Taxation 2

Estate Tax
 2 Transfer Taxes in the Philippines

1. Estate Tax
2. Donor’s Tax
* Gratuitous transfer (without Consideration)
 Estate Tax
- Is a national tax because it is imposed by national
government
- Is a direct tax, it cannot be transferred
- Is a progressive tax;
- Is also an ad valorem tax, because it adds value;
- Is also an excise tax, because it is tax on right to transfer;
- Is also an general/fiscal/revenue tax, because it is
imposed to generate revenue.
 2 Transfer Taxes in the Philippines

1. Estate Tax

2. Donor’s Tax
Elements of Succession

1. Decedent
2. Estate/Inheritance
3. Successors
Elements of Succession

1. Decedent

Disintestate– without a will

Testator – with a will

Elements of Succession

Properties
2. Estate/Inheritance
Obligations
Elements of Succession
Legatee – a person who receive personal properties
Devicee – a person who receive real properties
Heir – residual properties
3. Successors
Estate Tax

B. Estate Tax Rates

Estate Tax

C. GROSS ESTATE
1. Composition of Gross Estate

Resident or Citizen Decedent Non-resident Alien Decedent

Real Properties Wherever situated Situated in the Philippines
Personal Properties Wherever situated Situated in the Philippines
Family Home Situated in the Philippines -0-
Taxable Transfers Wherever situated Situated in the Philippines
 Gross Estate

Composed of properties (and

right to use property) at the time
of death
 1 Residents/Citizen Properties
wherever
Residents/Citizen situated
Residents Alien
GE Non-resident Citizen

Non-Residents Alien Properties

2 situated in
the
Philippines
Estate Tax

C. GROSS ESTATE
2. Gross Estate of Married Decedents

Conjugal partnership of gains Absolute community of

properties
Exclusive properties of
Included Included
the decedent
Exclusive properties of
Not included Not included
the surviving spouse
Common properties Included Included
Estate Tax

D. Rule of Reciprocity (Non Resident Alien Decent)

1. Properties covered Intangible personal property situated in the

by reciprocity Philippines owned by non-resident alien decedent
2. Basic Rules When there is Intangible Personal
reciprocity ……. Property - Excluded
When there is no Intangible Personal
reciprocity ……. Property - Included
Estate Tax

D. Rule of Reciprocity (Non Resident Alien Decent)

3. Properties The following shall be considered as situated in the Phil.
considered a. Franchise which must be exercised in the Phils.
situated in the
b. Shares, obligations or bonds issued by any corporation or
Philippines
Sociedad anonima organized and constituted in the Phils.
c. Shares, obligations or bonds issued by any foreign
corporation 85% of the business of which is located in Phils.
d. Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines.
e. Shares or rights in any partnership, business or industry
established in the Philippines.
Estate Tax

E. Taxable Tranfers
1. Example of a. Transfer in contemplation of death – motivated by
Taxable Transfer thought of death may not imminent;
b. Revocable transfer – the enjoyment of the property may
be altered, amended, revoked or terminated by the decent;
c. Transfer passing under general power of appointment;
d. Transfer with retention or reservation of certain rights;
e. Transfer for insufficient consideration;
Estate Tax

E. Taxable Tranfers
2. Motives that a. To relieve donor from the burden of management;
preclude a
b. To save income or property taxes;
transfer from
the category of c. To settle family litigate and un-litigated disputes;
one made in
d. To provide independent income for dependents;
contemplation
of death e. To see the children enjoy the property while the donor is
alive;
f. To protect the family from hazards of business operations;
g. To reward services rendered
Estate Tax

F. Other Items
1. Proceeds of Generally taxable, except when:
Life Insurance
a. A third person is irrevocably designated as beneficiay;
b. The proceeds / benefits come from SSS or GSIS;
c. The proceeds come from group insurance.

When the designation of the beneficiary is not stated or is

not clear, the Insurance Code assumes revocable
designation.
Estate Tax

F. Other Items
2. Claims a. The full amount of the claims is included in the gross estate.
against
insolvent b. The uncollectible amount of the claims is deducted from the
persons gross estate.
3. Amount a. RA 4917 is entitled “An Act Providing That Retirement
received by Benefits of Employees of Private Firms Shall Not be Subject to
heirs under Attachment, Levy, Execution, or Any Tax Whatsoever”.
R.A. No.
b. The amount received by heirs from decedent’s employer as
4917
a consequence of the death of the decedent-employee is
included in the gross estate of the decedent
c. The above is also allowed as deduction from gross estate
Estate Tax

G. Exemptions/Exclusion
1. a. The merger of usufruct in the owner of the naked title.
Exemptions
b. The transmission or delivery of the inheritance or legacy by
of certain
the fiduciary heir or legatee to the fideicommisary.
acquisitions
c. The transmission from the first heir, legatee or done in favor
and
of another beneficiary in accordance with the desire of the
transmission
predecessor.
d. All bequest, devises, legacies or transfers to social welfare,
cultural and charitable 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.
Estate Tax

G. Exemptions/Exclusion

2. Exclusions a. Amount received as war damages.

from gross
estate under b. Amount received from US Veterans Administration.
special laws
c. Benefits from GSIS and SSS.
Estate Tax

H. Determination of the Value of the Estate

1. Usufruct In accordance with the latest Basic Standard Mortality Table, to

be approved by the Secretary of Finance, upon the
recommendation of the Insurance Commission
Estate Tax

H. Determination of the Value of the Estate

2. Properties a. Generally – Fair Market Value at the time of decedent’s death
b. Real property – Higher between fair market value, BIR (zonal
value) and Provincial and City assessor (assessed value);
c. Personal properties –
**Recently purchased – Purchase price
**Not recently purchased – Pawn value x 3
Estate Tax

H. Determination of the Value of the Estate

2. Properties d. Securities (shares of stock)
1. Traded in the local stock exchange – Mean between the
highest and lowest quotations on valuation date or on a date
nearest the valuation date;
2. Not Traded in the local stock
a. Common (ordinary) shares – Book value on valuation
date or on a date nearest the valuation date;
b. Preferred (preference) shares – Par value on valuation
date or on a date nearest the valuation date;
Estate Tax

J. GROSS ESTATE OF MARRIED DECEDENTS

1. CONJUGAL PARTNERSHIP OF GAINS (RELATIVE COMMUNITY OF PROPERTIES
Exclusive Properties
a. Properties brought into
the marriage as either of
the spouse’s own;
b. Properties acquired by
gratuitous (or lucrative)
title during the marriage;
c. Properties acquired by
right of redemption or by
exchange with other
property belonging to only
one of the spouses
Conjugal Properties
a. Properties acquired by onerous title during the marriage at
the expense of the common fund, whether the acquisition be
for the partnership, or for only one of the spouses;
b. Properties obtained from labor, industry, work or
profession of either or both of the spouses;
c. The fruits, natural, industrial or civil, due or received during
the marriage from the common property, as well as the net
fruits from the exclusive property of each spouse;
Estate Tax

J. GROSS ESTATE OF MARRIED DECEDENTS

1. CONJUGAL PARTNERSHIP OF GAINS (RELATIVE COMMUNITY OF PROPERTIES
Exclusive Properties
d. Properties acquired
with exclusive money of
either spouse;
Conjugal Properties
d. The share of either spouse in the hidden treasure which
the law awards to the finder or owner of the property where
the treasure is found;
e. Properties acquired through occupation such as fishing and
hunting;
f. Livestock existing upon the dissolution of the partnership in
excess of the number of each kind brought to the marriage of
either spouse;
g. Properties acquired by chance, such as winnings from
gambling, and betting
Estate Tax

J. GROSS ESTATE OF MARRIED DECEDENTS

2. ABSOLUTE COMMUNITY OF PROPERTIES
Exclusive Properties Community Properties
a. Properties acquired a. All properties owned by spouses at the time of the
during the marriage by celebration of marriage or acquired thereafter;
gratuitous (or lucrative)
title by either spouse and
the fruits as well as the
income thereof, if any,
unless it is specifically
provided by the donor,
testator or grantor that
they shall form part of the
community
Estate Tax

J. GROSS ESTATE OF MARRIED DECEDENTS

2. ABSOLUTE COMMUNITY OF PROPERTIES
Exclusive Properties Community Properties
b. Property for personal and
exclusive use of either spouse,
however, jewelry shall form
part of the community
property
c. Property acquired before the
marriage by either spouse who
has legitimate descendants by
a former marriage, and the
fruits as well as the income, if
any, of such property