on the property donated if assumed by the done in the deed of donation.
4. Donations made to entities as exempted under special laws.

TAX PAYABLE BY DONOR IF DONEE IS A STRANGER

- Subject to 30% of the net gifts.
- Stranger is a person who is not:
o Brother or sister (whether by whole or half-blood), spouse, ancestors and lineal
descedants.
o Relative by consanguinity in the collateral line within the 4 th degree of relationship.

ADMINISTRATIVE PROVISIONS
ESTATE TAX DONOR’S TAX
Accrual Period On the date of death of the At the time the gift or
decedent donation is made or
perfected.
Governing Law Statute in force at the time of Statute in force at the time of
death of decedent. the perfection/completion of
donation.
BIR Requirements Notice of death No notice required
- gross estate that
exceeds P20,000
- Within 2 mos. after
death Net gift exempt form tax:
Net estate exempt from tax: P100,000 and below
P200,000 and below - Tax rates: 0% - 15%;
- Tax rates: 0% - 20% 30%
Filing and payment Within 6 mos. from death Within 30 days from donation
Extension to file: not more No extension to file
than 30 days(meritorious
cases) Pay as you file
Pay as you file No extension to pay
Extension to pay:
- 2 years (extrajudicial)
- 5 years (Judicial)
BUSINESS TAXES
- Are those imposed upon onerous transfers such as sale, barter, exchange and
importation.
- Where the aggregate gross sale or receipts do not exceed P 100,000 during any 12
month period shall not be subject to business taxes.

A. VALUE ADDED TAX

PERSONS LIABLE: a person in the course of trade or business, sells, barters, exchanges,
leases goods or properties,
renders services, and any person who imports goods.
TAX RATE: 12%
BASE OF TAX:
- Gross Selling Price = amount of money or its equivalent which the purchaser pays or is
obligated to pay to the
seller in consideration of the sale, etc.
= Excise tax shall form part of the gross selling price.
- Sales by VAT-registered subject to zero percent (0%) rate:
a. Export sales
b. Sale of gold to Bangko Sentral ng Pilipinas.
c. Foreign currency denominated sale
d. Sale to persons or entities whose exemption under special laws or international
agreements.
e. Sale of goods, equipment and fuel to persons engaged in international shipping or
air transport.
TRANSACTIONS DEEMED SALE
1) Transfer, use or consumption not in the course of business but originally intended for sale,
etc.
2) Distribution to: - shareholders/investors as share in profits of VAT-registered person.
- creditors in payment of debt.
3) Consigned goods if sales is not made within 60 days after consignment.
4) Retirement from or cessation of business with respect to inventories of taxable goods.

VALUE ADDED TAX ON IMPORTATION OF GOODS

 TAX BASE: total value used by Bureau of Customs (tariff, custom duties, excise tax,
payments by
importer)
 IF IMPORTER IS TAX EXEMPT: the purchaser shall be considered as importers.
VALUE ADDED TAX ON SALE OR SERVICES AND USE OR LEASE OF PROPERTIES
 TAX BASE: gross receipts (contract price, compensation, service fee, rental or royalty,
deposits and advanced
payments) derived from sale or exchange of services.

EXEMPT TRANXACTIONS
 Sale or importation of agricultural and marine, livestock and poultry in their original state.
o EXEMPT: sale of barbecue, sale of salted eggs
o VATABLE: sale of bonsai, flower, wood, fighting cocks, or pets
 Sale or importation of fertilizers, seeds, seedlings, fingerlings, fish, prawn, livestock and
poultry feeds.
 Importation of personal and household effects belongings to
o residents of the Phil. returning from abroad
o nonresident citizens coming to resettle in the Phil.
 Importation of instruments, wearing apparel, domestic animals and personal household
effects.
 Services subject to OPT.
  Services by agricultural contract growers and milling for others of palay into rice, corn into
grits, sugar cane into raw sugar.
 Medical, dental, hospital and veterinary services except those rendered by professionals.
o VATABLE: Medicines purchased by patient from the hospital’s pharmacy or outside
the hospital or
Doctor’s fee
o EXEMPT: only if those vatable are included in the hospital bills.
 Educational services
 Services of employer – employee
 Services of multinational corporations who act as communications and coordinating
centers.
 Those exempt under special laws.
 Sales by agricultural cooperatives.
 Gross receipts from lending activities by credit or multi-purpose cooperatives.
 Non-agricultural, non-electric and non-credit sales of coop if contribution of members does
exceed p 15,000.
 Export sales by a non-VAT registered persons
 Sale of real properties
o Not held for sale or held for lease
o Value @ P 1,919,500 and below
o House and lot and other residential dwellings at P 3,199,200 and below.
o Low cost housing - ceiling price do not exceed 2M
o Socialized housing - ceiling price do not exceed P 300,000.
 Leases of a residential unit with monthly rental not exceeding P 12,800 during the year or
not exceeding P1,919,500 annually.
 Sale or importation, printing/publication of books and any newspaper or magazine
 Sale or importation of passenger or cargo vessels and aircraft (limited to those of 150 tons
and above)
 Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations.
 Importation of life-saving equipment.
 Importation of capital equipment, machinery and spare parts etc.
 Services of banks, non-bank financial intermediaries performing quasi banking functions
and other non-bank financial intermediaries.
 Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of P 1,500,000.
 Vat on purchase of SPECIFIED goods and services by a senior citizen.

EXCESS OF OUTPUT OR INPUT TAX

- Excess output= tax payment
- Excess input= carried over
o If 0% - refund or credited against other internal revenue taxes
DETERMINATION OF CREDITABLE INPUT TAX
- (input tax carried over + input tax current) - (excess input tax on 0%)
TRANSITIONAL, PRESUMPTIVE, STANDARD INPUT TAX CREDITS
- TRANSITIONAL INPUT TAX CREDITS (2%) = for VAT-registered or who elects to be a VAT-
registered
= Allowed input tax creditable against output tax
= Beg. Inv. x 2% or VAT PAID on such goods
(WHICHEVER IS HIGHER)
- PRESUMPTIVE INPUT TAX CREDITS (4%) = for persons/firms engaged in the processing of
sardines, mackerel
 and milk, and manufacturing refined sugar and
cooking oil.
= Allowed input tax creditable against output tax
= purchase of agricultural products x 4%
- STANDARD INPUT TAX CREDITS (5%) = for government or any political subdivision will
withheld 5% in 12%
VAT.

REFUNDS OR TAX CREDITS OF INPUT TAX

- ZERO-RATED or EFFECTIVELY ZERO-RATED SALES
o Application for refund or tax credit= within 2 years after the close of taxable
quarter when the sales
were made.
- CAPITAL GOODS (import/locally purchased)= within 2 years after the close of taxable
quarter when the
sales were made.
= to the extent that such input taxes have not been
applied against
output taxes.
- IF THERE’S A REFUND WHEN THERE’S A = within 2 years from the date of
cancellation for any unused input
CANCELLATION tax.
- PERIOD WITHIN W/C REUND SHALL BE MADE = within 120 days from submission date
of complete documents.
COMPLIANCE REQUIREMENTS
 VAT registered person must issue an invoice or receipt for every sale.
 Addition to accounting records required, VAT-registered must maintain a subsidiary sales
journal and subsidiary purchase journal.
RETURN AND PAYMENT OF VALUE ADDED TAX
 FILING - within 25 days of closing of each taxable quarter (QUARTERLY VAT RETURN)
- Not later than 20 th day following the end of first 2 months in a quarter
(MONTHLY VAT RETURN)
 PAYMENT - monthly basis
o If registration is cancelled - within 25 days after cancellation the tax due must be
filed.
PLACE OF FILING THE RETURN AND PAYMENT OF THE TAX
 Bank duly accredited by the Commissioner located in RDO where taxpayer is required to
register
 If payment or the bank is not available –
o RDO
o Collection Agent
o Duly authorized treasurer of the municipality
POWER OF THE COMMISSIONER TO SUSPEND THE BUSINESS OPERATIONS OF A
TAXPAYER
Violations of VAT-registered:
- Failure to issue receipts or invoices
- Failure to file VAT return as required
- Understatement of taxable sales or receipts by 30% or more
- Failure to register as required = not less than 5 days of temporary closure
MANDATORY REGISTRATION
 Actual gross sales or receipts EXCEED P 1,919,500 for 12 months.
 Radio or television broadcasting EXCEED 10M.
OPTIONAL REGISTRATION
- Payment of annual registration fee.
- Cannot cancel his registration for the next 3 years.
 - Registration not later than 10 days before the beginning of the calendar quarter.

B. OTHER PERCENTAGE TAXES (OPT)

= for nonregistered unless exempt

FOR 3%
- Percentage tax on domestic carriers and keepers of garages (by land).
- Percentage tax on international carriers.
- Percentage tax on franchises on radio and/or television broadcasting whose gross receipts
do not exceed 10M.
o 2% for gas and water utilities
FOR 10%
- Percentage on overseas dispatch, message, conversation originating in the Philippines.
- Percentage tax on foreign companies
FOR 2%
- Percentage tax on life insurance premiums for companies doing life insurance business in
the Philippines.
AMUSEMENT TAXES
- Racetracks and Jai-alia 30%
- Cockpits, cabarets, night or day clubs 18%
- Professional basketball games 15%
- Boxing exhibitions 10%
TAX ON WINNINGS
- Regular and owner of animal 10%
- Double, quinella and trifecta bets 4%

FILING AND PAYMENT

- Same on VAT but no monthly filing.