Ability to Pay Theory

Proportionality. The higher the net estate, the higher will be your estate tax.

Redistribution of Wealth Theory

It is proportional, because it is now fixed at 6 % under the Train Law. But before Train Law it
was progressive. 



What are the purposes of estate tax

Primarily, to raise revenue for government expenses

When is the decedent’s interest transferred under the rules of succession

Upon the death of the decedent

What is the governing law in estate taxation

The law enforced upon the death of decedent, except if there is an amnesty

What are the different classification of the decedent

a) Resident or Citizens


When we talk of residents or citizen, their properties and within and without the
Philippines or the estate tax rules of the Philippines will apply.


b) Non-resident Alien

Only properties within the Philippines.

Classification of taxpayers classification of decedents

Income tax estate tax


Where income is earned Where property is located

Within without within without
RC yes yes yes yes

NRC yes no yes yes

RA yes no yes yes

NRA yes no yes no

Will the rule on estate taxation apply to corporations?

Because the operative fact when you apply estate tax is the death. The mode of transfer of
ownership is through succession under the Civil Code. And if the succession is under the Civil
Code, it only applies to natural person and does not apply to juridical person.

Properties covered of the gross estate

As a general rule, it covers real properties, personal tangible and intangible properties. As an
exception, the reciprocity rule should be taken into consideration. Otherwise, it will form part of
the gross estate.

For the valuation of the gross estate it will be valued at the time of death.

What is the estate tax rule under the Train Law.

Before Train Law, the first thing that the heirs or administrator will do is to send a notice to BIR
before doing an inventory of the properties of the decedent. But under the Train Law, the notice
of death is already repealed effective January 1, 2018 pegged at 6%.

Formula

First to do is to make an inventory. To make a list of all the properties registered and registrable
properties owned by the decedent. We start with:

Inventories xx
Less: properties not owned by decedent xx
Properties excluded by law xx
----------------------
Taxable inventories xx
Add: Taxable transfers xx
----------------------
Gross Estate xx
Less: allowable deductions xx
------------------------
Net estate xx
Less ½ share of surviving spouse (if married) xx
-------------------------
Net taxable estate xx
X estate tax rate (x)6%
-------------------------
Estate tax due xx
Less: Estate tax credit xx
--------------------------
Estate tax due and payable xx
Composition of the estate

1.Decedent’s interest- all property owned by the decedent at the time of death. Ex.
Shares of stock, dividends declared. Requires ownership not possession. Anything nga
naana right si decedent before death.
2.Transfers in contemplation of death- properties not physically present in the estate
anymore but included in the gross estate (not necessarily imminent death)

Manifestations:
1.Age and health of decedent at the time of gift, serious illness
2.Length of time between the gift and the date of death
3.Concurrent making of a will or making a will within a short time after the
transfer