COLLEGE OF BUSINESS AND ACCOUNTANCY

TOPIC:
✓ DONOR’S TAX

LEARNING OBJECTIVES:
At the end of this module, the student should be able to:
✓ Identify and classify items whether part of inclusions of the gross gift or exclusions.
✓ Discuss the elements of donation.
✓ Understand the tax rules concerning donation and be able to apply the computational procedures
of donor’s tax.

BIBLICAL VALUES INTEGRATION:

“We remember before our God and Father your work produced by faith, your labor prompted by
love, and your endurance inspired by hope in our Lord Jesus Christ.”
- 1 Thessalonians 1:3

INTRODUCTION
Donor's Tax
Donation is an act of liberality whereby a person disposes gratuitously of a thing or' right in favor
of another, who accepts it (Art. 725 of the Civil Code). Although the law used the term "act", the law
considers donation as a "contract", as shown by the fact that it requires acceptance, and that the rules on
obligations and contracts apply to it as a suppletory law (Art. 732 CC).

BODY
NATURE OF DONOR'S TAX
A donor's tax (or gift tax) is a tax levied, assessed, collected, and paid upon the transfer by any
person, resident or nonresident, of the property by gift.

It is a tax imposed on the exercise of the donor's right during lifetime to transfer property to others
in the form of gift. Hence, donor's tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter-vivos (RR 12-2018).

The donor's tax shall be imposed to the transfer of property by gift, 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 [Sec. 98(B), NIRC].

Donor's tax is a direct tax because the tax is imposed on the donor and determined with reference
to all the donor's gifts. Donor's tax applies to both natural and juridical persons.
 The term "transfer of property in trust or otherwise, direct or indirect" is used by the law in the
most comprehensive sense. It includes not only the transfer of ownership in the fullest sense but also the
transfer of any right or interest in property, but less than the title. A transfer becomes complete and taxable
only when the donor has divested himself of all beneficiary interest in the property transferred and has no
power to revest any such interest in himself or his estate.

Completion and Perfection of Donation

The donor's tax shall not apply unless and until there is a completed gift (RR 12-2018). The
transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee.
on the other hand, it is completed by the delivery (either actually or constructively) of the donated property
to the donee.

The Law that Governs the imposition of Donor's Tax

The law in force at the time of the perfection/completion of the donation shall govern the imposition
of donor's tax (Sec. 12, RR 11-2018),

ELEMENTS OF DONATION
In order to determine whether there was a donation, all the following elements shall be present:
1. Capacity of the donor to make donation
It refers to the condition and legal competence of the donor to enter into a contract (since
"donation", as discussed in the preceding page, is a contract). Under Article 735 of the civil code, all persons
who may contract and dispose of their property may make a donation. Therefore, it is not enough that a
person be capacitated to contract, he must also have the capacity to dispose. Capacity of the donor is
determined at the perfection of the donation.

2. Donative intent or Intent to make a gift on the part of the donor

Donative intent refers to the proper declaration of the legal owner of a property or right to transfer
ownership to another without consideration. Such intent followed by a donative act is essential to
constitute a gift, and no strained and artificial construction of a supplementary statute should be included
to tax as gift a transfer actually lacking of donative intent.

“Consideration"
-means money or equal value or some goods or service capable of being evaluated in money.

Donative intent is required only in a direct gifts.

If a gift is indirect, taking place by way of sale, exchange, or other transfer of property (transfer for
inadequate consideration), donative intent is not necessary (Section 100 NIRC). The intention to donate is
known by observing the forms required by law to make it valid.
3. Delivery
Donor's tax applies to a completed gift. It is completed by the delivery, either actual or
constructively, of the donated property or t instrument, to the donee. Section 12 of RR 12-2018 provides
that the law in force at the time of the perfection or completion of the donation value shall govern the
imposition of donor's tax, based on the fair market (FMV) of the properly.

INCOMPLETE GIFT
A gift that is incomplete because of reserved powers becomes complete when either:
• Donor renounces the power; or
• The donor's right to exercise the power ceases because of the happening of some event or
contingency or the fulfillment of some condition, other than the death of the donor.

4. Acceptance
Donation is perfect not from the time of acceptance but from the time of knowledge of the donor
that the donee has accepted the same. This is because the tax law consider donation not merely as an act
of gratuitously transferring property or right but as a "contract". Hence, there should be "meeting of the
minds" between the donor and the donee before the "donation (contract)" is perfected. As such, delivery
and acceptance is required to consummate donation.

Article 734 of the Civil Code CC

• The transfer is perfected from the moment the donor knows of the acceptance by the donee.
Acceptance must be made during the lifetime of the donor and of the donee [Art. 746 (CC)]. Donations
made to conceived and unborn children may be accepted by those persons who would legally represent
them if they were already born (Art. 742 CC)

PURPOSE OF DONOR'S TAX

1. To prevent avoidance of estate tax. The donor's tax supplements the estate tax by preventing the
avoidance of the latter through the device of donating the property during the lifetime of the
deceased.
2. To prevent or compensate for the loss of the progressive rates of income tax when large estates are
split up by gifts to numerous donees.

FORMALITIES
DONATION OF MOVABLE PROPERTY
Donation of movable property may be made orally or in writing. An oral donation requires the
simultaneous delivery of the thing or of the document representing the right donated. If the value of the
personal property donated exceeds P5,000, the donation and the acceptance shall be made in writing.
Otherwise, the donation shall be void (Art. 748 CC).

Donation is a FORMAL CONTRACT. Hence, donations not in accordance with the formalities as required
by law shall be considered void.
DONATION OF IMMOVABLE PROPERTY
In order that the donation of an immovable may be valid, it must be made in a public document,
specifying therein the property donated and the value of the charges which the donee must satisfy (Art.
749 CC). A donation of this kind that does not comply with the formalities required by law shall be deemed
void.

Acceptance of immovable property

To be valid, immovable property may be accepted:
• In the same deed of donation; or
• In a separate public document. The donor shall be notified thereof in an authentic form, and this
step shall be noted in both instruments.
Characteristics of Donor's Tax
1. Donor's tax is an "excise tax", not a property tax. It is a tax imposed on the "right" or "privilege" to
transfer property by way of gift inter-vivos;
2. Donor's tax, _being a "contract", does not apply unless and until there is a completed gift;
3. The transfer is perfected from the moment the donor knows of the acceptance of the done;
4. Donor's tax is a direct tax because the tax is imposed on the donor and determined with reference
to all the donor's gifts;

Classification of Donation
As to motive or purpose:
1. Simple. The cause is pure liberality.
2. Renumeratory. Donations made due to past services rendered future services or charges and
burdens. Consequently, renumeratory donations are not really donations in substance. The cause is
not gratuitous, hence, not subject to donor's tax.
3. Modal - consideration is less than the value of the thing donated.

As to time of taking effect (Perfection):

1. Donation inter-vivos. A donation which takes effect during the lifetime of the donor and the donee.
2. Donation mortis-causa. A donation which takes effect upon death of the donor.

Void Donations
Under Art. 739 of the new civil code, the following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time of the
donation.
2. Those made between persons found guilty of the same criminal offense, in consideration
thereof.
3. Those made to a public officer or his wife, descendants and ascendants, by reason of his office.

In the case referred to in No.1, the action for declaration of nullity may be brought by the spouse of the
donor or donee and the guilt of the donor and donee may be proved by preponderance of evidence in the
same action.
VALUATION OF GROSS GIFTS
In valuing properties for donor's tax purposes, the principles in the valuation of properties for estate
tax purposes also applies. Therefore, as a rule, donor's tax should be based on the fair market value of the
property donated at the time the donation is completed.

Donation of real property shall be valued based on the higher amount between the fair market value
as determined by the Commissioner of Internal Revenue and the fair market value as shown in the schedule
of values fixed by the Provincial and City Assessors.

Stocks, bonds and other securities shall be valued based on the following rules:
• FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the
date of death if none is available on the date of death itself (RR 2-2003/ RR 12-2018).
• If not traded in the stock exchange, the fair market value shall depend on whether the stocks are
preferred or common (ordinary or preference shares). If the stocks are ordinary shares, the market
value shall be the book value or the security on the valuation date or on the date nearest the
valuation date. The stocks are preferred, this market value shall be the par value of the security.

DONOR'S TAX RATE

Section 99(A) of the Tax Code, as amended, provides that beginning, January1, 2018, the tax rate
payable by a donor for each calendar year shall be 6% on the basis of the total gifts in excess of P250,000
exempt gift made during the calendar year. The donor's tax rate shall apply irrespective of the relationship
of the donor and the done (relative or stranger, natural or juridical person).

Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes, shall be governed by the Election Code, hence, not subject to donor's tax [Sec. 99(B)
of NIRC; RR 12-2018).

The tax 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 [Sec. 98(B) of NIRC].

GROSS GIFT
The term "gross gift" is defined under Section 104 of the Tax Code, as amended, as follows:

"Gifts" include real and personal property, whether tangible or intangible, or mixed, wherever
situated: Provided, however, that where the donor was a non-resident alien at the time of donation, his real
and personal property so transferred but which are situated outside the Philippines shall not be included
as part of "gross gift'.

Generally, the rules in computing "gross estate" previously discussed shall also apply in determining
the composition of the "gross gift". The composition will depend on the citizenship and/or residence of the
donor. If resident or citizen, the donor is taxable on is a non-resident alien, he shall be subject to tax on
properties donated which are located within the Philippines only.
RECIPROCITY RULE (Sec. 104 Tax Code)
The rule on reciprocity applies to nonresident alien donor with respect to donations of intangible
properties within the Philippines. If there is reciprocity, the intangibles shall be excluded in the
computation of gross gift. There is reciprocity when:
1. The donor, at the time of the donation was a citizen and resident of a foreign country which at the
time of the donation did not impose a transfer tax on intangible personal property of the citizens of
the Philippines not residing in that foreign country; or
2. The foreign country described in the preceding paragraph allows a similar exemption from transfer
taxes of every character or description in respect of intangible personal property owned by citizens
of the Philippines not residing in that foreign country.

INTANGIBLE PERSONAL PROPERTY in the Philippines (Sec. 104)

For purposes of donation inter-vivos, the following should be considered intangible personal
property located within the Philippines:
1. Franchise which must be exercised within the Philippines.
2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws.
3. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is
located in the Philippines.
4. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines; and
5. Shares or rights in any partnership, business or industry established in the Philippines.

CLASSIFICATION OF DONORS
Classifying the donors is important to properly determine the composition of the gross gift. Citizen
and resident donors are taxable on their donations made within and without the Philippines while
nonresident alien donors are taxable only on their donations made in the Philippines, subject to rule on
reciprocity.

Donors under the Tax Code are classified as follows:

1. Citizen and resident
2. Nonresident alien with reciprocity
3. Nonresident alien without reciprocity

INCLUSIONS IN THE GROSS GIFTS

The composition of gross gift is generally discussed in preceding page in relation to Section 104 of
the Tax Code, as amended. Specifically, gross gift for purposes of computing the donor's tax shall be
composed of the following:
1. Direct gifts (Sec. 98);
2. Gifts through creation of a trust (Sec. 98);
3. Transfer for insufficient consideration
4. Condonation of debt
 5. Repudiation of inheritance; and
6. Renunciation by the surviving spouse of common property

Transfer for insufficient consideration

Where property, other than a real property that has been subjected to the final capital gains tax, is
transferred for less than an adequate and full consideration in money or money's worth, then the amount
by which the fair market value of the property at the time of the execution of the Contract to Sell or
execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed
or actual consideration or selling price shall be "deemed a gift", and shall be included in computing the
amount of gifts made during the calendar year.

Where the consideration is fictitious, the entire value of the property transferred shall be subject to
donor's tax.

However, bonafide transfers made in the ordinary course of business and free from any donative
intent, even if the consideration is inadequate on account of bad bargain shall not be subject to donor's tax
(Sec. 100 of the Tax Code).

AMOUNT TO BE INCLUDED IN THE GROSS GIFT

SCENARIO TAX IMPLICATION
If Consideration is >_ FMV of the property at • Valid sale; not subject to Donor’s Tax
the time of sale
If consideration is < FMV of the property at • Insufficient Consideration
the time of sale • Include in the Gross Gift; The excess
of the FMV of the property sold over
the consideration received.
If Consideration is FICTITIOUS Include in the Gross Gift: The entire FMV of
the property

TRANSFER FOR INSUFFICIENT CONSIDERATION

Sale of Shares of Stock of a Domestic Corporation
(Not through the local stock exchange) lower than its FMV

Section 100 of the Tax Code (Transfer for Less Than Adequate and Full Consideration), as amended
provides:
Where property, other than real property referred to in Section 24(D), is transferred for less than
an adequate and full consideration in money or money's worth, then the amount by which the fair market
value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed, be
deemed a gift, and shall be included in computing the amount of gifts made during the calendar year:
Provided, however, That a sale, exchange, or other transfer of property made in the ordinary course of
business (a transaction which is a bonafide, at arm's length, and free from any donative intent), will be
considered as made for an adequate and full consideration in money or money's worth.
 The intention of the above provision is to discourage the parties to a sale from manipulating their
selling price in order to save on income taxes. This is because under the Tax Code, the measurement of
gain from the disposition of property merely considers the amount realized from the sale, Which is the
selling price minus the cost basis of the property sold. Hence, if parties would declare a lower selling price
per document of sale than the actual amount of money which changed hands, there is a foregone revenue
and the government is placed at a very disadvantageous position. In order to Plug this leakage, Section 100
treats the disparity between the fair market value and the selling price of the property as gift subject to
donor's tax. This has been confirmed in The Philippine American Life and General Insurance Company vs.
Secretary of Finance, et al., where the Supreme Court ruled thatvs the absence of donative intent, if that be
the case, does not exempt the sale of stock transaction from donor's tax since Section 100 categorically
states that the amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed as gift. ,Thus, even if there is no actual donation, the difference in price is
considered "donation".

The TRAIN Law, however, provides an exception. Section 100, as amended states that "Provided,
however, that a sale, exchange or other transfer of property made in the ordinary course of business (a
transaction which is bonafide, at arm's length, and free of donative intent), will be considered as made for
an adequate and full consideration in money or money's worth".

Thus, when shares of stock not traded in the stock exchange are sold for less than it fair value, the
excess of the fair market value over the selling price shall be treated as a gift subject to donor's tax, EXCEPT
when it is sold at arm's length, free from any donative intent (in the ordinary course of business).

RMC 30-2019 emphasized that the issue of whether the transaction is arm's length is question of
fact and not of law. The parties must present proof of business purpose to fall within the exception to rule
on the imposition of donor's tax on transfer of shares for less than its FMV. Unfortunately, RMC 30-2019
did not provide for example acceptable proof of bonafide business transaction.

Condonation or cancellation of Indebtedness

Condonation or remission of debt is a mode of extinguishing an obligation. In the case of Rafael
Arsenio Dizon vs CTA (G.R. No. 140944), the Supreme Court defined condonation or remission of debt as
"an act of liberality, by virtue of which the creditor, without receiving any equivalent, renounces the
enforcement of the obligation which is extinguished in its entirety or in that part or aspect of the same to
which the remission refers". It simply means that by a generous act of a person who, for instance, lends
money to another with an obligation to repay, the borrower is released from such obligation, hence, subject
to donor's tax. Nonetheless, there is no condonation of indebtedness or donation in the following cases:
• Condonation is due to the rendition of service.
The transaction has the effect of payment of compensation. The debtor is therefore subject to
income tax.
 • Condonation was made by a corporation in favor of its shareholders. The transaction has the
effect of payment of dividend by the issuing corporation (creditor). The debtor is assumed to
have earned a dividend income.

PAYMENT OF LOAN BY THE GUARANTOR

A "guarantee", as a rule is gratuitous unless stated, otherwise. However, if the obligation is "jointly"
entered into by the guarantor and the borrower with a creditor-bank, the security gratuitous by the
guarantor to fulfill the obligation of the borrower IS Tie gratuitous because the guarantor must be
indemnified by the principal debtor in case the guarantor pays for the debt. In such case, payment by the
guarantor is not subject to donor's tax (BIR Ruling No. DA 006-2005 January 11, 2005).

Repudiation of inheritance
Section 11 of RR 2-2003 provides that repudiation or "general renunciation" by an heir, including
the surviving spouse, of his or her share in the hereditary estate left by the decedent is NOT subject to
donor's tax, UNLESS:
1. The renunciation was categorically done in favor of identified heir(s); and
2. To the exclusion or disadvantage of other co-heir(s).

To be subject to donor’s tax, the two (2) conditions enumerated must be present.

Renunciation of share in common property by the surviving spouse and repudiation of inheritance
Renunciation by the surviving spouse of his or her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other
person(s) is SUBJECT to donor's tax.

EXEMPT GIFTS and/or DEDUCTIONS FROM THE GROSS GIFTS

Exemptions (exclusions) are not to be treated as exclusions from the gross gifts of the donor. They
partake the nature of deductions and are, therefore, deductible from the gross gifts in order to arrive at
taxable net gifts. Hence, the same item/amount shall likewise be presented in the gross gifts of the donor.
1. Donations not exceeding P 250,000 during the year, regardless of the relationship of the donor and
the donee [Sec. 99(B) of NIRC].
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 (Sec. 101 of
NIRC).
3. Gifts in favor of non-profit 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 30% of
said gifts shall be used by such donee for administration purposes. (RA 1916; Sec. 101 of NIRC).
Non-Profit Educational and/or Charitable Corporation under RA 10963
A nonprofit educational and/or charitable corporation, institution, accredited non-government
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 nonstick entity,
paying no dividends, governed by trustees who receive no compensation, and devoting all its income,
whether students' fees or gifts, donation or subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes enumerated in its Articles of Incorporation.

In case the donation was made to or for the use of the national government/entity created by any
of its agencies which is conducted for profit, the donation should be subject to donor's tax. The amount
should be included in the gross gift but not allowed as part of deductions. The same rule shall apply to gifts
in favor of non-profit educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization if more than 30% of said gifts shall be used by such donee for administration
purposes.

Notice of donation by a donor engaged in business (RR 12-2018)

In order to be exempt from donor's tax and to claim full deduction of the donation given to qualified
and duly accredited donee-institutions, the donor engaged in business shall give a notice of donation on
every donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District Office (RDO) which
has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee
institution's duly issued Certificate of Donation, which shall be attached to the said Notice of Donation,
stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used
by such accredited non-stock, non-profit corporation/NGO institution (qualified-donee institution) for
administration purposes pursuant to the provisions of Section 101(A)(3) and (B)(2) of the Code.

4. Donations made to entities as exempted under special laws

a. Prizes and awards given to athletes.
b. Donation to the International Rice Research Institute.
c. Donation to the Ramon Magsaysay Award Foundation.
d. Donation to the Philippine Inventor's Commission.
e. Donation to the Integrated Bar of the Philippines.
f. Donation to the Development Academy of the Philippines.
g. Donation to the Philippine-American Cultural Foundation.
h. Donation to Philippine Health Insurance Corporation.
i. Donations of equipment, materials, services to the Task Force on human settlement
j. Donations to Intramuros Administration
k. Donations to Southern Philippines Development Administration
l. Donations to National Social Action Council
m. Donations to the Museum of Philippine Costumes
 n. Donations to the Aqua-culture Department of Southeast Asia Fisheries Development Center of the
Philippines
o. Exempt donations under Bayanihan Act

5. Encumbrances on the property donated if assumed by the donee.

For purposes of the donor's tax, "Net Gift" shall mean the net economic benefit from the transfer
accrues to the donee. Accordingly, if a mortgage property is transferred as a gift, but imposing upon the
done the obligation to pay the mortgage liability, then the net is measured by deducting from the fair
market value of the property the amount of mortgage assumed.

6. Diminutions
Reduction in the value of the donated property as provided by the donor. It refers to the decrease
in the value of the donated property as a result of a condition made by a donor to the 11one.

NOTE: Under RR 2-2003, NET GIFT shall mean the net economic benefit from the transfer that
accrues to the donee.

PHILIPPINE RED CROSS

RMC 59-2010 in relation to RA10072 entitled "An Act Recognizing the Philippine National Red Cross
as an Independent Autonomous, Non-Government Organization Auxiliary to the Authorities of the Republic
of the Philippines in the Humanitarian Field, to be known as the Philippine Red Cross.

To allow it to fully realize its mandate under the Geneva Conventions, the Statutes of the
International Red Cross and Red Crescent Movement and RA 10072, the Philippine Red Cross shall be
exempt from payment of all direct and indirect taxes, all provisions of law to the contrary, notwithstanding,
including value added tax (vat), fees and other charges of all kinds on all income from its operations,
including the use, lease or sale of its real property, and provision of services. The Philippine Red Cross shall
also be exempt from direct and indirect taxes, including vat, duties. fees and other charges on importations
and purchases for its exclusive use.

Likewise, all donations and legacies and gifts made to the Philippine Red, Cross to support its
purposes and objectives shall be exempt from donor's tax an shall be deductible from-the gross income of
the donor for income tax purposes or from the computation of donor-decedent's net estate as a transfer
for public use for estate tax purposes.
COMPUTATION OF DONOR'S TAX DUE
For purposes of computing the donor's tax due and payable, refer to the following pro-forma computation:
FIRST Donation during the year SUBSEQUENT Donation during the
calendar year
Gross Gift Pxx Gross Gift, current Pxxx
Allowable deductions (xxx) Allowable deductions, current (xxx)
Net gift Pxxx Net gift, current Pxxx
Less: tax exempt donation (250,000) Less: tax exempt donation (250,000)
Net Taxable Gift Pxxx Total Net Taxable Gift Pxxx
Multiply by donor's tax rate 6% Multiply by donor's tax rate 6%
Donor's Tax Due Pxxx Donor's Tax Due Pxxx
Less: Less:
Donor's Tax Credit (xx) Donor's Tax Credit (xx)
Donor's tax paid - Prior gift(s) (xx)
Donor's Tax Payable Pxx Donor's Tax Payable Pxx

CUMULATIVE BASIS OF COMPUTING THE NET TAXABLE GIFTS

The computation of donor's tax shall be on a cumulative basis (on gifts made within the same
calendar year), regardless of the relationship of the donor and the donee (relative or stranger, natural or
juridical person).

Donations made by Spouses

Section 14 of RR 12-2018 provides that husband and wife are considered as separate and distinct
taxpayers for purposes of the donor's tax. However, if what was donated is a conjugal or community
property and only the husband signed the deed of donation, there is only one donor for donor's tax
purposes, without prejudice to the right of the wife to question the validity of the donation without her
consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of
the Philippines.
• Gift from Common Property— the gift is taxable one-half to each donor spouse.
• Donation between husband and wife during the marriage

GENERAL RULE: The gift is not taxable, as it is declared void by law.

EXCEPTION: Moderate gifts between the spouses are valid.

Donations made by a Foreign Corporation

Foreign corporations effecting a donation are subject to donor's tax only if the property donated is
located In the Philippines. Accordingly, the donation of a foreign corporation of its own shares of stocks is
not subject to donor's tax. However, if 85% of the business of the foreign corporation is located in the
Philippines or the shares donated have acquired business situs in the Philippines, the donation may be
taxed in the Philippines subject to the rule of reciprocity.
On the other hand, donation of a foreign corporation of its own shares of stocks in favor of a resident
employee is not subject to donor’s tax (BIR Ruling No. 018-87, January 26, 1987) because it should be
assumed that such were given to the resident employee in consideration of his services to the corporation.
Likewise, the same shall constitute taxable compensation income to the recipient because it is a
compensation for services rendered under an employer-employee relationship, hence, subject to income
tax. The value of the shares shall therefore constitute deductible expense to the corporation provided it is
subjected to applicable withholding taxes on compensation.

Splitting of Gift
Splitting of gift is a tax minimization scheme (tax avoidance) which is done by spreading the gifts
over numerous calendar years instead of adding it to the donations made during the same calendar year
to avoid a higher tax due to a higher tax base if such gifts were made in the same calendar year. Prior to
the effectivity of the TRAIN law, donor's tax due is computed using a graduated tax rate wherein the tax
rate increase as the tax base increases.

Under the TRAIN Law, the first P250,000 donation during calendar year is exempt. Therefore,
splitting the gift into several taxable years may result to a lower tax due.

BAYANIHAN ACT
Bayanihan Act 1 (RA 11469)
Under Section of RA 11469, otherwise known as the “Bayanihan to Heal as One Act (or Bayanihan
1)”, a State of National Emergency had been declared over the entire country up to June 25, 2020. Tax
exempt donations under this Act are as follows:

Under RR 6-2020
1. Donation of Critical or needed healthcare equipment or supplies intended to combat the COVID-1 9
public health emergency including personal protective equipment; laboratory equipment and its
reagents, medical equipment and devices; support and maintenance for laboratory and medical
equipment, surgical equipment and supplies; medical supplies, tools and consumables; testing kits
and such other supplies and equipment as may be determined by the DOH and other relevant
government agencies.
2. Donation of materials needed to make health equipment and supplies deemed as critical or needed
to address the current public health emergency; provided that the importing manufacturer is
included in the Master list of the DTI and other incentive granting bodies.

Under RR 9-2020
Donation of the following when made during the period of State of National Emergency, for the sole
and exclusive purpose of combating COVID-19, shall be exempt from donor's tax:
1. Cash donations;
2. Donations of all critical or needed healthcare equipment or supplies (RR 9-2019);
3. Relief goods, such as but not limited to, food packs (rice, canned goods, noodles, etc.) and water;
and
4. Use of property, whether real or personal (shuttle service, use of lots/buildings)
 To be exempt from donor's tax, the foregoing donations (RR g. 2020) shall be given to the following
donees:
• Private hospitals and/or non-stock non-profit educational and/or charitable, religious, cultural or
social welfare corporation, institution, foundation, non-government organization (even if non-
accredited), trust or philanthropic organization and/or research institution or organization; and
• Local private corporations, civic organizations, and/or international organizations/institutions
provided that they shall (1)actually, directly and exclusively distribute and/or transfer said
donations/gifts to and/or (2) partner as conduit/logistical machinery with, the accredited NGOs
and/or 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.

Bayanihan Act 2 (RA 14941)

Exempt donations under RA 11494, also known as Bayanihan to Recover as One Act (Bayanihan 2),
from September 15, 2020 to December 19, 2020 are as follows:
1. All donations of personal computers, equipment (i.e. mobile phone, laptops, tablets, printer) or
similar for use in teaching as learning in the public schools (RR 26-2020).
2. Donation of critical products, essential goods, equipment or supplies needed to contain and mitigate
COVID-19, including equipment for waste management approved by DENR, DOH and other
concerned regulatory agencies, are exempt from donor's tax if the articles are donated to or for use
of the national government, any entity created by its agencies which is not conducted from profit or
to any of its political subdivision, but subject to ordinary rules on deductibility (RR 28-2020).

TAX CREDIT FOR FOREIGN DONOR'S TAX

In order to minimize or lessen the harsh effect of taxing the same gift twice, the donor is allowed to
claim the gift tax paid in the foreign country as a tax credit against the gift tax paid in the Philippines. It
shall be noted that the formulas and procedures used in computing the allowable foreign donor's tax credit
are the same when computing the allowable foreign estate tax credit.

Foreign donor's tax credit can only be claimed only by Citizens or residents of the Philippines at the
time the donation was made. Nonresident alien decedents are cannot claim for tax credit on estate tax paid
abroad.

The amount of tax credit allowed to citizen decedents and resident decedents is the amount of
donor's tax paid to the foreign country subject to each of the following limitations presented below:
LIMIT A OR LIMIT 1: IF THERE IS ONLY ONE (1) FOREIGN COUNTRY
Net Gifts, foreign country Philippine Donor’s = Pxxx (Limit)
Net Gifts, world x Tax Due

Versus

Actual Tax paid, foreign country =Pxxx (Actual)

Actual Tax Credit (Lower Amount) =Pxxx(Tax credit)
LIMIT B OR LIMIT 2: IF THERE ARE > 1 FOREIGN COUNTRIES
• Step 1 - compute limit 1 per foreign country as shown above.
• Step 2 - compute Limit 2 (include all foreign countries) using the following formula:

Net Gifts, all foreign country Philippine Donor’s = Pxxx (Limit)

Net Gifts, world x Tax Due

Versus

Actual Tax paid, all foreign country =Pxxx (Actual)

Actual Tax Credit (Lower Amount) =Pxxx(Tax credit)

Limit 2 (Lower amount)

• Step 3 – Choose the lower amount between Limit 1 and Limit 2
Limit 1 (from Step 1) Pxxx
Limit 2 (from Step2) Pxxx
Allowed Tax Credit (Lower Amount) Pxxx

FILING OF TAX RETURN AND PAYMENT OF TAX DUE

Any individual who makes any transfer by gift shall, for the purpose of the said tax make a return in
duplicate. The return shall set forth:
1. Each gift made during the calendar year which is to be included in computing net gifts:
2. The deduction claimed and allowable
3. Any previous net gifts made during the same calendar year;
4. The name of the donee; and
5. Such further information as may be required by rules and regulations made pursuant to law.

The return is filed and paid within 30 days after the date the gift is made or completed and the tax due
thereon shall be paid at the same time the return is filed "Pay-as-you file system" (RR 12-2018).

Place of Filing
Section 15(B) of RR 12-2018 provides that, except in cases where the Commissioner otherwise
permits, the return shall be filed and the tax paid to (1)an authorized agent bank, (2)Revenue District
Officer, or (3)Revenue Collection Officer having jurisdiction over the place where the donor is domiciled
at the time of the transfer, or if there is no legal residence in the Philippines, with the Office of the
Commissioner.

In the case of gifts made by a nonresident, the return may be filed with:
1. Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or
2. Directly with the Office of the Commissioner
 The term “Office Commissioner” shall refer to the RDO having jurisdiction over the BIR-National
Office Building which houses the Office of the Commissioner, or presently, to the RDO 39-South Quezon
City.

Civil Penalties and interest

1. Penalty of 25% if there is no false or fraudulent intent on the taxpayers.
2. Penalty of 50% if there is false, malice or fraudulent intent on the taxpayers.
3. Interest on the unpaid amount of tax from the date computed until fully paid.

INTEREST RATE:
• Under Train Law – 12%
• Prior to 2018 – 20%

REFERENCES:
Transfer and Business Taxation - Train Law updated, 2021 ed., Enrico Tabag

Quicknotes Taxation, Latest ed., Jack De Vera