ESTATE TAX A Quick and Easy PrimerCodal Reference Sec. 84 to Sec. 97 of the National Internal Revenue Code Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as computed in accordance with the schedule SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. Intangible personal property - with a situs in the Philippines - Franchise which must be exercised in the Philippines - Shares, obligations or bonds issued by corporations organized or constituted in the Philippines - Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located in the Philippines - Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines (i. e. they are used in the furtherance of its business in the Philippines) - Shares, rights in any partnership, business or industry established in the Philippines Gross estate Gross estate (A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death; (B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from the property, or (2) 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; except in case of a bonafide sale for an adequate and full consideration in money or money's worth.(C) Revocable Transfer. - (1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth) by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exerciseable) by the decedent alone or 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 where any such power is relinquished in contemplation of the decedent's death. (2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment or revocation takes effect only on the expiration of a stated period after 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 interests which would have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death. (D) Property Passing Under General Power of Appointment. - To the extent of any property passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death 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 persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. (E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable. (F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised or relinquished before or after the effectivity of this Code. (G) Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or powers enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value, at the time of death, of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent. (H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be deemed a part of his or her gross estate. What are excluded from gross estate? .GSIS proceeds/ benefits .Accruals from SSS .Proceeds of life insurance where the beneficiary is irrevocably appointed .Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life) .War damage payments .Transfer by way of bona fide sales .Transfer of property to the National Government or to any of its political subdivisions .Separate property of the surviving spouse .Merger of usufruct in the owner of the naked title .Properties held in trust by the decedent .Acquisition and/or transfer expressly declared as not taxable What will be used as basis in the valuation of property? The properties subject to Estate Tax shall be appraised based on its fair market value at the time of the decedent's death. The appraised value of the real estate shall be whichever is higher of the fair market value, as determined by the Commissioner (zonal value) or the fair market value, as shown in the schedule of values fixed by the Provincial or City Assessor. If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration. If there is an improvement, the value of improvement is the construction cost per building permit or the fair market value per latest tax declaration. Valuation of Shares of Stocks In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability value is the indicated value of the equity. For purposes of this item, the appraised value of real property at the time of sale shall be the highest among the following: (a) The fair market value as determined by the Commissioner, or (b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or (c) The fair market value as determined by Independent Appraiser. What are the allowable deductions for Estate Tax Purposes? For a citizen or resident alien A. Expenses, losses, indebtedness and taxes (1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000. (2) Judicial expenses of the testamentary or intestate proceedings. (3) Claims against the estate. (4) Claims of the deceased against insolvent persons where the value of the decedents interest therein is included in the value of the gross estate; and, (5) Unpaid mortgages, taxes and casualty losses B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC as amended by Republic Act No. 8424) C. Transfers for public use D. The family home - fair market value but not to exceed P1,000,000.00The family home refers to the dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) E. Standard deduction A deduction in the amount of One Million Pesos (P1,000,000.00) shall be allowed as an additional deduction without need of substantiation. F. Medical expenses All medical expenses (cost of medicines, hospital bills, doctors fees, etc.) incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly substantiated with official receipts. For services rendered by the decedents attending physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof and provided, further, that the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000). G. Amount received by heirs under Republic Act No. 4917-Any amount received by the heirs from the decedents 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. H. Net share of the surviving spouse in the conjugal partnership or community property For a non-resident alien A. Expenses, losses, indebtedness and taxes B. Property previously taxed C. Transfers for public use D. Net share of the surviving spouse in the conjugal partnership or community property No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed in the Section 90 of the Code the value at the time of the decedents death of that part of his gross estate not situated in the Philippines. Please note that the allowable deductions will vary depending on the law applicable at the time of the decedents death. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 2-2003) The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include: (a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial; (b) Expenses for the deceaseds wake, including food and drinks; (c) Publication charges for death notices; (d) Telecommunication expenses incurred in informing relatives of the deceased; (e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; (f) Interment and/or cremation fees and charges; and (g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by official receipts or invoices or other evidence to show that they were actually incurred What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 2-2003) Expenses allowed as deduction under this category are those incurred in the inventory-taking of a assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may include: (a) Fees of executor or administrator;(b) Attorneys fees; (c) Court fees; (d) Accountants fees; (e) Appraisers fees; (f) Clerk hire; (g) Costs of preserving and distributing the estate; (h) Costs of storing or maintaining property of the estate; (i) Brokerage fees for selling property of the estate. Any unpaid amount for the aforementioned cost and expenses claimed under Judicial Expenses should be supported by a sworn statement of account issued and signed by the creditor. What are the requisites for deductibility of claims against the Estate? (Sec 6(A)(3) of RR 2-2003) (a) 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 interment) and unpaid medical expenses which are classified under a different category of deductions pursuant to these Regulations; (b) The liability was contracted in good faith and for adequate and full consideration in money or moneys worth; (c) The claim must be a debt or claim which is valid in law and enforceable in court; (d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed. ADMINISTRATIVE PROVISIONS Tax Form - 1801 Deadlines - File the return within six (6) months from decedent's death. However, the Commissioner may, in meritorious cases, grant extension not exceeding thirty (30) days.The Estate Tax imposed shall be paid at the time the return is filed by the executor or administrator or the heirs. However, when the Commissioner finds that payment on the due date of the Estate Tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts or two (2) years in case the estate is settled extra-judicially. In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds Twenty Thousand Pesos (P 20,000), Section 89 of the National Internal Revenue Code of 1997 (Tax Code), as amended, provides that the executor, administrator or any of the legal heirs, shall send a written notice of death to the Commissioner within two (2) months after the decedents death or within a like period after an executor or administrator qualify as such. (part II, par.(1)of RMC No. 34-2013).Extension of Time of Filing: When the Commissioner finds that the payment of the estate tax or of any part thereof would imposed undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case it settled extra-judicially. Where the request for extension is 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. If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount, not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance in the terms of extension. The request for extension shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the estate tax return. The application shall be approved by the Commissioner or his duly authorized representative. Who are required to file the Estate Tax return? a) The executor or administrator or any of the legal heirs of the decedent or non-resident of the Philippines under any of the following situation: - In all cases of transfer subject to Estate Tax; - Where though exempt from Estate Tax, the gross value of the estate exceeds two hundred thousand P 200,000.00; and - Where regardless of the gross value, the estate consists of registered or registrable property such as real property, motor vehicle, share of stocks or other similar property for which a clearance from the Bureau of Internal Revenue (BIR) is required as a prerequisite for the transfer of ownership thereof in the name of the transferee. (part II par.(1.#3) of RMC No. 34-2013) b) Where there is no executor or administrator appointed, qualified and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent must file the return. c) The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. d) The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance. What are included in gross estate? For resident alien decedents/citizens: a) Real or immovable property, wherever located b) Tangible personal property, wherever located c) Intangible personal property, wherever located For non-resident decedent/non-citizens: a) Real or immovable property located in the Philippines b) Tangible personal property located in the Philippines c) Intangible personal property - with a situs in the Philippines

DONORS TAX A Quick and Easy Primer Sec. 98 to Sec. 104 of the National Internal Revenue Code Donors Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible. BIR Form 1800 Donors Tax Return Net Gift Over But not Over The Tax Shall be Plus Of the Excess Over

50,000.00 exempt

50,000.00 100,000.00 1.5% 50,000.00

100,000.00 200,000.00 P 750.00 3% 100,000.00

200,000.00 500,000.00 3,750.00 5% 200,000.00

500,000.00 1,000,000.00 18,750.00 8% 500,000.00

1,000,000.00 3,000,000.00 58,750.00 10% 1,000,000.00

3,000,000.00 5,000,000.00 258,750.00 15% 3,000,000.00

5,000,000.00 and over 558,750.00 20% 5,000,000.00

RATE Donation made to a stranger is subject to 30% of the net gift. A stranger is a person who is not a: brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendants; or relative by consanguinity in the collateral line within the fourth degree of relationship. Deadlines Within thirty days (30) after the date the gift (donation) is made. A separate return will be filed for each gift (donation) made on the different dates during the year reflecting therein any previous net gifts made during the same calendar year. If the gift (donation) involves conjugal/community/property, each spouse will file separate returns corresponding to his/ her respective share in the conjugal/community property. This rule will also apply in the case of co-ownership over the property. Who are required to file the Donors Tax Return? Every person, whether natural or juridical, resident or non-resident, who transfers or causes to transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.

Exempt DONATIONS A. In the Case of Gifts made by a Resident (Sec. 101 (A), NIRC as amended)- Dowries or donations made on account of marriage before its celebration or within one year thereafter, by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first P10,000 - Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government - Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philantrophic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes B. In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines (Sec. 101 (B), NIRC as amended) - Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government - Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philantrophic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec. 101 (C), NIRC as amended) - In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of 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. - Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following limitations: - 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 net gifts situated within such country taxable under this Title bears to his entire net gifts; and - The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the donor's net gifts situated outside the Philippines taxable under this title bears to his entire net gifts. What are the bases in the valuation of property? If the gift is made in property, the fair market value at that time will be considered the amount of gift. In case of real property, the taxable base is the fair market value as determined by the Commissioner of Internal Revenue (Zonal Value) or fair market value as shown in the latest schedule of values fixed by the provincial and city assessor (MV per Tax Declaration), whichever is higher. (Sec. 88 and 102, NIRC as amended) If there is no zonal value, the taxable base is the fair market value that appears in the tax declaration at the time of the gift How do we determine the fair market value of the unlisted stocks? In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability value is the indicated value of the equity.For purposes of this item, the appraised value of real property at the time of sale shall be the highest among the following: (a) The fair market value as determined by the Commissioner, or (b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or (c) The fair market value as determined by Independent Appraiser. (RR NO. 6-2013) (Annex U) For purposes of Donors Tax, what does the term Net Gift mean? For purposes of the donors tax, NET GIFT shall mean the net economic benefit from the transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed. (sec. 11, RR No. 2-2003) Under R.A. No. 7166, any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes shall not be subject to the payment of any gift tax. What instance will it be subject to Donors Tax? Those contributions in cash or in kind NOT duly reported to the Commission on Elections (COMELEC) shall not be subject to donors tax. Section 99 (C) of the Tax Code, as amended, provides that any contribution in cash or in kind for campaign purposes shall be governed by R.A. No. 7166 or the Election Code. Section 13 of the R.A. No. 7166 specifically states that any provision of law to the contrary notwithstanding any contribution in cash or 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 (donors tax). Accordingly, the BIR can impose donors tax on contributions of this nature. (Q-14, RMC No. 63-2009) For purposes of Donors Tax, is a legally adopted child considered stranger? A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger. (sec. 10, RR No. 2-2003) For purposes of Donors Tax, are donations between businesses considered donations made between strangers? Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. (sec. 10, RR No. 2-2003) Are gratuitous donations to Homeowners Associations subject to Donors Tax? Gifts, donations, and other contributions received by the Homeowners Associations (Associations) are subject to the payment of donors tax pursuant to Section 98 and 99 of the Tax Code, as amended. Endowment or gifts received by such associations are not exempt from donors tax considering that gifts to Associations are not qualified for exemption under Section 101(A)(3) of the Tax Code. (II, RMC No. 53-2013) For purposes of Donors Tax, are donations between businesses considered donations made between strangers? Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. (sec. 10, RR No. 2-2003) What is the proper treatment for transactions involving transfer of property other than real property referred to in Section 24 (D) for less than adequate and full consideration? Where property, other than real property referred to in Section 24 (D) of the NIRC, as amended, is transferred for less than adequate and full consideration in money or moneys worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of Donors Tax, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. (Sec. 100, NIRC, as amended)

Entities are considered exempted from Donors Tax under special laws Rural Farm School (Sec. 14, R.A. No. 10618) Peoples Television Network, Incorporated (Sec. 15, R.A. No. 10390) Peoples Survival Fund (Sec. 13, R.A. No. 10174) Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No. 10083) Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073) Philippine Red Cross (Sec. 5, R.A. No. 10072) Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067) National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066) Philippine Normal University (Sec. 7, R.A. No. 9647) University of the Philippines (Sec. 25, R.A. No. 9500) National Water Quality Management Fund (Sec. 9, R.A. No. 9275) Philippine Investors Commission (Sec. 9, R.A. No. 3850) Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676) Philippine-American Cultural Foundation (Sec. 4, P.D. 3062) International Rice Research Institute (Art. 5(2), PD 1620) Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419) National Social Action Council (Sec. 4, P.D. 294) Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2, P.D. 292) Development Academy of the Philippines (Sec. 12, PD 205) Integrated Bar of the Philippines (Sec. 3, PD 181)