Transfer Taxes

Next meeting Lecture and quiz

- Situs is important in estate tax and donors tax

1. Resident or citizens-property where it is situated.
2. Non-resident alien

Resident alien is dying in the PH leaving a BMW located in California. Does the BIR has JD to
tax?
Yes forms part of the gross estate of the value of the PH

- If the decedent is resident or citizen of the PH. All his properties.

How to determine residence. EG

OCW (NRC, income received from the PH.) check 22E3

OFW (NRC sec 183 days stay is abroad)

X an OFW died in Saudi for 200 days. Whether or not resident citizen or non resident citizen for
estate tax purposes?
 For income tax sec 22(e)(3) not a non resident citizen (NRC) (22(e)(3) does not apply to
transfer tax)
 He is considered resident citizen for estate tax purpose. For estate tax residence not
means actual residence. In tax it is considered as domicile.

X Filipino dies a resident of Alabama USA he left family home in Makati. Is he resident of Non
Resident?
 Resident Citizen because of the family home in Makati and also as a citizen of the PH

As amended by the train law it is fixed on a 6% rate. The rationale is to equalize sale of real
property held as capital assets.

What is better Donation or estate tax= qualify if the property sought to be transfer is Real
Property the practical thing to do is donate. Because the tax will be at the time of donation in
estate it is at the time of death. Ideally it is better to donate when the value of the property is
appreciates.

Inclusion rules sec 85(e) on proceeds of life insurance.

- Correlate it to income tax. The first thing to look in the problem is who procured the life
insurance and upon who’s life/
- For it to be included the policy must be procured by the decedent upon his or her life

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 o Who is the beneficiary- if the beneficiary is the executor, administrator or estate
regardless of the designation it is included
o Designation of beneficiary- is revocable it is included. It is included because the
decedent has still control. It pertains to the nature of testamentary disposition
and the beneficiary will be the heirs
o What if there is conflict between the two the beneficiary is EAE and designation
is irrevocable it is still included

beneficiary designation
EAE R included
EAE IR included
NOT EAA R included
NOT EAE IR excluded

If the policy owner did not change the beneficiary during his lifetime, the policy is deemed
irrevocable
Also when it silent irrevocable ( but for tax purposes revocable)

INCOME TAX

XYZ company procures lif insurance of the life of the President beneficiary
a. Corporation
b. Heirs of the president

1. Are the proceeds of life insurance included in the gross estate?

 No. because is it not procured by the president

2. Are the proceeds subject to income tax

 No by express provision of art 32(B)(1). it is not income it is indemnity.

3. Are the premiums paid by the corporation subject to fringe benefits tax
 NO 33C(2)

4. Is it deductible for income tax purposes

 It depends if the corporation is the beneficiary not deductible ( 36A)
 If heirs deductible

EXCLUSION (87)(A)
- Transfer made of divided interest correlate with 32B(3).

E.g X wheter by donation or succession transfer naked ownership to A and usufruct to B. the
transfer of X by will. Assuming that 80M is the value of usufruct. And legal title is 20M.

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condtion in the will that the death of usufructuary transfer will be given to A. then it is not
subject to estate tax.

How to use 87(A)

H and W has an ancestral house exclusive property of W. W died. W before death, usufruct to H
and the legal title is to the children. Usufruct is transferred to the children upon death of H. not
subject to estate tax.

X has company he owes 96% share and 1% to other. In BOD 1 lang sya. What is don,e in practice
is declaration of trust. Y is the owner but in declaration of trust e.g he is the owner. in paper Y
has legal title X has the beneficial title.

In 32B(3) in cases of divided interest

- Donation of property not subject to income tax
- If it is income generation, therefore the income of the donated property included
income tax
- Donation of income- not subject to donors tax. It is part of the gross income.

87(d)
- Enumeration of the institution there is exclusive. 1. Cultural 2. Social welfare and 3.
Charitable and not more than 30% is being used for administration.
- Estate and donors is an excise tax the constitutional provision exempting other
institutions applicable only to property taxes.

101 A and B (DONORS TAX) (dowry is already deleted)

- Amended by train law.
1. Gifts made by the national government its political subdivision or any entity created by
agencies not conducted for profit
2. Charitable, cultural, Religious, accredited NGO (PCNC accredited NGO) , Trust,
philanthropic research, Educational, Social Welfare (CCRATES) (strictly speaking it must
be non stock, non profit)
a. It must be non-stock
b. Not paying dividends
c. Govern by trustees which has no compensations
d. Net income is devoted for the promotion and ….
e. Not more than 30% is being used for administration purposes.

- Is donors tax based on net gifts? In the provision gifts less deductions. 101 is exclusion.
- Technically it can be deduction.
- EG. The condo is 6M but assumed the utang 5M. technically 1M lang

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DEDUCTIONS

Tax code Train

1. Expenses, lossess indebtedness and 1. Standard deduction increased to 5M
taxes RC/C. in Non resident Citizen 500k
2. Casualties loss and mortgage 2. Claims against estate
3. SD- 1Million 3. Claim against insolvent person
4. Claim against estate 4. Claim agains taxes laws mortgage
5. Claim against insolvent person 5. Family home 1M
6. Vanishing deduction 6. Vanishing deduction
7. Family home 7. Transfer fo public use
8. Transfer for public use 8. Under RA 4917 separation pay
9. 4921

For non resident alien (in TRAIN)

1. SD- 500k
2. Prorate (CAE, CIP, CLTM)
3. VD
4. TPU

NIRC
1. Prorate
2. VD
3. TPU

X donates 100M for public purposes less 100M in estate succession falls as deduction is TPU
In donors O. because it is exclusion.

TRAIN LAW
DIZON v CTA Claim against the estate
- The estate has debt
-
- At the time of death the obligation is 1M. the creditor agreed to pay 800k. it was
compromise to 800k. how much is the deductible. According to nachura. Its 1M. follow
the date of death. The date of death valuation principle. The amount deductible is the
amount of claims at the time of death.

The post death development are considered

- X dies today. The gross estate is House 100M. however the house was burned.
Casualties Loss. At the time of death there is 100M however minus the CL=0

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In tax code the claim against the estate
1. Notarized (in revenue regualtions if the nature of debt is not necessary
2. If contracted within 3 years from death, the administrator must account the proceeds.

CLAIM AGAINST INSOLVENT PERSON

- Declared insolvent by competent authority.

Receivable-Claims against insolvent person=0

Mortgage
Gross Estate-mortgage

Casualty loss
Limitation as to time, you can only claim casualty loss 1 year from date of decedent, including
its extension.
GE 100M after 5 years no extension to pay. House was burned, not subject to deductions.

TAXES
- Tax that accrued at the time of death but hasn’t be paid at the time of death
- E.g RPT. X died at February. January to March period to pay- can be deductible

Family Home
-even if non resident can still claim for family home.
- non resident citizen for income tax purposes but resident citizen for estate.

VANISHING DEDUCTION-under tax code property previously tax. In VD there are two transfers.
The current transfer by succession, the previous is donation or succession. The current transfer
must not exceed 5 years.
Requisites
1. Transfer must be within 5 years
2. The property must form part of the gross estate of the prior decedent and its must be
situated in the Philippines
a. The first transfer is the property situated in the PH. Or the gross gift no
requirement that it must be situated in the PH.
b. X dies leaving BMW located in the US Y dies within the period of 5 years. Is the
estate of Y entitled in vanishing deduction? NO because it is not situated in the
Philippines
c. What if It is by donation? Yes entitled to VD
3. Same property or property received in exchange
a. X donates Mustang car to Y. Y during his lifetime exchange it to horse. Is Y
entitled to Vanishing deduction in relation to horse? Yes entitled to VD
4. Donors tax or estate tax has been paid.

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 a. X dies the estate was not settle. Y died within 5 years CAN THE ESTATE OF Y
Claim VD? NO it must have been paid
5. One VD per property. No vanishing property has been allowed in relation to property
a. X dies within 1 year Y claims VD the transfer to Z, Z cannot claim VD.
 Marcos II- the BIR is collecting tax- that it must be presented to probate court. Is the
approval of probate court is necessary in collection of estate tax? NO. there is no law or
rule, regulation that estate tax must be proved in probate court. What is presented in
probate court is collection of money/debts. Sec 94 is the reverse that no judge shall
order distribution

Renunciation if relation to inheritance

Husband and Wife. The share will be divided to the heirs of W. the husband will waive his
shares (RR2-03). Distinguished what has been waived.
1. If the husband waived his share in the CPG or ACP, it is subject to donors tax
2. Waiver or renunciation of the inheritance
a. General renunciation-is not in favor of specific heir=tax consequence none, no
tax consequences
- Husband waives in favor of A, B, C BIR argues that it is specific. The counter argument is
that to be specific renunciation it must exclude other heirs.
b. Specific renunciation-there is an specific or identified heirs to the exclusion or
disadvantage of other heirs it is subject to Donors tax.

SECTION100
- Amended by TRAIN
- In relation to PHILAM LIFE (no longer a good jurisprudence)
- What is contemplated is transfer insufficient consideration except sec 24D and 27D it
contemplates scenario 6% CGT.
- FMV less consideration received= donation

PHILAM LIFE
- The Philam life sold the shares to competitive bidding.
- Philam life argues that there is no donative intent
- HELD: if there is no actual donation the difference between the FMV and selling price is
considered donation by fiction of law
- Amended by TRAIN provided however SALE, other Exchange. Transfer property less that
adequate of full consideration In money’s worth
- According to train law if it made on the ordinary cause of business it is considered as
adequate of full consideration I moneys worth
- Ordinary cause-it must be bonafide, done in GF, free in donative intent, and it must be
arms length.

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EG
-in relation to the exception. What is contemplated by the provision is that is not taxable to 6%

there is a property and ordinary asset acquired by the seller for 100M at the time of sale the
property value is 300M. under the old provision the selling price must be 300M. the BIR
minimum gain is 200M. assuming that it will sell 80M. what will be paid to the BIR none(at the
present TRAIN law). Technically what will be paid is DST.

SPS EBONO case

-the request of parents that the property shall be transfer to the children because they able to
save 6M. SC. Animus donandi. No tax evasion case but must pay donors tax

e.g NAPOLES
Janet Napoles daughter- income tax
2016 net woth is 100M
2017 net worth is 500M
presumption is that 400M will be from loan or income tax.
JEAN NAPOLES did not declare ITR. What is defense? It is not subject to income tax. It is subject
to donors tax because no capacity to buy.

Eg
X seller and Y is buyer, worth is 100M. there must be CAR. Check seller the capacity to buy and
also Y what if there is no capacity to buy. if they are relatives subject to Donors Tax. (HENARES
view)

ELECTION
- Duly reported to the COMELEC (to be exempt to donors tax)
- BIR (HENARES) Political contributions – expenditures= difference (subject to income tax)
- Revenue Regulation 7-2011-if the candidate will not file statement of expenditures he
will be subject to donors tax.
- If not submitted to Statement of Contribution and expenditures (SOCE) income and
donors tax.

- RMC 30-2016
o The campaign contributions must be utilized during the campaign period if not
utilized subject to Donors tax
o Donation made by a corporation 36(9) if donation mades to political activities it
is ultravires
e.g
mayor received 1M fully utilized before 300k, utilized during 500k, utilized after 200k. 500k
subject to donors tax in addition to that 500k is subject to income tax.
- Its absurd kasi walang kinalaman si donor, but he will be liable to donors tax.

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