Transfer Taxation

• Transfer Taxes should only be applied to Gratuitous Transfers
• Gratuitous transfers are those that do not involve any consideration or payment.
• Gratuitous Transfer must be unilateral in the sense that no equivalent undertaking from the counterparty is required for its consummation.
• In general, gratuitous transfers include gifts, inheritances, legacies, successions, and other similar transactions where no valuable consideration is given in exchange for the property being transferred.
• Gratuitous/Unilateral Transaction = Transfer Tax,

  Examples are succession, and donations.
• Onerous/Bilateral Transaction = Income Taxation and VAT/General PT.

  Examples: Sales, barter, and other onerous disposition.
• Transfer taxation is the taxation of transfers, specifically applying to gratuitous transfers where no equivalent undertaking from the counterparty is required for consummation
• Concept structure of transfers:

  • Gratuitous/unilateral transaction
  • Onerous/bilateral transaction
• Consideration in transfers:

  • Generosity of one party in gratuitous transfers
  • Undertaking of the counterparty in onerous transfers
• Types of transfer taxes:

  • Donor's tax
  • Estate tax
• Donor's tax:

  • Subject transfer: Inter-vivos transfer
  • Nature of tax: Annual tax
  • Taxpayer: Donor
  • Recipient: Donee
  • Timing of imposition: Upon delivery of the thing donated
  • Value subject to tax: Net gift after 250,000 pesos
  • Deadline for filing and payment: 30 days from the date of donation
• Estate tax:

  • Subject transfer: Mortis-causa transfer
  • Nature of tax: One-time tax
  • Taxpayer: Estate
  • Recipient: Heirs or beneficiaries
  • Timing of imposition: Upon death of the decedent
  • Value subject to tax: Net estate (after P5,000,000 pesos)
  • Deadline for filing and payment: 1 year from the date of death
• Special scenarios in transfer taxation:

  • Transfer in contemplation of death
  • Transfer to take effect upon death
  • Complex transfer
• Fair value minus selling price equals gratuity subject to transfer tax in complex transfers
• Conditional transfer and revocable transfer are initially not subject to transfer taxation but will be subject to donor's tax or estate tax based on specific conditions
• Reasons for imposing transfer taxes:

  • State-partnership theory
  • Ability to pay theory
  • Wealth redistribution theory
• Nature and characteristics of transfer taxes:

  • Privilege/Excise Tax
  • National Tax
  • Direct Tax
  • Ad-valorem Tax
  • Proportional Tax
  • Revenue Tax
• Inter-vivos transfer - transfer by a living donor to a living donee.
• Mortis-causa transfer - the transfer of the cause of death from the decedent to the survivor, also include by a living donor but are related to death.
• Nature of tax:

  Donor's Tax - Annual Tax

  Estate Tax - One-time Tax
• 2 purpose of Donor's Tax

  1. To prevent the avoidance of estate tax
  2. To Compensate for the loss/decrease in Income Tax.
• Requisite of Donor's Tax

  1. Transfer must be gratuitous
  2. Both donor and donee are living
  3. The donation is a completed gift
• Characteristics of Valid Donation

  1. Complete Gift
  2. Delivery Acceptance
• Contact of Donation

  1. Consent
  2. Object
  3. Cause
• Voidable Contract

  1. Violence
  2. Intimidation
  3. Mistake
  4. Fraud
  5. Under Influence
• Art. 734 - The donation is perfected from the moment the Donor knows the acceptance by the Donee
• Art. 735 - All persons who may contract and dispose of their property may make a donation
• Art. 738 - all those who are not specifically disqualified by law therefore may accept donation
• Art. 741 - Minors and others who cannot enter into a contract may become donees but acceptance shall be done by their parents or legal representative
• Art. 742 - Donation made to conceived and unborn children may be accepted by those persons who would legally represent them if they were already born
• Forms of Donation

  1. Donation of movable property (if oral requires simultaneous delivery)
  2. And if in writing it does not require simultaneous delivery
  3. If Donation≤5,000 oral contact is okay
  4. If Donation>5,000 writing is required
  5. Donation of immovable property must be in writing and public instrument
• Composition of gross profit

  1. Personal Property - Resident: within & without, Non Resident: within. Measurement: Fair Market Value in the time of donation.
  2. Real Property - Resident: within and without, Non-resident: within. Measurement: Fair Market Value vs. Access Value whichever is higher.
• Other items subject to transfer tax

  1. Transfer with insufficient consideration - (1) FMV > consideration (2) FMV > no consideration
  2. Remission/Condonation of debt
• 2 kinds of asset in Taxation

  1. Ordinary asset- Personal property: donor's Tax, Real property: Donor's Tax
  2. Capital asset- Personal property: donor's tax, Real property: donor's tax and capital gains tax
• Exemption to donor's tax

  1. Gifts made to the national government and subdivision or to any entity created by the government which is not conducted for profit
  2. Gifts made to RECC(Religion, Educational, and Charitable contribution) max 30% for administrative.
  3. Campaign Contribution in cash or in kind of any candidate as long as it's reported to the COMELEC.
• Exemption under special Laws

  (Ps. RAPIPIND)

  1. Philippine Red Cross
  2. State university/college
  3. Ramon Magsaysay Award Foundation
  4. Aqua Culture Department of Southeast Asian Fisheries Development Center of the Philippines
  5. Philippine American Cultural Foundation
  6. International Rice Research Institute
  7. Philippine Inventors Commission
  8. Integrated bar of the Philippines
  9. National Social Action Council
  10. Development Academy of the Philippines
• Deduction for donor's tax

  1. Mortgage and encumbrance which is assumed by the Donee
  2. Those specifically provided by the Donor as a diminution of the property donated
  3. First 250,000