2. Transfer Tax
It is not a direct tax on the
Transfer taxes - taxes imposed upon the
privilege of passing ownership of the property
without any valuable consideration.
Kinds of Transfer taxes:
1. Estate tax
2. Donor’s tax
a. Estate Tax
a.1 Basic principles, concept and definition
Taxes levied on the transmission of properties of
the decedent to his heirs.
The transfer of the net estate of every decedent,
whether resident or non-resident, is subject to
estate tax. (Sec. 84, NIRC)
Note: Estate tax is tax imposed upon the basis
of net estate considered as a unit, regardless of
the number of shares into which it may be divided
or the relationship of the beneficiaries. It is paid
by the estate represented by the administrator or
executor. (Report of the Tax Commission of the National
Internal Revenue Law, Vol. II, p. 113)
 It is different from inheritance tax, which is
an imposition on the privilege to receive
property and paid by the recipients of the
property from the estate. (Lorenzo vs Posadas,
G.R. No. L-43082, June 18, 1937)
Definition
An excise tax on the right of transmitting property
at the time of death and on the privilege that a
person is given in controlling to a certain extent
the disposition of his property to take effect upon
death.
Note: It is a tax imposed on the right to transfer
property by death. Thus, an estate tax is levied
on decedent’s estate and not on the heir receiving
the property. (Black’s Law Dictionary, 6th ed. p. 550)
a.2 Nature, purpose and object
 It is a progressive tax which imposes a
heavier burden on those who have more
ability to pay. It is a graduated tax imposed
upon the privilege of the decedent to transmit
property at death and is based on the entire
net estate.
property transmitted or transferred although
its amount is based thereon.
 A transfer tax imposed upon the gratuitous
disposition of private property.
 They are excise taxes, not property taxes.
They are not property taxes because their
imposition does not rest upon general
ownership but rather they are privilege tax
since they are imposed on the act of passing
ownership of property.
Purpose or Object
a. To generate additional revenue for the
government;
b. To reduce the concentration of wealth and
provide for an equal distribution of wealth;
c. To compensate the government for the
protection given to the decedent that enabled
him to prosper and accumulate wealth.
d. It is the most appropriate method for taxing
the privilege which the decedent enjoys of
controlling the disposition at death of
property accumulated during the lifetime of
the decedent.
e. It is the only method of collecting the share
which is properly due to the State as a
partner in the accumulation of property which
was made possible on account of the
protection given by the State.
Generally, the purpose of the estate tax is to tax
the shifting of economic benefits and enjoyment
of property from the dead to the living.
a.3 Time and Transfer of Properties
The properties and rights are transferred to the
successors at the time of death. (Art. 777, Civil
Code)
The estate tax accrues as of the death of the
decedent. The accrual of the tax is distinct from
the obligation to pay the same which is 6 months
after the death of the decedent.
Upon the death of the decedent, succession takes
place and the right of the State to tax the
privilege to transmit the estate vests instantly
upon death. Thus:
 Briefly,
1. The notice of death of the decedent must be
made within two months after the death or ET – The estate tax is always based on the net
within two months after qualifying as such estate. The net estate is the difference between
executor or administrator. (Sec 89, NIRC) the gross estate and the allowable deductions. In
2. The properties comprising the gross estate other words, it is the value of the estate after the
shall be valued based on their fair market allowable deductions have been subtracted from
value as of the time of the death of the the gross estate.
decedent. (Sec. 5,RR No. 2-2003); and
3. The return must be filed within 6 months GE – The gross estate is determined by four
from the decedent’s death. (Sec. 90[B] NIRC) factors: (1) Identity of the decedent being a
resident alien, citizen, or a non-resident alien, (2)
a.4 Classification of Decedent Situs of the property, (3) Inclusions under Sec.
85, and (4) Exclusions under Sec. 87. The
Taxpayers liable to pay estate tax inclusions identify everything that shall be added
to the gross estate. The exclusions identify those
TAXPAYER SCOPE that are not to be considered at all when the
gross estate is computed.
Resident Citizen All properties of the
Non-Resident Citizen decedent within and
without the Philippines AD – The allowable deductions are generally
Resident Alien determined by one factor: the identity of the
Properties located
decedent. If the decedent is a resident alien or a
Non-Resident Alien within the
Philippines. Provided
citizen of the Philippines, deductions that apply
that, intangible personal are those listed under Sec. 86 (A). If the decedent
property is subject to is a non-resident alien or a citizen of the
the rule of reciprocity Philippines, deductions that apply are those listed
provided for under under Sec. 86 (B).
Section 104 of the NIRC.
(Section 85, NIRC) TA – The tax applicable is the fixed amount in the
third column of the schedule in Sec. 84. It is
Note: Only individuals are liable to pay estate determined by the bracket to where the value of
tax. Domestic and foreign corporations are the net estate belongs.
subject only to donor’s tax and not to estate tax
because it is not capable of death but may enter TR – The tax rate is determined by two factors:
into a contract of donation.
In a nutshell, the Estate Tax is computed as (1) The bracket to where the net estate belongs,
follows: and

ET = TA + [(GE – AD) x TR] – TC (2) Minimum amount specified in such bracket

(last column in the schedule specified in Sec.
84).

NE It is multiplied ONLY WHEN there is an excess

over the amount specified in (2) above, by a
Where: factor depending on the bracket to where the net
ET = Estate tax estate belongs.
GE = Gross Estate
AD = Allowable deductions TC – The tax credit is governed by Sec. 86(E) of
TA = Tax applicable the NIRC.
TR = Tax rate, when applicable
TC = Tax Credit a.5 Gross Estate and Net Estate
NE = Net estate (GE – AD)
Gross Estate. – The value of the gross estate of *If there is no zonal value,
the decedent shall be determined by including the use the FMV in the latest
value at the time of his death of all property, real tax declaration.
or personal, tangible or intangible, wherever As to personal Whether tangible or
situated. Provided, however, That in the case of property intangible, appraised at
FMV. “Sentimental value”
a nonresident decedent who at the time of his
is practically disregarded.
death was not a citizen of the Philippines, only As to shares of 1. Unlisted
that part of the entire gross estate which is stock
situated in the Philippines shall be included in his a. Unlisted common -
taxable estate. book value
b. Unlisted preferred - par
Net Estate. - For the purpose of the tax imposed value
in this Chapter, the value of the net estate shall
be determined after taking into consideration the 2. Listed
Arithmetic mean between
gross estate and the allowable deductions
the highest and lowest
quotation at a date
a.6 Determination of Gross Estate and Net nearest the date of death,
Estate if none is available on the
date of death itself.
The value of the gross estate of the decedent
shall be determined by including the value at the As to right to Shall be taken into
time of his death of all property, real or personal, usufruct, use or account the probable life
tangible or intangible, wherever situated; habitation, as well of the beneficiary in
PROVIDED, however, That in the case of a as that of annuity accordance with the latest
basic standard mortality
nonresident alien decedent who at the time of his
table, to be approved by
death was not a citizen of the Philippines, only the Secretary of Finance,
that part of the entire gross estate which is upon recommendation of
situated OR deemed situated (Sec 104) in the the
Philippines shall be included in his taxable estate. Insurance Commissioner.
(Section 85). If the decedent is a If the decedent is
resident citizen, anon-resident alien
Composition of gross estate non-resident citizen,
or resident alien
Basis for the valuation of gross estate: Value at the time of Value at the time of
death of all: death of all:
Properties comprising the gross estate shall be
valued based on their fair market value as of the 1. Real property 1. real property situated
time of death. (Sec. 5, RR 2-03) wherever situated in the Philippines

2. Personal property, 2.Tangible personal

tangible or intangible, property situated in the
PROPERTY VALUATION wherever situated Philippines
(Sec. 5, RR 2-03, Promulgated December 16, 2002) 3. To the extent of the 3. Intangible personal
As to real property Whichever is higher interest therein of the property with situs in the
between the fair market decedent at the time of Philippines unless
value: his death. exempted on the basis of
reciprocity
1. As determined by the
Commissioner (zonal However, for taxation purposes, Sec. 104 of the
value) or NIRC enumerates intangible personal properties
2. As shown in the of a non-resident alien decedent which have a
schedule of values fixed
situs in the Philippines, hence treated as part of
by the provincial and city
assessors the gross estate:
i. Franchise which must be exercised in the
Philippines;
ii. Shares, obligations or bonds issued by any
corporation or sociedad anonima organized
or constituted in the Philippines in
accordance with its laws;
iii. Shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the
business of which is located in the
Philippines;
iv. Shares, obligations or bonds issued by any
foreign corporation if such shares, obligations
or bonds have acquired a business situs in
the Philippines;
v. Shares or rights in any partnership, business
or industry established in the Philippines,
shall be considered as situated in the
Philippines
Rule on Reciprocity
With respect to intangible personal property, its
inclusion in the gross estate is subject to the rule
of reciprocity provided for under Section 104 of
the NIRC (Sec. 104 / Sec. 4 of R.R. No. 2-03).
Requisites:
 The property involved is intangible personal
property and the situs of the properties is in
the Philippines. The decedent or donor at the
time of death or donation was a citizen and
resident of a foreign country.
 That the foreign country did not impose a
transfer tax of any character in respect of
intangible personal property owned by a
Filipino citizen not residing in said foreign
country, or
 The laws of the foreign country allow a
similar exemption from transfer taxes or
death taxes of every character or description
in respect of intangible personal property
owned by citizens of the Philippines not
residing in that foreign country (Sec. 104 [b] of
the NIRC).
 Reciprocity must be total. If any of the two
states collects or imposes or does not exempt
any transfer, death, legacy or succession tax
of any character, the reciprocity does not
work (CIR vs. Fisher, 1 SCRA 93).
 No deductions shall be allowed in the case of
a non-resident decedent not a citizen of the
Philippines, unless the executor,
administrator or any one of the heirs, as the
case may be, includes in the return required
to be filed under Section 90 of the Code the
value at the time of decedent’s death of that
part of his gross estate not situated in the
Philippines (Sec. 7 of R.R. No. 2-03).
a.7 Items to be Included in Gross Estate
General Rule: Only properties, as to the extent
of his interest therein, existing at the time of
death are included in the gross estate.
Pursuant to this general rule, it follows that
properties NOT EXISTING at the time of death
are NOT INCLUDED in the decedent’s estate.
Examples of these are the following:
1. Proceeds of life insurance issued by the
employer of the decedent on the life of the
latter.
2. A bona fide sale for an adequate and full
consideration in money or money’s worth,
and
3. In general, all other transfers of property
effective before the death of the decedent,
where all attributes of ownership are
transferred from the decedent to the
transferee. Commonly known as transfers
where there are “no strings attached”.
Exceptions:
I. Properties NOT EXISTING at the time of
death but are nonetheless INCLUDED in
the estate, these are:
1. Properties transferred in contemplation of
death (Sec. 85(B), NIRC).
2. Properties whose transfer can be revoked
(revocable transfer) (Sec. 85(C), NIRC).
3. Properties that passed under the general
power of appointment (Sec. 85(D), NIRC).
4. Proceeds of life insurance taken out by the
decedent upon his life (Sec. 85(E), NIRC).
5. Properties that were transferred for
insufficient consideration (Sec. 85(G), NIRC).
II. Properties, though EXISTING at the
time of death are NOT INCLUDED in the
estate, these are:
1. Properties that passed under the special
power of appointment
2. Capital of the surviving spouse(Sec. 85(H),
NIRC)
ITEMS OF GROSS ESTATE:
1. Decedent's interest at the time of his death
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under general power of
appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers of insufficient consideration
Note: Nos. 2, 3, 4 and 7- properties not
physically in the estate (these have already been
transferred during the lifetime of the decedent
but are still subject to payment of estate tax) -
are transfers inter-vivos which are considered
part of gross estate.
Decedent's Interest (Sec. 85(A), NIRC)
It includes any interest having value or capable
of being valued, transferred by the decedent at
his death. The interest in this provision refers to
two things in general: (a) property actually
owned, and (b) interest in the property by the
decedent. This includes real or personal property,
tangible or intangible.
Transfer In Contemplation Of Death (Sec.
85(B), NIRC)
The provision contemplates three situations
where transfer is considered made in
contemplation of death, i.e. when the transfer
was either:
1. Made explicitly in contemplation of death, or
2. Intended to take effect in possession or
enjoyment at or after death, or
3. Made in such a way that he has retained for
his life or for any period which does not in
fact end before his death:
a. The possession or enjoyment of, or the
right to the income from the property, or
b. The right, either alone or in conjunction
with any person, to designate the person
who shall possess or enjoy the property
or the income therefrom.
 The concept of transfer in contemplation of
death has a technical meaning. This does not
constitute any transfers made by a dying
person. It is not the mere transfer that
constitutes a transfer in contemplation of
death but the retention of some type of
control over the property transferred. In
effect, there is no full transfer of all interests
in the property inter vivos.
Revocable Transfer (Sec. 85(C), NIRC)
A revocable transfer is a transfer by trust or
otherwise, where the enjoyment thereof was
subject at the date of the decedent’s death to any
change, alteration, revocation, or termination,
through the exercise of power by:
1. Decedent alone;
2. By the decedent in conjunction with any
other person without regard to when or from
what source the decedent acquired such
power, to alter, amend, revoke or terminate;
or
3. Where any such power is relinquished in
contemplation of the decedent’s death. (Sec.
85(C)(1), NIRC)
This power to alter, amend or revoke shall be
considered to exist on date of decedent’s death
even though:
1. The exercise of the power is subject to a
precedent giving of notice; or
2. The alteration, amendment or revocation
takes effect only on the expiration of a stated
period for the exercise of the power, whether
or not on or before the date of the decedent’s
death notice has been given or the power has
been exercised.
 In such cases, proper adjustment shall be
made representing the interest which would
have been excluded from the power if the
 decedent had lived, and for such purpose if estate, it must be exercised by the decedent
notice has not been given or the power has himself either:
not been exercised on or before the date of
his death, such notice shall be considered to 1. By will; or
have been given, or the power exercised on 2. By deed executed
the date of his death. (Sec. 85(C)(2), NIRC) a. In contemplation of, or
b. Intended to take effect in possession or
 Revocable transfer is part of the gross estate enjoyment at or after his death; or
of the decedent because the transferor can
revoke the transfer any time, such person has 3. By deed under which he has retained for his
the power such that he can revoke the life or any period not ascertainable without
transfer as if none was actually made. reference to his death or for any period which
does not in fact end before his death
 When is a transfer not revocable, thereby not a. The possession or enjoyment of, or the
subject to estate tax: right to the income from, the property; or
a. If the decedent’s power could only be b. The right, either alone or in conjunction
exercised with the consent of all parties with any person, to designate the
having an interest in the transferred persons who shall possess or enjoy the
property and if the power adds nothing property or the income therefrom. (Sec.
to the rights the parties possess under 85[D], NIRC)
local law. (Lober v. United States, 346 US 335)
b. When the decedent has been completely Properties passing under GPA are not included as
divested of the power at the time of his part of a decedent’s gross estate:
death (ibid.)
c. Where the exercise of the power by the Those properties transferred (a) under a bona
decedent was subject to a contingency fide sale, and (b) for an adequate and full
beyond the decedent’s control which did consideration in money or money’s worth (Ibid.)
not occur before his death. (Hurd Note: (2) and (3) above contains words that are
v.Commissioner 160F (2)610) similar to the wordings of transfer in
d. The mere right to name trustees. Neither contemplation of death. Just as in that case,
is the grantor’s limited power to appoint apparent in this case that the decedent practically
himself as trustee under conditions which did not part with his property until his death, for
did not exist at his death. (24 Am Jur. 2d, p the general power of appointment exercised is
790) equivalent to ownership. In both cases, there was
a transfer with retention or reservation of certain
Property Passing Under General Power of rights.
Appointment (Sec. 85(D), NIRC)
General Power of Special Power of
It is the right to designate the person who will Appointment Appointment
succeed to the property of the prior decedent, in Property passed through Property passed through
favor of anybody, including himself, his estate, this mode is included in this mode is excluded in
his creditors, or the creditors of his estate. If the the Gross Estate of the the Gross Estate of the
donation contains a provision of reversion to the transferor. transferor.
donor, this is similar to a revocable transfer The donee has full The donee may appoint
dominion over the only amongst a
A power is not general (specific) if it can be
property as if he owned restricted or designated
exercised only in favor of one or more designated it. class of persons other
person or classes of persons exclusive of the than himself
decedent, his estate, his creditors and creditors All attributes of Transferee is like a pass-
of his estate, or if it expressly not exercisable in ownership are through who has a
favor of the decedent, his estate, his creditors, or transferred at the time restricted dominion of
creditors of his estate. of death such property
The donee may appoint The donee may appoint
For property transferred under a general power anyone, including his only amongst a
restricted or designated
of appointment to be considered part of the
 own estate or his class of persons other
creditors. than himself.
Proceeds of Life Insurance (Sec. 85(E), NIRC)
The proceeds of the life insurance are taxable
when ALL the following requisites concur:
1. It is taken out by the decedent himself
2. The life insurance is taken upon his own
(decedent’s) life
3. The beneficiary is either:
a. The estate of the deceased, irrespective
of whether or not the insured retained
the power of revocation, or
b. Any other beneficiary designated in the
policy of insurance, when the designation
is revocable. (Sec. 85(D), NIRC)
Proceeds of life insurance would NOT be taxable
when provided by the special laws or in any of
the following cases:
1. Proceeds of life insurance issued by the
employer of the decedent on the life of the
latter. Since in this case the insurance policy
is NOT taken out by the decedent himself,
requisite #1 above would be lacking.
There is transfer for an insufficient consideration
if the consideration of the transfer is not made for
consideration in money or money’s worth, or
when there is an inadequate consideration. (Sec.
85(G), NIRC)
Only the excess of the fair market value of the
property at the time of the decedent’s death over
the consideration received or the property to the
extent of the decedent’s interest therein shall be
included in the gross estate.
This is applicable to:
1. Transfers in contemplation of death
2. Revocable transfers
3. Transfers under general power of
appointment which are not bona fide sale for
an adequate and full consideration in money
and money’s worth.
It is subject to donor’s tax if there is no reference
to revocable transfer, transfers in contemplation
of death, or general power of appointment. It is
subject to estate tax if the 3 instances mentioned
are present. (Sec. 100 in relation to Sec 85[B], NIRC).
a.8. Deductions and Exclusions from Estate

2. Beneficiaries other than the estate of the Deductions from the Gross Estate (Sec. 86)
deceased, when the designation is
irrevocable. In this case, requisite #3 If the decedent is a If the decedent is a
mentioned above would be lacking. resident citizen, non- non-resident alien
resident citizen, or
resident alien
3. Insurance policies exempt under special
laws: 1. Expenses, losses, 1. Expenses, losses,
a. GSIS (P.D. 1146) indebtedness, and taxes indebtedness, and taxes
b. SSS (R.A. 1161) (ELIT): (ELIT):
a. Actual Funeral a. Actual Funeral
c. Military personnel (R.A. 360)
expenses expenses
b. Judicial expenses b. Judicial expenses
Prior Interest for testamentary or for testamentary or
intestate intestate
Except as otherwise provided, provisions for proceedings proceedings
transfer in contemplation of death, revocable c. Claims against the c. Claims against the
transfers and proceeds of life insurance shall be estate estate
applicable to all transfers, trusts, estates, d. Claims against d. Claims against
interests, rights, powers and relinquishment of insolvent persons insolvent persons
included in the included in the
powers made, created, arising existing, exercised
gross estate gross estate
or relinquished before or after the effectivity of e. Unpaid mortgages e. Unpaid mortgages
the Tax Code. (Sec. 85, NIRC) or indebtedness or indebtedness
upon the property upon the property
Transfers for Insufficient Consideration f. Losses incurred f. Losses incurred
during the during the
 settlement of the settlement of the 7. All other expenses incurred for the
estate estate performance of the ritual and ceremonies
g. Unpaid taxes g. Unpaid taxes incident to the internment (R.R. No. 2-03,
promulgated December 16, 2002).
2. Property previously 2. Transfers for public
taxed use The amount deductible shall be the actual funeral
3. Transfers for public 3. Vanishing
expenses or 5% of the gross estate, whichever is
use deductions for
4. The Family home property in the lower, and must not exceed P200,000.
5. Standard deduction Philippines
(1 Million) 4. Net share of the Limitation
6. Medical expenses surviving spouse in
7. Amount received by the conjugal Any amount of funeral expenses in excess of the
heirs under R.A. No. property P200,000 threshold, whether the same had
4917 (Retirement actually been paid or still payable, shall not be
Benefits of allowed as a deduction (Sec 86(A)(1)[a]).
Employees of
Private Firms) Items not deductible
8. Net share of the
surviving spouse in
the conjugal  Expenses incurred after the internment, such
property as for prayers, masses, entertainment, or the
like are not deductible.
Limitation to the Non-resident Alien (Sec. 7  Any portion of the funeral and burial
RR No. 2-03) expenses borne or defrayed by relatives and
friends of the deceased are not deductible.
While only the gross-estate of the non-resident
alien covers only income from within the  Medical expenses as of the last illness will not
Philippines, his/her world-wide gross estate form part of funeral expenses but should be
should likewise be declared for purposes of claimed as medical expenses (Sec. 6(A)(1), R.R.
availing the deductions based on Expenses, No. 2-2003).
Losses, Indebtedness, and Taxes (Sec. 86(B)[1],
NIRC). Sec. 7 RR No. 2-03 provides for the manner
 The expenses must be duly supported by
of computation: receipts or invoices or other evidence to show
that they were actually incurred (RR-2-2003).
Phil. Gross Estate Allowable
x ELIT =  Medical expenses are allowed only if incurred
World Gross Estate Deduction
by the decedent within one year prior to his
death. (Sec. 86[A][6], NIRC).
1. Ordinary Deductions (ELIT)
b. Judicial Expenses of the Testamentary
a. Funeral Expenses – includes:
or intestate proceedings
1. Mourning apparel of the surviving spouse and
unmarried minor children of the deceased,
Expenses allowed as deduction under this
bought and used in the occasion of the burial.
category are those:
2. Expenses of the wake preceding the burial
 Incurred in the inventory-taking of assets
including food and drinks.
comprising the gross estate;
3. Publication charges for death notices.
 Administration;
4. Telecommunication expenses in informing
 Payment of debts of the estate; as well as
relatives of the deceased.
 the distribution of the estate among the
5. Cost of burial plot. Tombstone monument or
heirs.
mausoleum but not their upkeep. In case
deceased owns a family estate or several
In short, these deductible items are expenses
burial lots, only the value corresponding to
incurred during the settlement of the estate but
the plot where he is buried a deductible.
not beyond the last day prescribed by law, or the
6. Internment fees and charges.
extension thereof, for the filing of the estate tax
return (Sec. 6 (A)(2), R.R. No. 2-03, promulgated December
16, 2002).
Judicial expenses may include:
a. Fees of executor or administrator;
b. Attorney’s fees;
c. Court fees;
d. Accountant’s fees;
e. Appraiser’s fees;
f. Clerk hire;
g. Costs of preserving and distributing the
estate;
h. Costs of storing or maintaining property of
the estate; and
i. Brokerage fees for selling property of the
estate. (Sec. 6(A)(2), RR 2-2003)
 Although tax code specifies “judicial
expenses of the testamentary or intestate
proceedings,” there is no reason why
expenses incurred in the administration and
settlement of an estate in extrajudicial
proceedings should not be allowed. However,
deduction is limited to such administration
expenses as are actually and necessarily
incurred in the collection of the assets of the
estate, payment of debts, and distribution of
the remainder among those entitled thereto
(CIR vs. CA and Pajonar, G.R. No. 123206, March 22,
2000).
 Attorney’s fees in order to be deductible from
the gross estate must be essential to the
collection of assets, payment of debts or the
distribution of property to the person entitled
to it. The services for which the fees are
charged must relate to the proper settlement
of the estate. (CIR vs. CA and Pajonar, G.R. No.
123206, March 22, 2000).]
However, the following are not allowed:
 Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are
not deductible (CIR vs. CA and Pajonar, GR No.
123206, March 22, 2000).
 Compensation paid to a trustee of the
decedent’s estate when it appeared that such
trustee was appointed for the purpose of
managing the decedent’s real estate for the
benefit of the testamentary heir (Lorenzo vs.
Posadas, 64 Phil 353, cited in Pajonar).
 Premiums paid on the bond filed by the
administrator as an expense of
administration since the giving of bonds is in
the nature of a qualification for the office,
and not necessary in the settlement of the
estate (Sison vs. Teodoro, 100 Phil. 1055, cited in
Pajonar).
 Neither may attorney’s fees incident to
litigation incurred by the heirs in asserting
their respective rights be claimed as a
deduction from the gross estate. (Johannes vs
Imperial, 43 Phil 597 (1922))
c. Claims against the estate
The word “claim” is generally construed to mean
debts or demands of a pecuniary nature which
could have been enforced against the deceased
in his lifetime and could have been reduced to
simple money judgments.
Claims against the estate or indebtedness
in respect of property may arise out of:
1. Contract;
2. Tort; or
3. Operation of Law. (Sec. 6 (A)[3], R.R. No. 2-2003)
 “Date-of-death Valuation” Rule – where
a lien claimed against the estate was certain
and enforceable on the date of the
decedent’s death, the fact that the claimant
subsequently settled for lesser amount did
not preclude the estate from deducting the
entire amount of the claim for estate tax
purposes. These pronouncements essentially
confirm the general principle that post-death
developments are not material in determining
the amount of the deduction (Dizon vs. CTA, G.R.
No. 140944, April 30, 2008).
 The appropriate deduction is the “value” that
the claim had at the decedent’s death. (Smith
vs CIR, 82 TCM 909, 2001 US case)
 The claims against the estate which the law
allows as deduction from the gross estate are
existing claims against the estate. An
indebtedness that has been condoned is in
legal effect no indebtedness at all. If there is
no more indebtedness by reason of the
condonation, there is no more claim against
the estate which may be allowed as a
deduction. (Dizon, et. al v. CA, G.R. No.140944, Apr.
 30, 2008)
Requisites for deductibility:
1. The liability represents a personal obligation
of the deceased existing at the time of his
death except unpaid obligations incurred
incident to his death such as unpaid funeral
expenses (i.e., expenses incurred up to the
time of internment) and unpaid medical
expenses which are classified under a
different category of deductions;
2. The liability was contracted in good faith and
for adequate and full consideration in money
or money’s worth;
3. The claim must be a debt or claim which is
valid in law and enforceable in court;
4. The indebtedness must not have been
condoned by the creditor or the action to
collect from the decedent must not have
prescribed (Sec. 6(A)[3], R.R. No. 2-2003).
d. Claims against insolvent person
The amount thereof has been initially included as
part of his gross estate.
 The incapacity of the debtors to pay their
obligation is proven and not merely alleged.
(Monserat vs. Collector, CTA Case No. 11, December 28,
1955, as cited in Mamalateo, Reviewer in Taxation, at p.
291)
Judicial declaration of insolvency is not
necessary. It is enough that the debtor’s liabilities
exceeded his assets.
e. Unpaid mortgages
Requisites for deductibility:
1. In all instances:
a. The value of the property, undiminished
by such mortgage or indebtedness is
included in the gross estate; and
b. The mortgage indebtedness was
contracted in good faith and for an
adequate and full consideration in money
or money’s worth;
2. In case unpaid mortgage is being claimed by
the estate, verification must be made as to
who was the beneficiary of the loan
proceeds;
3. If the loan is found to be merely an
accommodation loan where the loan
proceeds went to another person, the value
of the unpaid loan must be included as a
receivable of the estate; and
4. If there is a legal impediment to recognize
the same as receivable of the estate, said
unpaid obligation/mortgage payable shall not
be allowed as a deduction from the gross
estate. (Section 86(A)(1))(e),NIRC)
5. In all instances, the mortgaged property, to
the extent of the decedent’s interest therein,
should always form part of the gross taxable
estate. (Sec. 6(A)[5], R.R. 2-03)
f. Taxes
Taxes which have accrued as of the death of the
decedent which were unpaid as of the time of
death are likewise deductible. This deduction will
not include the following taxes Sec. 6(A)(5), RR
2-2003:
a. Income tax upon income received after
death, or
b. Property taxes which have not accrued
before his death, or the
c. Estate tax due from the transmission of his
estate.
The following are not deductible:
 Income tax on income received after death
 property taxes not accrued before death
 estate tax (Sec. 6(A)[5], R.R. 2-03)
g. Casualty Losses
There shall also be deducted losses incurred
during the settlement of the estate arising from
fires, storms, shipwreck, or other casualties, or
from robbery, theft or embezzlement, when such
losses are not compensated for by insurance or
otherwise, and if at the time of the filing of the
return such losses have not been claimed as a
deduction for income tax purposes in an income
tax return, and provided that such losses were
incurred not later than the last day for the
payment of the estate tax as prescribed in
Subsections (A) and (B) of Section 91. Sec. The provision is commonly called the “vanishing
6(A)(5), RR 2-2003 deduction” because as time goes by, the amount
of deductible tax that was previously paid also
Requisites: diminishes, based on the table below:

 It should arise from fire, storm, shipwreck, or PERIOD DEDUCTION

other casualty, robbery, theft or Within 1 year or less 100%
embezzlement;
 Not compensated by insurance or otherwise; More than 1 year but 80%
 Not claimed as deduction in an income tax not more than 2 years
return of the taxable estate; More than 2 years but 60%
not more than 3 years
 Incurred during the settlement of the estate;
More than 3 years but 40%
and not more than 4 years
 Occurred before the last day for the payment More than 4 years but 20%
of the estate tax (last day to pay: six months not more than 5 years
after the decedent’s death) (Sec. 6(A)[5], R.R. 2-
03).
 The purpose of vanishing deduction is to
lessen the harsh effects of double taxation.
Casualty loss can be allowed as deduction in one
 In property previously taxed, there are two
instance only, either for income tax purposes or
(2) transfers of property. Within a period of 5
estate tax purposes.
years, the same property has been
transferred from the first to the second
2. Special Deductions
decedent or from a donor to the decedent. In
such case, the first transfer has been
a. Property Previously Taxed (PPT)
subjected to a transfer tax. The second
“Vanishing Deduction”
transfer would now be subject to a vanishing
deduction as provided in the code.
For property previously taxed to be deductible
under this section, the following requisites must
b. Transfer for Public Use
concur:
Requisites:
1. The decedent must have previously acquired
the property either by:
1) The disposition is in a last will and testament
a. Donation, or
2) To take effect after death
b. Succession
3) For the use of the government of the
Philippines, or any political subdivision
2. The time interval between the:
thereof
4) For exclusive public purposes (Sec. 86 (A) (32),
a. Death of the previous decedent, OR the NIRC)
donation, and the
b. Death of the current decedent, must be Note: This provision should be construed with
at most five (5) years. Sec. 87(D), providing for an exclusion of all
bequests, devices, or transfers to social welfare,
3. The property must be situated in the cultural and charitable institutions, where not
Philippines. more than 30% of said bequests, devises,
legacies or transfers were to be used by such
4. The previous Estate tax or Donor’s tax must institutions for administration purposes. In Sec.
have been previously paid 87(D), the primary determining factor is the
recipient, while it is the use in Sec. 86 (A)(3).
5. There was no previous vanishing deduction
on the property Sec. 86(A)(3) Sec. 87(D)
It contemplates It contemplates
transfers by a citizen or transfers to social
 resident of the welfare, cultural and relations prevailing on the properties of the
Philippines in favor of charitable institutions husband and wife, or
the Government of the which are exempted
Philippines or any from estate tax. 3. An unmarried head of a family on his or her
political subdivision
own property. (Sec. 6(D)(a), RR 2-2003)
thereof, for public
purpose which is
deducted from the gross Note: in case it falls within number (1) above,
estate. only half not to exceed P1 Million, may be allowed
as a deduction. This is because in reality only that
c. Family Home half forms part of the estate of the decedent-
spouse.
Family home is the dwelling house, including the
land where it is situated where the married  Actual occupancy of the house or house and
person or an unmarried head of the family and lot as the family residence shall not be
his family resides. considered interrupted or abandoned in such
cases as the temporary absence from the
Family home is deemed constituted on the house constituted family home due to travel or
and lot from the time that it is constituted as a studies or work abroad, etc. (Sec. 6(D)(a), RR 2-
family residence and is considered as such so 2003). Thus, while an overseas foreign worker
long as any of the beneficiaries actually resides (OFW) is considered a non-resident citizen of
therein. the Philippines, in his estate may be deducted
the family home.
Requisites for deductibility:
 The family home is generally characterized by
1. The family home must be the actual permanency, that is, the place to which,
residential home of the decedent and his whenever absent for business or pleasure,
family at the time of his death, as certified by one still intends to return (Sec. 6 (D)(a), R.R. No.
the Barangay Captain of the locality where 2-2003).
the family home is situated;
 For purposes of availing of a family home
2. The total value of the family home must be deduction to the extent allowable, a person
included as part of the gross estate of the may constitute only one family home.
decedent; and
 The estates of non-resident decedents are
3. Allowable deduction must be in the amount not allowed to avail the family home
equivalent to: deduction because they do not have a family
home in the Philippines since they are non-
a. The current FMV of the family home as residents.
declared or included in the gross estate,
or d. Standard Deduction
b. The extent of the decedent’s interest
(whether conjugal/community or A deduction in the amount of One Million Pesos
exclusive property), whichever is lower, (P1,000,000) shall be allowed as an additional
but not exceeding P1,000,000. deduction without need of substantiation. The full
The family home must be part of the amount of P1,000,000 shall be allowed as
properties of either: deduction for the benefit of the decedent (Sec. 86
(A)[5]).

1. The absolute community or of the conjugal

Nonresident alien-decedent are not entitled to
partnership, or of standard deduction because it is not among those
2. The exclusive properties of either spouse
enumerated under Sec. 86 (b) of the NIRC.
depending upon the classification of the
property (family home) and the property
e. Medical Expenses
All medical expenses (cost of medicines, hospital
bills, doctor’s fees, etc.) incurred (whether paid
or unpaid) with one (1) year before the death of
the decedent shall be allowed as a deduction
provided:
a. that the same are duly substantiated with
official receipts for services rendered by the
decedent’s attending physicians, invoices,
statements of account duly certified by the
hospital, and such other documents in
support thereof
b. the total amount thereof, whether paid or
unpaid, does not exceed Five Hundred
Thousand Pesos (P500,000).
Limitation
Any amount of medical expenses incurred within
one year from death in excess of Five Hundred
Thousand Pesos (P500,000) shall no longer be
allowed as a deduction under this subsection.
Neither can any unpaid amount for medical
expenses incurred prior to the one-year period
from date of death be allowed to be deducted
from the gross estate as claim against the estate
(Sec. 6(f), R.R. No. 2-2003).
f. Amounts Received by Heirs under RA
4917
Any amount received by the heirs from the
decedent’s employer as a consequence of the
death of the decedent-employee in accordance
with Republic Act No. 4917 is allowed as a
deduction provided that the amount of the
separation benefit is included as part of the gross
estate of the decedent (Sec. 6(G), RR 2-2003).
RA No. 4917 is an Act providing that the
retirement benefits of employees of private firms
shall not be subject to attachment, levy,
execution, or any tax whatsoever.
It provides that retirement benefits received by
officials and employees of private firms, whether
individual or corporate, in accordance with a
reasonable private benefit plan maintained by the
employer shall be exempt from all taxes and shall
not be liable to attachment, garnishment, levy or
seizure by or under any legal or equitable process
whatsoever except to pay a debt of the official or
employee concerned to the private benefit plan
or that arising from liability imposed in a criminal
action.
Requisites for deductibility:
1. Amounts received by the heirs from the
decedent’s employer;
2. Received as a consequence of the death of
the decedent-employee; and
3. Amount is included in the gross estate of the
decedent. (Sec. 86[A][7], NIRC)
Exclusions from Estate
In deductions, the deductible items should have
been first included in the gross estate of the
decedent before actually subtracted. Exclusions,
as distinguished from deductions, are not
included at all in the gross estate.
The following are excluded from the Gross
Estate
a) The capital (exclusive property) of the
surviving spouse.
b) GSIS proceeds/benefits
c) Accrual from SSS
d) Proceeds of life insurance where the
beneficiary is irrevocably appointed
e) War damage payments
f) Transfer by way of bona fide sales
g) Properties held in trust by the decedent
h) Acquisition and/or transfer expressly
declared as not taxable
Properties excluded under Special Laws:
1. Benefits received by members from the
Government Service Insurance System (PD
1146) and the Social Security System (RA 1161, as
amended) by reason of death.
2. Amounts received from the Philippine and
United States governments for damages
suffered during the last war (RA 227).
3. Benefits received by beneficiaries residing in
the Philippines under laws administered by
the U.S. Veterans Administration (RA 360).
4. Bequests, legacies or donations mortis causa
to social welfare, cultural, or charitable
organizations (PD 307); but bequests to
religious and educational institutions are not
exempt. (BIR Ruling 75-001, Jan. 15, 1975).
5. Grants and donations to the Intramuros
Administration (PD 1616). (Mamalateo, Reviewer in
Taxation, 2008 pp. 288-289).
a.9. Tax Credit for Estate Taxes Paid in a
Foreign Country
TAX CREDIT- Estate tax paid to a foreign
country
Formula:
Gross Estate
(Deductions)
Taxable Net Estate
x Tax Rate
Estate Tax Due
(Tax Credit, if any)
NET TAX DUE
 It is a remedy against international double
taxation to minimize the onerous effect of
taxing the same property twice.
 Only the estate of a citizen or a resident alien
at the time of death can claim tax credit for
any estate taxes paid in a foreign country.
Limitations on estate tax credit:
1. The amount of the credit in respect to the tax
paid to any country shall not exceed the same
proportion of the tax against which such
credit is taken, which the decedent’s net
estate situated within such country taxable
under the NIRC bears to his entire net estate
(per country basis); and
2. The total amount of the credit shall not
exceed the same proportion of the tax
against which such credit is taken, which the
decedent’s net estate situated outside the
Philippines taxable under the NIRC bears to
his entire net estate (overall basis)
a.10. Exemption of Certain Acquisitions and
Transmissions
Under Sec. 87 of NIRC, the following are
exempted from the gross estate of the decedent:
1. The merger or usufruct in the owner of the
naked title.
2. Fidei commissary substitutions. Provided
that:
a. the substitution must not go beyond one
degree from the heir originally instituted
b. the fiduciary or the first heir must be both
living at the time of death of the testator.
3. Transmission in accordance with the
predecessor’s desire.
4. Transfers for social welfare, cultural, and
charitable institutions. Provided that:
a. No part of the net income of which inures
to the benefit of any individual; and
b. Not more than thirty percent (30%) of
the said bequests, devises, legacies or
transfers shall be used by such
institutions for administration purposes.
a.11. Filing of Notice of Death
Notice of death is required to be filed in all cases
of transfer subject to tax or where, though
exempt from tax, the gross value of the estate
exceeds P20,000.
 Sec. 89 used the word, “gross”; meaning, the
value of the estate before deductions were
made. It also added the phrase, “though
exempt from tax”. Apparently, even the
exclusions are to be included in the value of
the “gross estate”, but only for purposes of
determining whether or not there should be
a notice of death.
 Such notice is to be filed by the executor,
administrator, or any of the legal heirs, within
two months after either:
1. The decedent’s death, or
 2. After qualifying as such executor or
administrator.
Such notice must be in writing and given to the
Commissioner.
a.12. Estate Tax Return
An Estate Tax Return is required when either:
1. The gross value of the estate exceeds
P200,000; or
2. Regardless of the gross value of the estate,
where the estate consists of registered or
registrable property such as motor vehicle or
shares of stock or other similar property for
which clearance from the BIR is required as
a condition precedent for the transfer of
ownership thereof in the name of the
transferee. (Sec. 90[A], NIRC)
The properties that need clearance from
the BIR, called the “certificate authorizing
registration”, or CAR, before transfer
includes but is not limited to the following
(Sec. 97, NIRC):
1. Real property, where registration is done with
the register of deeds;
2. Motor vehicle, where registration is done with
the Land Transportation Office (LTO);
3. Shares of stock, where the corporate
secretary is not authorized to make changes
without a clearance from the BIR.
Time of Filing:
The estate tax return is required to be filed within
6 months from the decedent’s death (Sec. 90[B],
NIRC). An extension to file an estate tax return is
allowed in meritorious cases but not to exceed 30
days. (Sec. 90[C], NIRC)
Who shall file the estate tax return:
1. Executor
2. Administrator
3. Any legal heir
Contents of estate tax return
The estate tax return must be under oath and
shall contain the following:
1. The value of the gross state of the decent at
the time of his death or in case of a non-
resident, not a citizen of the Philippines, the
part of his gross estate situated in the
Philippines.
2. The deductions allowed from the gross estate
in determining the estate.
3. Such part of the information as may at the
time be ascertainable and such supplemental
data as may be necessary to establish the
correct taxes. (Sec. 90[A], NIRC)
Requirements in case the gross estate
exceeds P2,000,000:
The estate tax return shall be accompanied by a
statement which is certified by an independent
CPA which shall contain the following:
1. Itemized assets of the decedent with its
corresponding gross value at the time of
resident, not a citizen of the Phil, the part of
his gross estate situated in the Philippines;
2. Itemized deduction from the gross estate;
and
3. The amount of the tax due whether paid or
still due and outstanding. (Sec. 90[A], NIRC)
20-200-2 million Rule:
For easier recall and correlation, the 20-200-2M
summarizes the requirements for each threshold
amount of the estate, to wit:
1. Where the gross estate exceeds P20,000, a
notice of death is required;
2. Where the gross estate exceeds P200,000, an
estate tax return is required; and
3. Where the gross estate exceeds P2,000,000,
such return shall be supported with a
statement duly certified to by a Certified
Public Accountant (CPA).
Prohibition from withdrawing funds in the
bank account of a deceased depositor:
General rule:
If the bank has knowledge of the death of the
person who maintains a bank deposit alone or
jointly with another, it shall not allow any
withdrawal from said deposit account unless the
CIR has certified that estate taxes have been
paid. (Sec. 97, NIRC)
Exception:
The CIR may allow the administrator or anyone
of the heirs to withdraw an amount not exceeding
20,000 without the certification that estate taxes
have been paid.
Place of Filing:
1. If it is a resident decedent – the
administrator or executor shall register the
estate of the decedent and secure a new TIN
from the RDO where the decedent was
domiciled at the time of his death and shall
file and pay with the authorized agent bank,
RDO, Collection Officer, or duly authorized
Treasurer in the city or municipality where
the decedent was domiciled at the time of his
death.
extend the time for payment up to a
maximum of 5 years in case the estate is
settled judicially or in 2 years in case the
estate is settled extra-judicially
 If an extension is granted, the Commissioner
may require the executor or administrator or
beneficiary to furnish a bond in such amount
not exceeding double the amount of the tax
and with such sureties as the commissioner
deems necessary. Also, the prescriptive
period to asses any deficiency tax under Sec.
203 of the Tax Code is suspended.
 Where the taxes are assessed by reason of
negligence, intentional disregard of rules and
regulations, or fraud on the part of the
taxpayer, no extension will be granted by the
Commissioner.

2. If it is a non-resident decedent – the

estate tax return shall be filed with and the
TIN for the estate shall be secured from the Extension of time to file
RDO where the executor or administrator is Ground Meritorious When payment
registered. In case the executor or cases on the due date
administrator is not registered, the estate tax of the estate
tax or of any
return shall be filed with and the TIN for the
part thereof
estate shall be secured from the RDO having would impose
jurisdiction over the executor or undue hardship
administrator’s legal residence. Nonetheless, upon the estate
in case when the decedent has no executor or any of the
or administrator in the Philippines, the estate heirs
tax return shall be filed with and the TIN for Extension of time to pay
the estate shall be secured from the Office of Time limit Not to exceed Extension of
the CIR through RDO 39. (Sec. 9[C], RR 2-2003) 30 days time not to
exceed either:
5 yrs, in cases
Time of Payment
of judicial
settlement,
 Pay as you file procedure, within 6 months or
from the decedent’s death; a reasonable 2 yrs, in cases
extension of 30 days for filing of the return of extra-
may be granted by the Commissioner in judicial
meritorious cases. settlement.
Effect Does not Suspends the
 When the Commissioner of the BIR shall find suspend period for
assessment
that the payment on the due date will impose
undue hardship upon any heir, he may
Who is liable to pay?

1. The executor or administrator, before delivery
to any beneficiary of his distributive share.
2. The beneficiary, to the extent of his distributive
share in the estate, shall be subsidiarily liable for
the payment of such portion of the estate tax as
his distributive share bears to the value of the
total net estate. [Sec. 91 (C) NIRC]
 When an estate is under administration,
notice must be sent to the administrator of
the estate, since it is the said administrator,
as representative of the estate, who has the
legal obligation to pay and discharge all debts
of the estate and to perform all orders of the
court (Estate of Vda De Gabriel vs. CIR, G.R. No.
155541 dated January 27, 2004).
 In the case of Republic vs. De le Rama (124
Phil. 1493), legal notice of the assessment was
sent to two heirs, neither one of whom had
any authority to represent the estate.
 The probate court is not the government
agency to decide whether an estate is liable
for payment of estate of income taxes, and
taxes charged against the estate of the
decedent are exempted from the application
of the statute of non-claims. (Marcos II vs CA 273
SCRA 47)
b. Donor’s Tax
b.1. Basic principles, concept and definition
 Donor’s tax shall be imposed upon the
transfer by any person, Resident or Non-
Resident, of any property by gift.
 Tax shall apply whether the property is by
trust or otherwise and whether the gift is
direct or indirect and whether the property is
real or personal, tangible or intangible.
 The law in force at the time of the
perfection/completion of the donation shall
govern the imposition of the Donor’s Tax.
 The Donor’s Tax is imposed on Donations
inter vivos
 Donations mortis causa partake of the nature
of testamentary dispositions and are subject
to estate tax.
Definition
Donation is an act of liberality whereby a person
(donor) disposes gratuitously of a thing or right
in favor of another (donee) who accepts it. (Art.
725, Civil Code)
Donor’s tax is an excise tax imposed on the
privilege to transfer property by way of gift inter
vivos based on a pure act of liberality without
any, or less than adequate, consideration and
without any legal compulsion to give.
The Tax Reform Act of 1997 does not provide a
definition of donor’s tax. It simply subjects a “gift”
to donor’s tax.
A gift that is incomplete because of reserved
powers becomes complete when either:
1. the donor renounces the power; or
2. his right to exercise the reserved power
ceases because of the happening of some
event or contingency or the fulfillment of
some condition, other than because of the
donor’s death.
 Donor’s tax is not a property tax, but is a tax
imposed on the transfer of property by way
of gift inter vivos (Sec. 11 of RR No. 2-2003dated
December 16, 2002, citing Lladoc vs. CIR, 14 SCRA 292,
June 16, 1965).
b.2. Nature, purpose and object
Nature
It is an excise tax on the privilege of the
donor to give or on the transfer of property
by way of gift inter vivos. It is not a property
tax. (Sec. 11, RR No. 2-2003)
 The fact that his services contributed in a
large measure to the success of the company
did not give rise to a recoverable debt, and
the conveyances made by the company to his
heirs remain a gift or a donation. The
company’s gratitude was the true
consideration for the donation, and not the
services themselves. Thus, subject to donor’s
and donee’s tax (Pirovano vs. CIR, G.R. No. L-
19865, July 31, 1965).
 A gift tax is not a property tax, but an
exercise tax imposed on the transfer of
property by way of gift inter vivos, the
imposition of which on property used
 exclusively for religious purposes, does not
constitute an impairment of Constitution. The
phrase “exempt from taxation” as employed
in the Constitution should not be interpreted
to mean exemption from all kinds of taxes
(Lladoc vs. CIR and CTA, G.R. No. L-19201, June 16,
1965).
Purposes or Object
a. To raise revenues;
b. To tax the wealthy and reduce certain excise
taxes;
c. To discourage inter vivos transfers of
property which could reduce the mortis causa
transfer on which a higher tax would be
collected;
d. To reduce the incentive to make gifts in order
that distribution of future income from the
donated property may be to a number of
persons with the result that the taxes
imposed tax are avoided.
e. To prevent avoidance of income tax through
the device of splitting income among
numerous donees who are usually members
of a family or into many trusts, with the donor
thereby escaping the effect of the
progressive rates of income taxation.
b.3. Time and Transfer of Properties
(insert)
b.4. Requisites of a Valid Donation
a. Capacity of the donor
All persons who may contract and dispose of their
property may make a donation (Art 735, NCC). The
donor’s capacity shall be determined as of the
time of the making of the donation (Art. 737, NCC)
b. Donative intent
Donative intent is necessary only in cases of
direct gift. If the gift is indirectly taking place by
way of sale, exchange or other transfer of
property as contemplated in cases of transfers for
less than adequate and full consideration (Sec. 100,
NIRC), not always essential to constitute a gift.
“Absence of donative intent does not
exempt a gift from donor’s tax”
Absence of donative intent, if that be the case,
does not exempt the sale of stock transaction
from donor’s tax since Sec. 100 of the NIRC
categorically states that the amount by which the
fair market value of the property exceeded the
value of the consideration shall be deemed a gift.
Thus, even if there is no actual donation, the
difference in price is considered a donation by
fiction of law.
Moreover, RR No. 6-2008 does not alter Sec. 100
of the NIRC but merely sets the parameters for
determining the “fair market value” of a sale of
stocks. Such issuance was made pursuant to the
CIR’s power to interpret tax laws and to
promulgate rules and regulations for their
implementation. (Philamlife vs. SOF, GR No. 210987
dated November 24, 2014)
c. Delivery, whether actual or
constructive
There is delivery if the subject matter is within
the control and dominion of the donee.
d. Acceptance by the donee
The acceptance is necessary because nobody is
obliged to receive a gift against his will. And once
the acceptance is made known to the donor, the
will of the donor and donee concur, and the
donation, as a mode of transferring ownership,
becomes perfect. (Osorio vs Osorio, G.R. No. L-16544,
March 30, 1921)
The donor’s tax shall not apply unless and until
there is a completed gift. The transfer is
perfected from the moment the donor knows of
the acceptance by the donee; it is completed by
the delivery, either actually or constructively, of
the donated property to the donee. Thus, the law
in force at the time of the perfection/completion
of the donation shall govern the imposition of the
donor’s tax.
e. Form prescribed by law
The donation of a movable may be made orally
or in writing. In oral donation requires the
simultaneous delivery of the thing or of the
document representing the right donated. If the
value of the personal property donated exceeds
five thousand pesos, the donation and the
acceptance shall be made in writing, otherwise,
the donation shall be void. (Art. 748, Civil Code)
In order that the donation of an immovable may
be valid, it must be made in a public document,
specifying therein the property donated and the
value of the charges which the done must satisfy.
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. (Art. 749,
Civil Code)
b.5. Transfers which may be Constituted as
Donation
b.5.1. Sale/Exchange/Transfer of property
for insufficient consideration
General Rule: The property is transferred for
less than adequate and full consideration in
money or money’s worth, the amount by which
the FMV exceeds the consideration shall be
deemed a gift and be included in computing the
amount of gifts made during the year. It is as if
the property was donated but in order to avoid
paying donor’s tax, the donor opted to transfer
the property for inadequate consideration. (Sec.
100 of the NIRC)
Exception: Where property transferred is real
property located in the Philippines considered as
capital asset, the donor’s tax is not applicable but
the final income tax of 6% of the fair market
value or gross selling price, whichever is higher.
Rationale: The NIRC considers the transfer as a
donation since what motivated the transferor in
transferring his property is his generosity.
Where the consideration is fictitious, the entire
value of the property transferred shall be subject
donor’s tax. (De Leon and De Leon, Jr., The National
Internal Revenue Code, Vol. I, 2011 ed., p. 760)
b.5.2. Condonation/Remission of debt
If the creditor condones the indebtedness of the
debtor the following rules apply:
 On account of debtor’s services to the
creditor the same is in taxable income to the
debtor.
 If no services were rendered but the creditor
simply condones the debt, it is taxable gift
and not a taxable income.
b.6. Transfer for Less than Adequate and
Full Consideration (See discussion on
Sale/Exchange/Transfer of property for insufficiency
consideration)
Note: The element of donative intent is
conclusively presumed in transfers of
property for less than an adequate or full
consideration in money or money’s worth. In
this case, the difference between the fair
market value of the gift or donation and the
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))
Note: Where property, other than a real
property that has been subjected to the final
capital gains tax, is transferred for less than
an adequate and full consideration in money
or money’s worth, then the amount by which
the fair market value of the property at the
time of the execution of the Deed of Sale
which is not preceded by a Contract to Sell
exceeded the value of the agreed or actual
consideration or selling price shall be deemed
a gift, and shall be included in computing the
amount of gifts made during the calendar
year. (Sec. 11, RR No. 2-2003)
b.7. Classification of Donor
Who are taxpayers?
a. Resident Citizen (RC),
b. Non-resident Citizen (NRC),
c. Resident Alien (RA),
d. Non-resident Alien (NRA),
e. Domestic Corporation (DC),
f. Foreign Corporation (FC).
Note: A corporation, whether domestic or
foreign, is included since it is capable of entering
into a contract of donation, through a Board
Resolution.
b.8. Determination of Gross Gift
All property, real or personal, tangible or
intangible, that was given by the donor to the
donee by way of gift, without the benefit of any donee the obligation to pay the mortgage liability,
deduction. (Sec. 104, NIRC) then the net gift is measured by deducting from
the fair market value of the property the amount
All gifts made directly or indirectly whether in of mortgage assumed (Sec. 11, RR 2-2003).
trust or otherwise as long as there is no
consideration or the same is gratuitously made
shall form part of a donation.

Stranger vs. Relative (Sec. 99)

b.9. Composition of Gross Gift
The relatives considered by the tax code are as
The term gross gifts shall include the transfer by follows:
any person, resident or non-resident, of the (1) Brother, sister (whether by whole or half-
property by gift, regardless of whether: blood), spouse, ancestor and lineal
descendant; or
1. Transfer of gift is in trust or otherwise, (2) Relative by consanguinity in the collateral line
2. The gift was given: within the fourth degree of relationship.
a. Directly (e.g. donation) or
b. Indirectly (e.g. transfer for Less Than The degree of relationship (4th degree limit) is
Adequate & Full Consideration [Sec. 100]) material only with respect to collateral relatives.
3. The property subject of the gift is real or There is no limit with respect the number of
personal, tangible or intangible (The property degrees of relationship with respect to ancestor
subject of donor’s tax depends on the identity or lineal descendants. A legally adopted child is
of the donor, whether it be a citizen, entitled to all the rights and obligations provided
resident alien, or non-resident alien (Sec. 98 in by law to legitimate children, and therefore,
relation to Sec. 104). donation to him shall not be considered as
donation made to stranger. (Sec. 10(B), R.R. No. 2-
RESIDENT & NON- NON-RESIDENT
2003) An obligation imposed by law, such as the
RESIDENT CITIZEN, ALIEN DONOR
RESIDENT ALIEN support given by the parent to a child, is not
DONOR subject to donor’s tax.
Real property not only Real property situated
within the Philippines in the Philippines. Stranger – any person not falling within the
but also in foreign definition of a relative.
countries (wherever Donation made between business organizations
situated) and those made between an individual and a
Personal property, Personal property business organization shall be considered as
tangible or intangible, donation made to a stranger (Sec. 10(B), R.R. No. 2-
not only within the Tangible property
2003) Thus, the applicable tax rate would always
Philippines but also in situated in the
foreign countries Philippines
be 30% of the net gifts, pursuant to Sec. 99(B)
(wherever situated) of the NIRC.
Intangible personal
property with a situs in b.10. Valuation of Gifts Made in Property
the Philippines unless
there is reciprocity, in Personal property: FMV at the time of the
which case it is not donation.
taxable. (Sec. 104 of the
NIRC)
Real property: FMV at the time of death as
determined by the Commissioner (zonal value) or
Tax Exempt Net Gift (Sec. 99)
the FMV in the latest schedule of values of the
provincial or city assessor (indicated in the latest
“NET GIFT” shall mean the net economic benefit
tax declaration), whichever is HIGHER.
from the transfer that accrues to the donee.
Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the
b.11. Tax Credit for Donor’s Taxes Paid in a
Foreign Country
The donor’s tax imposed upon a citizen or
resident at the time of the donation shall be
credited with the amount of any donor’s tax, of
any character and description, imposed by the
authority of a foreign country. (Sec. 101(C) NIRC)
Limitations on Tax Credit
 The amount of credit in respect to the tax
paid to any country shall not exceed the same
proportion of the tax against which such
credit is taken, which the decedent’s net gifts
situated within such country taxable under
the NIRC bears to his entire net gifts; and
 The total amount of the credit shall not
exceed the same proportion of the tax
against which the decedent’s net gift situated
outside the Philippines taxable under the
NIRC bears to his entire net gift.
Note: This tax credit is allowed only for residents
and citizens of the Philippines for the donor’s
taxes they paid in a foreign country.
Formulas:
For donor’s taxes paid to one foreign country
Allowable final tax credit =
The lower amount between:
a. Tax actually paid to be the foreign country
b. The amount derived from this formula:
Net gifts, Foreign Country x Phil. Donor’s Tax
Net gifts, World
For donor’s taxes paid to 2 or more foreign
countries, the lower amount between limitation A
and B.
a. Limitation A (per country)
The lower amount between the actual foreign
taxes paid to each country and the amount
derived from the formula below:
Net gifts, Foreign Country x Phil. Donor’s Tax
Net gifts, World
b. Limitation B (by total):
The lower amount between the sum of the actual
taxes paid to ALL foreign countries and the
answer to the formula below:
Net gifts, Foreign Country x Phil. Donor’s Tax
Net gifts, World
b.12. Exemptions of Gifts From Donor’s Tax
Exempt Transfers
a. If the decedent at the time of his death or the
donor at the time of the donation was a
citizen and resident of a foreign country
which at the time of his death or donation 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,
b. If the laws of the foreign country of which the
decedent or donor was a citizen and resident
at the time of his death or donation allows a
similar exemption from transfer or death
taxes of every character or description in
respect of intangible personal property
owned by citizen of the Philippines not
residing in that foreign country.
Exempt Donations
1. Gifts Made By Resident
a. Dowries or gifts on account of marriage and
before its celebration or within 1 year
thereafter by parent to each of their
legitimate, recognized natural, or adopted
children to the extent of the first P10,000.
b. Gifts made to or for the use of national
government or any entity created by its
agency which is not conducted for profit, or
any political subdivision of the said
government.
c. Gifts made in favor of educational and or
charitable, religious, cultural, social welfare
institution, provided however not more than
30% of the said donation is devoted by the
donee for administrative purposes.
d. Athlete’s prizes and awards given to athletes
in local and international tournaments and
 competitions held in the Philippines or
abroad; and sanctioned by their respective
sport association. (Sec. 1, R.A. 7549)
e. Exempted from donor’s tax under other
special laws:
1. International Rice Research Institute (IRRI)
2. Ramon Magsaysay Award Foundation
3. Philippines Inventors Convention (PIC)
4. Integrated Bar of the Philippines (IBP)
5. the Development Academy of the Philippines
6. Aquaculture Department of the Southeast
Asian Fisheries
7. Development Center of the Philippines
8. National Museum
9. National Library
10. National Social Action Council
11. Philippine American Cultural Foundation
12. Task Force on Human Settlement on the
donation of equipment, materials, and
services
Gifts given by a Non-resident Alien
a. Gifts made to or for the use of the national
government or any entity created by its
agency which is not conducted for profit, or
any political subdivision of the said
government.
b. Gifts made in favor of educational and or
charitable, religious, cultural, social welfare
institution, accredited NGO, trust or
philanthropic organization for research
institution, provided however that not more
than 30% of the said donation is devoted by
the donee for administrative purposes.
Exemption of Certain Gifts
Sec. 101(A)(1) of the NIRC exempts dowries
made or given to the extent of P10,000.
 The recognized natural children are
illegitimate children.
 When the donation of property is made by
the spouses, both are entitled to a deduction
of the first ten thousand pesos.
 The deduction shall apply only to donations
made to their child on account of marriage.
With respect to the child’s spouse, he/she is
considered as stranger and no deduction
shall be allowed.
 When the donation on account of marriage is
done BEFORE its celebration, there is no time
limit as to when the donation should be
made. When it is made AFTER its celebration,
then such donation must be made within one
year thereafter.
Rule on Political Contributions (Sec. 99 (C))
Any contribution in cash or in kind to any
candidate, political party, or coalition of parties
for campaign purposes, reported to COMELEC
shall not be subject to payment of any gift tax
(Sec. 99[C], NIRC; RR 2 2003)
The election law involved on the matter is
Republic Act No. 7166, promulgated November
23, 1991, particularly Sec. 13 and 14.
Section 13. Authorized Expenses of
Candidates and Political Parties. – The
agreement amount that a candidate or registered
political party may spend for election campaign
shall be as follows:
(1) For candidates. – Ten pesos (P10.00) for
President and Vice-President; and for other
candidates Three Pesos (P3.00) for every
voter currently registered in the constituency
where he filed his certificate of candidacy:
Provided, That a candidate without any
political party and without support from any
political party may be allowed to spend Five
Pesos (P5.00) for every such voter; and
(2) For political parties. – Five pesos (P5.00) for
every voter currently registered in the
constituency or constituencies where it has
official candidates.
Any provision of law to the contrary
notwithstanding any contribution in cash or in
kind to any candidate or political party or coalition
of parties for campaign purposes, duly reported
to the Commission shall not be subject to the
payment of any gift tax.
Section 14. Statement of Contributions and
Expenditures: Effect of Failure to File
Statement. – Every candidate and treasurer of
the political party shall, within thirty (30) days
after the day of the election, file in duplicate with
the offices of the Commission the full, true and
itemized statement of all contributions and
expenditures in connection with the election.
General Rule:
Campaign contributions are not included in the
taxable income of the candidate to whom they
were given, the reason being that such
contributions were given not for the personal
expenditure/enrichment of the concerned
candidate, but for the purpose of utilizing such
contributions for his/her campaign. Thus, to be
considered as exempt from income tax, these
campaign contributions must have been utilized
to cover a candidate’s expenditures for his/her
electoral campaign (Sec. 2, RR No. 7-2011, February 16,
2011).
Exception:
 Unutilized/excess campaign funds, that is,
campaign contributions net of the candidate’s
campaign expenditures, shall be considered
as subject to income tax, and as such, must
be included in the candidate’s taxable income
as stated in his/her Income Tax Return (ITR)
filed for the subject taxable year (Sec. 2, RR No.
7-2011, February 16, 2011).
 No corporation, domestic or foreign, shall
give donations in aid of any political party or
candidate or for purposes of partisan political
activity. (Sec. 36, Corporation Code)
 Political contributions made prior to the
passage of RA No. 7166 on November 25,
19991 were subject to donor’s tax. (Abello vs
CIR, G.R. No. 129721, February 23, 2005)
Renunciation of share in the conjugal
partnership/absolute community
Renunciation by the surviving spouse of his/her
share in the conjugal partnership or absolute
community after the dissolution of the marriage
in favor of the heirs of the deceased spouse or
any other person/s is subject to donor’s tax.
Whereas general renunciation by an heir,
including the surviving spouse, of his/her share in
the hereditary estate left by the decedent is not
subject to donor’s tax, unless specifically and
categorically done in favor of identified heir/s to
the exclusion or disadvantage of the other co-
heirs in the hereditary estate (Sec. 11, RR No. 2-2003).
Donations between spouses
General Rule: Donations during marriage is
void. (Art. 87, NCC)
Void donations are not subject to donor’s tax.
However, if the donor’s tax was already paid, the
taxpayer only have two years from the date of
payment to ask or file for a claim for refund,
regardless of any supervening event.
Exceptions:
a. Donations mortis causa
b. Moderate gifts which the spouses may give
each other on the occasion of any family
rejoicing.
Donations by one of the spouses
If what was donated is a conjugal or community
property and only the husband signed the deed
of donation, there is only one donor for donor’s
tax purposes, without prejudice to the right of the
wife to question the validity of the donation
without her consent. (Sec. 12, RR No. 2-2003)
Husband and wife are considered separate and
distinct taxpayers for purposes of donor’s tax.
b.13. Person Liable
Any person making a donation unless the
donation is specifically exempted under NIRC or
other special laws, is required for every donation
to accomplish under oath a donor’s tax return in
duplicate.
b.14. Tax Basis
Rate of Tax
Depends if donee or beneficiary is a:
  Relative – 2 to 15% of the net gift
depending on the value of the gift as The donor’s tax is paid upon filing of return. No
provided under Sec.99 of the NIRC; extension is allowed as compared to estate tax.

 Stranger – 30% of the net gifts. Formula in computing taxable donation:

Filing of Return and Payment of Tax 1. On the first donation of the year
Requirements:
Gross Gift
Any individual who makes any transfer by gift Less: Deductions/Exemptions
(except those which, under Section 101, are Net Gift
exempt from the Donor’s tax) shall make a return Multiply: Tax Rate
under oath in duplicate. The return shall set forth: Donor’s Tax

(1) Each gift made during the calendar year 2. On subsequent donation during the year
which is to be included in computing net gifts;
(2) The deductions claimed and allowable; Gross Gift
(3) Any previous net gifts made during the same Less: Deductions/Exemptions
calendar year; Net Gift
(4) The name of the donee; Add: Prior net gifts
(5) Relationship of the donor to the done; and Aggregate net gifts
(6) Such further information as may be required Tax Rate
by rules and regulation made pursuant to law Donor’s Tax
(Sec. 103. [A]).
Less: prior donor’s tax paid
Donor’ tax payable
Time of Filing
Difference between Donor’s tax and Estate
Within thirty (30) days after the date the gift is
tax:
made and the tax due thereon shall be paid at
the time of filing (Sec. 103. [B[). DONOR’S TAX ESTATE TAX
Place of Filing Nature of transfer
During the lifetime of After death of decedent
Except in cases where the Commissioner the donor
otherwise permits, the return shall be filed and Transfer takes place
the tax paid to: May take place between only between natural
natural and juridical persons
a. An authorized agent bank, persons
b. The Revenue District Officer, Amount exempt
c. Revenue Collection Officer or duly authorized P100,000 P200,000
Rate of tax
Treasurer of the city or municipality where
2-15% or 30% if donee 5-20%
the donor was domiciled at the time of the
is a stranger
transfer, or Grant of exemption
d. If there be no legal residence in the Sec. 101, NIRC Sec .87, NIRC
Philippines, with the Office of the Grant of deductions
Commissioner. None Yes. Sec 86, NIRC

 In the case of gifts made by a nonresident,

the return may be filed with the Philippine Notice requirement
Embassy or Consulate in the country where
General Rule:
he is domiciled at the time of the transfer, or Notice of donation is not Notice of death required
directly with the Office of the Commissioner. required in the following cases:
(Sec. 103[B] of the NIRC)
Exceptions:
Payment of gift tax
 1. Transaction subject to None General Rule:
1. Donations to NGO estate tax
worth at least P50, 2. Transaction exempt Extension of payment is
000. Provided, not more from estate tax but not allowed
than 30% of which will exceeds P20,000.
be used for Exception:
administration purposes.
When it would impose
2. Donation to any undue hardship upon
candidate, political the estate or any of the
party, or coalition of heirs, extension may be
parties allowed but not to
Notice, when filed exceed 5 years in case
Within 2 months after of judicial settlement or
the decedent’s death or 2years in case of extra
after qualifying as judicial settlement.
executor or
administrator Exception to the
exception:
Filing of return
All transfers by gift 1. A transfer subject to When taxpayer is guilty
except those which estate tax of:
under Sec. 101 of the
NIRC which are exempt 2. Exempt from tax but 1. Negligence
from tax (Sec. 103, the gross estate exceeds
NIRC) P200,000 2. Intentional disregard
of rules and regulations
3. Estate consists of 3. Fraud
registered or registrable
property, regardless of
value of gross estate
Contents of return
1. Each gift made during 1. Value of the gross
the calendar year which estate
is to be included in 2. Deductions under
computing net gifts Sec. 86, NIRC
2. The deductions 3. Other pertinent
claimed and allowable information
3. Any previous net gifts 4. If Gross estate
made during the same exceeds P2M, certified
calendar year by a CPA as to assets,
4. The name of the deductions, tax due,
donee whether paid or not
5. Such further
information as may be
required by rules and
regulations made
pursuant to law
Time of filing Return
Within 30 days after Within 6 months from
donation was made death of decedent.

Extension for filing return

None 30 days in meritorious
cases
Payment of tax due
Pay as you file Pay as you file
Extension of payment