Module 1 - Lesson 3 - Donor's Tax Credit

MODULE 1: DONOR’S TAXATION
Lesson 3 – Donor’s Tax Credit

Overview:
Donor’s Tax Credit refers to the amount of donor’s taxes imposed by the Philippine government and / or by
foreign country, upon the donor’s net gift situated therein, that are allowed by law as a direct deduction from
the Philippine’s Donor’s tax due.
Tax credit are computed and allowed as direct deduction to the Donor’s tax due in order to arrive at Donor’s
tax still due or payable. Tax credits are as follows: Philippines donors’ tax due paid in the original tax return,
Philippine Donor’s tax due paid in the same calendar year and foreign donor’s tax paid.
Under this module, it will discuss the related provision on tax credit under section 101 of the Tax Code and its
application. This module will illustrate how to compute the limits of foreign donor’s tax paid as tax credit and the
computation of donor’s tax payable.
Course Materials:
Provisions on the Tax Code (before Amendments of TRAIN law) related to Donor Tax Credit:
SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the tax
provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident. -
(1) Dowries or gifts made on account of marriage and 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 Ten
thousand pesos (P10,000):
(2) 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; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or philanthropic organization or research institution or
organization:
Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. For the purpose of this exemption, a 'non-profit educational and/or
charitable corporation, institution, accredited nongovernment organization, trust or philanthropic
organization and/or research institution or organization' is a school, college or university and/or
charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or
research institution or organization, incorporated as a non-stock entity, paying no dividends, governed by
trustees who receive no compensation, and devoting all its income, whether students' fees or gifts,
donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. -
(1) 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.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
foundation, trust or philanthropic organization or research institution or organization:Provided, however, That
not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes.
(C)Tax Credit for Donor's Taxes Paid to a Foreign Country. -

(1) 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.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the
following limitations:
(a) 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
(b) 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.
AMENDMENTS BY TRAIN LAW (RA 10963) (lesson 2)
COMPUTATION OF DONOR’S TAX;
Beginning Jan 1, 2018, the tax shall be 6% computed on abasis pf total net gift in excess of P 250,000
exempt gift made during the calendar year.
The computation of donor’s tax is on a cumulative basis over a period of 1 (one) calendar year.
DONOR’S TAX CREDIT
The component of Donor’s tax Credit are as follows:
1. Philippine donor’s tax paid on the original donor’s tax return filed (in the case of amended Donor’s tax
return only)
2. Philippine Donor’s Tax paid in prior donor’s Tax return on the SAME calendar year. (in case there are
subsequent donations only)
3. Foreign donor’s tax paid- This refers to any donor’s tax of any character and description, imposed by
the authority of the foreign countries upon the donor’s net gift located therein. This is subject to limits
according to SEC 101 paragraph C.
Donor’s Tax Credit available for Different Taxpayer / Donors
Tax Credit *RC, Non-resident

NRC, RA Alien
Philippine donor’s tax paid on the original donor’s tax return OK😊 OK😊
filed (in the case of amended Donor’s tax return only)
Philippine Donor’s Tax paid in prior donor’s Tax return on OK😊 OK😊
the SAME calendar year. (in case there are subsequent
donations only)
Foreign donor’s tax paid OK😊 NA☹
*Resident Citizen, Nonresident Citizen and Resident Alien

Foreign donor’s tax paid, as tax credit, is not applicable to Non resident Alien donors.
TAX CREDIT FOR FOREIGN DONOR’S TAXES PAID:

- It is available only to resident or Citizen Donors
-This type of tax Credit is subject to limit.
LIMITS:
A. (Net Gift per Foreign Country divided by Total Net Gift) x Philippine Donor’s Tax
B. (Net Gift in ALL Foreign Country divided by Total Net Gift) x Philippine Donor’s Tax
RULE:
1. If there is only one foreign country, only LIMIT A is used.
2. If there are more than two foreign countries, use BOTH LIMITS.
*Foreign donor’s tax credit is not applicable to donor who is a nonresident alien. Also, if the donor is
nonresident alien, he is taxable for donations made within the Philippines only.
LIMIT A:
Donor’s Tax paid in Country 1 versus LIMIT A (Country 1) = whichever is lower
PLUS (+)
Donor’s Tax paid in Country 2 versus LIMIT A (Country 2) = whichever is lower
EQUALS = LIMIT A
LIMIT B:
Donor’s Tax paid in Country 1 and 2 versus LIMIT B (Country 1 and 2) = whichever is lower (LIMIT B)
TAX CREDIT for FOREIGN DONOR’S whichever is lower between LIMIT A and
TAX PAID= LIMIT B
Illustration 1:
Mr Xin of Hi Shin, resident citizen had the following data related to his donations to relatives on July 2016:
Wrong data in the original donor’s tax return filed (corresponding donor’s tax was paid by Xin).
Philippines Canada America

Gross Gift 85,000 150,000 40,000
Allowed deduction 50,000 90,000 25,000
Net Gift 35,000 60,000 15,000
Computation of Donor’s Tax paid on the Original Donor’s Tax return:
Total net Gift-World (35,000+60,000+15,000) 110,000

Donor’s tax due / paid at Graduated tax rate P 200
(110,000 less 100,000) times 2%
Correct data in the amended Donor’s tax return:

Gross Gift 180,000 120,000 70,000
Net Gift 130,000 90,000 30,000
Gift Tax Paid 8,600 300
Computation of Donor’s Tax due on the Amended Donor’s Tax return:
Donor’s tax due / paid at Graduated tax rate P 4,000

(250,000 less 200,000) times 4% PLUS 2,000
Less: Tax Credits
Previous payment on the Original Donor’s Tax return 200
Foreign Tax Credit* (Pls see computation below) 1,740**
Donor’s tax Still Due / Payable 2,060
LIMIT A:
Canada:
Limit = (90,000 divided by 250,000) x 4,000 1,440
Versus actual payment of 8,600
Whichever is Lower (Canada) 1,440
America
Limit = (30,000 divided by 250,000) x 4,000 480
Versus actual payment of 300
Whichever is Lower (America) 300
Tax Credit under Limit A 1,740
LIMIT B:
Canada and America

Limit = ((90,000+30,000) divided by 250,000) x 4,000 1,920
Versus actual payment (8,600+ 300) 8,900
Whichever is Lower (ALL Countries) 1,920
Tax Credit under Limit B 1,920
Allowed Foreign tax Credit
LIMIT A 1,740
LIMIT B 1,920
Whichever is Lower (A vs B) 1,740**
Illustration 2:
Mr Xin of Hi Shin, resident citizen had the following data related to his donations to relatives on July 2019:

Gross Gift 85,000 150,000 40,000
Net Gift 35,000 60,000 15,000

Donor’s tax due at 6% rate in excess of 250,000 P0

Gross Gift 200,000 120,000 100,000
Net Gift 150,000 90,000 60,000
Gift tax paid 8,600 300

Donor’s tax due / paid at 6% rate in excess of P3,000
250,000
(300,000 minus 250,000) times 6%
Less: Tax Credits
Previous payment on the Original Donor’s Tax 0
return
Foreign Tax Credit* (Pls see computation below) 1,200**
Donor’s tax Still Due / Payable 1,800
LIMIT A: Canada:
Limit = (90,000 divided by 300,000) x 3,000 900 Versus actual payment of 300
Versus actual payment of 8,600 Whichever is Lower (America) 300
Whichever is Lower (Canada) 900 Tax Credit under Limit A 1,200
America
Limit = (60,000 divided by 300,000) x 3,000 600
LIMIT B:
Canada and America
Limit = ((90,000+60,000) divided by 1,500
300,000) x 3,000
Versus actual payment (8,600+ 300) 8,900
Whichever is Lower (ALL Countries) 1,500
Tax Credit under Limit B 1,500
Allowed Foreign tax Credit
LIMIT A 1,200
LIMIT B 1,500
Whichever is Lower (A 1,200**
vs B)
Mr Xin of Hi Shin, nonresident alien had the following data related to his donations to relatives on July 2019:
Gross Gift 85,000 150,000 40,000
Allowed 50,000 90,000 25,000
deduction
Net Gift 35,000 60,000 15,000

Total net Gift-Phil only 35,000
Donor’s tax due at 6% rate in P0
excess of 250,000

Gross Gift 400,000 120,000 100,000
Allowed 50,000 30,000 40,000
deduction
Net Gift 350,000 90,000 60,000
Gift Tax Paid 8,600 300
Compute the donor’s tax still due / payable

Total net Gift-Phil only
Donor’s tax due / paid at 6% rate in excess of
250,000
(350,000 minus 250,000) times 6%
Less: Tax Credits
Previous payment on the Original Donor’s Tax
return
Foreign Tax Credit*
Donor’s tax Still Due / Payable

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MODULE 1: DONOR’S TAXATION

Lesson 3 – Donor’s Tax Credit

(C)Tax Credit for Donor's Taxes Paid to a Foreign Country. -

Donor’s Tax Credit available for Different Taxpayer / Donors

Tax Credit *RC, Non-resident

*Resident Citizen, Nonresident Citizen and Resident Alien

TAX CREDIT FOR FOREIGN DONOR’S TAXES PAID:

Philippines Canada America

Computation of Donor’s Tax paid on the Original Donor’s Tax return:

Total net Gift-World (35,000+60,000+15,000) 110,000

Correct data in the amended Donor’s tax return:

Philippines Canada America

Computation of Donor’s Tax due on the Amended Donor’s Tax return:

Donor’s tax due / paid at Graduated tax rate P 4,000

Canada and America

Allowed Foreign tax Credit

Philippines Canada America

Computation of Donor’s Tax paid on the Original Donor’s Tax return:

Total net Gift-World (35,000+60,000+15,000) 110,000

Correct data in the amended Donor’s tax return:

Philippines Canada America

Computation of Donor’s Tax due on the Amended Donor’s Tax return:

Allowed Foreign tax Credit

Computation of Donor’s Tax paid on the Original Donor’s Tax return:

Correct data in the amended Donor’s tax return:

Compute the donor’s tax still due / payable

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