AUL Law Taxation 2

Atty. Hardy B. Aquende, CPA

II
Donors Tax
PRINCIPLES
Definition
The Tax Reform Act of 1997 does not provide a
definition of donors tax. It simply subjects a
gift to donors tax. According to Article 725 of
the Civil Code, a gift or donation is an act of
liberality
whereby
a
person
disposes
gratuitously of a thing or right in favor of
another who accepts it. Thus, before being
subjected to the donors tax, a gift or donation
I.
must first satisfy the following REQUISITES:
1.
2.
3.
4.

The donor must have CAPACITY

There must be an INTENT TO
DONATE
There must be DELIVERY, either
actual or constructive
The donee must ACCEPT the donation

Q: What are the kinds of donations?

1.

Donations inter vivos a donation

made between living persons, which is
perfected the moment the donor knows
of the acceptance of the gift by the
donee1; subject to donors tax

2.

Donations mortis causa a donation

which takes effect upon the death of
the donor; subject to estate tax

Q: What are considered donations for tax

purposes?
1.

2.

Sales, exchanges and other transfers of

property for less than an adequate and full
consideration in money or moneys worth
Condonation or remission of debt where the
debtor did not render service in favor of the
creditor
Noteworthy, the element of donative
intent is conclusively presumed in transfers
of property for less than an adequate or full
consideration in money or moneys worth.
In this case, the difference between the fair
market value of the gift or donation and the

1
In the case of donations of immovable property,
they must be made in a public document specifying
therein the property donated. The acceptance may
be made in the same Deed of Donation or in a
separate public document, but it shall not take effect
unless it is done during the lifetime of the donor. If
the acceptance is made in a separate instrument, the
donor shall be notified thereof in an authentic form,
and this step shall be noted in both instruments.

actual value received shall constitute the

gift.
However, real property considered
capital assets under the Tax Code are
excepted from this rule. (Section 100 in
relation to Section 24(d)) In other words,
the difference between fair market value
and actual value received in transfers of
real property considered capital assets for
less than an adequate or full consideration
in money or moneys worth shall not be
subject to donors tax. This is because
under Section 24(d), the fair market value
itself, if higher than the gross selling price,
is the base for computing the capital gains
tax imposed upon the sale of such capital
assets. Thus, what the seller avoids in the
payment of the donors tax, it pays for in
the capital gains tax.
Q: What is the applicable law?
The law in force at the time of the
perfection/completion of the donation shall
govern the imposition of the donors tax.
(Section 11, RR 2-2003)
NOTE: Any contribution in cash or in kind to any
candidate, political party or coalition of parties
for campaign purposes shall be governed by the
Election Code, as amended. (Sec. 99(C), NIRC)
CASE LAW: Abello v. CIR (Feb. 23, 2005)
The SC has held in this case that the
contributions of the ACCRA partners to the
campaign funds of Sen. Angara during the 1987
national elections constitutes a donation, thus,
subject to gift taxes. However, the SC in its
decision has noted that succeeding cases shall
be governed by RA 7166 enacted by Congress
on Nov. 25, 1991. The RA provides in Sec 13
that
political/electoral
contributions,
duly
reported to the Commission on Elections, are
NOT subject to the payment of any gift tax.
PROPERTIES INCLUDED
Q: What are the classes of donors and
what is their gross gift?
1.

Citizens or Residents of the Philippines

all properties located not only within
the Philippines but also in foreign
countries

2.

Nonresident Alien all real and

tangible
properties
within
the
Philippines, and intangible personal
property, unless there is reciprocity, in
which case it is not taxable

Q: What are the intangible properties

which are considered by law as situated in
the Philippines?
1. Franchise which must be exercised in
the Philippines
2.

Obligations or bonds issued by any

corporation
or
sociedad
anonima

AUL Law Taxation 2

Atty. Hardy B. Aquende, CPA
organized
Philippines

or

constituted

in

the

3.

Shares, obligations or bonds issued by

any foreign corporation 85% of the
business of which is located in the
Philippines

4.

Shares, obligations or bonds issued by

any foreign corporation if such shares,
obligations or bonds have acquired a
business situs in the Philippines

5.

Shares or rights in any partnership,

business or industry established in the
Philippines

Q: What is the rule on reciprocity? (Section

104, NIRC)
There is reciprocity if the foreign country of
which the decedent was a citizen and resident
at the time of his death:
1. did not impose a transfer tax of any
character, in respect of intangible
personal property of citizens of the
Philippines not residing in that foreign
country; or
2.

allowed a similar exemption from

transfer tax in respect of intangible
personal property owned by citizens of
the Philippines not residing in that
country

Yes. If both spouses made the gift,

then the gift is taxable one-half to
each donor spouse; in other words,
the gift is considered as having been
made one-half by the husband and
one-half by the wife. There is a
necessity for filing separate donors
tax returns, considering that husband
and wife are considered as separate
and distinct taxpayers for purposes of
donors tax. (Section 12, RR 2-2003)
However, where there is failure to
prove that the donation was actually
made by both spouses, the donation
is taxable as an exclusive act of the
husband (Tang Ho v. BTA, 97 Phil
890), without prejudice to the right
of the wife to question the validity of
the donation without her consent
pursuant to the provisions of the Civil
Code and the Family Code. (Section
12, supra)
2.

Gifts made to or for the use of the

National Government or any entity
created by any of its agencies which is
not conducted for profit, or to any
political
subdivision
of
the
said
Government

3.

Gifts in favor of an educational and/or

charitable, religious, cultural or social
welfare
corporation,
institution,
accredited
non-government
organization, trust or philanthropic
organization or research institution or
organization, provided not more than
30% of said gifts will be used by such
donee for administration purposes

This rule applies to the transmission by gift of

intangible personal property located or with a
situs within the Philippines of a nonresident
alien.
(See page 4 for the relevant notes on
reciprocity)

Q:
What
is
a
non-profit
educational
and/or
charitable
corporation, etc?
It is a school, college or university
and/or
charitable
corporation,
accredited
NGO,
trust
or
philanthropic
organization
and/or
research institution or organization:

Incorporated as a non-stock
entity,

Paying no dividends,

Governed
by
trustees
who
receive no compensation, and

Devoting all its income, whether

students fees or gifts, donations,
subsidies or other forms of
philanthropy,
to
the
accomplishment and promotion
of the purposes enumerated in
its Articles of Incorporation

EXEMPTIONS
Exemptions are not to be treated as exclusions
from the gross gifts of the donor. They partake
the nature of deductions and are, therefore,
deductible from gross gifts in order to arrive at
the taxable net gifts. The following donations
are exempt from donors tax:
1.

Dowries or donations made on account

of marriage before its celebration
or within
one
year
thereafter by
parents to each of their legitimate,
recognized natural, or adopted children
to the extent of the first P10,000.
However, this exemption may not be
availed of by a non-resident not a
citizen of the Philippines.
Q: Can both parents making a
donation
to
a
child
in
consideration of marriage avail of
the P10,000 deduction?

4.

Encumbrances on the property donated

if assumed by the donee in the deed of
donation

5.

Donations made to entities exempted

under special laws, e.g.:

AUL Law Taxation 2

Atty. Hardy B. Aquende, CPA
o

o
o
o
o
o
o
o
o
o
o

6.

Aquaculture Department of the

Southeast Asian Fisheries
Development Center of the
Philippines
Development Academy of the
Philippines
Integrated Bar of the
Philippines
International Rice Research
Institute
National Museum
National Library
National Social Action Council
Ramon Magsaysay Foundation
Philippine Inventors
Commission
Philippine American Cultural
Foundation
Task Force on Human
Settlement on the donation of
equipment, materials and
services

Multiplied by applicable rate

Donors tax on the aggregate net
gifts
Less: donors tax paid on prior net
gifts
Donors tax due on the net gifts to
date

RATES OF TAX
There are two sets of donors tax rates. The
applicable donors tax rate is dependent upon
the relationship between the donor and the
donee, more specifically:
1.

If the donee is a stranger to the donor,

the tax rate is equivalent to 30 % of the
net gifts.
Q: Who is a stranger for purposes
of the donors tax?
a. a person who is not a brother,
sister (whether by whole or
half-blood), spouse, ancestor
or lineal descendant, or
b. a person who is not a relative
by
consanguinity
in
the
collateral line within the fourth
degree of relationship. (Sec.
99(B))
Note that donations made
between business organizations
and those made between an
individual
and
a
business
organization shall be considered as
donations made to a stranger (RR
2-2003)

2.

If the donee is not a stranger to the

donor, the tax for each calendar year shall
be computed on the basis of the total net
gifts made during the calendar year:

Donations to persons not strangers

where the total of such net gifts for the
calendar year is not more than
P100,000.00

Q: What is the meaning of net gifts?

Net Gift shall mean the net economic benefit
from the transfer that accrues to the donee.
Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the
donee the obligation to pay the mortgage
liability, then the net gift is measured by
deducting from the fair market value of the
property the amount of the mortgage assumed.
(Section 11, RR 2-2003)
COMPUTATION
How is donors tax computed?
This general formula shall be followed:

Over

Gross gifts made

Less: Deductions from the gross
gifts
Net gifts made
Multiplied by applicable rate
Donors tax on the net gifts

If there were several gifts made during the

year, this formula is followed:

Gross gifts made on this date

Less: Deductions from the gross
gifts
Net gifts made on this date
Add: all prior net gifts during the
year
Aggregate net gifts

0
100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000

But not
Over
100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000

The Tax
Shall Be
Exempt
0
2,000
14,000
44,000
204,000
404,000
1,004,000

Plus

Of the
Excess Over

2%
4%
6%
8%
10%
12%
15%

100,000
200,000
500,000
1,000,000
3,000,000
5,000,000
10,000,000

Note: A legally adopted child is

entitled to all the rights and obligations
provided by law to legitimate children,
and therefore, a donation to him shall
not be considered as a donation made
to a stranger.

OBJECT OF TAXATION
The donors tax shall be imposed whether the
transfer is in trust or otherwise, whether the
gift is direct or indirect and whether the
property is real or personal, tangible or

AUL Law Taxation 2

Atty. Hardy B. Aquende, CPA
intangible. The computation of the donors tax
is on a cumulative basis over a period of one
calendar year

TAX CREDIT

Illustrations:
1. Donation to son by parents on account
of marriage (P100,000):

Husband
Net Taxable Gift =
P50,000 10,000 =
P40,000
Tax Due = None, since
P40,000 is below the
P100,000 threshold

Wife same as above

A situation may arise when the property given

as a gift is located in a foreign country and the
donor may be subject to donors tax twice on
the same property: first, by the Philippine
government and second, by the foreign
government where the property is situated. The
remedy of claiming a tax credit is, therefore,
aimed at minimizing the burdensome effect of
double taxation by allowing the taxpayer to
deduct his foreign tax from his Philippine tax,
subject to the limitations provided by law.

2.

3.

Donation to son and daughter-in-law by

parents on account of marriage
(P100,000):

Husband
o
Gift pertaining to the son
Net Taxable Gift = P25,000
10,000 = P15,000
Tax Due = None, since
P15,000 is below the
P100,000 threshold
o
Gift pertaining to the
daughter-in-law
Net Taxable Gift = P25,000
Tax Due = P25,000 x 30%
= P7,500

Wife same as above

Q: Who may claim tax credit?

Donations to donees not considered

strangers for tax purposes were made
on:

January 30, 2002 P

2,000,000

March 30, 2002 -1,000,000

August 15, 2002 -500,000

NOTE: The computation of the donors tax

credit is the same as the computation for estate
tax credit. Please refer to the illustration in
page 8.

VALUATION

If the gift is made in property, the fair

market value at that time will be
considered the amount of gift.
In case of real property, the taxable base is
the fair market value as determined by the
Commissioner of Internal Revenue (Zonal
Value) or fair market value as shown in the
latest schedule of values of the provincial
and city assessor (Market Value per Tax
Declaration), whichever is higher. If there is
no zonal value, the taxable base is the fair
market value that appears in the latest tax
declaration
If there is an improvement, the value of
improvement is the construction cost per
building permit and/or occupancy permit
plus 10% per year after year of
construction, or the market value per latest
tax declaration.

Tax credit for donors tax may be claimed only

by a resident citizen, non-resident citizen and
resident alien.
Q: What are the limitations on the tax
credit?
1.
NET GIFT (foreign country) X PHILIPPINE DONORS TAX
ENTIRE NET GIFTS

2.
NET GIFT (all foreign countries)X PHILIPPINE DONORS
TAX
ENTIRE NET GIFTS

COMPLIANCE REQUIREMENTS
Q: Who are required to file the Donors Tax
Return?

Net
Taxable
Gift
Correspo
nding
Donors
Tax (refer
to
schedule)
Tax Due /
Payable

After the
first
donation
P 2,000,000

After the second donation

January Donation - P2,000,000

March Donation 1,000,000
Total
P3,000,000

P124,000

P 204,000

P124,000

Donors Tax
P 204,000
Less: Tax Previously
Paid
124,000
Tax Due
P 80,000

After the third donation

January Donation - P2,000,000

March Donation 1,000,000
August Donation 500,000
Total
P3,500,000
P254,000

Donors Tax
P 254,000
Less: Tax Previously
Paid (124,000 +
80,000)
204,000
Tax Due
P 50,000

Every person, whether natural or juridical,

resident or non-resident, who transfers or
causes to transfer property by gift, whether in
trust or otherwise, whether the gift is direct or
indirect and whether the property is real or
personal, tangible or intangible.

AUL Law Taxation 2

Atty. Hardy B. Aquende, CPA
Q: What are the contents of the Donors
Tax Return?
1.
2.
3.
4.
5.
6.

Each gift made during the calendar

year which is to be included in
computing net gifts;
The deductions claimed and allowable;
Any previous net gifts made during the
same calendar year;
The name of the donee;
Relationship of the donor to the donee;
and
Such further information as the
Commissioner may require.

Q: When and where should the Donors Tax

Return be filed?
The donors tax return shall be filed within
thirty (30) days after the date the gift is made
or completed and the tax due thereon shall be
paid at the same time that the return is filed.
Unless the Commissioner otherwise permits,
the return shall be filed and the tax paid to an
authorized agent bank, the Revenue District
Officer, Revenue Collection Officer or duly
authorized Treasurer of the city or municipality
where the donor was domiciled at the time of
the transfer, or if there be no legal residence in
the Philippines, with the Office of the
Commissioner. In the case of gifts made by a
non-resident, the return may be filed with the
Philippine Embassy or Consulate in the country
where he is domiciled at the time of the
transfer, or directly with the Office of the
Commissioner. For this purpose, the term
OFFICE OF THE COMMISSIONER shall
refer to the Revenue District Office (RDO)
having jurisdiction over the BIR-National Office
Building which houses the Office of the
Commissioner, or presently, to the Revenue
District Office No. 39 South Quezon City.