HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K.

J-Culajara

ATENEO DE ZAMBOANGA in trust or otherwise, whether the gift is P250,000 exempt gift made during the
UNIVERSITY direct or indirect, and whether the calendar year.
School of Management and property is real or personal, tangible or
Accountancy intangible.1 SKS: Under the old law, donor’s tax is
Accountancy Department subject to the following scheduler
A. Purposes of donor’s tax rates:
I. INTRODUCTION TO  To supplement estate tax; Over But not Tax Plu Of the
DONOR’S TAX  To prevent avoidance of income over base s excess
over
tax through the device of
- P100,00 Exemp
Donation is an act of liberality splitting income among 0 t
whereby a person (donor) disposes numerous donees, who are P100,00 200,000 P0 2% P100,00
gratuitously of a thing or right in favor usually members of a family or 0 0
of another (donee) who accepts it. into many trusts, with the donor 200,000 500,000 2,000 4% 200,000
There is also donation when a thereby escaping the effect of 500,000 1,000,0 14,000 6% 500,000
person gives to another a thing or right progressive rates of income tax. 00
on account of the latter’s merits or of 1,000,0 3,000,0 44,000 8% 1,000,0
the services rendered by him to the 00 00 00
B. Rates of donor’s tax
donor provided they do not constitute a 3,000,0 5,000,0 204,00 10% 3,000,0
00 00 0 00
demandable debt or when the gift Schedular rates of donor’s tax 5,000,0 10,000, 404,00 12% 5,000,0
imposes upon the donee a burden imposable on donation made to a done 00 000 0 00
which is less than the value of the thing who is not a stranger 10,000, 1,004, 15% 10,000,
given. Under the TRAIN, the tax for each 000 000 000
Under the Tax Code, donation calendar year shall be 6% computed on
has a broader meaning. It extends to the basis of the total gifts in excess of Tax payable by the donor is donee is a
sales or exchanges of property, other stranger
than real property classified as capital When the donee or beneficiary is
asset located in the Philippines, for less
1
TRAIN introduced that Banks which has a stranger, the tax payable by the
knowledge of the death of a person, shall allow
than adequate and full consideration in donor shall be 30% of the net gifts. For
withdrawals from the decedent’s deposit
money or money’s worth. account subject to a final 6% final withholding purposes of donor’s tax, a stranger is a
Donor’s tax is imposed upon the tax. Before, there has to be a certificate from person who is not a:
transfer by any person, resident or non- the Commisisoner that estate tax had been  Brother, sister (whether by whole
resident, of the property by gift. The paid to allow any withdrawal or at least an
or half-blood), spouse, ancestor
authorization for an amount exceeding
tax shall apply whether the transfer is and lineal descendant; or
P20,000.

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HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

 Relative by consanguinity in the II. TRANSFER FOR LESS THAN their respective interests. In
collateral line within the fourth ADEQUATE AND FULL other words, there will be two (2)
(4th) degree of relationship. CONSIDERATION donations made and two (2)
 A legally adopted child, with separate computations of donor’s
respect to donations between an Where property, other than real taxes. However, unless the wife
adopter and an adoptee, and vice property subject to capital gains tax, is expressly joins in making the
versa. transferred for less than an adequate donation of conjugal property, it
and full consideration in money or shall be deemed to have been
Contribution for election campaign money’s worth, then the amount by made by the husband alone.
Section 94(a) of the Omnibus which the fair market value of the  Inheritance by accretion does not
Election Code provides that campaign property exceeded the value of the give rise to a taxable gift. SKS:
contributions in cash or in kind to any consideration shall be deemed a gift, See the sample case below.
candidate, duly reported to COMELEC, and shall be included in computing the
are exempt from donor’s tax. amount of gifts made during the SAMPLE PROBLEM
calendar year: Provided, however, That
C. Taxable transfers a sale, exchange, or other transfer of In the settlement of the estate of Mr.
The term “transfer of property in property made in the ordinary course Babiera who died intestate, his wife
trust or otherwise, direct or indirect” is of business (a transaction which is a renounced her inheritance and her
used by the law in the most bona fide, at arm’s length, and free share of the conjugal property in favor
comprehensive sense. It includes not from any donative intent), will be of their children. The BIR determined
only the transfer of ownership in the considered as made for an adequate that there was a taxable gift and thus
fullest sense but also the transfer of and full consideration in money or assessed Mrs. Babiera as a donor. Was
any right or interest in property, but money’s worth. the BIR correct?
less than title. A transfer becomes
complete and taxable only when the A. Other matters Suggested answer: The renunciation of
donor has divested himself of all  In case of donations of conjugal the wife’s share in the inheritance from
beneficial interest in himself or his property, remember that the her deceased husband is not a taxable
estate. The law contemplates passage spouses are co-owners of gift, considering that the property is
of control over the economic benefits conjugal property. Thus, a gift automatically transferred to the other
of the property, rather than mere made by the spouses of conjugal heirs by operation of law due to her
technical changes in the title. property shall be deemed repudiation of her inheritance.
separate donations by the
husband and wife in proportion to

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HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

III. ESSENTIALS OF A TAXABLE donor’s tax? ty Person Person

DONATION al al
Suggested answer: The first transaction Propert Propert
 Capacity of the donor where a lot was sold by A to his y y
 Donative intent brother-in-law for a price below its fair In Ou In Ou In Ou
 Delivery, whether actual or market value will not be subject to t t t
constructive, of the subject donor’s tax if the lot qualifies as a Resid Ok Ok Ok Ok Ok Ok
matter capital asset. The transfer for less than ent
 Acceptance of the gift by the adequate and full consideration which Filipin
donee. gives rise to a deemed gift, does not o
apply to a sale of property subject to Non- Ok Ok Ok Ok Ok Ok
SAMPLE PROBLEM capital gains tax (Sec. 100, NIRC). reside
However, if the lot sold is an ordinary nt
A, an individual, sold to B, his brother- asset, the excess of the fair market Filipin
in-law, his lot with a market value of value over the consideration received o
P1,000,000 for P600,000. A’s cost in shall be considered as a gift subject to Resid Ok Ok Ok Ok Ok Ok
the lot is P100,000. B is financially the donor’s tax. ent
capable of buying the lot. A also owns alien
X Co., which has a fast growing The sale of shares of stock below the Non- Ok Ok O
business. fair market value thereof is subject to reside k2
the donor’s tax pursuant to the nt
A sold some of his shares of stock in X provisions of Section 100 of the Tax alien
Co. to his key executives in X Co. These Code. The excess of the fair market
executives are not related to A. The value over the selling price is a An intangible property property
selling price is P3,000,000 which is the deemed gift. located outside in the Philippines
book value of the shares sold but with subject to the “reciprocity clause”:
a market value of P5,000,000. A’s cost IV. TAXABILITY OF GIFTS OR  If donor at the time of the
in the shares sold is P1,000,000. The DONATIONS DEPENDING donation was a citizen and
purpose of A in selling the shares is to UPON CITIZENSHIP OR resident of a foreign country
enable his key executives to acquire RESIDENCE OF DONOR which at the time of the donation
proprietary interest in the business and
Real Tangibl Intangi
2
Intangible personal property with a situs in
have a personal stake in its business. the Philippines, unless exempted on the basis
Are the sale of lot and shares subject to Proper e ble of reciprocity.

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HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

did not impose a transfer tax of  Shares, obligations, or bonds stock entities, paying no
any character in respect of have acquired a business situs in dividends, governed by trustees
intangible personal property of the Philippines; who receive no compensation,
Filipino citizens not residing in  Shares or rights in any and devoting all its income
that country; or partnership, business or industry whether student’s fees or gifts,
 If the laws of the foreign country established in the Philippines donations, subsidies or other
of which the donor was a citizen forms of philantrophy, to the
and resident at the time of V. EXEMPTIONS UNDER accomplishment and promotion
donation allow a similar SPECIAL LAWS of the purposes enumerated in
exemption from transfer taxes of its Articles of Incorporation.
every character in respect of  Gifts made to or for the use of  Donations to the Philippine
intangible personal property the National Government or any government for scientific,
owned by the citizens of the entity created by any of its engineering and technological
Philippines not residing in that agencies which is not conducted research, invention and
country. for profit, or to any political development (R.A. 1606)
subdivision of the said  Donations to social welfare,
A. Properties considered by the law government, are exempt from cultural, and charitable
as situated in the Philippines gift tax with respect to both organizations (P.D. 507; R.A.
The following shall be considered residents and non-residents. 1916)
as situated in the Philippines:  Gifts in favor of an educational  Donations to the International
 Franchise which must be and/or charitable religious, Rice Research Institute (R.A.
exercised in the Philippines; cultural or social welfare 2707)
 Shares, obligations or bonds corporation, institution,  Donations to Ramon Magsaysay
issued by any corporation or accredited nongovernment Award Foundation (R.A. 3076)
sociedad anonima or constituted organization, trust or  Donations to the National
in the Philippines in accordance philantrophic organization or Museum, the National Library,
with its laws; research institution or and the archives of the National
 Shares, obligations or bonds by organization: Provided, however, Historical Institute (P.D. 373)
any foreign corporation 85% of That not more than 30% of said  Donations to the Southern
the business of which is located gifts shall be used by such done Philippines Development
in the Philippines; for administration purposes. SKS: Administration (P.D. 690)
The aforementioned insitutions
must be incorporated as non-

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HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

 Donations to the Intramuros all donations made in one (1) calendar description imposed by the authority of
Administration (P.D. 1616) year by a donor are taxed at the same a foreign country.
graduated tax rates as if they had been The amount of the credit taken
A. Donations on account of made at one (1) time. A new shall be subject to each of the following
marriage (or dowries) computation of donor’s tax is made for limitations:
The TRAIN repealed the provision gifts made by the donor in another  The amount of the credit in
on dowries or gifts made on account of calendar year(s). respect to the tax paid to any
marriage. country shall not exceed the
SKS: Under the old law, gifts on A. Valuation of gifts made in same proportion of the tax
account of marriage may be exempted property against which such credit is
within the first P10,000 of the value If the gift is made in property, the taken, which the net gifts
thereof, provided that such gift should fair market value thereof at the time of situated within such country
have been given to a legitimate, the gift shall be considered the amount taxable under this Title bears to
recognized natural or adopted child of of the gift. his entire net gifts; and
the donor, and that the donor must be In case of real property, the basis  The total amount of the credit
a resident of the Philippines. shall be whichever is higher of – shall not exceed the same
 The fair market value as proportion of the tax against
VI. PROCEDURE FOR determined by the which such credit is taken, which
COMPUTING NET GIFTS Commissioner; or the donor’s net gifts situated
The tax for each calendar year  The fair market value as shown in outside the Philippines taxable
shall be computed on the basis of the the schedule of values fixed by under this Title bears to his entire
total net gifts made during the the Provincial and City Assessors. net gifts.
calendar year in accordance with the
schedule of tax rates prescribed in the VII. TAX CREDIT FOR DONOR’S VIII. FILING OF RETURN AND
law. TAXES PAID TO A FOREIGN PAYMENT OF TAX
The tax is imposed on the COUNTRY
cumulative basis during the calendar A. Requirements
year, i.e., the rates are applied on the The tax imposed by this Title Any individual who makes any
aggregate net gifts during the calendar upon a donor who was a citizen or transfer by gift (except those which,
year, but donor’s taxes paid during the resident at the time of donation shall under Section 101, are exempt from
calendar year are credited against the be credited with the amount of any the tax), shall make a return under
donor’s tax due on the latest donation donor’s tax of any character and oath in duplicate setting forth:
during the same calendar year. Thus,

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HANDOUT 4: DONOR’S TAXIntegrative Course for TaxationInstructor: K. J-Culajara

 Each gift made during the the country where he is domiciled at

calendar year which is to be the time of the transfer, or directly with
included in computing net gifts; the Office of the Commissioner.
 The deductions claimed and
allowable; C. Meaning of “deficiency”
 Any previous net gifts made  The amount by which the tax
during the same calendar year; imposed exceeds the amount
 The name of the done; and shown as the tax by the donor
 Such information as may be upon his return; but the amount
required by the rules and so shown on return shall first be
regulations pursuant to law. increased by the amount
previously assessed (or collected
B. Time and place of filing and without assessment) as a
payment deficiency, and decreased by the
The return of the donor required amounts previously abated,
in this Section shall be filed within 30 refunded or otherwise repaid in
days after the date the gift is made respect of such tax; or
and the tax due thereon shall be paid  If no amount is shown as the tax
at the time of filing. by the donor, then the amount by
Except in cases where the which the tax exceeds the
Commissioner otherwise permits, the amounts previously assessed (or
return shall be filed and the tax paid to collected without assessment) as
an authorized agent bank, the Revenue a deficiency, but such amount
District Office, Revenue Collection previously assessed, or collected
Officer, or duly authorized Treasurer of without assessment, shall first be
the city or municipality where the decreased by the amount
donor was domiciled at the time of the previously abated, refunded or
transfer, or if there be no legal otherwise repaid in respect of
residence in the Philippines, with the such tax.
Office of the Commisisoner.
In case of gifts made by a non-
resident, the return may be filed with
the Philippine Embassy or Consulate in