A.
ESTATE TAX
GROSS
I. Definition
Estate tax– is a tax imposed on the privilege that a person is given in controlling to a certain extent,
the disposition of this property to take effect upon death.
E S TAT E It accrues at the time of death, therefore, the right of the State to tax the privilege to transmit the
estate vests instantly upon death.
C H A P T E R T WO
A. ESTATE TAX B. COMPOSITION OF GROSS ESTATE
II. Justification for the Imposition of Estate Tax I. Composition of Gross Estate Estate based on citizenship and residency
1) Benefit Received Theory
Decedent Gross Estate
2) Privilege or State Partnership Theory Citizen All property wherever situated
3) Ability to Pay Theory Resident alien All property wherever situated
4) Redistribution of Wealth Theory Nonresident alien Only property located in the Philippines except intangible
personal property if excluded on the basis of reciprocity
B. COMPOSITION OF GROSS ESTATE B. COMPOSITION OF GROSS ESTATE
I. Composition of Gross Estate Estate based on citizenship and residency I. Composition of Gross Estate Estate based on citizenship and residency
Reciprocity Clause
Intangible Asset
Intangible personal property with situs in the Philippines from the gross estate of a non-resident alien
decedent if there is reciprocity. Identifiable nonmonetary asset without physical substance. (Accounting Standard)
There is reciprocity when: Mobilia Sequntur Personam:
– The decedent at the time of his death was a resident citizen of a foreign country which at the time of his
death did not impose an estate tax of any character in respect of intangible personal property of citizens – The situs of intangible personal property is the domicile of the owner
of the Philippines not residing in that foreign country: OR – Not applicable for gross estate computation. Must yield to the actual situs of such property
– The laws of the foreign country of which the decedent was a resident citizen at the time of his death
allow a similar exemption from estate taxes of every character, in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign country
B. COMPOSITION OF GROSS ESTATE B. COMPOSITION OF GROSS ESTATE
I. Composition of Gross Estate Estate based on citizenship and residency I. Composition of Gross Estate Estate based on citizenship and residency
Intangible Assets with Situs WITHIN the Philippines Situs of Tangible and Intangible Property
1. Franchise which must be exercised in the Philippines
2. Shares or rights in any partnership, business or industry established in the Philippines Property Situs
3. Shares, obligations or bonds issued by Real property and tangible personal Location of the property
property
• Domestic corporation
Shares, franchise, copyright, and the like Where the intangible is exercised
• Any foreign corporation 85% of the business of which is located in the Philippines regardless of where the corresponding
• Any foreign corporation if such shares, obligations or bonds have acquired a business situs in the certificate is stored
Philippines
Receivables Residence of debtor
Bank deposits Location of depositary bank
C. VALUATION OF GROSS ESTATE C. VALUATION OF GROSS ESTATE
Valuation of Gross Estate Valuation of Gross Estate
Type Valuation Type Valuation
In General FMV at the time of death Units of participation in The bid price nearest the date of death published in any newspaper or
Real Property The higher value between: any association, recreation publication for general circulation
• FMV determined by the Commissioner; and or amusement club
• FMV as shown in the schedule of values fixed by the provincial and city Right to usufruct, use or In accordance with the latest Basic Standard Mortality Table taking into
assessors habitation and annuity account the probable life of the beneficiary, to be approved by the Secretary
Shares of stock Unlisted common share: BVPS of the issuing corporation of Finance upon recommendation of the Insurance Commissioner
Unlisted preference share: Par value per share
Listed shares: FMV shall be the arithmetic mean between the highest and
lowest quotation at a date nearest the date of death, if none is available on
the date of death itself
D. EXEMPTIONS AND EXCLUSIONS D. EXEMPTIONS AND EXCLUSIONS
Exemptions and Exclusions From the Gross Estate A. Exclusions under Sections 85 and 86 of the Tax Code
A. Exclusions under Sections 85 and 86 of the Tax Code 1) Exclusive property of the Surviving Spouse
B. Exclusions under Section 87 of the Tax Code For estate tax purposes, the exclusive properties of the husband are known as capital while exclusive
properties of the wife are known as paraphernal properties.
C. Exclusions under S
2) Property outside the Philippines of a non-resident alien decedent
3) Intangible personal property in the Philippines of a non-resident alien under the Reciprocity Law
D. EXEMPTIONS AND EXCLUSIONS D. EXEMPTIONS AND EXCLUSIONS
B. Exclusions under Section 87 of the Tax Code B. Exclusions under Section 87 of the Tax Code
1) The merger of usufruct in the owner of the naked title 3) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
2) Fideicommissary substitution - The transmission or delivery of the inheritance or legacy by the accordance with the desire of the predecessor (also known as “special” power of appointment).
fiduciary heir (also known as the 1st heir) or legatee to the fideicommissary (also known as the 4) All bequest devises, legacies or transfers to social welfare, cultural and charitable institutions, no
2nd legatee) part of the net income of which inures to the benefit of any individual: Provided, that not more
Elements of a fideicommissary substitution: than thirty percent (30%) of the said bequest, devises, legacies or transfers shall be used by such
institutions for administration purposes.
• The substitution must not go beyond one degree from the heir originally instituted
• The fiduciary (first heir) and the fideicommissary (second heir) must be both living at the time of the
testator’s death
D. EXEMPTIONS AND EXCLUSIONS D. EXEMPTIONS AND EXCLUSIONS
C. Exclusions under Special Laws C. Exclusions under Special Laws
1) Proceeds from life insurance and benefits received by members of the GSIS 6) Payments from the Philippines of US government to the legal heirs of deceased of World War II
2) Accruals and benefits received by members from the SSS by reason of death Veterans and deceased civilian for supplies/services furnished to the US and Philippine Army
3) Life insurance proceeds on the life insurance policy taken out by the decedent himself, upon his 7) Amounts received from United States Veterans Administration
own life, where the beneficiary is a third person and is irrevocably designated 8) Transfer by way of bona fide sales
4) Life insurance proceeds on the insurance policy (group insurance) taken out by his employer on 9) Properties held in trust by the decedent
the employee’s life, whoever the beneficiary maybe, whether the designation as beneficiary is 10) Acquisition and/or transfer expressly declared as not taxable
revocable or irrevocable
11) Personal Equity and Retirement Account (PERA) assets of the decedent-contributor
5) Amounts received from Philippines and United States government for war damages
E. INCLUSIONS IN THE GROSS ESTATE E. INCLUSIONS IN THE GROSS ESTATE
A. Properties owned by the decedent actually and physically present in his estate at the time of C. Property not physically in the estate
his death 4) Transfer under a general power of appointment
B. Decedent’s interest – Refers to the extent of equity or ownership participation of the General power of appointment – When the power appointment authorizes the donee of the power to appoint
decedent on any property physical existing and present in the gross estate, whether or not any person he pleases.
in his possession, control or dominion. 5) Transfer for insufficient consideration
C. Property not physically in the estate Consideration < FMV at the time of Included in the gross estate the
1) Transfer in contemplation of death transfer excess of FMV at the time of death
over the consideration
2) Transfer with retention or reservation of certain rights
3) Revocable transfers
E. INCLUSIONS IN THE GROSS ESTATE E. INCLUSIONS IN THE GROSS ESTATE
C. Property not physically in the estate C. Property not physically in the estate
7) Proceeds of life insurance 6) Claims against insolvent persons
• A judicial declaration to pay his obligation should be proven
Requisites for inclusion:
• The portion of the claim which is not collectible should be allowed as a deduction from the
a. It must be an insurance on the life of the decedent gross estate
b. The beneficiary must be either of the following:
Collectible portion = Debtor’s assets/Debtor’s Liabilities x Claims
– His estate, his executor, his administrator (revocable or not)
– Any third person provided that the designation is not irrevocable
• Exclude proceeds from SSS/GSIS
• If designation is not clear or silent, revocable
F. ESTATE TAX FILING F. ESTATE TAX FILING
Estate Tax Filing • Liability for the payment of estate tax
Tax Rate Six percent (6%) of net estate – The executor/administrator of an estate has the primary obligation to pay the estate tax
Time of filing One (1) year from the date of death – The heir or beneficiary has subsidiary liability for the payment of that portion of the estate which
Extension of filing Not exceeding thirty (30) days his distributive share bears to the value of the total net estate. (Note: Shall not exceed the value of his
share in the inheritance)
Time of Payment “Pay as you file”
• Payment by Installment
Extension of payment Five (5) years – Judicial Settlement
Two (2) years – Extrajudicial Settlement – In case the available cash of the estate is insufficient to pay the total estate tax due, payment by
Place of Filing and Payment Accredited Agent Bank (AAB), Revenue District Officer or Revenue installment shall be allowed within two (2) years from the statutory date for the payment without
Collection Officer having jurisdiction on the place where the decedent was civil penalty and interest
domiciled at the time of death, whichever is applicable
