TRANSFER TAX

200 Taxation Law

because the recipient (heir or donee) has not

actually worked for it. Thus, the imposition of
transfer taxes helps the equitable.distribution of
wealth to attain social progress and stability
Within 30 days after the (Id.) . .
Within 1 year from
death (NIRC, Sec. 90 date the gift is made
5. State-Partnership Theory
(B), as amended by
TRAIN Law)
(~/RC, Sec. 103 (8))
=- the tax is in the share of the State as a
passive and silent partner in the accumulatio_fl of
property as it protects every individual within its
territory (Id.). ·
Not exceeding 30 days, No extension is allowed '
in meritorious cases
(N/RC, Sec. 90 (C)) . KINDS OF GRATUITOUS TRANSFER
SUBJECT TO TRANSFER TAX .
1. Succession-
At the time the return is At the time the return is - otherwise known as donation mortis causa
filed (Pay-as-you-file) filed (Pay-as-you-file) because the effectivity of gratuitously
(N/RC, Sec. 91 (A)) (N/RC, Sec. 103 (B)) transferring properties to the heirs is caused by
the death of the property owner either through
- , the operation of law (Intestate Trari_sfer) or by a
Allowed if payment on Not allowed written will (Testamentary Transfer)
the due date would (VALENCIA & ROXAS, supra at 39-40).
impose undue hardship
upon the estate or 2. Qonation
heirs, except in cases - also called cfo_nation inter-vivas donation is a
of negligence, undue grat\Jitous transfer of property to the donee
disregard of rules and during the lifetime of the donor. Since the
regulations, and fraud prop~rty is · given for free, the donee has no
(NIRC, Sec. 91 (BJ) obligation to give any consideration. This kind of
. __ 1 - · . •- grato itous transfer · of property is ·subject to
1
THEORIES REGARDING ·THE ·P.URPO.SE - ·· ___ gons,r -~ tax (Id.) . . :
OF TRANSFER TAXES., (BEARS)'-· . /. . : ' . / .,,- ·
1. §.enefit-Received Theory . ·3_ : ~~~ lally gratuitous transfer
- the tax is in return for the protection .·and i.. , ~ - he c_onveyan~e of prop-erty"is made possible .
services render~d by the State in' . the _ :, for an_.-madequcJte consideration. It is · usually
accumulation of properties transferred ' · called "disguised sale" because the intent of
gratuitously, resulting to benefits received b,Y~he -, ., ,p(:;f~~.t_r~nsfer is partly sale and partly gift
estate and the recipient (heirs · o ( rdonee) . 'rl
(VALENCIA & ROXAS, Transfer and Business ' '
Taxation (2016), p. 42-43 {hereinafter
VALENCIA & ROXAS}).

2. ~quitable Recoupment Theory

ESTATETAX ]
- the State imposes transfer taxes to counter-
act tax evasion, or to reasonably recover the
current and future anticipated reduction of ESTATE TAX
government's income tax collection (Id.) . It is an excise tax imposed on the privilege of
transferring a property upon the death of the owner
3. Ability-to-Pay Theory (CAB~NEIRO, From Living to Leaving (2018), p. 127
- every inheritance received by an heir is in the [hereinafter G_ABANEIROJ). ·
nature of unearned ~ealth, the tax is based on
the act that the receipt of inheritance and gift It is a tax -on the right to transmit property at death
creates an ability to pay and thus contribute ts0
governmental income (Id.). .
fnd. on ce~ain transfers by the decedent during his
ifetime which ~re made by the law equivalent of
te st~mentary disposition {INGLES Tax Made Less
4. ,Bedistrlbution-of-Wealth Theory Taxing·· A R~viewer
· ·with
. Codals and
• Cases (2018),
- properties given for free contributes to p. 256 -fhereinafter INGLES, Rev,ewer
· -11 .
11
unequal distribution of wealth and earnings
 MEM-O~YAID .
S1f1 Bede UrweBity Colege of Law - RGcT Bar Operations Center

NATURE OF ESTATE TAX the personal .property transferred by the decedept

1. It is a privilege or excise tax; (2-8 DOMONDON, supra at 401 ).. ,
2. It is not a property tax because their imposition
does not rest upon general ownership but rather, THE . STATE AS AN EXTRAORDINARY
they are imposed on the act of passing owner- COMPULSORY HEIR OF DECEDENT
ship of property (2-8 _DOMONDON, supra at
399); and . Upon the death of the decedent, succession takes
place and the right of the State to tax the privilege to
3. It is different from inheritance tax (Lorenzo v.
transmit the estate vests instantly upon death (R.R.
Posadas, G.R. No. V-43082, June 18, 1937) .
No. 1_2-2018, Sec. 3).
Inheritance Tax
Despite the transfer of properties and rights at the
- a tax imposed on the legal right or privilege to
time of death, the executor or judicial administrator
succeed to, receive or take property by or under
shall not deliver a distributive share to any party
a will, · intestacy law, or deed, grant or gift
interested in the estate.unless there is a certification
becoming operative at or after death (Lorenzo v.
from the Commissioner th~t estate tax has been paid
Posadas, G.R. No. L-43082, June 18, t937) .
is shown (NIRC, Sec. 94). The State is then
considered as an "extraordinary heir of a de~dent,"
NOTE: Presently, there is no inheritance tax taking precedence over all legitim~te .heirs in the
imposed by law. p.o. No. 69 passed on II .
distribution of the decedent's assets (CABANEIRO,
November 24, 1972, effective January 1, 1973, supra at 36). I
abolished the inheritance tax.
RATE OF ESTATE TAX
PURPOSE OR OBJECT OF ESTATE
Whether resident or nonresident of the Philippines,
TAX a tax at the rate of six percent (6%) based on the
1. To generate additional revenue for the value of net estate is imposed (NIRC, Sec. 84 as .
government; .aniend~d by ::rRAIN Law).
2. To reduce concentration of wealth;
3. To provide for equal distribution of wealth;
4. It is the most appropriate and effectiv~ method
for taxing the privilege whic~ the decedent Graduated rates of 5% Fixed rate of 6% on net
enjoys in controll_ing the disposition at death of to 20% cin net est~te estate
property accumulated during the .1Ltet1me of the
decedent; and · ·-~ . · · .·.i~ ;~·.: -,-~~~::. •~:· -~ .
5. It is the only method of collecting ·the share_. ~-" CLASSIFICATION OF DECEDENT FOR
which is properly due to the State as·a partner in _ '~ ESTATE TAXPURPOSES
the accumulation of property which was made '.,; 1 ::. :Residents; and
possible on account of the protection _gi~en by . ;.". ... >a ,·Resident Citizen (RC); and
the State (2 Report of the Tax CoTT1mI_ssIon on . lb·. Resident Alien (RA).
N;:1tional Internal Revenue Laws, p._5~-5_7): · 2. Non-residents .
a. Non-resident Citizen (NRC)
b. Non-resident Alien (NRA) (NIRC, Sec. 84) ..
ACCRUAL OF ESTATE TAX
The estate tax accrues as of the death _of !he NOTE: A corporation, domestic or foreign,
decedent. The accrual is distinct from the obligation is not liable for estate tax because, it is not
to pay the tax, which is 1 year after the death of the capable of a natural death.
deceden~ (R.R. No. 12-2018, Sec. 3). ·
Decedents and estates are classified _in
·LAW THAT GOVERNS THE IMPOSITION accordance with the benefits protection
OF ESTATE TAX - theory. In turn, the classification determines
Estate taxation is governed by the statute in force at what is the composition of gross e·state for
the time of the death of the decedent (~ .R..No. 12- purpos·es of estate taxation. The· protection
2018, Sec. 3). · given by the Philippines to the persons of ·
citizens and resident alien extends to their
properties wherever situated _ (2-8
TIME AND TRANSFER OF PROPER!IES DOMONDON, supra at 401). .
The transfer of ownership· ta kes PIa.ce at the ftime
title of
to
death not at the time when the certificates O d t t Resident Citizen
real property are transferred from th e dece e~ 0 - A citizen of the Philippines residing therein. Under the 1987 Constitution1, the
· the transferee The transfer does not also take. P acef · following are citizens of the Philippines.
· · 1 Possess1on o * Those who are citizens of the Philippines at the time of the adoption of this
When the transferee takes physica Constitution;
* Those whose fathers or mothers are citizens of the Philippines;
* Those born before January 17, 1973, of Filipino mothers, who elect Philippine
citizenship upon reaching the age of majority; and
* Those who are naturalized in accordance with the law.
 TRANSFER TAX
Taxation Law

I
character in respect of intangible personal
property owned by citi4e~s of the Philippines
GROSS ESTATE not residing in that foreign country (NIRC,
Sec. 104). ·

GROSS ESTATE NOTE: If any of the two states o~ countries

The value of all the property, real or personal , collects or imposes and does not exe~pt
tangible or intangible; of the d~cedent (N/RC, Sec. any transte"r, death , legacy or succession
85) . tax of any character, reciprocity does not
apply (CIR v. Fisher, G.R. No. L-11622,
COMPOSITION OF · THE January 28, 1961).
GROSS
ESTATE:
1. If the decedent is a resident or citizen
2: Without reciprocity C s-
Shall be included in the gross estate (NIR , ec.
- All properties, real _or personal, tangible or 104).
intangible, wherever situated. '
SITUS
2. If the decedent is a non-resident alien VALUATION OF GROSS ESTATE
- Only properties situated in the Philippines 1. Property
provided that, with respect to intangible personal ~· .. - The properties comprising the gross estate
property, its inclusion is subject to rule of , shall be valued based on their fair market value
reciprocity provided for under S: ~ ~04 of t_he ·- ·..J 1 : (F[,AV- s of the time of decedent's death (R.R. .I
NIRC (R.R. No. 12-2018, Sec. 1). - ;. · . . No. ! 2-2018, Sec. 5) .
/' \,,.·.,... ·-·:. . l /
' ,. ,_'
INTANGIBLE PR,OPE~T~ES - . Real Pr,ope·rty , .
CONSIDERED Wh[ctiever ls higher between the FMV:
SITUATE°"' IN ' THE
PHILIPPINES: / I , a. 1As determined by the Commissioner (zonal
value)· or -._ '
' ? ' '
1. Franchise which must b in - the· b. - {',s shown-fn the schedule of values fixedRbCy
Philippines; ·
2. Shares, obligations or ppnds issued
-

corporations organized ·o constitul e in the

, .
.PY
.

.
,t ee. 88).
/ :z;;)
'---i ,
'
the Provincial and City Assessors (NI ,

.
Philippines; \--:'~ -- - --. , SH~re~ of ~\pc .
3. Shares, obligations or bonds issued tiy'.51 f oreign 1 •• , • • Th~ _f:MV ,hall. de,Pe_nd on whether the shares
corporation 85% of the business o w ich is . · · _ reJ1sted r unlisted m the stock exchange:
• located in the Philippines; ' ., ..,,. "(1"") : ~f uP, isted , ·
4. ~hares, obligations or bonds issued by a fefr~ign._- - - \ ) •· . Common shares should be valued at
corporation if such shares, obligation ra foncJ~} I:~--~ :.,., - . • book value at the date of death;
1
have acquired a business sitvsc · the "I ii. \ Pr,ferred shares are valued at par
Philippines; and / A ,\-, . valu~ (R.R. Nd._12-2018, Sec. 5) .
5. Shares, rights in any partnership, b usioess or l .., 10\
Reciprocity
- a basis for relieving a industry established in the Philippines (NIRC, NOTE: In determining the book vaiue of
taxpayer under domestic · Sec. 104). common shares, appraisal surplus and
law, e.g. relief is granted for the value assigned to preferred shares,
foreign tax if the other RULE OF RECIPROCITY
. if there are any, stiall not be considered .
country gives corresponding The intangible personal property of decedent NRA
or equivalent relief.
. The valuation of unlisted shares shall
oe exempt from the provisions of R.R.
1. With r eciprocity
Tax Reciprocity Agreement No.'06-2013, as amended.
Shall not be included in the gross estate if:
- a pact between two or
a. The decedent at the time of his death was a
more states not to tax the b. If listed - the FMV is the arithmetic mean
income of workers who citi~en and ~esident_of a foreign country
between the highest and lowest quotation at
commute into the state from which at the time of his death did not impose
a date nearest the date of death, if none is
another state covered by the tran~fer tax of any character, in respect of
available on the date of death itself (R.R.
agreement. Reciprocity intangible personal property of citizens of No. 12-2018, Sec. 5).
agreements reduce the Philippines not residing in that foreign
compliance burdens for country; or
commuters by requiring · 2. Participation in any association,
b. The laws of the foreign country which the
them to file taxes only in decedent was a citizen and resident at the recreation, or amusement club (such as
their state of residence, not golf, _polo, or similar clubs)
time of his death allow a similar exe·mption
in the state into which they - fair market value of the unit participation sh~ll
commute. from transfer or death taxes of every
be the arithmetic mean between the highest and
 \ I

MEM:Q~y AID
San Bede Ul"Ml!'Slty Colege of Law - RGcT Bar
. Center

?
lo~:~~ quota_tlon at a date nearest the date
lef a(R ,RI nNone is available on the date of death '
transfer during his lifetime, under whJch he has
retained for his life or.for any period which does not
1tse. . . o. 12-2018, Sec. 5) .
in fact end before his death:
1. Possession·or enjoyment'of the property;
3. Right to Usufruct, Use or Habitation and
2. Right to the income of the property; or
Annuity · '
3. Right, either alone or in conjunction with any
- The proba_b le life of the beneficiary in person; to designate person Who 'shall possess
acco~ance w:1th the latest basic standard or enjoy the saic;j property or income therefrom .
mortality table 1s to be taken into_account, to be
, approved by the Sectetary of Finance upon NOTE: Except in case of a bona fide sale for an
recon:imendation of the lns~rance adequate and full consideration in money or
Commissioner (R.R. No. 12-2018, Sec. 5) . money's worth (NIRC, Sec. 85 (8)) .

4. Improvement · "
Ciro.umstances taken into account:
- The cons.t ruction cost_ per building permit or 1. Age and state of health of the decedent.at' the
the FMV per latest tax declaration. time of the gift, especially where he was aware
of a serious illness;
N9TE: Any income from, or increase in the
value of the properties left by the decedent after 2. Length of time between the gift and the date of
his death, will not fon:n part of his gross estate death. A short interval suggests the conclusion
(BIR Ruling DA-~20-06, April 7, 2006) . that the thought of death was- in the decedent's ·
-
~I .
mind, and a long interval suggests the opposite;
and ·
INCLUSIONS ON THE GROSS ESTATE:
1
,,
(ITR-GP-PIC) .
Concurrent making of a will within a short time
1. Decedent's !nterest at the time of his death; after the . transfer (1 DE LEON, The NIRC
2. Iransfer in contemplation ot'death; Anaotated · (2015), p. 760 [hereinafter 1 DE
3. Revocable Transfer; · LEON, NJRCJ). .
4. Property passing under General' Power of f
Appointment; ,. NOTES: .
5. froceeds of life insuranc~; a. T,~e concept of transfer in contemplation of
6. Prior interest; death has a technical meaning.-It does' not
7. Transfers for Insufficient consideration; and . mean tha! 1:1 person transfers his properties
8. ~apital of the· surviving .spouse (NIRC, ~ec. 8~ . because he knows he is going to die. It is not
as amended by TRAIN Law) . . .. . - the mere transfer that constitutes a transfer
....
in contemplation of death but the .retention
DECEDENT'S INTEREST {i:. ::::-\ ,, of some type. of contrc>i' over the property
:_' ".b. --i raosferred . (2-B DOMONDON, supra at
To the extent of the interest therein of the decedent
425) ;
at the time of his death (NIRC, Sec. · _85 (~)). It
includes any interest having value or capa.ol~ of b. The law does not specify the number of
being valued, transferred by the decedent at the t1r:ne years prior to the decedent's death within
of his death (MAMALATEO, Reviewer on Taxation which the transfer can be considered in
(2019), p. 433 [hereinafter · MAMALATEO, contemplation of death (BIR Ruling No. 261,
Reviewer]): S~ptember2, .19~7); and

Examples: c. When it comes to transfers done d.uring the

1'. Dividends declared by a corporation before lifetfme of a decedent,_there is a disputable
death of stockholders although paid after death • . presumption that the transfers are in
if the decedent Wi:IS living on the re<;:o rd date; contemplation of death if the recipients are
.
2. Partnership. profits even ·f I pa1
'd after death of compulsory heirs (IN~LES, Reviewer,
partner; and th heirs supra at 266.
3. Right of usufruct if transferable _l<? · e xes ·
.I
(AMPONGAN, Transfer & Bu mess Ta s ILLUSTRATION: X died on April 21, 2020.
(2015), p. 24 [hereinafter AMPONGANJ) . X, before his death, made a gift inter vivos
in .favor of Y of all ~is property according to
TRANSFER~ IN CONTEMPLATION OF a deed of gift which includes all the property
of X. The deed of gift was .executed by X on
DEATH · .·- · f April 9, 2020, in favor of his son Y. This deed
- 'd d in contemplation o
The transfer shall be consi ere time . niade a of gift transferred 22 tracts of land to the
death if the decedent has at any
 TRANSFER TAX
· Taxation Law

donee Y reserving to the donor X for his life ANS: The PS00,000 is subject to estate tax. The
revocability of the donation at will of the ,donor
the usufruct of 3 tracts.
made the donation ambulatory. Furthermore, no
ANS: The facts warrant the inference that right was vested in the donee while the donor is
the transfer was an advancement upon the alive. Therefore, the donation is subject to estate
tax. · ·
inheritance which the donee, as th,e sole and
forced heir of the donor, would be entitled to
receive upon the death of the donor. Th~ law Q2. Suppose the deed of donation contains a
presumes that such gifts have been made in condition that Atong e9uld reacquire only the
anticipation of inheritance, devise , bequest, land upoo giving of a 30-day notice to Bardagol.
or gift mortis causa, when the donee, after Is the donation subject to donor's tax or to estate
the death of the donor proves to be his heir, tax? '
devisee or donee mortis causa, for the
purpose of evading the tax, and it is to ANS: The donation is still mortis causa subject
prevent this that it provides that they shall be to estate tax because the requireme11t of notice
added to the resulting amount (Dizon v. has not changed the ambulatory nature of the
' Posadas, G.R. No. L-36770, November 4, d<;mation (A_MPONGAN, supra at 27). ·
1932).
The power to alter, amend, · or revoke is
REVOCABLE TRANSFERS .{TE) considered to exist on the date of decedent's
A transfer is a revocable transfer where: I , de~th . . ·
1. There is a transfer (except in case of ona fide ...__ ! ,~ven tho9gh the exercise of the power is subject to
sale for an adequate and full consideration in .,:::a precec;ient ·of giving notice or even though the
money or money's worth) by .Trust or ot}:lerwise; alterati9n; a ll)en dment, or ·revocation takes_effect
and _ / ) ,,,.,,,...--~_--:--• only ~n th~ expiration of a sta,ted period after the
2. The snjoyment thereof wa suBje at the date .exercise of tne p~ er, whether or not, on or before
of his· death to any change thro gh th fexercise · the dec~dent's death\ notice has been given, or the
of power (in whatever cag,acity .exerci¥!bl~)J?y~ _ ... _po~er _ has been ~xer~ised. In such ·cases, proper
(ACR) r ,,;-,,. 1 adJostment shall be made representing the interests
a. The decedent Alont -~ \ ' - -· which w_puld have 6ee~ excluded from the power if
b. The decedent in ~onjunctfon with any other ; the decedent had,live~ 2-8 DOMONDON, supra at
person (without regarcfto-when' qrirom Vv:hat . · .,. 430) . jF: :· ·
source the decedent ~q'j~r d sush ;P~wer),7 . .' <-:- / ;..,._<. " . ·
to alter, amend, revok or t inate; or !, , I~_n9 1'1e ·t;ras n -t bee given, or the power has not
c. Where any_such power is B~linquish'e,,_d i n I· ,..\>eerf e ~rcised on o~ be!ore the date of his death,
contemplation of the · dececlent's "de.~tlJ.__' J .,.__soch, not1ce shall be ~ons1dered to have been given,
(NIRC, Sec. 85(C)(1)) . __. :-·;,., or-tl)e power execc1sed , on the date of his death
. /, •--. __, ._..,. (NIR<;, Sec~?5 (C)(2)) .
NOTE: It is sufficient that the decedent had , - · ~· ·. -:' ' ·
the p_ower' to revoke, though ~e did ' not 1 /; Irrevocable T ransfers Not Included · .
exercise the power to revoke (INGLES -- y - • Only.,.revocable transfers shall ·be included in the
supra at 262). - ·gross estat~ because of the tremendous power and
control which the transferor can exercise. The
Examples: . transferor can anytime revoke the transfer, hence
1. Transfer with retention of interest to income or there ~as no transfer made (SABABAN & BUNDAC,
~ ith right to designate persons who will enjoy· Taxation Law Reviewer (2008) p. 136). . ,
incom~ or proPE:rty (NIRC, Sec. 85 (BJ); and
2. Donations mort,s causa even without retention Ex~mples of Irrevocable Transfers:
of interest while the decedent still lives (Puig v 1. If _the decedent's power could be exercised only
Penaflorida, G.R. No. L- 15939 January 31 . . ~1th the . consent of all the parties having an
1966). · ' ' interest m the transferred property, and if the
power does not affect the rights of all t he ·parties,
ILLUSTRATION: Atong donated real property the property transferred would not be included as
wo,:th ~~00 , 000 to Bardagol during his lifetime. a revocable transfer·
An item m the deed, however, grants the donor 2. _Where the decedent was completely stripped of
to revoke the donation at will. the power (to alter, amend, or revoke) at the time
of his death; and . .
Q1. Is the ~500, 000 subject to donor's tax or to 3 - Where the exercise of the power (to ;;titer, amend,
estate tax? or revoke) by the decedent was subjected to a
 - \ I

MEM:Q~y AID
San Seda UrMlf1lty Colege of Lew - RGcT Bar ~W-- .
..,._"""'18 Center (

cd?dntingt ency bbeyfo.nd t~e decedent'~ control which

gross -estate of Z in 2007 and be subject to_
1 no occur ore his death (3 4 Am. Jur. 2d.).
estate tax? ·
PROPERTY PASSING UNDER GENERAL ANS: ·No, the painting should not be included_in
POWER OF APPOINTMENT (GPA) the gross estate of .Z because only property ·
Power of Appointment passing under a general power of appointment
- in its ~eneral sense, is a power to designate who is included in the gross estate of. the decedent.
shall enJ0Y the use of property (2-B DOMONDON In the case. in accordance with the will of Z's
supra at 432). ' •father, the painting has to be transferred to W,
Z's ,wif.e, and since the power of appointment
Power of Prop~rty over. which !he decedent held a power of granted by X to Z.is specific (i.e. only to his wife) ,
appointment must
be GENERAL in appointment 1s not included i!'l his gross estate the property should not be included in Z's gross
order to be unless such p9wer is general (1 DE LEON NIRC estate in 2007 (MAMALA TEO, Reviewer, supra
included in the supra at 760). ' ' at 442). ·
gross estate of
the decedent
Kinds of Power of Appointment:~ PROCEEDS OF LIFE INSURANCE
1. General _ · . Requisites: (DAm-ER)
-" W_hen it a~thorizes the donee (decedent) to 1. The Qecedent takes an insurance policy on his
appoint any per~n he pleases, including own life; and
himself, thus having full dominion ove.r the 2. The Amounts are receivable by:
property as though he owned it. a. The Estate, his executor, or administrator
irrespective of whether or not the ·insured
2. Special . retained the power of re·vocation; or
-When the donee _(decedent) can appoint only b. Any beneficiary designated ·as fievocable
among a. restricted · or designated class of (NIRC, Sec: 85 (E)).
persons other than himself (Id.). " ~- ....

. . - . -.. . \-,,.Nofe: The proceeds of life insurance are not

Requisites for Taxability: (EEP) incluaekl in a decedent's gross estate when
1. Existence of a GPA; · the. beneficiary is other'than the estate, his
2. gxercise .of such -power by the decedent •by will executor{. or adtninistrator and the
or j)y deed in certain cases; ·and · d. sigr ati n is irrevocable (NIRC, Sec. 85
(1=)). • .
3.~ The fassing of the property by virtue of such
exercise (Id.). ,,...,.;,. '-'"' .,.,... .
,•._ ~:· :t_;tc. -r'·~--
Proceecfs' ofl .ife Insurance are Not Taxable in the
The GPA may be exercised by th·e decedent: following cases: (AGAI-BL)
1. By will; . t Accident insurance proceeds;
-, -, .;, '4. Procee~s of a Qroup insurance policy taken out
2. By deed executed in contemplation · of, Of-=-
intended to take effect in possession or
a
.. _~by company for its employees; · . ·
3. Amount receivable by any beneficiary irrevocably
enjoyment at, or after his death; or _ : .
designated in the 'policy of insurance by the
3. By deed under which he has retain~d for ~1s hfe
insured;
or any period not ascertainable. w1th~ut .
4. . Proceeds of !nsurance policies issued by GSIS to
reference to his death or for any period which
go'{ernment officials and employees;
does not in fact end before his death: .
5. Benefits accruing under the SSS law· and
a. The possession or enjoyment the prope~;
6. Proceeds· of bife insurance payabl~ to heirs of
b. The right to the income from th~ pro~erty, .or
deceased members" of -military personnel
c. The right, either alone or in coniunct1on w~h (MAMALA TEO, Reviewer, supra at 443).
any person, to designate the persons w 0
shall possess or enjoy the property or th e Determination of the Character of ttie Proceeds
income (N/RC, Se_c. 85 (D)). 1. Po!icy taken before marriage
the source of funds determines ownership of
ILLUSTRATION: -ln 1999, X purchased from y the proceeds · of life insurance (2-B
th
a painting for ~500, 000. The FMV th ereof_~; ; DOMONDON, supra at 440).
time of purchase was ~1, 000, 000. In 28 ·X
died. In his last will and teS tament, 2. Policy taken during marriage
0 2
bequeathed the painting to hi.s o~ly ~ \ ; · as a. Beneficiary is the estate of the insured - ·
was granted the power t.o ap.point hi~ wif~, of 'z·s proceeds are presumed conjugal; hence,
successor to the painting in th e ev~n d to the one-half share of surviving spouse is not -
death. z died in 2007, and W su~cee e in the · taxable.
property. Should the painting be included ·
 - ' i¾.' .
TRANSFER TAX
•,> : ~

206 . ·.:
Taxation Law

b. Beneficiary is third person - proceeds TRANSFERS FOR INSUFFICIENT

are payable to the beneficiary even if CONSIDERATION .
premiums were paid out of the conjugal Any transfer in contemplation of death, revocable
partnership (Del Val v. Del Val, G.R. No. L- transfer or property passing under GPA made,
9374, February 16, 1915). created exercised or relinquished for a
0

conside ration in money or money's worth but is n·ot

NOTE: Property relations between husband a bona fide sale for an adequate and full
and wife shall be governed (1) by marriage consideration in money or money's worth (NIRC,
settlements executed before the marriage; Sec. 85 (G)).
(2) by the provisions of the Family Code;
and (3) by the local custom (FAMILY CODE, The value to be included in the gross estate is the
Art. 74). excess of the fair market value of the property at the
time of the decedent's death over the consideration
ILLUSTRATION: Antonia Santos, 30 years
received (NIRC, Sec. 85 (G)).
old, gainfully employed, is . the sister of
Edgardo ·Santos. She died in an airplane
If there was no consideration received on the
crash. Edgardo is a lawyer and he
transfer, the value to be included in the gross estate
negotiated with the airline company and
will be the fair market value of the . property·at the
insurance company. Edgardo, the airline
time of the decedent's death (INGLES, Reviewer,
company, and the insurance company ·'°'
agree to a total settlement of P10, 000, ·060. supra !Jf 265) .
This is what .Antonia would have'earned as
-Formula;
somebody who was gainfully emp[oyed.
Edgardo was her only heir.' ls th~e P16, Oba, FMV of property at.decedent's date of death
.. Les·s: Actual consideration received by
.
000 subject to estate tax? Refison briefly.
decedent ~
ANS: No, the fD10, 000, 000.is 'not subject to , Amount included in decedent's gross estate
estate tax because the proceeds are not ...
part of Antonia's gross ~stafe. It is .clear that :- ILLUSTRATION: J ' ·• .. .
the payment came from the airline and its Mr. ,A sold to Mr. B his wooden cabinet worth t-500
insurer. There is _no showing that the P10, · to be delivered only u·p on Mr. A's death. The current
000 , 000 ·came from.....an insurance policy - market :value of the cabinet at the time of death of
"taken by the decedef)t Anfonia ori her owh Mr: -A is P750. What amount should be included in
life. Furthermore, the P10, o·oo,"ooo is not . Mr. A's estate if the 1,>rice agreed upon is (a) PSOO?
part of Antonia's property at .the tim~ of her . If (ti) P300? " ." .
death (2-8 DOMOND N, supra at 448) .
/ . , f -:
PRIOR INTEREST ! .·

Except as otherwise provided in: 1. FM\1 at l he .ti~e of transfer P500 19500

I -
1. Transfer in contemplation of death
2. Revocable transfer 2. Consideration received by the P500 P300
3. Proceeds of life insur~nce transferor-decedent at the time of
transfer
Sec. 85 of the NIRC as amended by TRAIN Law
s_hall apply to the transfers, trust, estates, interest, 3.FMV at the time of the death of · P750 19750
nghts, powers, and relinquishment of powers, as transferor
severally enumerated and described therein
whet~er ":'ade, creat1ed, arising, existing, exercised Value to be included in the gross PO
or rehnqu1shed before or after the effectivity of the estate
NIRC (NIRC, Sec. 85 (F)) .

1 - FMV at the time of transfer

2. Consideration received by the

transferor-decedent at the time of
transfer
----- \ I

MEM:Q~y AID .
SM Bede l.!rMlrslty College or Law - RGCT B '"'-- .

I
- . ar .....rations Center

3.FMV at the time of the death of ~750 ta750

transferor
. 6% on net estate 5% to 20% on· net
Value to be included in the gross f90 . •. estate graduated scale ·
P450
estate

NOTE: To determine the adequacy of .d · .

compare Items 1 and 2 If there . cons1 erat1on)
·d · · is not enough
c?ns1 erat,on, or no consideration at all . th
difference between Items 2 and 3 t0 d t ' ~et e
·1 · f · e ermine the
va uat1on or inclusion in the gross est at e. -

CAPITAL OF THE SURVIVING SPOUSE

The capital of. the surviving spouse of a deceaent
·I'
shall not, for the purpose of Chapter I of Titl Ill
NIR~ as amended by TRAIN Law, be deemed aepart
of _
his or her gross estate (NIRC, Sec: 85 (HJ).

I
I •

NET ESTATE

NET ESTATE
Refers to the value of the gross estate less.allowable ·
deductions ·(N/RC, Sec. 86) : - ,,..

DETERMINATION OF THE N~T ESTATE

For the purpose of .the imposition of the estate -tax,
the value of th·e net estate shall be ,d~teimifled,.by
deducting from the value of the gross estate_(2; 8
DOMONDON, supra at 454) : ' . ·_ \"
1. The deduction allowed to the estafe.of a'-citizen
or a resident (R.R. No. 12-2018, Sec. 6J< }
2. The deduction allowed to · nonresidenl estates__
(R.R. No. 12-2018, Sec. 7) . "'
-~
The basic equation to determine the net ~taxable
estate is ·(Gross Estate - Deductions) (INGLES,
Review(!,r, supra at 267).
' . -
ESTATE TAX RATE AS AMENDED BY
TRAIN LAW
The net estate of every decedent, whether re~ident
or non-resident of the Philippines, shall be subJect to
an estate tax at the rate of six per~ent (6%) (NIRC,
Sec. 84 as amended by _TRAIN Law). .I
· NOTE: Upon the effectivity of TRAIN Law the estate
tax rate is now fixed at 6% and the · graduated
schedule with a rate of 5-20% under the Tax Reform
Act of 1997 is now repealed.