I.

DEFINITION AND PURPOSE OF ESTATE TAX

Estate tax is a tax on the right of the deceased person to transmit his
estate to his lawful heirs and beneficiaries. It is not a tax on property. Estate
tax is held to be an excise tax imposed on the privilege of transmitting
property upon the death of the owner. The estate tax is generated by the
death and accrues at the time of death. It is governed by the law in force at
the time of death notwithstanding the postponement of the actual possession
or enjoyment of the estate by the beneficiary.

Tax rates prescribed under RA 8424 apply to estate taxes falling due or
have accrued beginning January 1, 1998, the effectivity of the said law
otherwise known as “The Law Reform Act of 1997”

Aside from the reason that transfer taxes provide income to the
government, there are other justifications for their imposition. First is the
benefit – received theory that recognizes the role of the State in the
distribution of the estate of a decedent to the heirs whether it is in accordance
with the decedent’s will or by operation of law. Next is the privilege theory.
Inheritance is a privilege granted by the State. Estate acquired and
accumulated is under the State’s protection. The next theory is the ability to
pay theory that asserts that the heirs because of the inheritance they received
are able and capable to pay the taxes due the State. Last is the redistribution
of wealth theory that reduces the property received by the heirs through
taxes.

II. GROSS ESTATE

Estate tax applies to citizen, resident, and Non – resident Alien decedent
with properties in the Philippines. Resident decedent includes that resident
alien decedent.
According to the definition in an Estate Tax Return form, Gross Estate for
citizens and resident aliens shall include all the property of the decedent at
the time of death, real or personal, tangible or intangible, where situated but
excluding the exclusive properties of the surviving spouse. For Non-resident
alien, it shall include the property situated in the Philippines.

A. Gross Estate of Citizen and Resident Decedent

1. Real Property located within and without the Philippines
2. Tangible personal property located within and without the
Philippines
3. Intangible personal property located within and without the
Philippines
 A. Gross Estate of a Non – Resident Alien Decedent
1. Real Property located within the Philippines
2. Tangible personal property located within the Philippines
3. Intangible personal property located within the Philippines unless
there is reciprocity in which case is not taxable in the Philippines

SITUS OR PLACE OF TAXATION

Property has a situs or location or a jurisdiction for tax purposes. Situs is

decisive in determining the estate of a deceased person taxable in the
Philippines.

The situs of a real property is the country where it is situated; while in

tangible personal property, the situs is the country where such is actually
located at the time of the death of the decedent. In intangible personal
property, the following are considered as intangible personal properties
situated in the Philippines: (for non – resident alien decedent with property
within the Philippines)

a) Franchise which must be exercised in the Philippines

b) Shares and obligations or bonds issued by any corporation
organized in the Philippines
c) Shares and obligations or bonds issued by any foreign corporation
85% of the business of which is located in the Philippines
d) Shares and obligations or bonds issued by a foreign corporation if
such shares have acquired a business situs in the Philippines
e) Shares or rights in any partnership business or industry established
in the Philippines

Properties includible in the Gross Estate Decedent’s Interest shall include

all properties, rights and interest which the decedent owns at the time of
death. It shall include:

1. Properties owned by the decedent actually and physically present in

his estate at the time of his death such as land, buildings, shares of
stock, vehicles, bank deposit, etc.
2. The value of any interest in property owned or possessed by the
decedent at the time of his death such as dividends declared before
his death but received after his death, partnership profits which have
accrued before his death, usufructuary rights, etc.
3. The value of property, right or interest in the property, transferred by
the decedent during his lifetime which, under the law, are in the nature
of testamentary disposition such as insurance proceeds in favour of
revocable beneficiary.
TRANSFER IN CONTEMPLATION OF DEATH

Impelled by the thought of death, or the motivating factor or controlling

motive for transfer of the property is the thought of death without regard to the
state of health of the transferor.

Donation Mortis Causa

Takes effect upon the death of the donor. Its characteristics are:

a. There is no conveyance of title or ownership to the done or transferee

b. The transfer is revocable by the donor at will during his lifetime
c. The transfer shall be void if the donor survives the done

REVOCABLE TRANSFER

Where the enjoyment of the property transferred may be altered,

amended, revoked or terminated by the decedent. The revocability is not
affected by the failure of the decedent to exercise the power to revoke during
his lifetime. If the notice has not been given, the power to revoke has not
been exercised on or before the date of his death, such notice shall be
considered to have been given, or the power exercised on the date of his
death.

PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT

The rule is the gross estate shall include any property passing or
transferred under general power of appointment exercised by the decedent

a. By will
b. By deed to take effect in possession or enjoyment at or after his death
c. By deed under which he has retained for his life or any period not
ascertainable without reference to his death or for any period which
does not in fact end before his death
d. The possession or enjoyment of, or the right to the income from the
property
e. The right either alone, or in conjunction with any person to designate
the persons who shall possess or enjoy the property or the income
therefrom

The donee of a general power of appointment holds the appointed

property with all the attributes of ownership thus, the appointed property shall
form part of the gross estate of the
donee of the power upon his death.
 These following transfers do not actually convey full ownership over the
property transferred hence the property still remains part of the gross estate
of the transferor:

1. Transfers with Retention and Reservation of Certain Rights over

the income or enjoyment of the property transferred
2. Transfers where the donor reserves the right to the income of the
property until death; or
3. Transfers where the donor reserves the right to the possession or
enjoyment of the property until death

Transfer for Insufficient Consideration

1. If the transfer is a bona fide sale for adequate and full

consideration in money or money’s worth, no value shall be
included in the gross estate.
2. If the transfer is not a bona fide sale for an adequate and full
consideration in money or money’s worth, there shall be included
in the gross estate only the excess of the fair market value of the
property at the time of death over the value of the consideration
received by the decedent.
3. If an inter vivos transfer of the decedent is proven to be fictitious,
the total value of the property at the time of death shall be
included in the gross estate.

PROCEEDS OF LIFE INSURANCE

Proceeds of life insurance under policies taken out by the decedent upon
his own life shall be included in his gross estate in the following cases:

1. when the beneficiary is the estate of the deceased, his executor or

administrator whether or not the deceased retained the power of
revocation
2. when the beneficiary is other than the estate of the deceased, his
executor or administrator and the decedent retained the power of
revocation

CLAIMS AGAINST INSOLVENT PERSONS

 Are receivables due or owing from persons who are not financially capable
of meeting theirobligations. The receivables shall be included in the gross
estate at their full amount.

CAPITAL OF THE SURVIVING SPOUSE

The gross estate of a married decedent shall consist of the following:

1. conjugal or community properties
2. exclusive properties
The capital of the surviving spouse shall not be deemed part of the gross
estate.

I. VALUATION OF GROSS ESTATE

1. Valuation Date - time of death

2. Basis of Valuation - fair market value, which is the price which a
property will bring when it is offered for sale by one who desires, but is
not obligated to sell and is bought by one who is under not necessity
of buying it
3. Valuation of Usufruct- probable life of the beneficiary in accordance
with the latest Basic Standard Mortality Table
4. Valuation of Real Property –
a) FMV as determined by the Commissioner; or
b) FMV as shown in the schedule of values fixed by the Provincial
or City Assessors
1. Valuation of Personal Properties- FMV at the time of the decedent’s
death
2. Valuation of Shares of Stock
a. Unlisted Shares
i. Common – book value
ii.Preferred – par value
b. Listed Shares
The value is the arithmetic mean between the highest and
lowest quotation at a date nearest the date of death, if none is
available on the date of death itself.

I. EXEMPTIONS FROM ESTATE TAX

1. The merger of the usufruct in the owner of the naked title

2. The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary
 3. The transmission from the first heir, legatee or donee in favor of
another beneficiary in accordance with the desire of the predecessor
4. All bequests, devises, legacies or transfers to social welfare, cultural
and charitable institutions, no part of the income of which inures to the
benefit of any individual; Provided, however, that no more than 30% of
the said bequests, devices, legacies or transfers shall be used by such
institutions for administration purposes.

I. PROBLEMS
1. Adequacy of Consideration for Transfer
For each case, determine the value to include in the gross estate
computation:
 Cases
A B C
Consideration received by transferor decedent at the 1000, 000 500, 000 0
time of transfer

Fair market value at the time of transfer 1000, 000 1000, 000 1000, 000

Fair market value at the time of death of transferor 1250, 000 1250, 000 1250, 000

VALUE TO INCLUDE IN GROSS ESTATE 0 750, 000 1250, 000

Cases
A B C
Fair market value at the time of death of transferor 900, 000 900, 000 900, 000

Fair market value at the time of transfer 800, 000 800, 000 800, 000

Consideration received by transferor decedent at the 0 500, 000 800, 000

time of transfer

VALUE TO INCLUDE IN GROSS ESTATE 900, 000 400, 000 0

2. Situs and Gross Estate

Determine the situs of each property and for each type of decedent, be able to
compute the gross estate of Mr. To if he left the following property:

a.
b. Resident citizen
c. Non – resident citizen
d. Resident Alien
e. Non – resident alien, with reciprocity
f. Non – resident alien without reciprocity
 Value
1. Bank deposit at China Bank, Ayala Ave., IN 2500, 000
Makati City
2. House & lot in Thailand OUT 1500, 000
3. Building & land on which it stands in Pasay IN 5000, 000
City
4. Trees, plants, growing fruits & land on w/h IN 250, 000
they are planted in Baguio City
5. Car in the Philippines IN 350, 000
6. Appliances in house & lot in the Philippines IN 100, 000
7. Appliances in house & lot in Thailand OUT 200, 000
8. Jewelry in the Philippines IN 600, 000
9. Jewelry in Thailand OUT 250, 000
10. Bank deposited in Zurich, Switzerland OUT 7500, 000
11. House & lot in the Philippines IN 1250, 000
12. Interest in an industry established in OUT 1000, 000
Brisbane, Australia
13. Notes receivable, debtor residing in IN 75,000
Philippines
14. Accounts receivable, debtor residing in OUT 87,500
Switzerland
15. Fish Pond in Laguna IN 100, 000
16. Copyright exercised in the Philippines IN 150, 000
17. Van in Malaysia OUT 400, 000
18. Trademark used in Malaysia OUT 200, 000
19. Obligations issued by foreign corporation with OUT 375, 000
no business situs in the Philippines
20. Franchise used in the Philippines IN 350, 000
21. Shell Corporation certificate of stocks kept in IN 225, 000
safe in Thailand
22. Globe Telecom certificates of stocks kept in IN 275, 000
the Philippines
23. Treasury bonds issued by Bangko Sentral ng IN 425, 000
Pilipinas
24. Patent exercised in China OUT 300, 000
25. Foreign shares, 80% of the business is in the OUT 450, 000
Philippines
26. Foreign bonds with business situs in the IN 325, 000
Philippines
27. Business right in corporation established in OUT 750, 000
Macau, China
28. Investment in a partnership established in the IN 1125, 000
Philippines
29. Foreign shares, 90% of the business is in the IN 875, 000
Philippines

a. resident citizen

Value
1. Bank deposit at China Bank, Ayala Ave., Makati City 2500, 000
2. House & lot in Thailand 1500, 000
3. Building & land on which it stands in Pasay City 5000, 000
4. Trees, plants, growing fruits & land on w/h they are 250, 000
planted in Baguio City
5. Car in the Philippines 350, 000
6. Appliances in house & lot in the Philippines 100, 000
7. Appliances in house & lot in Thailand 200, 000
8. Jewelry in the Philippines 600, 000
9. Jewelry in Thailand 250, 000
10. Bank deposited in Zurich, Switzerland 7500, 000
11. House & lot in the Philippines 1250, 000
12. Interest in an industry established in Brisbane, Australia 1000, 000
13. Notes receivable, debtor residing in Philippines 75,000
14. Accounts receivable, debtor residing in Switzerland 87,500
15. Fish Pond in Laguna 100, 000
16. Copyright exercised in the Philippines 150, 000
17. Van in Malaysia 400, 000
18. Trademark used in Malaysia 200, 000
19. Obligations issued by foreign corporation with no 375, 000
business situs in the Philippines
20. Franchise used in the Philippines 350, 000
21. Shell Corporation certificate of stocks kept in safe in 225, 000
Thailand
22. Globe Telecom certificates of stocks kept in the 275, 000
Philippines
23. Treasury bonds issued by Bangko Sentral ng Pilipinas 425, 000
24. Patent exercised in China 300, 000
25. Foreign shares, 80% of the business is in the 450, 000
Philippines
26. Foreign bonds with business situs in the Philippines 325, 000
27. Business right in corporation established in Macau, 750, 000
China
28. Investment in a partnership established in the 1125, 000
Philippines
29. Foreign shares, 90% of the business is in the 875, 000
 Philippines
TOTAL

26997500

a. non – resident citizen

Value
1. Bank deposit at China Bank, Ayala Ave., Makati City 2500, 000
2. House & lot in Thailand 1500, 000
3. Building & land on which it stands in Pasay City 5000, 000
4. Trees, plants, growing fruits & land on w/h they are 250, 000
planted in Baguio City
5. Car in the Philippines 350, 000
6. Appliances in house & lot in the Philippines 100, 000
7. Appliances in house & lot in Thailand 200, 000
8. Jewelry in the Philippines 600, 000
9. Jewelry in Thailand 250, 000
10. Bank deposited in Zurich, Switzerland 7500, 000
11. House & lot in the Philippines 1250, 000
12. Interest in an industry established in Brisbane, Australia 1000, 000
13. Notes receivable, debtor residing in Philippines 75,000
14. Accounts receivable, debtor residing in Switzerland 87,500
15. Fish Pond in Laguna 100, 000
16. Copyright exercised in the Philippines 150, 000
17. Van in Malaysia 400, 000
18. Trademark used in Malaysia 200, 000
19. Obligations issued by foreign corporation with no 375, 000
business situs in the Philippines
20. Franchise used in the Philippines 350, 000
 21. Shell Corporation certificate of stocks kept in safe in 225, 000
Thailand
22. Globe Telecom certificates of stocks kept in the 275, 000
Philippines
23. Treasury bonds issued by Bangko Sentral ng Pilipinas 425, 000
24. Patent exercised in China 300, 000
25. Foreign shares, 80% of the business is in the 450, 000
Philippines
26. Foreign bonds with business situs in the Philippines 325, 000
27. Business right in corporation established in Macau, 750, 000
China
28. Investment in a partnership established in the 1125, 000
Philippines
29. Foreign shares, 90% of the business is in the 875, 000
Philippines
TOTAL 26997500

a. resident alien

Value
1. Bank deposit at China Bank, Ayala Ave., Makati City 2500, 000
2. House & lot in Thailand 1500, 000
3. Building & land on which it stands in Pasay City 5000, 000
4. Trees, plants, growing fruits & land on w/h they are 250, 000
planted in Baguio City
5. Car in the Philippines 350, 000
6. Appliances in house & lot in the Philippines 100, 000
7. Appliances in house & lot in Thailand 200, 000
8. Jewelry in the Philippines 600, 000
 9. Jewelry in Thailand 250, 000
10. Bank deposited in Zurich, Switzerland 7500, 000
11. House & lot in the Philippines 1250, 000
12. Interest in an industry established in Brisbane, Australia 1000, 000
13. Notes receivable, debtor residing in Philippines 75,000
14. Accounts receivable, debtor residing in Switzerland 87,500
15. Fish Pond in Laguna 100, 000
16. Copyright exercised in the Philippines 150, 000
17. Van in Malaysia 400, 000
18. Trademark used in Malaysia 200, 000
19. Obligations issued by foreign corporation with no 375, 000
business situs in the Philippines
20. Franchise used in the Philippines 350, 000
21. Shell Corporation certificate of stocks kept in safe in 225, 000
Thailand
22. Globe Telecom certificates of stocks kept in the 275, 000
Philippines
23. Treasury bonds issued by Bangko Sentral ng Pilipinas 425, 000
24. Patent exercised in China 300, 000
25. Foreign shares, 80% of the business is in the 450, 000
Philippines
26. Foreign bonds with business situs in the Philippines 325, 000
27. Business right in corporation established in Macau, 750, 000
China
28. Investment in a partnership established in the 1125, 000
Philippines
29. Foreign shares, 90% of the business is in the 875, 000
Philippines
TOTAL 26997500
 a. non – resident alien, with reciprocity

Value
1. Building & land on which it stands in Pasay City 5000, 000
2. Trees, plants, growing fruits & land on w/h they are 250, 000
planted in Baguio City
3. Car in the Philippines 350, 000
4. Appliances in house & lot in the Philippines 100, 000
5. Jewelry in the Philippines 600, 000
6. House & lot in the Philippines 1250, 000
7. Notes receivable, debtor residing in Philippines 75,000
8. Fish Pond in Laguna 100, 000
TOTAL 7650000

a. non – resident alien, without reciprocity

Value
1. Bank deposit at China Bank, Ayala Ave., Makati City 2500, 000
2. Building & land on which it stands in Pasay City 5000, 000
3. Trees, plants, growing fruits & land on w/h they are planted 250, 000
in Baguio City
4. Car in the Philippines 350, 000
5. Appliances in house & lot in the Philippines 100, 000
6. Jewelry in the Philippines 600, 000
7. House & lot in the Philippines 1250, 000
8. Notes receivable, debtor residing in Philippines 75,000
9. Fish Pond in Laguna 100, 000
10. Copyright exercised in the Philippines 150, 000
11. Franchise used in the Philippines 350, 000
12. Shell Corporation certificate of stocks kept in safe in 225, 000
Thailand
13. Globe Telecom certificates of stocks kept in the Philippines 275, 000
14. Treasury bonds issued by Bangko Sentral ng Pilipinas 425, 000
15. Foreign bonds with business situs in the Philippines 325, 000
16. Investment in a partnership established in the Philippines 1125, 000
17. Foreign shares, 90% of the business is in the Philippines 875, 000
TOTAL 13985000

References:

1. Abella, Atty. Edwin R. (n.d.). News and Views: Guidelines in Estate

and Donor’s Tax. Retrieved December 6, 2009, from
http://www.thetrustguru.com/newspg4.htm

2. Scribd. (2008). Tax2-Ch 1-5 Estate Taxes Reviewer. Retrieved

December 6, 2009, from
http://www.scribd.com/doc/3914010/Tax2-Ch15-Estate-Taxes-
Reviewer

3. BIR. Estate Tax Return

ftp://ftp.bir.gov.ph/webadmin1/pdf/16261801%20(final).pdf

4. Ballada, Susan. Ballada, Win. (2009). Transfer and Business Taxation.

10 Ed. Philippines.
TRANSFER AND BUSINESS TAXATION
GROSS ESTATE

Maria Princess G. Bacungan

December 7, 2009