Estate Tax Credit and

Distributable Estate

Estate Tax Credit

Allowable deductions are deductions from the gross estate. Tax
credit, on the other hand, is a deduction from Philippine estate tax itself.
While there are numerous taxes that may be deducted from the gross
estate, there is only this foreign estate tax that may be claimed against
Philippine estate tax.

159
 Estate Tax credit refers to the
taxpayer's right to deduct from the tax due The amount of
the amount of tax it has paid to a foreign credit for estate tax paid
country. The amount could be claimed as to a foreign country
a deduction if such taxes pertain to shall not exceed the
properties which are included in the gross proportion of the tax

estate for Philippine estate tax due in the Philippines

computation. This deduction is allowed which the decedents
by law to lessen the harshness of net estate situated
international double taxation where the within such country

same estate is being subject to both the bears to his entire net

foreign tax and the Philippine estate.

estate
estate tax.
Nonresident alien decedents are not entitled to estate tax credit. This
is because under the law, the properties of nonresident alien decedents
10cated abroad or with situs abroad are excluded in the computation of
gross estate subject to estate tax in the Philippines. Thus, not affected
by the harshness of indirect international double taxation.

160
 dev s c)/z' J'/
Philippine Estate Tax Due

In determining the allowable estate tax credit, the estate tax

due in the Philippines shall be computed first based before the estate
tax credit may be deducted, as follows:
Estate Tax Due
Less: Tax credit for foreign estate taxes paid (xx)
(The lower between estate tax paid abroad and the limit)
Philippine Estate Tax Payable pxx

STATUTORY FORMULA FOR THE COMPUTATION OF ESTATE TAX CREDIT:

LIMIT I or LIMIT A - IF THERE IS ONLY ONE 11) FOREIGN COUNTRY

Net estate, forei n countr Philippine Estate

Net estate, world X Tax Due Pxxx (Limit)
Versus
Actual Tax Paid, foreign country Pxxx (Actual)
Allowed Tax Credit Lower amount Pxxx Tax credit

ILLUSTRATION 1:
A resident citizen died in 2023 leaving the following:
Taxable net estate, Philippines
Taxable net estate, USA
Estate tax paid, USA 400,000

How much is the estate tax payable?

Answer: P480,000 computed as follows.
Limit Actual Allowed
PZOOO,OOO
P120,OOO

Estate Tax Due (PIOM x 6%)

Less: Estate tax credit
Estate tax still due and payable

%' Estate (Q)

161
 Step 1 — compute limit 1 per foreign country as shown above. Step
2 - compute Limit 2 using the following formula:
Net estate all foreign countries Philippine Estate
Net estate, world X Tax Due
Versus
Actual Tax paid, all foreign countries
Pxxx (Limit)
Limit 2 (Lower amount)

Step 3 -Choose the lower amount between Limit A and Limit B Pxxx (Actual)
Limit 1 (from Step 1) Pxxx (Limit 2)
Limit 2 (from Step 2)
Allowed Tax Credit Lower amount)
Pxxx
Pxxx
 creÆ@)

Shown below is a comparative schedule of net taxable estate

and
net distributable estate.

GROSS ESTATE
Real or immovable property
Tangible personal property
Intangible personal property
Transfers in contemplation of
death
Revocable transfers Transfers
under the general power of
appointment
Proceeds of life insurance
Exclusions such as SSS, GSIS,
etc.

ALLOWABLE DEDUCTIONS
Funeral expenses **
Judicial**
Unpaid taxes
Claims against the estate
Claims against insolvent person
Losses
Transfer for public purpose
Vanishing deduction
Standard deduction
Family home
Medical expenses**
Amount received under RA 4917
Share of surviving spouse
NET TAXABLE ESTATE
ESTATE TAX DUE
DISTRIBUTABLE NET ESTATE

163
Net Taxable Distributable Estate
Estate
included
included
included included
included included
included included
included included
included included
included
included
not included included

Non-deductible Actual expense

Non-deductible Actual expense
actual actual
actual actual
actual actual
actual (settlement period) actual
actual actual
as computed Non-deductible
P5M Non-deductible
with limit of PI 0M Non-deductible
Non-deductible actual
actual Non-deductible
h net conjugal h net conjugal
Pxxx Px
xx

Pxxx (xxx)

**No longer allowed as deductions from gross estate beginning January 1, 2018.

The rules in classifying property into conjugal and exclusive property are the same for
purposes of computing the net distributable estate.

The estate tax due shall be deducted in computing the net distributable estate

For purposes of illustration, assume the decedent in the Formula above is a citizen
decedent.

163
NET DISTRIBUTABLE ESTATE

Net taxable estate is the result of the application of the law und er
estate taxation. Net distributable estates on the other hand, is the
amount arrived at from gross estate consisting all properties in the
possession and control of the decedent at the time of death and actual
expenses, charges and payments from the gross estate.
162
ILLUSTRATION 3:
C ers-
A resident alien decedent,
House and Lot,
Car in Ayala
Alabang
Cash in bank, Ayala
House and Lot-
Global
Cash in bank- Cash in bank-Libis, Q.C
Global House and Funeral expenses
Lot-Libis, Judicial expenses
Claim against the
estate
Losses
(50% were incurred
Medical expenses

Determine the correct amount

Solutw ESTATE TAX DUE:

Gross Estate
Deductions:
Claim against the estate
Losses (within the settlement
Medical expenses
Standard deduction
Family Home Net
Taxable Estate x
Estate tax rate
Estate Tax Due

Solution-NET DISTRIBUTABLE
Gross Estate Deductions:
Funeral expenses
Judicial Expenses
Claim against the estate
Losses
Medical expenses
Estate Tax Due
Net Distributable Estate

167
 head of the
family, died in
2023 leaving the
following:
Ayala Alabang (Family Home)

Alabang
City City
Q.C.

more than 1 year after death)

of estate tax due and the net distributable estate.

168
 PROBLEMS

The administrator of a decedent (single) died with the following

information:
Net estate before special deductions,
Philippines
Net estate, France

Estate tax paid, France 200,000

REQUIRED: Determine the estate tax payable assuming:

a) The decedent was a resident citizen, determine the estate
tax payable.
b) The decedent was a nonresident alien, determine the estate
tax payable.

P5.2.
A Filipino decedent, residing in U.S. died in 2023 leaving the following:
Net taxable estate, Philippines
Net taxable estate, Canada
Net taxable estate, USA
Estate tax paid in USA 90,000
Estate tax paid in Canada 520,000
REQUIRED: Determine the estate tax payable.

Net taxable 200,000

Estate tax paid in Singapore

169
A Estate tax paid in China 100,000
Estate tax paid in Japan
resident alien decedent died in 2023 leaving the
following:
Net taxable estate, Philippines
Net taxable estate, Singapore Net taxable estate,
China estate, Japan

REQUIRED: Determine the estate tax payable.

170
 P5.4.
A nonresident citizen (head of the family) from Quezon City died
intestate on November 2, 2023. The following data were provided to
you:

House and lot, USA (family home)

Parcel of land in Quezon City inherited from his father 2 %

years ago
Investment in bonds of a foreign corporation (85% of its 700,000
business is located in the Philippines)
Cash in bank, USA 650,000
Cash in bank, Philippines 450,000
Accounts receivable from a debtor who resides in Quezon 200,000
City (fully uncollectible)
Investment in stock, Philippines800,000

car, USA
Car, Philippines 800,000
Actual funeral expenses 480,000
Judicial expenses 300,000
Claim against the estate (indebtedness of the decedent in 940,000
the Philippines during his lifetime)
Unpaid Philippine income tax for income in 2021 and 2022 320,000
Loss on December 31, 2023 due to theft (Q.C., 180,000
Philippines)
Devise to Quezon City for children's playground
Medical expenses incurred prior to death 500,000
DETERMINE THE FOLLOWING:
a) Net Taxable estate
b) Estate tax due
c) Net distributable estate

171
 MULTIPLE CHOICE. Choose the letter of the correct
answer.
1. Tax credit for death taxes paid to a foreign country is not allowed to a
decedent who was
a. Non- resident citizen of the Philippines
b. Resident alien decedent
c. Non-resident alien with intangible personal property in the
Philippines and there is reciprocity.
d. None of the above.
Cyl%er Eceerctses Creat@ Es&zfe

2. Which of the following is not allowed with tax credit for payments of estate
tax on foreign countries?
a. An American residing in the Philippines atthe date of death
b. A Filipino citizen who migrated in the United States.
c. An alien who was a resident of his own country at the date of death
d. None of the above

3. Statement 1: Tax credit for foreign estate tax is allowed to minimize the effect
of multiplicity of situs.
Statement 2: Filipino citizen decedents whether resident or nonresident are
allowed of tax credit for foreign estate tax.

a. Statements 1 and 2 are false

b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
4. The amount derived by the ratio of net estate in foreign country over net
estate from all locations on the Philippine estate tax.
a. Vanishing deductions c. Estate tax credit limit
b. Estate tax credit d. Tax avoidance

5. A Filipino taxpayer died in 2021 leaving the following:

Net taxable estate, Philippines, P3,000, 000; Net Estate - Korea,
Estate tax paid in Korea, P80,OOO.

172
 How much is the estate tax due after tax credit?
a. P60,OOO c. P200,OOO
b. P180,OOO d. P240,OOO

6. An American, residing in the Philippines, died in 2023 leaving the

following estate before deducting special deductions,
if any:
Net taxable estate, Philippines
Net taxable estate, Qatar Net taxable estate, Dubai
Estate tax paid, Qatar
Estate tax paid, Dubai

There is no estate tax law in Qatar and Dubai. The estate tax due
after tax credit is c. P600,OO
a. PO
b. P400,OOO

173
 cid

7. The decedent is a resident citizen under the absolute community

property regime. The following data were provided:

Gross estate, Philippines p 14,000,000

Gross estate, France
Deductions, Philippines
Deductions, France
Estate tax paid, Philippines
Estate tax paid, France 30,000

Community property is composed of 60% of the total estate

including a family home amounting to

The correct estate tax due after tax credit is

a. P90,OOO c. Pi50,OOO
b. P60,OOO d. P125,OOO