TAXATION II Accordingly, the tax rates and procedures prescribed under these

Atty. Shirley Tuazon Regulations shall govern the estate of decedent who died on or after
the effectivity date of the TRAIN Law
I. TAXATION UNDER THE NIRC
D. CLASSIFICATION OF DECEDENT
A. TRANSFER TAXES
Decedent Gross Estate
1. ESTATE TAX  All properties, real or
Resident Citizen personal, wherever situated
NIRC, Section 84. Rate of Estate Tax. There shall be levied, assessed, Resident Alien  Intangible personal property
collected and paid upon the transfer of the net estate as determined wherever situated
in accordance with Sections 85 and 86 of every decedent, whether  Real property situated in
resident or nonresident of the Philippines, a tax at the rate of 6% the Philippines
based on the value of such net estate. Non-resident Alien  Tangible personal property
situated in the Philippines
A. BASIC PRINCIPLES, CONCEPT AND DEFINITION  Intangible personal property
 All properties, real or
Ingles personal situated in the
It is the tax on the right to transmit property at death and on certain Philippines
transfers by the decedent during his lifetime which are made by the Non-resident Citizen  Tangible personal property
law equivalent of testamentary dispositions. located in the Philippines
 Intangible personal property
B. NATURE, PURPOSE AND OBJECT situated in the Philippines

Golden Notes E. GROSS ESTATE VS. NET ESTATE

 To generate additional revenue for the government
 To compensate the government for the protection given to the Gross Estate = Sum of Section 85
decedent that enabled him to prosper and accumulate wealth Net Estate = Gross Estate – Section 86
 Remove the disparity in the tax treatment of a sale and transfer
by death F. INCLUSIONS TO THE GROSS ESTATE
 It is based on the power of the State to demand and receive NIRC, SECTION 85 & 88 and R.R. 12-18
taxes on the reciprocal duties of support and protection
 The State, as a passive and silent partner in the privilege of SECTION 85. GROSS ESTATE.
accumulating property, has the right to collect the share which is
properly due it (A) Decedent's Interest.
 The receipt of inheritance is in the nature of unearned wealth
which creates the ability to pay the tax (B) Transfer in Contemplation of Death. A transfer where the
 The receipt of inheritance contributes to the widening decedent retains for his life the (1) enjoyment of, or the right to
inequalities in wealth. Through estate tax, the value received by income from the property or (2) the right to designate the
the successor is reduced and brings said value into the coffers of person who shall enjoy the property or the income therefrom.
the government.
Generally, the purpose of the estate tax is to tax the shifting of (C) Revocable Transfer. A transfer where the enjoyment is subject
economic benefits and enjoyment of property from the dead to the to any change or the power to effect any changes is relinquished
living. in contemplation of the decedent's death.
a. For the purpose of this Subsection, the power to alter,
C. TIME AND TRANSFER OF PROPERTIES amend or revoke shall be considered to exist on the date of
the decedent's death even though the exercise of the power
CC, Article 777. The properties and rights are transferred to the is subject to a precedent giving of notice or even though the
successors at the time of death. alteration, amendment or revocation takes effect only on the
expiration of a stated period after the exercise of the power,
R.R. 12-18. Estate taxation is governed by the statute in force at the whether or not on or before the date of the decedent's
time of death of the decedent. The estate tax accrues as of the death notice has been given or the power has been
death of the decedent and the accrual of the tax is distinct from the exercised.
obligation to pay the same. 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.
(D) Property Passing Under General Power of Appointment. The fair market value of units of participation in any association,
a. by will, or recreation or amusement club (such as golf, polo, or similar clubs),
b. by deed executed in contemplation of, or intended to take shall be the bid price nearest the date of death published in any
effect in possession or enjoyment at, or after his death, or newspaper or publication of general circulation.
c. by deed under which he has retained for his life or any
period not ascertainable without reference to his death or G. DEDUCTIONS AND EXCLUSIONS FROM GROSS ESTATE
for any period which does not in fact end before his death NIRC, SECTION 86, (A), (B), (C) and R.R. 12-18
(E) Proceeds of Life Insurance. To the extent of the amount
receivable by the estate under policies taken out by the (A) Deductions Allowed to the Estate of a Citizen or a Resident
decedent upon his own life, irrespective of whether or not the
insured retained the power of revocation, or to the extent of the 1. Standard Deduction. ₱5,000,000.
amount receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the 2. For claims against the estate.
designation of the beneficiary is irrevocable. a. Provided, that at the time the indebtedness was incurred the
debt instrument was duly notarized
(F) Prior Interests. - Except as otherwise specifically provided b. if the loan was contracted within 3 years before the death of
therein, Subsections (B), (C) and (E) of this Section shall apply to the decedent, the administrator or executor shall submit a
the transfers whether made before or after the effectivity of this statement showing the disposition of the proceeds of the
Code. loan.

(G) Transfers of Insufficient Consideration. - If any one of the 3. Claims against insolvent persons where the value of decedent’s
transfers described in Subsections (B), (C) and (D) of this Section interest therein is included in the value of the gross estate
is made but is not a bona fide sale, there shall be included in the a. Only the unclaimable portion shall be deducted.
gross estate only the excess of the fair market value, at the time
of death. 4. For any indebtedness in respect to property where the value of
decedent’s interest therein, undiminished by such indebtedness,
(H) Capital of the Surviving Spouse. - The capital of the surviving is included in the value of the gross estate.
spouse of a decedent shall not, for the purpose of this Chapter, a. Not including any income tax upon income received after the
be deemed a part of his or her gross estate. death of the decedent, or property taxes not accrued before
his death, or any estate tax.
SECTION 88. DETERMINATION OF THE VALUE OF THE ESTATE. b. There shall also be deducted losses incurred during the
(A) Usufruct. There shall be taken into account the probable life of settlement of the estate arising from fires, storms,
the beneficiary in accordance with the latest Basic Standard shipwreck, or other casualties, or from robbery, theft or
Mortality Table, to be approved by the Secretary of Finance, embezzlement, when such losses are not compensated for
upon recommendation of the Insurance Commissioner. by insurance.
(B) Properties. The estate shall be appraised at its fair market value i. If at the time of the filing of the return such losses have
as of the time of death. not been claimed as a deduction in an income tax
1. However, the appraised value of real property as of the time return,
of death shall be, whichever is higher of: ii. such losses were incurred not later than the last day
(1) The fair market value as determined by the for the payment of the estate tax.
Commissioner, or 5. Property Previously Taxed. An amount equal to the value
(2) The fair market value as shown in the schedule of values specified below of any property forming part of the gross estate
fixed by the Provincial and City Assessors. situated in the Philippines of any person who died within 5 years
prior to the death of the decedent or transferred to the
R.R. 12-18. decedent by gift within 5 years prior to his death.
In the case of shares of stocks, the fair market value shall depend on a. These deductions shall be allowed only where a donor’s tax,
whether the shares are listed or unlisted in the stock exchanges. or estate tax imposed under this Title was finally determined
Unlisted common shares are valued based on their book value while and paid by or on behalf of such donor, or the estate of such
unlisted preferred shares are valued at par value. prior decedent, as the case may be
In determining the book value of common shares, appraisal surplus b. Where a deduction was allowed of any mortgage or other
shall not be considered as well as the value assigned to preferred lien in determining the donor’s tax, or the estate tax of the
shares, if there are any. prior decedent, which was paid in whole or in part prior to
For shares which are listed in the stock exchanges, the fair market the decedent’s death, then the deduction allowable under
value shall be the arithmetic mean between the highest and lowest said Subsection shall be reduced by the amount so paid.
quotation at a date nearest the date of death, if none is available on c. Where the property referred to consists of two or more
the date of death itself. items, the aggregate value of such items shall be used for the
purpose of computing the deduction.
  Property acquired before the marriage by either spouse who
% Period have legitimate descendants by a former marriage, and the fruits
100 1 year thereof
80 1 – 2 years
60 2 – 3 years Conjugal deductions
40 3 – 4 years
 Funeral and judicial expenses
20 4 – 5 years
 Obligations contracted during the marriage which presumed to
have benefited the family
6. Transfers for Public Use. Transfers to or for the use of the
Government of the Republic of the Philippines, or any political
Exclusive deductions
subdivision thereof for exclusively public purposes.
 Debts before the marriage by either spouse that did not redound
to the benefit of the family
7. The Family Home. An amount equivalent to the current fair
 Special deductions of family home, standard deduction, medical
market value of the decedent’s family home.
expenses and amounts receivable under R.A. 4917
a. If the current fair market value exceeds ₱10,000,000, the
excess shall be subject to estate tax.  Support of the illegitimate children of either spouse
 Liabilities incurred by either spouse of a crime
8. Amount Received by Heirs Under Republic Act No. 4917. Any
amount received by the heirs from the decedent’s employee as a H. TAX CREDIT FOR ESTATE TAX PAID IN FOREIGN COUNTRY
consequence of the death of the decedent-employee in NIRC, SECTION 86, (D)
accordance with Republic Act No. 4917 provided, that such
(D) Tax Credit for Estate Taxes Paid to a Foreign Country
amount is included in the gross estate of the decedent.

1. In General - The tax imposed by this Title shall be credited with

(B) Deductions Allowed to Nonresident Estates
the amounts of any estate tax imposed by the authority of a
foreign country.
1. Standard Deduction. ₱500,000.

Tax Credit Limit vs. Foreign Tax

2. That proportion of the deductions specified in paragraphs (2),
 Choose whatever is lower
(3), and (4) of Subsection (A) of this Section which the value of
such part bears to the value of his entire gross estate wherever
situated. Tax Credit Limit
Gross Estate , Philippines Net Foreign Estate
×Total of 86 ( A ) ,2 , 3 , 4 ¿ × Ph Estate Tax
Gross Estate ,World Entire Net Estate

3. Property Previously Taxed. 2. Limitations on Credit.

a. The amount of the credit in respect to the tax paid to any
4. Transfers for Public Use.  country shall not exceed the same proportion of the tax
against which such credit is taken, which the decedent’s net
(C) Share in the Conjugal Property estate situated within such country taxable under this Title
bears to his entire net estate; and
The net share of the surviving spouse as diminished by the *same formula as above
obligations properly chargeable to such property.
b. The total amount of the credit shall not exceed the same
Gross Estate of Decedent proportion of the tax against which such credit is taken,
which the decedent’s net estate situated outside the
Net Conjugal Estate
¿( 2 )
+ Exclusive Properties Philippines taxable under this Title bears to his entire net
estate."

Net Estate Tax Credit Limit

¿ Gross Estate−Exclusive∧Special Deductions Total Foreign Net Estate
¿ × Ph Estate Tax
Entire Net Estate
Exclusive properties
 Property acquired during the marriage by gratuitous title by Tax Credit Limit vs. Foreign Tax
either spouse, and the fruits thereof  Between limitation a and b, choose whatever is lower
 Property for personal and exclusive use of either spouse
I. EXEMPTION OF CERTAIN ACQUISITIONS AND TRANSMISSIONS
 NIRC, SECTION 87 (C) Extension of Time. The Commissioner shall have authority to
grant, in meritorious cases, a reasonable extension not
(A) The merger of usufruct in the owner of the naked title; exceeding 30 days for filing the return.

(B) The transmission or delivery of the inheritance or legacy by the (D) Place of Filing. Except in cases where the Commissioner
fiduciary heir or legatee to the fideicommissary; otherwise permits, the return required under Subsection (A)
shall be filed with an authorized agent bank, or Revenue District
(C) The transmission from the first heir, legatee or donee in favor of Officer, Collection Officer, or duly authorized Treasurer of the
another beneficiary, in accordance with the desire of the city or municipality in which the decedent was domiciled at the
predecessor; and time of his death or if there be no legal residence in the
Philippines, with the Office of the Commissioner.
(D) All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of
which insures to the benefit of any individual.
a. However, not more than 30% shall be used by such
institutions for administration purposes.

J. ESTATE TAX RETURNS

NIRC, SECTION 90

(A) Requirements. In all cases of transfers subject to the tax imposed

herein, or regardless of the gross value of the estate, where the
said estate consists of registered or registrable property such as
real property, motor vehicle, shares of stock or other similar
property for which a clearance from the Bureau of Internal
Revenue is required as a condition precedent for the transfer of
ownership thereof in the name of the transferee, the executor,
or the administrator, or any of the legal heirs, as the case may
be, shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time of
his death, or in case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the
Philippines;
(2) The deductions allowed from gross estate in determining the
estate as defined in Section 86; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
i. However, estate tax returns showing a gross value
exceeding ₱5,000,000 shall be supported with a
statement duly certified to by a Certified Public
Accountant containing the following:
1. Itemized assets of the decedent with their
corresponding gross value at the time of his death, or
in the case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in
the Philippines;
2. Itemized deductions from gross estate allowed in
Section 86; and
3. The amount of tax due whether paid or still due and
outstanding.

(B) Time for Filing. For the purpose of determining the estate tax
provided for in Section 84 of this Code, the estate tax return
required under the preceding Subsection (A) shall be filed within
1 year from the decedent’s death.
 2. DONOR’S TAX

A. BASIC PRINCIPLES, CONCEPT AND DEFINITION

B. NATURE, PURPOSE AND OBJECT

C. TIME AND TRANSFER OF PROPERTIES

D. REQUISITES OF A VALID DONATION

E. CLASSIFICATION OF DONOR

F. PERSONS LIABLE

G. TAX BASIS

H. DETERMINATION AND COMPOSITION OF GROSS GIFT

I. VALUATION OF GIFTS MADE

J. TRANSFERS WHICH MAY CONSTITUTE AS DONATION

K. TAX CREDIT FOR DONOR'S TAXES PAID IN FOREIGN COUNTRY

L. EXEMPTION FROM DONOR'S TAX