TAXATION MIDTERM REVIEWER

DONOR'S TAX
Donor's tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of
property between two or more persons who are living at the time of the transfer. It shall
apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect and
whether the property is real or personal.

Why is donation subjected to tax?

1. Donor's tax serves to compensate for loss of income to taxes the government brought by
splitting the capital resources to smaller portions.
2. To prevent the avoidance of estate tax.
3. To compensate for the limitation of income taxation.

Essential Requisites of donation:

1. Capacity of the donor
2. Intention to Donate
3 Donative Act - actual or constructive (.e.: execution of a public instrument) delivery
4. Acceptance by the donee*
"required only in direct donation but not with indirect donation as in the case of transfer
with insufficient consideration.

Kinds of Donation:
1. Inter Vivos - donation between living individuals
2. Mortis Causa - takes effect upon the death of the donor
Types of Donor:
A. Citizen or Resident Alien
Properties transferred regardless of location (.e.: within or outside the Philippines) is
taxable under Donor's Taxation.
B. Non-resident Alien
Only properties within the Philippines are subject to Donor's Tax.

Which Donation can be included in Gross Gift?

Alien
Citizen Non-resident
Resident

Properties located in the Philippines Include Include Include Include

Properties located abroad Include Include Exclude

Which properties are considered located in the Philippines?

For purposes of Donor's Taxation the following are situated in the Philippines:
1. franchises which must be exercised in the Philippines
2. share, obligations, or bonds issued by any corporation or sociedad anonima organized in
the Philippines in accordance with its laws
3 share, obligations, or bonds issued by any foreign corporation 85% of the business of
which is located in the Philippines
4. share, obligations, or bonds which have acquired situs in the Philippines
5. any personal property, whether tangible or intangible, located in the Philippines

Reciprocity in Donor's Taxation

The intangible property transferred by a non-resident alien donor shall be exempt from
Donor's Tax if either one of the following is satisfied:
a. The country to which such non-resident alien donor is a citizen does not impose donor's
tax on similar transfer of intangible properties to Filipino citizens not residing therein.
b. The country to which such non-resident alien donor is a citizen allows similar exemption
to the transfer of intangible personal property of Filipinos not residing therein.

Nature of Donation:
a. There is a transfer of properties (real or personal, tangible e or intangible) directly or
indirectly in trust or otherwise.
b. The transfer is gratuitous (without consideration).
c. The donation is made inter-vivos.

Classification of Donor's Tax:

a. proportional tax- fixed percentage to apply to donations to strangers
b. excise tax - being a on privilege to transfer properties
c. direct tax- paid by the statutory taxpayers without shifting.
d. ad valorem tax - imposed based according to value
e. national tax - levied and collection by the national government
f. general tax - fiscal or revenue purpose, not specific
g. annual tax - imposed upon yearly donation

Mode of Execution of Donation:

Depending on the property involved, donation can be executed by the following:

1. Real or immovable property

Issuance of a public instrument, Deed of Donation
Note to candidates: Donation of real properties is not subject to donor's tax but
are subject to the 6% capital gains tax. It should be noted that the 6% capital
gains tax covers sale, exchange and other disposition of real properties.
2. Personal property
1. Tangible
a.P5,000 and below in value - oral is allowed
 b. More than P5,000 in value - donation and acceptance should be in
writing (for validity)
2. Intangible - execution public instrument

The following transfers, if without adequate or full consideration, are not within the scope
of Donor's Tax but within the
Scope of Estate Tax:

1. Revocable transfers
2. Transfers with reservation to the right to income of the property until death
3. Transfer with reservation to the right to the possession or enjoyment of the
property until death
4. Transfer in contemplation of death - refers to transfers motivated by the thought
of death not from motives associated with life
Transfers associated with life such as the following are not transfer in
contemplation of death and hence taxable under Donor's tax:
a. to relieve the donor of the burden of management of the property
b. to save income taxes
c. to make the children financially independent
d. to settle family disputes
e. to see children enjoy the property while the donor still lives
5. transfer under general power of appointment

Exempt Donation under Special Laws

1. International Rice Research Institute

2. Ramon Magsaysay Award Foundation
3. National Health Insurance (RA. 7875– National Health Insurance Act of 1995)
4. National Commission on Indigenous People (R.A. 8371- The Indigenous People
Right Act of 1997)
 5. Donations in accordance with the R.A 9003 - Ecological Solid Waste
Management Act of 2000.
6. Donations to the Pollution Adjudication Board under R.A. 8749- The Philippine
Clean Air Act of 1999.
7. Southern Philippines Development Administration
8. Philippine American Cultural Foundation
9. Integrated Bar of the Philippines
10. Development Academy of the Philippines
11. National Social Action Council
12. Museum of Philippine Costumes
13. Aqua-Culture Department of South East Asia Fisheries Development Center of
the Philippines
14. Intramuros Administration
15. Philippine Inventor's Commission

Exempt Donation under the NIRC, as amended

1. Gifts made to non-profit organization, foundation or trust:

Non-profit organization - an organization that:
1. is organized asa non-stock entity
2. pays no dividends
3. governed by trustees with no compensation
4. and devoting all income to the accomplishment of its purposes
For example: educational, charitable, religious, cultural, social
welfare, philanthropic organization, research institution and
accredited non-government organization.

Provided that, not more than 30% of said gifts are used by the above
entities for administrative purposes (.e.: to be verified by BIR)
 Donors engaged in business to qualified donee institutions shall give
notice of donation for every donation worth at least P50,000 to the
RDO which has jurisdiction over the place of business within 30 days
after the receipt of the qualified donee institutions certificate of
donation.
2. Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit
3. Bona fide, at arm's length and donative-intent free sale, exchange or other
transfer of other property made in the ordinary course of business

DEDUCTIONS FROM GROSS GIFT

1. Encumbrances on the property donated, if assumed by the donee
2. Those specifically provided by the donor asa diminution of the property donated

Note to candidates:
The amount of gift taxable represents the net benefit accruing to the donee. Net gifts as
defined herein represents the net cumulative amounts of gift for the whole calendar year;
however, the donor's tax thereon is paid quarterly based on net cumulative gift.

Donor's Tax: 6% of the net gift in excess of P250,000

Gifts involving Conjugal or Community Property or Co-owned property

Each Spouse or co-owners shall file separate returns corresponding to his or her
respective share in the conjugal or community or co-owned property. Separate
classification of the recipient depending on their relation or affinity with the donor is
required.
Tax Credit for donor's tax paid to a foreign country
Can be claimed only by donors those whose gift are taxable even if made outside the
Philippines.:

1. resident citizens
2. non-resident citizens

resident aliens
The allowed creditable donor's tax paid to a foreign country shall be subject to limit similar
to the limitations in foreign tax credit in income taxation and estate tax.

Filing of Return and Payment of Tax

• Donor's tax return shall be filed within 30 days from the date of gift. The tax due
thereon is to be paid at the time of filing the return.
• For gifts made to related parties, gifts made on the same day will be filed in a
singe Donor's Tax Return.
• For donations made by husbands and wife out of their common property, the
donation is deemed made by each; hence, both shall prepare separate Donor's
Tax Return and claim separate deductions.
• The Return shall be filed to the same receiving entities as enumerated in income
and estate taxation.

Filing Requirements:
A return under oath in duplicate which shall set forth the following:

1. each gift made during the calendar year which is to be included in computing
net gifts
2. the deductions claimed and allowable
3. any previous net gifts made during the same calendar year
4. the name of the donee, and
 5. such further information as may be required by rules and regulations made
pursuant to law

Donor's tax is imposed on both direct and indirect gifts. TRUE

Mortis causa donation takes effect during the lifetime of the donor. TRUE
Non-resident aliens are only taxed on properties located within the Philippines. TRUE

Revocable transfers are subject to Donor's Tax. FALSE

Donor's Tax serves the same purpose as Estate Tax. FALSE

Tangible personal property valued at more than P5,000 requires a written donation for
validity. TRUE

The Donor's Tax return must be filed within 60 days from the date of gift. FALSE

The National Health Insurance is an example of an exempt donation under special laws.
TRUE
Reciprocity in Donor's Taxation applies only to non-resident aliens. FALSE

Encumbrances assumed by the donor decrease the taxable amount of the gift. TRUE
 TRANSFER TAXATION: Estate Tax

ESTATE TAXATION
Taxation of mortis causa transfer or succession.

• Its object is to tax the shifting of economic benefits and enjoyment of property
from the dead to the living.
• Estate taxation is governed by the statute in force at the time of death of
decedent.
• There shall be levied, assessed, collected and paid upon the transfer of the net
estate as determined in accordance with Sections 85 and 86 of every decedent,
whether resident or non-resident of the Philippines, a tax at the rate of six
percent (6%) based on the value of such net estate.

Succession - a mode of transmission of the ownership, rights, interests and obligations

over property by reason of death of the owner in favor of certain
persons designated by the owner himself or by operation of law.

Elements:

1. Decedent - the person who died whose properties, rights and obligations are
transmitted.
2. Successor - the person to whom the property, rights and obligations of
the decedent will pass.
3. Estate - the properties, rights and obligations of the decedent (inheritance)

Kinds of succession:

1. Testate (Voluntary) - succession is carried out according to the wishes of the

testator expressed in a will executed in the form prescribed by law.
2. Intestate (Involuntary) - succession without a will or with one
invalid, succession will take effect by operation of law.
Estate Tax - tax on the privilege of the decedent to transmit his estate at death to his
lawful heirs or beneficiaries.

General Principles:

1. The properties of citizens and resident aliens located within or outside the
Philippines shall be included in gross estate.
2. The properties of non-resident alien located within the Philippines shall be
included in gross estate; however, intangible properties within the Philippines
shall be subject to reciprocity.

There is exemption reciprocity only when:

1. the foreign country of the non-resident alien do not impose estate tax
2. the foreign country of the non-resident alien to which he or she is a resident
allows the same exemption for intangible properties for non-residents.

GROSS ESTATE COMPUTATION

Properties existing at the point of death XXX
Taxable transfers XXX
Exempt transfers (XXX)
Exclusion by law (XXX)
Gross estate XXX

Taxable Transfers- transfers with insufficient considerations

1. transfer in contemplation of death as distinguished from motives associated

with life.
2. revocable transfers
3. properties passing under a general power of appointment.

Exclusion in the gross estate of a citizen or resident alien decedent by law:

 1. Not owned by the decedent:
• the merger of usufruct in the owner of the naked title
• the transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicomissary
• the transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor
(special
power of appointment)
• Separate property of the surviving spouse
• Proceed of irrevocable life insurance policy payable to beneficiary
other than the estate, executor or administrator
(Note: revocable designation becomes irrevocable upon the death of
the decedent. See Section 11, Insurance Code.)
2. Exempted properties:
• All bequest, devises, legacies or transfers to social welfare, cultural
and charitable institution, no part of net income of which inures to
the benefit
of any individual; provided, however, that not more than 30% of the
said bequest, devises, legacies or transfers shall be used by such
institutions for administration purposes
• Proceeds of group insurance taken out by a company for its
employees
• Proceed of GSIS policy or benefits from GSIS
• Benefit received from SSS
• Personal Equity Retirement Account

Valuation of the Estate:

 1. Usufruct - consider into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality Table. (same rule
apply with annuity)
2. Properties - the estate shall be appraised at its fair value as at the time of death.
However, the appraised value of the property as of the time of
death shall be whichever is higher of:
A. Fair market value as determined by Commissioner
B. Fair market value as shown in the schedule of values fixed by the
Provincial or City Assessors
C. Fair Value - the price at which property would change hands between
a willing seller and a willing buyer, neither of whom is under
compulsion to
sell or to buy

MARRIED DECEDENTS

A. ABSOLUTE COMMUNITY OF PROPERTY

The absolute community of property between spouses shall commence at the
precise moment that the marriage is celebrated. Any stipulation, express or
implied, for the commencement of the community regime at any other time
shall be void. (Article 88, Farmily Code).
Under the regime, the community property shall consist of all the property
owned by the spouses at the time of the celebration of the marriage or
acquired thereafter. (Article 91, Family Code).

Exclusive Property:
1. Property acquired before the marriage by either spouse who has
legitimate descendants by a former marriage, and the fruit of such
property
 2. Property acquired during the marriage by gratuitous title by either
spouse and the fruits thereof; unless, it is expressly provided by the
donor or testator that they shall form part of the community property
3. Property for personal and exclusive use of either spouse, except
jewelry.

Community Property- all other properties owned by the spouses after

marriage or acquired thereafter

B. CONJUGAL PARTNERSHIP OF GAINS

Under the regime of conjugal partnership of gains, the husband and wife place
in a common fund the proceeds, products, fruits and income from their
separate properties and those acquired by either or both spouses through their
efforts or by chance, and, upon dissolution of the marriage or of the partnership,
the net gains or benefits obtained by either or both spouses shall be divided
equally between them, unless otherwise agreed in the marriage settlements.
(Art. 106 Family Code)
Exclusive Property:
1. That which one already owns before his or her marriage, except fruit
of such property
2. That which one acquired after the marriage by gratuitous title (e.g.
donation or inheritance) or by exchange with an exclusive property,
except the fruits of such property.
3. That which is acquired by right of redemption, by barter or by
exchange with property belonging to only one of the spouses; and
4. That which is purchased with exclusive money of the wife or of
the husband.

Conjugal Property - all other properties are presumed to be conjugal

(gains from labor and fruits of exclusive property)
DEDUCTIONS FROM GROSS ESTATE

1. Losses, Indebtedness and Taxes (LIT)

A. citizen or resident alien - deductible fully
B. non-resident alien - the deductible amount shall be the prorated total
world LIT by which the Philippine gross estate bears with the total
world gross estate
2. Transfer for public purpose (government or any political subdivisions)
3. Deductions for properties previously taxed (vanishing deductions)
4. Family home with maximum value deductible not to exceed P10,000,000.00
5. Standard deduction for citizen or resident alien decedent only of P5,000,000.00
6. Retirement benefit received by employees of private firms form private pension
plan approved by the BIR under RA 4917
7. Net share of the surviving spouse in the conjugal partnership property or
community property as diminished by the expenses properly chargeable to such
property shall be deducted from the estate

Deductible Amount of Losses, Indebtedness, and Taxes:

1. Losses due to fire, storm, shipwreck or other casualty

2. Losses due to theft, robbery, or embezzlement
Requisites for deductibility of losses:
A. the loss is not compensated by insurance or otherwise
B. the loss is not claimed as a deduction in the estate income tax return
C. the loss must occur not later than the last day for payment of the
estate tax (1 year from the decedent's death)
3. claims of the decedent against insolvent person, where the value of the
decedent's interest therein is included in gross estate
4. claims against the estate:
Debt instrument - notarization at the time of incurrence; if contracted within
 three years before the death of the decedent, a statement showing the
disposition of the proceed must accompany the estate tax return.
5. unpaid mortgage, where the value of the decedent's interest, undiminished by
the mortgage, is included in the gross estate
6. income tax on income prior to the death of the decedent
7. property taxes which have accrued prior to death of decedent

Vanishing Deduction Requisites:

1. property is part of the gross estate of the present decedent situated in the
Philippines
2. the present decedent acquired the property by inheritance or donation within 5
years prior to his death;
3. the property subject to vanishing deduction can be identified as the one
received from the prior decedent, or from the donor, or can be identified as
having been acquired in exchange for the property so received;
4. the property acquired form part of the gross estate of the prior decedent, or of
the taxable gift of the donor;
5. the estate tax on the prior transfer or the gift tax on the gift must have been paid;
and
6. the estate of the prior decedent has not previously availed of the vanishing
deductions

Percentage of Vanishing Deduction:

• Based on the interval of the death of the present decedent and the time of death of the
prior decedent or the date of gift whichever is relevant

More than Not more than Percentage

- 1 year 100%
1 year 2 year 80%

2 year 3 year 60%

3 year 4 year 40%

4 year 5 year 20%

5 year - 0%

How to compute Vanishing Deductions?

1. Determine the initial value which is whichever is lower between the fair market
value of the property used in computing the first transfer tax paid (estate or
donor's tax) and the fair market value of the property in the present decedent.
2. Compute initial basis by deducting from initial value any encumbrances or liens
on the property that are paid by the present decedent where such
lien or encumbrances are deductions on the prior decedents gross estate or on
the donor's taxable gift.
3. Compute the final basis by reducing the initial basis by an amount representing
what the initial basis bears with the gross estate to the expenses, losses,
indebtedness and taxes (ELIT) and transfer for public purpose. To illustrate:
To illustrate:
(Initial basis/Gross estate) x ELIT +Transfer for public use
4. Determine the vanishing deduction by multiplying the final basis by
the corresponding rate that apply for the time period from the point the property
was transferred by the prior decedent (i.e.: point of death) or by the donor (.e.:
date of gift).

Family Home

• Composed of the land and the dwelling house to which the decedent and his
family resides
 • Shall be included in gross estate at whichever is higher between its zonal value
and assessed value at the point of death of the decedent

Requisites:

1. Death of the decedent shall be after July 28, 1992

2. Total value of the family home must be included in gross income
3. the family home must be the actual residence of the decedent and his family at
the time of death, as certified by the Barangay Captain of the locality where the
family home is situated
4. Deduction cannot exceed whichever is higher between the zonal or assessed
value at the time of death and P10,000,000.00
5. It is a deduction from either common or personal property or
separate properties of the decedent.

NET TAXABLE ESTATE

Unmarried decedent

Married Decedent

Tax Credit for Estate Tax Paid to a Foreign Country:

• claimable only by individual whose taxable estate comprise of properties within

and outside the Philippines (citizens and resident alien)
• the deductible tax credit shall be whichever is lower of the amounts as
computed by the following limits (A and B) similar to deductible tax credit
in income taxation:
Where to file
Except in cases where the Commissioner otherwise permits, the return required shall be
filed, either electronically or manually, with any

1. Authorized agent bank

2. Revenue District Office through Revenue Collection Officer or
3. Authorized tax software provider.

Time of Payment
The estate tax shall be paid, either electronically or manually, at the time the return is filed
by the executor, administrator or the heirs.

Filing of an Estate Tax Return is now required regardless of the value of the estate:
Registrable Properties includes, but is not limited, to:

1. Real property
2. Motor vehicle
3. Shares of stock

CPA Certification is required only when the value of the gross estate exceeds
P5,000,000.00. Such certification to include:

1. Itemized asset of the decedent with valuation

2. Itemized deductions
3. Tax due and payable

Extension of Filing
 • The Commissioner shall have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days for filing the return.
• The estate tax return may be paid in installment over two years.
• Where the taxes are assessed by reason of negligence, intentional disregard of
rules and regulations, or fraud on the part of the taxpayer, no extension will be
granted by the Commissioner.
• If an extension is granted, the Commissioner may require the executor, or
administrator, or beneficiary, as the case may be, to furnish a bond in such
amount, not exceeding double the amount of the tax and with such sureties as
the Commissioner deems necessary, conditioned upon the payment of the said
tax in accordance with the terms of the extension.

Beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable
for the payment of such portion of the estate tax as his
distributive share bears to the value of the total net estate.

Banks with knowledge of the decedent's death shall subject withdrawal from the
decedent's account to a 6% final withholding tax. The requirement does not apply if the
property is included in the gross estate and the estate tax have been paid.
• Estate tax is imposed not on the decedent nor on the property transmitted upon
death but on the "privilege" to transfer properties gratuitously upon death.
• Estate tax is not an indirect tax. Though the personal obligation to file and pay
the estate tax rests with the administrator/executor or any of the heirs.,
respectively, the "burden" of paying the tax is not shifted to them. The money
used to pay the estate will be taken from the estate, not from the
administrator/executor or any of the heirs.
• For Philippine Taxation purposes, indirect taxes pertain only to "business
taxes". Estate tax is a transfer tax, not a business tax.
The common characteristic of transfer taxes is that the transfer of property:

ANSWER: is gratuitous

When an indebtedness is cancelled without any service rendered by the debtor in favor of
the creditor, the forgiveness of debt will result to:

ANSWER: taxable donation

Donation between living individuals is called
ANSWER: INTER VIVOS
It is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of the transfer. It shall apply
whether the transfer is in trust or otherwise, whether the gift is direct or indirect and
whether the property is real or personal.

ANSWER: DONOR'S TAX

An act of liberality whereby one disposes gratuitously a thing or right in favor of another
who accepts it
Donation

Donor's tax is:

ANSWER: An excise tax
A non-resident citizen donor is taxed on his donation of properties:
ANSWER: Wherever situated

The donor's tax return shall be filed within:

ANSWER: thirty days after the date the gift is made or completed
If the donor retains an unlimited power to revoke the gift, it is clear that gift has occurred.
ANSWER: FALSE
A revocable gift is not yet considered a gift, hence not yet subject to donor's tax.
Donor's tax is a direct tax
ANSWER: TRUE
Donor's tax is a direct tax. The burden of paying the tax cannot be shifted to other
person(s) or 3rd party. Under NIRC, only business taxes (like Vat and OPT) are considered
indirect taxes.
The tax imposed on the right to transmit property at death is known as:
ANSWER: Estate Tax
Estate tax is_
ANSWER: An excise tax because the object of which is the shifting of economic
benefits and enjoyment of property from the dead to the living.
It is a 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 either by his will or by operation of law.
ANSWER: Succession
Who has the personal liability to pay estate tax?
ANSWER: The administrator or executor
The taxpayer in estate tax is:
ANSWER: The estate as a juridical entity
Person appointed by court to supervise the partition of properties of the estate.
ANSWER: ADMINISTRATOR

Transfer taxes are also [________] taxes as they are based on the value of the net estate or
gift.
ANSWER: AD VALOREM
Other term for Illegitimate children.
ANSWER: CONCURRING HEIRS
The transferee under Inter-vivos transfer is called?
ANSWER: DONEE
This transfer of property is effected upon the death of decedent.

ANSWER: MORTIS CAUSA

It refers to the deceased person whose estate is transmitted through succession.

ANSWER: DECEDENT
Recipient / Heir receiving personal property composing the estate is called

ANSWER: LEGATEE
NOTE: LEGATEE refer to those receiving personal property, and DEVISEE refer to those
receiving real estate.
40% of the testator's estate is usually called.
ANSWER: FREE PORTION

It is well settled rule that estate taxation is governed by the statute in force at the time of:
ANSWER: Death of the decedent

It is a written will which must be entirely written, dated and signed by the hand of the
testator himself. It subject to no other form and it may be made in or out of the Philippines
and need not be witnessed.
ANSWER: Holographic will
The portion of the decedent's estate which the law reserves to his compulsory heir is
called:
ANSWER: Legitime
One of the following is subject to estate tax on properties situated within the Philippines only

ANSWER: Nonresident alien

The personal properties of a non-resident, not citizen of the Philippines, would not be
included in the gross estate if:
ANSWER: The intangible personal property is in the Philippines and the reciprocity clause
of the estate tax law applies.

Shares not deemed property within the Philippines when

ANSWER: The shares are issued by a foreign corporation with no business situs in the
Philippines

In case of a resident decedent, the administrator of executor shall register the estate of the
decedent and secure new TIN from the
ANSWER: RDO where the decedent was domiciled at the time of his death

BIR Tax Form # for Estate Tax Return

ANSWER: BIR Form 1801
If the decedent died on or after January 1, 2018, the estate tax return should be filed
ANSWER: Within one (1) year after death
 VALUE ADDED TAX

BUSINESS TAXES

Definition

-are those imposed upon onerous tranfer such as sale, barter, exchange and importation

Exception

Any business pursued by an individual where the aggregate gross sales or receipts do
not exceed 100,000 during the any 12 month period.

TYPES

1. Value Added Tax

2. Other percentage Tax
3. Excise Tax
4. Documentary Stamp Taxes

VAT- is a TAX CONSUMPTION