TRANSFER TAX

Transfer – refer to any transmission of property from one person (natural or juridical) to another.
Transfer Tax – impositions on the transfer of property from the owner to a beneficiary, donee or transferee. A citizen
paying transfer tax is not paying for his property but is paying for his right to transfer the ownership of such property.
Rationale of Transfer Taxation:
1. Tax Evasion or Minimization Theory – the indirect donation in an exchange is actually lost gain which will
evade or minimize income taxes.
2. Tax Recoupment Theory – transfers have a natural effect of decreasing future income tax collections of the
government. It is imposed to partially recover future reduction in income tax which will arise from the split of
income producing property to several taxpayers.
3. Benefit Received Theory – government provides laws which enforce donation and succession, it is therefore fair
to collect its equivalent compensation in protecting individual persons properties or rights.
4. State Partnership Theory – the State is a passive and silent partner in the accumulation of wealth as it protects
every individual within its territory.
5. Wealth Distribution Theory – when one transfers his wealth, the transfer should be taxed so that part of the
wealth will be redistributed to benefit society.
6. Ability to Pay Theory – the ability to transfer property is an indication of an ability to pay tax.
Kinds of Transfer of Property:
1. Onerous Transfer/ Bilateral Transfer – this is a transfer of property in exchange for something of equal value.
This can be casual transfer or under normal course of business.
 Casual – transfer or sale of capital assets such as residential properties. The transferor was not really into
business of selling real or personal properties. Capital gains tax is imposed on this kind of transaction.
 Sale/ Barter – exchange of property for money or for another property. Business taxes is imposed on this kind
of transaction.
2. Gratuitous Transfer/ Unilateral Transfer – transmission of property by a person without consideration. It is
subject to transfer taxes.
 Donation – is the gratuitous transfer of property from a living donor to a donee. This type of donation is done
out of love and liberty and within the donor’s lifetime, and is also accepted by the donee within the said
period. It is called Donation Inter-vivos subject to Donor’s Tax.
 Succession – is the gratuitous transfer of properties of the deceased person upon his death to his heirs. This is
also motivated by the donor’s love and affection for the donee, and is also free and does not involve any
monetary consideration. It is called Donation Mortis causa subject to Estate tax.
3. Complex Transfer – transfers for less than full and adequate consideration. These are sales made at prices which
are significantly lower than the fair value of the property sold. The transfer is generally considered as an inter-
vivos donation, but it is a donation mortis causa if: (a) sale is made in contemplation of death of the seller, or (b)
if the title to the property is to be transferred upon death of the seller. It is subject to both transfer tax and income
tax.
4. Non-taxable Transfer – transfers of properties which are not actually donations and hence, not subject to transfer
taxes, such as:
 Void Transfer – those that are prohibited by the law or those that do not conform to legal requirements for
their validity.
 Quasi-transfer – transmissions of property which will never involve transfer of ownership.
Types of Transfer Tax:

Donor’s Tax Estate Tax

Subject transfer Inter-vivos Mortis causa
Nature Annual tax One-time tax
Property given Gift (only properties selected by the Estate (all properties of the decedent
donor) at death)
Transferor Living donor Decedent
Transferee Donee Heir
Taxpayers and extent of taxation* Donor Decedent or estate
- Resident or Citizen - Global donation - Global estate
- Non-resident Alien** - Philippine donation - Philippine estate
Who actually pay the tax? Donor Executor, administrator or heirs
Timing of valuation Date of donation Date of death

* Situs of Transfer
The transfer occurs in the location of the property. Not on the place where the decedent died or where the donor executed
the deed of donation.
** Reciprocity Clause on Non-resident Alien
The Intangible Personal Properties of non-resident alien are exempt from Philippine transfer taxes provided that the
country in which such alien is a citizen also exempts the intangible personal properties of Filipino non-residents therein
from transfer taxes.
Examples of Intangible Properties:
1. Interest in Domestic Business
a. Shares, obligations, or bonds issued by any corporation or socieodad anonima organized or constituted in the
Philippines in accordance with its laws
b. Share or rights in any partnership, business or industry established in the Philippines
2. Foreign Securities, under certain conditions:
a. Shares, obligations, or bonds issued by any foreign corporation 85% of the business of which is located in the
Philippines
b. Shares, obligations, or bonds issued by any foreign corporation if such shares obligations, or bonds have
acquired business situs in the Philippines
3. Franchise which must be exercised in the Philippines
4. Cash, Receivables or Credit, Patent, Leasehold right, Copyright, and Trademark
Classifying Transfer as Inter-vivos or Mortis causa

Inter-vivos Mortis causa

Transfer occurs during the lifetime of the
∕ —
donor
Transfer occurs upon death of the decedent — ∕
Exceptional rules on transfer
1. Transfer in contemplation of death* X ∕
2. Transfer intended to take effect at death X ∕
3. Incomplete transfers** ∕ ∕

* A donation that is inspired by the Thought of Death of the decedent is donation mortis causa. However, if the donation
is inspired by Motives Associated with Life, it is donation inter-vivos.
a) Thought of Death – the presence of express wordings in the deed of donation which indubitably manifest that the
donation is inspired by decedent’s thought of death.
b) Motives Associated with Life – to reward services rendered; to save income tax; to see children financially
independent; to settle family dispute; to relieve the donor of the burden of management property; to see children
enjoy the property while the decedent still lives
** Incomplete Transfers – involve the transmission or delivery of properties from one person to another, but ownership is
not transferred at the point of delivery.
a) Conditional Transfer – completed inter-vivos upon the happening of the following during the lifetime of the
donor: fulfillment of the condition by the transferee or waiver of the condition by the transferor.
b) Revocable Transfer – are completed upon: waiver by the transferor to exercise his right of revocation or the lapse
of his reserved right to revoke.
c) Transfer with reservation of title to property until death are completed by the death of the decedent.
Conditional transfers and revocable transfers become donation mortis causa when the transfer is pre-terminated by the
death of the decedent.

DONOR’S TAX
Donation – is the gratuitous transfer of property from one living person (donor) to another one (donee).
Essentials of Donation:
1. Capacity of the Donor – the donor must be legally competent to make a donation. A donor must not be a minor,
an insane, or by one under hypnotic spells, force or intimidated; donation made to them is unenforceable.
2. Intention to Donate – the donation must be intentional or voluntary.
3. Donative Act or Delivery – donation is a real contract and is completed by the delivery of the property to be
donated.
4. Acceptance by the Donee – the acceptance of the done perfects the contract of donation. The donation is deemed
perfected when the donor knows of the acceptance of the donee. Must accept the donation personally or through
an authorized person with special power for that purpose otherwise void.
 Acceptance in the same deed of donation or in a separate document, donor shall be notified of such
acceptance in authentic form.
 Donation made to unborn children may be accepted by those persons who would legally represent them.
 Minors or any others who cannot enter into a contract may become donees but acceptance shall be done
through their parents or legal representative.
Formal Requisites of Donation:
 Property Required Formality
Real Property Public Instrument
Tangible Personal Property
- Amount exceeding P5,000 Written
- Amount not exceeding P5,000 Oral
Intangible Personal Property Public Instrument

Types of Inter-vivos Donation:

1. Direct Donation – is one made by the donor directly to the donee.
2. Indirect Donation – involves transfer of property by the donor in favor of the donee but under the supervision of
another party, also called donation in trust. The designation of a donation in trust may either be:
 Revocable – this is not a completed donation and is not taxable.
 Irrevocable – this is a completed donation; hence, taxable.
3. Cancellation of Indebtedness – if a creditor desires to benefit a debtor, and without any consideration therefore,
cancels the debt, the amount of the debt is a donation by the creditor to the debtor.
Donor’s Tax – tax upon the gratuitous transfer of property between two or more living persons at the time of transfer
whether the transfer is direct or in trust and without regard to the type of property transferred.
Nature of Donor’s Tax:
1. Privilege Tax - a tax upon the privilege to transfer property gratuitously during the lifetime of the donor.
2. Proportional Tax – based on a fixed percentage of net gift.
3. Annual Tax – imposed on yearly net gifts of donor in excess of P250,000.
4. Ad Valorem – depends upon the value of the property donated.
5. National Tax – imposed by the national government.
6. Revenue or Fiscal Tax – intended to provide the government income.
Rationale of Donors Taxation:
1. To control tax evasion of the estate tax – if there is no tax on donation, a person may transfer his properties to
avoid estate tax.
2. To control tax evasion on income tax – seller of goods or properties may intentionally set the selling price
below the fair value. The gratuity is an unrealized benefit which will not be taxed under income tax, so it must be
tax based on donor’s tax.
3. To recoup future loss of income tax revenue – a donation of property will cause the spread of income-
generating properties to multiple individual taxpayers, and it will cause a reduction in future income tax.
Rules on Taxable Donation:

Residents or Citizens NRA without reciprocity NRA with reciprocity

Property location Within Abroad Within Outside Within Outside
Real Properties ∕ ∕ ∕ X ∕ X
Personal Properties
- Tangible ∕ ∕ ∕ X ∕ X
- Intangible ∕ ∕ ∕ X X X

Gifts – include real and personal property, whether tangible or intangible, or mixed wherever situated. Also, the transfer
of assets for less than an adequate and full consideration in money or money’s worth.
Exempt Gifts (Exempt donations or Deduct it if is included in net gift)
1. Donation to certain exempt donee entities under the NIRC and special laws
 Rural Farm School (Sec. 14, R.A. No. 10618)
 People’s Television Network, Incorporated (Sec. 15, R.A. No. 10390)
 People’s Survival Fund (Sec. 13, R.A. No. 10174)
 Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No. 10083)
 Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
 Philippine Red Cross (Sec. 5, R.A. No. 10072)
 Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
 National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
 Philippine Normal University (Sec. 7, R.A. No. 9647)
 University of the Philippines (Sec. 25, R.A. No. 9500)
 National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
 Philippine Investors Commission (Sec. 9, R.A. No. 3850)
 Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
 Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
 International Rice Research Institute (Art. 5(2), PD 1620)
 Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
 National Social Action Council (Sec. 4, P.D. 294)
  Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2, P.D. 292)
 Development Academy of the Philippines (Sec. 12, PD 205)
 Integrated Bar of the Philippines (Sec. 3, PD 181)
2. Donations for election campaign
Campaign contributions in cash or in kind to any candidate, political party or coalition parties. Exemption is not
automatic; it must be reported to Commission on Elections to be exempt from donor’s tax.
3. Transfer for insufficient consideration involving real property classified as capital assets
The exemption applies only to real properties classified as capital assets that is subject to 6% capital gains tax.
4. General renunciation of inheritance
A general renunciation of inheritance occurs when an heir or the surviving spouse renounces his or her share in
the hereditary estate of the decedent in favor of no particular coheir.

Types of Renunciation General Specific

Renunciation with more than 2 heirs Exempt Taxable
Renunciation with only 2 heirs Exempt Exempt
Renunciation by the surviving spouse of his/ her
share in the common properties Taxable Taxable

5. Donation with reserved powers (Incomplete transfer)

A gift that is incomplete because of reserved powers becomes complete when either: the donor renounces the
power; or his right to exercise the reserved power ceases because of the happening of some event or the
fulfillment of some condition, other than because of the donor’s death.
6. Donation to the government for public use
Gifts made to or for the use of the national government or to any political subdivision of the national government
or to any entity created by the government which is not for profit. However, donation to GOCC’s are taxable.
7. Donation to accredited non-profit organization
Gifts made to educational, charitable, religious, cultural, social welfare institutions, accredited NGOs and trusts,
philanthropic organizations and research institutions. The requisites for exemption:
 Pays no dividends and governed by trustees who do not receive any compensation. Devotes all of income to
the accomplishment of its purpose.
 Not more than 30% of gifts shall be used for administrative purposes.
 Accredited by government agency and registered with BIR as non-stock entity.
8. Quasi-transfer
 Merger of the usufruct in the naked title during the lifetime of the usufructuary.
 The transmission or delivery of the or legacy by the fiduciary heir to the fedeicommisssionary during the
lifetime of the fiduciary heir.
 The transmission from the first heir during his lifetime in favor of another beneficiary, in accordance with the
desire of predecessor.
9. Void donations
 Donation between spouses, except minor gifts.
 Donations between persons convicted of adultery or concubinage at the time of donation.
 Donation between persons found guilty of the same criminal offense, in consideration thereof.
 Donations to public officer or his wife, descendants or ascendants by reason of his office.
 Donations to incapacitated person.
 Donation of future property.
 Donation by a person who has no legal title to the property.
 Oral or written donation of real property or intangible personal property.
 Donation refused by the donee.
10. Foreign donations of non-resident alien donors
Donation of property situated in foreign country by non-resident alien donors are not subject donor’s tax.
Net Gifts – refers to the economic benefits from the transfer that accrues to the donee.
Valuation of Net Gifts:
1. Valuation of property donated
 Real Property – the higher of zonal value or fair value per assessor’s office/ assessed value. Independent
appraisal value shall not be used.
 Personal Properties
a) Shares of stocks (listed in the PSE) – the average high and low price of the stocks at the date donation.
b) Shares of stocks (not listed) – if Preferred stocks, the par value. If it is Common stock, the book value
appearing in financial statements published nearest to the date of donation.
c) Newly purchased properties – purchase price.
d) Old items – second hand value.
e) Monetary claims – the amount fixed in the contract.
2. Timing of valuation of gift – donation is valued at the point of completion or perfection of the donation.
Donation is perfected upon acceptance by the donee.
3. Donation of common properties – donation of conjugal or community property by the spouses is deemed ½
made by the husband and ½ made by the wife. The husband and wife shall file separate donor’s tax return for the
 donation. However, if only the husband signed the Deed of the Donation, there’s only one donor for tax purposes,
without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to
such rights in accordance with provisions of the Civil Code and the Family Code. Every donation between the
spouses during the marriage shall be void except for moderate gifts, which the spouse may give each other on the
occasion of any family rejoicing, and donation mortis causa.
4. Encumbrances on the property donated assumed by the donee – obligations attached to the donated property
assumed by the donee are deductible from the value of the donation. The donor’s tax assume by the donee is not a
deduction since it is not a present obligation on the property at the date of donation.
Donor’s Tax Computation
Total Annual Net Gifts (1) XXX
Less: Exempt Donation (2) P250,000
Net Gift Subject to Tax XXX
Multiply by: Donor’s Tax Rate (3) 6%
Donor’s Tax Due (4) XXX
Less: Tax Due in prior donation XXX
Less: Foreign Tax Credit (5) XXX
Donor’s Tax still Due/ Donor’s Tax Payable (6) XXX
1. Total Annual Net Gifts – the total donation that the donor made. If the net gift includes exempt donations, it must be
deducted. The accumulation of donation stops at the end of every calendar year.
2. Exempt Donations – if the donation does not exceed P250,000 then the donation is not taxable or there is no donor’s
tax due.
3. Donor’s Tax Rate - Tax rate is 6% computed on the basis of the total gifts in excess of P250,000 exempt gift made
during the calendar year whether the donee is a relative or stranger.
4. Donor’s Tax Due – the amount after multiplying the net gift subject to tax to donor’s tax rate. The computation of the
donor’s tax is on a cumulative basis over a period of one calendar year.
5. Foreign Tax Credit – it is allowed only to citizen or resident donors at the time of donation.
LIMIT A (One foreign country): (Foreign Country Net Gifts / World Net Gifts) X PH donor’s tax
LIMIT B (Two or more country):
1st step (Total Foreign Net Gifts / World Net Gifts) X PH donor’s tax – add the lower amount of two or more country
2nd step [(Country 1 + Country 2 Net Gifts) / World Net Gifts] X PH donor’s tax due
Whichever is lower between the two is the amount deductible for foreign tax credit.
6. Donor’s Tax still Due/ Donor’s Tax Payable – the amount that is payable to the BIR.
Donor’s Tax Return and Filling

BIR Form Donor’s Tax Return (BIR Form No. 1800)

Number of copies The law requires 2 copies (duplicate). In practice, 3 copies (triplicate).
Who shall file? Any person, natural or juridical, resident or non-resident, who transfers or causes to transfer
property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether
the property is real or personal, tangible or intangible.
When to file? Shall be filed within thirty (30) days after the date the gift (donation) is made.
Where to file? The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District
Office having jurisdiction over the place of domicile of the donor at the time of the donation, or
if there is no legal residence in the Philippines, with the Office of the Commissioner of Internal
Revenue, (Revenue District Office No. 39, South Quezon City).
In case of gifts made by a non-resident alien, the return may be filed with RDO No. 39, or with
the Philippine Embassy or Consulate in the country where he is domiciled at the time of
donation.
Note: A separate returns shall be filed by each donor for each gift (donation) made on different dates during the year
reflecting therein any previous net gifts made in the same calendar year. Only one return shall be filed for several gifts
(donations) by a donor to the different donees on the same date.

ESTATE TAX
NATURE OF ESTATE TAX
ESTATE TAX – is an excise tax imposed on the act of passing the ownership of property at the time of death and not on
the value of the property or right.
The estate tax is imposed on the transfer of the decedent’s estate to his lawful heirs and beneficiaries based on the fair
market value of the net estate at the time of the decedent’s death. It is not a tax on property. It is a tax imposed on the
privilege of transmitting property upon the death of the owner. The estate tax is based on the laws in force at the time of
death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. (paid by
estate)
Filing – 1 year from the date of death
Estate tax rate – 6% of taxable net estate
Succession – mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the
inheritance, of a person are transmitted through his death to another or others either by will or by operation of law.
Types of Succession
1. Testamentary – which results from the designation of an heir made in a will executed in the form prescribed by law
2. Legal or Intestate – that which is affected by operation of law or transmission of properties where there is no will or if
there is a will, the same is void or lost its validity or nobody succeeds in the will
3. Mixed – Which is affected partly by a will or by operation of law
WILL – an act whereby a person is permitted with the formalities prescribed by law to control a certain degree the
disposition of his estate, to take effect after his death from the moment of the death of the decedent, the rights to the
succession are transmitted and the possession of the hereditary property is deemed transmitted to the heir.
Kinds of Will
1. Notarial or Ordinary or Attested Will It is a will that is created for the testator by a third party usually his lawyer,
follows proper form, signed and dated in front of required witnesses and acknowledge by the presence of the notary
public.
2. Holographic Will – is a written will which must be entirely written, dated and signed by the testator himself without
necessity of a witness.
Succession takes place if the following elements are present:
1. Decedent – the person whose property is transmitted through succession
2. Heir – the person called to the succession
3. Estate – refers to all property, rights and obligations of a person which are not extinguished by his death
PURPOSE OF ESTATE TAX:
To supplement the lost income tax from the deceased when his/her properties are divided to his/her heirs. Estate tax is
consistent with the Benefit Received Theory as well as the Life Blood Theory. Therefore, estate tax is deemed as an
Excise tax and not as property tax since it is the privilege of transferring the property that is being taxed and not the
property itself.