TRANSFER AND BUSINESS
TAXATION
Introduction to Transfer and Estate Taxation
SECTION 21 OF THE NIRC : NATIONAL
INTERNAL REVENUE TAXES
• Income tax – imposed on earnings
• Business Taxes – imposed on the right or privilege to engage in onerous transfer
• Value- added tax
• Other percentage taxes
• Excise tax
• Transfer taxes – imposed on one’s right to make casual or gratuitous transfer
• Estate tax
• Donor’s tax
• Documentary stamp tax – imposed on the right to enter into a transaction; document
needed to be filed in any government offices.
TRANSFER TAXES AND BASIC SUCCESSION
NATURE OF TRANSFER TAXES
• Transfer taxes are also called excise or privilege taxes. These taxes are imposed for
passing gratuitously private properties to the heirs in case of death, or to the donee
in case of donation.
MODES OF PROPERTY TRANSFER
• ONEROUS TRANSFER – exchange of property for monetary consideration or transfer
of goods or service
• Normal Course of Business – Business Taxes
• Casual Transfer – Capital Gains tax
• GRATUITOUS TRANSFER – conveyance of property without any consideration
involved in exchange for the property given away.
• Fact of death (Mortis- causa) – Estate tax
• Donation (Inter vivos) – Donor’s tax
NATURE OF DONOR’S TAX
• An excise tax imposed on the right to transfer gratuitously, directly or indirectly, real
and personal properties, tangible or intangible out of the owner’s liberality in favor of
another that accepts the gift.
• Its basic purpose is to prevent the nonpayment of estate tax since the properties are
transferred without consideration while the property owner is still alive.
• Effectivity : During the lifetime of the donor and done
• Taxpayer : The donor
• Basis of tax : The net gift
• Filing and payment : Within 30 days after the date gift is made
NATURE OF ESTATE TAX
• A tax on the transfer of the net estate of the decedent.
• The obligation to pay the estate tax accrues at the moment of death.
• The objective of estate tax is to tax the transfer of economic benefit and enjoyment of
property from a decedent person to the heir.
• Effectivity : Upon the death of the decedent
• Taxpayer : Estate
• Basis of tax : The net estate
• Filing and payment : Within 6 months from the decedent’s death
BASIC CONCEPT OF SUCCESSION
• Succession - 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 or others either by will (testate) or by operation of law
(intestate).
• Basic elements : Decedent/ Testator, Estate/ Inheritance, Successor
BASIC CONCEPT OF SUCCESSION
• Will – a document that determines the disposition of an inheritance
• Codicil – a supplement or addition to a will, made after the execution of a will and
annexed to be taken as a part thereof.
• Holographic Will – One entirely written, date and signed in the very handwriting of
the testator himself and is subject to no required form, and maybe in or out of the
Philippines, and maybe without a witness.
• Notarial Will – a will written in public instruments, notarized by a lawyer, signed by
testator and witnesses.
BASIC CONCEPT OF SUCCESSION
• Testate Estate – an estate of deceased person which is settled or to be settled with a
valid last will and testament.
• Intestate Estate – An estate of deceased person without a will.
• Probate – a special proceeding to establish the validity of a Will. (mandatory)
• Reprobate – a special proceeding to establish the validity of will previously proved in
a foreign country.
• Legatee – one who is given personal property through a will.
• Devisee – one who is given real property in a will.
BASIC CONCEPT OF SUCCESSION
• Executor – the person named in the will who is entrusted to implement its provisions.
• Administrator – the person entrusted and assigned by court for the care, custody, and
management of the estate of decedent until the estate is partitioned and distributed
to the heirs, legatees, or devisees.
• Special proceeding – a remedy by which a party seeks to establish a status, a right, or
a particular fact.
• Escheat – a proceeding whereby the State, by virtue of its sovereignty, steps in and
claims the property of a person dies intestate without heir.
BASIS OF SUCCESSION
• Public Order . Immediately, upon the person’s death, his property becomes without
ownership. To avoid chaotic conflicts, the heirs are protected by law to succeed the
rights of the decedent.
• Family Relations. The principle of the Natural Law necessitates a person to provide
for those he left behind.
• Implicit Ownership. As a consequence of death, heirs assume ownership of property
left by the decedent because they have the primary rights over the inheritance.
• Socio- economic. The wealth left by the decedent should be actively used to provide
economic benefit to the community.
SUCCESSORS
• The parties who have the legal right to receive the estate. The successors to the are
classified as :
• Primary Compulsory Heirs
• Legitimate children and their descendants, with respect to their legitimate parents and
ascendants
• Surviving legitimate spouse
• Illegitimate children and their descendants
• Secondary Compulsory Heirs
• Legitimate parents and legitimate ascendants
• Illegitimate parents
ABSENCE OF COMPULSORY HEIRS
• The successors would be:
• The decedent’s relatives up to the 5th degree consanguinity
• If there were no relatives to receive the estate, the government shall inherit the whole
estate.
• If there is a will, the decedent may name other persons to inherit the free portion of the net
distributable estate.
ILLUSTRATION
Mrs. Mina Las died leaving the following properties;
1000 sq. meters residential lot 1,000,000.00
Second hand car 200,000.00
Jewelry 300,000.00
In her last will and testament, Mrs. Las assigned her brother, Ric Lamo, to administer the distribution of her
properties upon her death, which should be dispose as follows:
1. The residential lot to her only son, Mado.
2. The car and jewelry to Ric.
Decedent, Testator, Estate, Executor, Successors, Compulsory heirs, Devisee, Legatee?
