BUSTAX

CHAPTER 1 CHAPTER 2
INTRODUCTION BASIC CONCEPTS OF SUCCESSION

Property – embraces everything which is or may be the subject SUCCESION
of ownership.  is a mode of acquisition by virtue of which the property,
Ownership – the exclusive right of possessing, enjoying rights and obligations to the extent of the value of the
and disposing of property. inheritance, of a person are transmitted through his death
to another or others either by his will or by operation of law
MODES OF ACQUIRING OWNERSHIP
*The effectiveness of the various modes of acquiring KINDS OF SUCCESSION
ownership and other real rights over property is premised on 1. Testamentary or testate – results from the designation of
the existence of TITLE or JUDICIAL JUSTIFICATION. an heir, made in a will executed in the form prescribed by law.
1. Occupation – property seized is without a known owner 2. Legal or intestate – effected by operation of law, since the
2. Intellectual Creation decedent did not execute a will.
3. Donation – an act of liberty whereby a person 3.Mixed – effected partly by will and partly by operation
disposes gratuitously of a thing or right in favor of another,
who accepts it. ELEMENTS OF SUCCESSION
4. Succession – mode of acquisition by virtue of which 1. Death of decedent
the property, rights and obligations to the extent of the value of Decedent – person whose property Is transmitted through
the inheritance, of a person are transmitted through HIS DEATH succession, whether or not he left a will.
to another. – Testator or Testatix – if he left a will; Testacy (status)
5. Prescription – one ACQUIRES ownership and 2. Inheritance
other real rights through the lapse of time in the manner and - All the property, rights and obligations and all which
under the conditions laid down by law. (ACQUISITIVE accrued thereto(upon succession) of a person
PRESCRIPTION) which are not extinguished by his death.
 Rights and actions are LOST by prescription - Personal right cannot be inherited
(EXTINCTIVE PRESCRIPTION) - Devise – testamentary disposition of real estate
- Legacy – gift or bequest by will of personal
CONCEPT AND NATURE OF TRANSFER TAXES property
TRANSFER TAXES – taxes imposed upon the GRATUITOUS 3. Successors
DISPOSITION of private property - aka. Heirs – a person called to the succession
- Gratuitous – no consideration is transferred either by provision of a will (VOLUNTARY
- Onerous – consideration is received HEIRS) or by operation of law (LEGAL or
EXCISE TAXES – are imposed upon the RIGHT OF A PERSON INTESTATE)
TO TRANSFER HIS PROPERTY that may take effect during his - Devisees and Legatees – persons to whom gifts of
lifetime or upon his death. real property and personal property are given
Estate – encompasses the totality of assets and liabilities a by virtue of a will
decedent owns at the time of his DEATH. 4. Acceptance
 Estate Tax – (in succession) is levied on the  Express Acceptance – may be made in a public or
TRANSMISSION OF PROPERTY from a prior decedent private document.
to his heirs.  Tacit Acceptance – resulting from acts by which
 Donor’s Tax – (in donation) is imposed as ownership of intention to accept is necessarily implied or which one
the property passes from the donor to the done. would have no right to do except in capacity of an heir.
 both are excise taxes
 both are imposed upon the right of a person to
transfer his property that may take effect during his EXECUTOR – a person appointed by a TESTATOR to carry
lifetime or upon his death. out the directions and requests in his will, and to dispose of
the property according to his testamentary provisions after his
death. ADMINISTRATOR – person appointed by THE
COURT to administer the assets and liabilities of a decedent.
I. TESTAMENTARY SUCCESIONS
WILLS
Will – act whereby a person is permitted with formalities
prescribed by law, to control to a certain degree the disposition of
his estate to take effect after his death.
Codicil – an instrument that amends the provisions of a will.
Probate of a Will – the court procedure by which a will is proved
to be valid or invalid.
CAPACITY TO MAKE A WILL

 All persons who are not expressly prohibited by law may
make a will.
 Testator be of sound mind at the time of its execution.
Knows the:
 nature of the estate
 proper objects his bounty
 character of testamentary act
Apuli, BS Accountancy | 1
 If someone who signs the instrument did not know what the Legitimate Legitimate Surviving Illegitimate Free
instrument said at the time of signing, or signed it against Children/ Parents/ Spouse Portion
Descendants Ascendants Children/
his will, the instrument is not a will.
 A married woman may make a will without the consent of her Descendants
husband and without the authority of the court of the
following:
a.
½ excluded Same
the
as 1/2 the
legitime of a
Varies
 All of her separate property legitime of legitimate

 Share of the conjugal partnership or child
absolute community property a
legitimate
CAPACITY TO SUCCEED BY WILL OR INTESTACY child
 In order to be capacitated to inherit, the heir, devisee or b. None
½ None None
½
legatee must be living at the moment the succession surviving surviving surviving
opens.
 A child already conceived at the time of death of c. None
½ ¼ None
¼
the decedent is capable of succeeding provided it be surviving surviving
born later.
d. None None
½ None
½
surviving surviving surviving
(1/3)
FORMS OF WILLS
1. Must be in writing and executed in a language or e. None None 1/3 1/3 1/3
dialect known to the testator. surviving surviving
2. Must be subscribed by the testator himself or by the INSTITUTION OF AN HEIR
testator’s name written by some other person in his presence
- is an act by virtue of which a testator designates in his
3. By his express direction, attested and subscribed by
will the person or persons who are to succeed him in his
three credible witnesses in the presence of testator and
property and transmissible rights and obligations.
of one another.
4. Must be acknowledged before a notary public by the
testator and witnesses.
LEGITIME
- is that part of the testator’s property which he
cannot dispose of because the law has reserved it for
 Holographic Will - is a will written, dated and signed
certain heirs, called compulsory heirs.
entirely by the testator with his own hand and not witnessed
1. Legitimate children and descendants, with respect to
or attested.
their legitimate parents and ascendants
 At least one witness who knows his
2. In default of the foregoing, legitimate parents and
handwriting
ascendants, with respect to their legitimate children and
 In case contested, at least three
descendants
witnesses
3. The widow or widower
 The will of an alien who is abroad produces effect in the
4. Acknowledged natural children, and natural children by
Philippines if made with the formalities by
legal fiction
o the law of the place in which he resides, or
5. Other illegitimate children.
o according to the formalities observed in his
country, or
 Surviving spouse is always entitled to his legitime
o in conformity with those which the Civil Code
prescribes. depending on the existence of other compulsory heirs.
 A will made in the Philippines by a citizen or subject to
another country, which is executed in accordance with the
law of the country of which he is a citizen or subject,
and which might be proved and allowed by the law of
his own country, shall have the same effect as if executed
according to the laws of the Philippines.
REVOCATION OF WILLS AND TESTAMENTARY

DISPOSITIONS
 A will may be revoked by the testator at any time before his
death.
 Revocation outside the country is valid when it is done
according to:
o Law of the place where the will was made
o Law of the testator’s domicile
 Revocation inside this country is done according to the
PROVISIONS OF CIVIL CODE.
 Revocation of a will based onb false cause or an illegal
cause is null and void.
The Following Shall Be Sufficient Causes For The Disinheritance Of:
CHILDREN AND DESCENDANTS, A SPOUSE
LEGITIMATE AS WELL AS ILLEGITIMATE
1 when a child or descendant has been found guilty of when the spouse has been convicted of an attempt against
an attempt the life of the testator, his or her spouse, the life of the testator, his or her descendants, or ascendants
descendants or ascendants
2 when a child or descendant has accused the testator when the spouse has accused the testator of crime for
of a crime for which the law prescribes which the law prescribes imprisonment for six years or more,
imprisonment for six years or more, if the and the accusation has been found to be false
accusation
has been found groundless
3 when a child or descendant has been convicted of when the spouse has given cause for legal separation
adultery or concubinage with the spouse of the
testator
4 when a child or descendant by fraud, violence, when the spouse by fraud, violence, intimidation, or undue
intimidation or undue influence causes the testator influence cause the testator to make a will or t change
to make a will or to change one already made one already made
5 a refusal without justifiable cause to support the Unjustifiable refusal to support the children or other
parent or ascendant who disinherits such child or spouse.
descendant
6 maltreatment of the testator by word or deed by the when the spouse has given grounds or the loss of
child or descendant parental authority
7 when a child or descendant leads a dishonorable or
disgraceful life
8 Conviction of a crime which carries with it the
penalty of civil interdiction.
LEGAL OR INTESTATE SUCCESSION the other.

Intestacy – if a person dies without leaving a will, the person is Example: uncle and nephew
said to be died intestate.
 In this case, the government provides a default estate plan
under which the decedent’s estate is disposed.
 Legal or intestate succession take place:

1. If a person dies without a ill, or with a void will, or one
which has subsequently lost its validity
2. When the will does not institute an heir to, or dispose of
all the property belonging to the testator. In such case,
legal succession shall take place only with respect to the
property of which the testator has not disposed.
3. If the suspensive condition attached to the institution
of heir does not happen or is not fulfilled, or if the heir
dies before the testator, or repudiates the inheritance,
there being no substitution, and no right of accretion
takes pace
4. When the heir instituted is incapable of
succeeding, except in cases provided in the Civil Code.
Consanguinity
- is the relation of persons descending from the same stock or
common ancestor.
- these persons are known as blood relatives.
 Lineal consanguinity - which may be descending or
ascending, is that which subsists between persons of
whom one is descended in a direct like from the other,
as between son, father, grandfather, great-grandfather,
and so upwards in the direct ascending line or
descending line.
Example: father and son
 Collateral consanguinity – is that which
subsists between persons who have the same
ancestors, but who not descend (or ascend) one from
Affinity – the connection existing in consequence of
marriage between each of the married between each
of the married spouse and kindred of the other.
Representation
– is a right created by fiction of law, by virtue of which
the representative is raised to the place and degree of the
person represented and acquires the rights which the latter
would have if he were living or if he could have inherited.
 It takes place in the direct descending line, but never

in the ascending.
 In the collateral line, it takes place only in favor of
the children of brothers or sisters, whether they be of
full or half blood.
o Full Blood Relationship – is that existing
between persons who have the same father
and the same mother
o Half Blood Relationship – is that existing
between persons who have the same father,
but not the same mother, or the same mother,
but not the same father.
ORDER OF INTESTATE SUCCESSION

1. Descendants direct line (legitimate children/ descendants)
2. Ascending direct line (legitimate parents/ ascendants)
3. Illegitimate children/ descendants
4. Surviving spouse
5. Collateral relatives within the 5th degree
6. The State
Brothers,
Other
Legitimate Legitimate Illegitimate Surviving Sisters Collateral
Children/ Parents/ Children/ Relatives State
Descendants Ascendants Descendants Spouse /Nephews w/in 5th
degree
Nieces
none none
a entire excluded excluded excluded excluded
surviving surviving
1/2 if only none

b
child
excluded ½ excluded excluded excluded
surviving
1/3 each if 2 none

c excluded 1/3 excluded excluded excluded
children surviving
none none none

d entire excluded excluded excluded
none
e ½ 1/4 ¼ excluded excluded excluded
surviving
none none
f ½ ½ excluded excluded excluded
surviving surviving
none none none None

g entire excluded excluded
surviving surviving surviving surviving
none none none

h ½ ½ excluded excluded
none none none none

i entire excluded excluded
surviving surviving surviving surviving
none none none none none

j entire excluded
surviving surviving surviving surviving surviving
none none none none none none

k entire
surviving surviving surviving surviving surviving surviving
WHEN DISTRIBUTION OF HEREDITARY ESTATE TAKES PLACE

 The EXECUTOR or JUDICIAL ADMINISTRATOR has
the task of making sure that the estate tax has been
paid before he delivers a distributive share to any
party interested in the estate.
 In estate taxation, the gross estate of citizens and

residents include all their property wherever situated.
 This gross estate is allowed deductions under the

tax law; the difference called the next taxable estate is
the basis of the estate tax to be imposed.
 Once the estate is closed and a final distribution of

assets is made to the beneficiaries, the executor
transfers the assets to be held in trust to the trustee.
CHAPTER 3 2. REAL or IMMOVABLE PROPERTY – anything
GROSS ESTATE attached to the soil with permanence.
3. TAXABLE TRANSFERS – inter vivos in form but mortis
Estate Tax causa in substance
- is the tax on the RIGHT TO TRANSMIT PROPERTY
at death and on certain transfers which are made by a.)Transfer in Contemplation of Death
law the equivalent of testamentary dispositions. Donation Mortis Causa
- its object is to tax the shifting of economic benefits - is a transfer in contemplation of death.
and enjoyment of property from the dead to the living. - it takes effect upon or after the donor’s death.
LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX Factors to consider are the ff.:
1. Statute in force at the time of death of decedent  Age and state of health of the decedent at the time of
2. Accrual of tax is distinct from the obligation to pay the gift
3. Right of state to tax the privilege to transmit the estate  Length of time between the gift and the death.
vests instantly upon death.  Execution of a will within a short time of the making of
4. Tax Reform Act of 1997 the gift.
PURPOSES OF ESTATE TAX b.)Revocable Transfer

Benefit-Received Theory - is a transfer by trust or otherwise where the decedent
- it recognizes the role of the State in the distribution of may revoke, alter, amend or terminate the terms of
the estate of a decedent to the heirs whether it be enjoyment of the property.
in accordance with the decedent’s will or by operation
of law. (collection for service) Trust – is the legal relationship created when a grantor known
Privilege Theory or State Partnership Theory as the TRUSTOR, transfers property with the intention that it can
- since inheritance is a privilege granted by the State and be managed by a TRUSTEE for the benefit of a BENEFICIARY
since estate acquired and accumulated is under or beneficiaries.
the State’s protection, it is but righteous that the Proceeds of Life Insurance – insurance contract often
State collect its share. (collection of share) described as an insurance policy, is a common will-related
Ability to Pay Theory document.
- it asserts that the heirs because of the inheritance - Proceeds of insurance under policies taken out by the decedent
they received are able and capable to pay the taxes upon his life shall constitute part of the gross estate if the
due the State. (dahil may pambayad man daw) beneficiary is:
Redistribution theory a. The estate of the decedent, his executor or
- it reduces the property received by the heirs through administrator
taxes hence there is a more equitable distribution b. a third person other than the estate, his executor,
of wealth in the society (share your blessings) or administrator and the designation of the beneficiary
is revocable.
GROSS ESTATE  Under the Insurance Code, a designation of beneficiary
Decedent’s Estate - all property, wherever located, in which the is revocable unless stated expressly as irrevocable.
decedent owned beneficial interest at the time of death.
- Deed of Absolute Sale (by purchase) c.) Transfer Under A General Power Of Appointment
Deed of Extrajudicial Settlement (inherited) Power of appointment –is the right to designate the person/s
Deed of Donation (by donation) who will succeed the property of a prior decedent.
 General Power of Appointment – is on which
 Gross Estate includes any right to income that had accrued, authorizes the donee of the power to appoint
but had not yet been received as of the date of the any person to possess or enjoy the property
decedent’s death.  Limited or Special Power of Appointment – is
 It does not include mere expectancy such as an expected one which authorizes the donee of the power to appoint
inheritance. only from among a designated class or group of
persons other than himself.
 Amounts withdrawn from the deposit accounts of a Donor of the power – the person who creates the power of
decedent subjected to the 6% final withholding tax, shall appointment.
be excluded from the gross estate for purposes of Donee of the power – the person who is given the right to
computing the estate tax. exercise the power
Appointed property – the subject of the power of appointment
RESIDENT CITIZEN, NON-RESIDENT CITIZEN AND which is the property being transferred
RESIDENT ALIEN DECEDENTS
- shall include all his properties and interests therein The values to include in the gross estate shall be in
wherever situated. accordance with the ff. rule:
o If the transfer was in the nature if a bona fide sale for an adequate
The ff. shall comprise his gross estate: and full consideration in money or money’s worth, no value shall be
included in the gross estate.
1. a.) TANGIBLE PERSONAL PROPERTY –personal
o If the consideration received on the transfer was less than
property that can be seen and touched. adequate and full, the value to include in the gross estate be the
b.) INTANGIBLE PERSONAL PROPERTY – personal excess of the fair market value of the property at the time of the
property that cannot be seen and touched. decedent’s death over the consideration received.
o If there was no consideration received on the transfer as in donation
mortis causa, the value to include in the gross estate shall be the fair
market value of the property at the time of the decedent’s death.
Non-Resident Alien Decedent
- only his property located in the Philippines shall form 5. Separate property of the surviving spouse ( capital for
part of his gross estate. the husband or paraphernal for the wife)
6. Proceeds of life insurance where the beneficiary is
Gross estate shall include the ff.: irrevocably designated.
1.Franchise which must be exercised in the Philippines
2. Shares, obligations or bonds issued by any corporation or Other Exemptions:
sociedad anonima organized or constituted in the 1. Benefits received by members from the GSIS and
Philippines in accordance with its laws SSS because of death.
3. Share, obligations or bonds issued by any foreign 2. Amounts received from the Philippine and U.S
corporation 85% of the business of which is located in governments for damages during the last war.
the Philippines. 3. Benefits received by Philippine residents under
4. Shares, obligations or bonds issued by any foreign laws administered by the U.S. Veterans administration
corporation if such shares, obligations or bonds have 4. Bequests, legacies or donations mortis causa to
acquired a business situs in the Philippines social welfare, cultural or charitable organizations.
5. Shares or rights in any partnership, business or industry 5. Grants and donations to the Intramuros Administration
established in the Philippines. 6. Proceeds of group insurance policy taken out by
the company for the benefit of its employees.
Fair Market Value – is the price which a property will bring when 7. Proceeds of accident insurance
it is offered for sale by one who desires, but not obliged to sell, 8. All grants, endowments, donations or contributions
and is bought by one who is under no necessary of buying it. used actually, directly and exclusively for education
Real property
FMV(zonal value) as determined by the Commissioner
FMV as shown in the schedule of values fixed by the
provincial and city assessors, whichever is higher.
Share of stock
Unlisted shares
 Common- Book value
 Preferred- Par value
Listed shares – between the highest and lowest
quotation at date nearest the date of death, if none
is available on the death itself
Right to Usufruct, Use or Habitation, Annuity – value shall

be determined taking into account the probable life of the
beneficiary in accordance with the latest basic standard mortality
table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.
Situs of Property
 Real Property – the place where it is situated
 Tangible Personal Property – where such is actually
located at the time of the decedent’s death
 Intangible Personal Property – is the domicile or
residence of the owner
 Accounts Receivable –residence of the debtor
 Bank Deposit- Location of depository bank
 Copyright, Trademark, Patent & Franchise – place or
country where the intangible is used or exercised
EXEMPTIONS FROM ESTATE TAX

1.The merger of usufruct in the owner of the naked title.
2. The transmission or delivery of the inheritance or legacy
of the fiduciary heir or legatee to the fideicommissary.
3. The transmission from the first heir, legatee or done in
favor of another beneficiary, in accordance with the will of
the predecessor.
4. All bequests, devices, legacies or transfers to
social welfare, cultural and charitable institutions no part of
the net income of which insures to the benefit of any
individual, provided that not more than 30% of the said
bequests, legacies or transfers shall be used by such
institutions for administration purposes.
CHAPTER 4 cannot be claimed as deduction under ―claims against the
DEDUCTIONS FROM GROSS ESTATE estate‖.
I. Resident Citizen, Non-Resident Citizen And

Resident Alien Decedents
The following are the deductions from the value of gross
estate: (PRE-TRAIN)
1. Expenses, losses, indebtedness, and taxes
a. Funeral Expenses
b. Judicial Expenses of the testamentary / intestate
proceedings
c. Claims against the estate
d. Claims of the deceased against insolvent persons
e. Unpaid mortgages/indebtedness
f. Unpaid Taxes
g. Casualty losses
2. Property previously taxed or vanishing deduction
3. Transfers for public use
4. Family Home (1,000,000 to 10,000,000)
5. Standard Deduction equivalent to P1,000,000 (to 5M)
6. Medical Expenses
7. Amount received by heirs under Republic Act 4917
8. Net Share of Surviving spouse in the conjugal
partnership or community property
II.Non-Resident Alien Decedents

The following are the deductions: (PRE-TRAIN)
1. Expenses, Losses, Indebtedness and Taxes
- subject to limitation as follows
(Gross Estate, PH ÷ Gross Estate, World) × World exp,losses,indebtedness&taxes
= Deduction Allowed
2. Property previously taxed. Vanishing deduction on
property situated in the Philippines
3. Transfers for Public Use of Property situated in the
Philippines
4. Net Share of Surviving Spouse in the Conjugal
Partnership or Community Property
5. (TRAIN) Standard Deduction – P500,000
*No deduction shall be allowed unless the executor, or anyone of

the heirs, includes in the return required to be filed the value of
the decedent’s death of that part of his gross estate not
situated in the Philippines.
PROVISIONS ON THE DEDUCTIBLE ITEMS FOR

RESIDENT CITIZEN, NON-RESIDENT CITIZEN AND
RESIDENT ALIEN DECEDENTS BEFORE TRAIN
LAW:
I. Expenses, Losses, Indebtedness and Taxes
a.Funeral Expenses:
 Any unpaid portion in excess of P200,000 threshold

Actual Funeral Expenses – incurred in connection  Substantiation requirements have to be complied with
with the internment or burial of the deceased, duly supported d.Claims Against Insolvent Persons
by invoices, receipts or other evidences. - creditor dies unable to collect from the debtor because
They include: of the debtor’s insolvency
 Mourning apparel of the surviving spouse - Full amount of the claim must be included in the gross
and unmarried minor children of the estate
deceased bought and used on the occasion
of the burial
 Expenses for the deceased’s wake, including
food and drinks
 Publication charges for death notices
 Telecommunication expenses in informing
relatives of the deceased
 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.
 Interment and/or cremation fees and charges
 All other expenses incurred for the
performance of the rites and ceremonies
incident to internment
Not deductible:
 Expenses incurred after internment
 Any portion of the funeral/burial expenses
borne or defrayed by relatives/friends
b. Judicial Expenses – 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 or THOSE INCURRED IN
THE:
o Inventory of taking assets comprising the gross estate
o Their administration
o The payment of debts of the estate
o Distribution of the estate among the heirs
Expenses may include: (Any unpaid amount of the
following should be supported by the SWORN
STATEMENT OF ACCOUNT issued and signed by the
creditor)
 Fees of executor or administrator
 Attorney’s fees
 Court fees
 Accountant’s fees
 Appraiser’s fees
 Clerk hire
 Costs of preserving and distributing the estate
 Costs of storing or maintaining property of
the estate
 Brokerage fees for selling property of the estate
c.Claims Against the Estate

 Obligation contracted by the decedent when he
was alive but failed to settle or pay during his
lifetime
- Not terminated by his death
- In respect of property, may arise out of: contract,
tort or operation of law
Requisites for Deductibility of Liability/Claim/Indebtedness:

1. Represents a personal obligation of the deceased
existing at the time of death except unpaid obligations
incurred incident
to his death (unpaid funeral and medical expenses)
2. Contracted in good faith and for adequate and full
consideration in money or money‟s worth
3. Must be a debt or claim which is valid in law and
enforceable in court
4. Must not have been condoned by the creditor or the
action to collect from the decedent must not have prescribed
- The receivable which is uncollectible may be deducted c. The property must be identified as the same property
from the gross estate received from prior decedent or donor or the one
- Incapacity of the debtors to pay debts due to insolvency received in exchange therefor
must be proven d. The ESTATE TAXES on the transmission of the prior
estate or the DONOR’S TAX on the gift must
(Full Claim/Total Accounts Receivable) – (Still Collectible) have been finally determined and paid
=Amount Deductible from the Gross Estate e. No vanishing deduction on the property or the
property given in exchange therefor was allowed to
(Full Claim)x (Assets/Liability of the Debtor) the prior estate.
=Still Collectible
Limitations on Amount Deductible
e.Unpaid Mortgages 1. Value of the property – lower between the property
- exist when the decedent leaves property encumbered previously taxed or present decedent’s gross estate
by mortgage 2. Deduction for mortgage or other lien – initial value in #1
- Fair market value of the property mortgaged must be above shall be reduced by total amount paid, if any, by present
included in the gross estate in full decedent, on any mortgage or other lien on the property where a
- Deductible amount shall be to the extent that it was deduction was allowed
contracted bona fide and for an adequate and full 3. Deduction for expenses, etc. – value in #2 shall be further
consideration in money or money’s worth reduced by an amount which bears the same ratio to the
amounts allowed as deductions for expenses, losses,
If being claimed by the estate, verification must be made as to indebtedness, taxes and transfers for public use as the amount
who was the beneficiary of the loan proceeds: otherwise deductible for property bears to the value of the
1. Loan is merely an accommodation loan where the decedent’s gross estate
loan proceeds went to another person - value of the 4. Percentage of Deductions – the value in #3 is the
unpaid loan is included as a receivable of the estate FINAL BASIS/VALUE of the vanishing deduction multiplied
2. If there is legal impediment to recognize the same as by the following percentages:
receivable of the estate – said obligation/payable shall not
be allowed as deduction from the gross estate
3. In all instances, the mortgaged property, to the extent of
the decedent’s interest therein, should always form part
of the gross taxable estate
f. Unpaid Taxes
- taxes which have accrued as of the death of the
decedent but which were unpaid as of the time of
death
- This deduction will not include the following:
(meaning these are chargeable against the income of the estate)
STEP-BY-STEP Computation of the Vanishing Deduction
 Income tax upon income received after death
 Property taxes not accrued before his death
 Estate tax due from the transmission of his estate
g.Casualty Losses
– arises from:
 Fires, storms, shipwreck or other casualties
 Robbery, theft or embezzlement
– Subject to the following conditions that such losses:
1. Has no insurance
2. At the time of the filing of the return, have not
been part of deduction in ITR
3. Were incurred not later than the last day for
payment of the estate tax
– If fire loss occurred DURING THE SETTLEMENT of the
estate but BEYOND THE 6-MONTH PERIOD during
which the estate tax is supposed to be paid, loss
shall not be deductible
II.Property Previously Taxed or Vanishing Deduction III.Transfers for Public Use

– allowed to lessen the impact of SUCCESSIVE - the amount of all bequests, legacies, devises or
TAXATION of the same property within a very short transfers to or for the use of the Government of the
period due to the death of the decedent-transferee Republic of the Philippines, or any political subdivision
thereof, for exclusive public purposes
Requisites for Deductibility IV.Family Home
a. Present decedent must have died within 5 years from - Deductible amount is the current FMV of the decedent’s
the date of death of prior decedent or date of gift family home at the time of death not exceeding
b. The property with respect to which the deduction is P1,000,000
claimed must have formed part of the GROSS - In excess of the said amount shall be subject to estate
ESTATE situated in the Philippines of the prior tax
decedent or TAXABLE GIFT of the donor
- The dwelling house, including the land on which it
CHAPTER 5
is situated, where the husband and wife/head of the
family and members of their family reside as certified to NET TAXABLE ESTATE AND ESTATE TAX
by the BARANGAY CAPTAIN of the locality
- Permanency; a place to which whenever absent for NET TAXABLE ESTATE (Pre-Train Law)
business/pleasure, ONE STILL INTENDS TO RETURN - The transfer of the net estate of every descedent,
WHETHER RESIDENT OR NON-RESIDENT of the
Beneficiaries of Family Home: Philippines, as determined in accordance with the Code,
1.The husband and wife, or the head of the family shall be subject to estate tax.
2. Their parents, ascendants, descendants, including legally - The basis of the estate tax is the NET ESTATE.
adopted children, brothers and sisters whenever
the relationship be legitimate or illegitimate, who are
living in the family home and who depend upon the
head of the family for legal support
Requisites for Deductibility

1. The family home must be the actual residential home of
the decedent and his family at the time of his death, as
certified by the Barangay Captain of the locality where
the family home is situated
2. The total value of the family home must be included as
part of the gross estate of the decedent
3. Allowable deduction must be in an amount equivalent to
the current FMV of the decedent’s interest (whether
conjugal/community or exclusive property), whichever is
lower, but not exceeding P1,000,000
TRAIN LAW
V.Standard Deduction - A fixed rate of 6% based on net estate
- In the amount of P 1,000,000 without the need of
substantiation
- Does not apply to Non-Resident Alien Decedents
VI.Medical Expenses
- Incurred by the decedent, WHETHER PAID/UNPAID,
within 1 year prior to his death and duly substantiated
with receipts
- shall not exceed P500 000
VII. Amount Received by the Heirs under Republic Act

4917
- Any amount received by the heirs from the
DECEDENT’S EMPLOYER as a consequence of the
death of the DECEDENT-EMPLOYEE
- Such amount must be included in the gross estate and
deductible from gross estate
VIII. Net Share of the Surviving Spouse

- ½ share of the surviving spouse must be removed
after deducting the allowable deductions pertaining
to the conjugal or community properties included in
the gross estate
CHAPTER 6 CHAPTER 7
NET ESTATE AND ESTATE TAX: NET ESTATE AND ESTATE TAX:
UNMARRIED DECEDENT CONJUGAL PARTNERSHIP OF GAINS
NET TAXABLE ESTATE MARRIAGE SETTLEMENT- The determination of the

The NET ESTATE SUBJECT TO TAX or NET TAXABLE gross estate of the decedent who is married will depend
ESTATE is the basis for the computation of estate tax. upon the property relations between the spouses.
GROSS ESTATE Pxx The spouse may, in the marriage settlements, agree upon
LESS: DEDUCTIONS xx the regime of:
NET TAXABLE ESTATE Pxx 1.Absolute community
2.Conjugal partnership of gains
*All property comprising the gross estate and all deductions of an 3.Complete separation of property
unmarried decedent are exclusive 4.Any other regime
IF THE DECIDENT IS A RECIDENT CITIZEN, In the absence of a marriage settlement, or when the regime
NON – RESIDENT CITIZEN AND RESIDENT ALIEN agreed upon is void, the property relations of the spouses
 Gross estate shall consist of all his property wherever shall be governed by the following regime or system:
situated 1.Conjugal Partnership of Gains,
 Don’t forget the deductions especially maximum if married before August 3, 1988.
allowable deductions – FUNERAL EXPENSES, the 2.Absolute Community of Property,
computation of VANISHING DEDUCTIONS If married on or after August 3,1988
IF THE DECIDENT IS A NON - RESIDENT ALIEN CONJUGAL PARTNERSHIP OF GAINS
 Only his property situated in the Philippines shall form - Oftentimes referred to as the CPG,
part of his gross estate - it is one of the property relations between the
 The deduction his estate may claim is subject to spouses, under which the HUSBAND and WIFE
limitation place in a common fund the proceeds, products, fruits
and income from their separate properties and those
acquired by either or both spouses through their
EFFORTS or BY CHANCE
- Upon dissolution of the marriage or of the partnership,
the NET GAINS OR BENEFITS obtained by either or
both spouses shall be divided equally between them,
unless otherwise agreed in the marriage settlements.
In other words, the following are placed in a common fund:

1. the proceeds, products, fruits and income from their
separate properties; and
2. those acquired by either or both spouses through their
efforts or by chance
Gross Estate under Conjugal Partnership of Gains

1.Exclusive property of the decedent
2.Conjugal Property
EXCLUSIVE PROPERTIES OF EACH SPOUSE

(1)That which is brought to the marriage as his or her own;
(2) That which each acquired during the marriage by
gratuitous title (through pure liberality, as in donation
and testate/intestate succession);
(3)That which is acquired by right of redemption, by barter
or by exchange with property belonging to only one of
the spouses
(4)That which is purchased with exclusive money of the wife
or of the husband.
CONJUGAL PARTNERSHIP PROPERTY

(1) Those acquired by onerous title during the marriage at
the expense of the common fund, whether the acquisition
be for the partnership, or for only one of the spouses;
(2) Those obtained from the labor, industry, work or
profession of either or both of the spouses;
(3) The fruits, natural, industrial, or civil, due or
received during the marriage from the common
property, as well as the net fruits from the exclusive
property of each spouse;
(4)The share of either spouse in the hidden treasure
CHAPTER 8
which the law awards to the finder or owner of the
property where the treasure is found; NET ESTATE AND ESTATE TAX:
(5) Those acquired through occupation such as fishing or ABSOLUTE COMMUNITY OF PROPERTY
hunting;
(6)Livestock existing upon the dissolution of the partnership In case the future spouses agree in the marriage settlements that
in excess of the number of each kind brought to the the system of absolute community shall govern their property
marriage by either spouse; and relations during marriage, there are provisions in the Family
(7)Those which are acquired by chance, such as winnings Code that shall apply.
from gambling or betting. However, losses there
from shall be borne exclusively by the loser-spouse. NET TAXABLE ESTATE
Net taxable estate is the basis for the computation of estate
PROCEEDS OF LIFE INSURANCE tax. Pro-Forma computation (Pre TRAIN) is shown below.
1. If policy was taken BEFORE marriage –
a. And premiums were FULLY PAID by the
decedent-spouse, proceeds are the exclusive
property of the decedent-spouse.
b. And premiums were FULLY PAID by the
surviving-spouse, proceeds are the exclusive
property of the surviving-spouse.
c. And premiums were PARTLY PAID with
exclusive and conjugal fund during the
marriage, proceeds are the partially exclusive
and conjugal property
2. If policy was taken AFTER marriage –
- proceeds are CONJUGAL because it is
presumed that property acquired during
message is conjugal.
- ½ share of the surviving spouse in the
proceeds is EXCLUDED in the taxable gross
estate.
CLAIMS AGAINST INSOLVENT PERSON

The inclusion of claims against insolvent person in the
gross estate of the decedent spouse as either exclusive or
conjugal property will depend on the nature of the claim
whether it is for an exclusive or for a conjugal property.
DEDUCTIONS FROM GROSS ESTATE

1. Expenses, Losses, Indebtedness, and Taxes (ELIT)
a. Funeral expenses
b. Judicial expenses
c. Claims against the estate
d. Claims of the deceased against insolvent persons
e. Unpaid mortgage
f. Unpaid Taxes
g. Casualty Losses
2. Property Previously Taxed (Vanishing deduction)
3. Transfers for Public Use
4. Family Home GROSS ESTATE
(If exclusive – apply yung maximum of 1M *PRETRAIN The gross estate of a married decedent under the system
or maximum of 10M *TRAIN of absolute community during the marriage shall be composed
If conjugal – must be ½ of the share only BUT of the following:
make sure it follows the allowable maximum limit) 1.Exclusive Property of the Decedent
5. Standard Deduction – P1 million (P5,000,000 – TRAIN) 2.Absolute Community (Communal) Property
6. Medical Expenses
7. Amount received by heirs under RA 4917 EXCLUSIVE PROPERTY OF THE DECEDENT
8. One half net share of the surviving spouse in the conjugal • It includes the property acquired during the marriage by
partnership property. gratuitous title by either spouse, and the fruits as well
the income thereof, in any, unless it is expressly provided by
the donor, testator or grantor that they shall form part of
the communal property;
• Property for personal and exclusive use of either spouse;
however, jewelry shall form part of the communal property;
• Property acquired before the marriage by either spouse who
has legitimate descendants by a former marriage, and
the fruits as well as the income, if any, of such property.
ABSOLUTE COMMUNITY (COMMUNAL) PROPERTY
CHAPTER 9
 Unless otherwise provided in the Family Code of in
the marriage settlements, the COMMUNAL TAX CREDIT FOR FOREIGN ESTATE TAX
PROPERTY shall consist of all the property owned by
the spouses at the time of the celebration of the Tax Credit – refers to the taxpayer’s RIGHT TO DEDUCT FROM
marriage or acquired thereafter. THE TAX DUE amount of tax he/it has paid to a foreign country
 Property acquired during the marriage is presumed to subject to limitations.
belong to the community, unless it is proved that it
is one of those excluded therefrom. TAX DEDUCTION VS. TAX CREDIT
Tax deduction – is deduction from GROSS ESTATE.
Proceeds of Life Insurance Tax Credit – is a deduction from Philippine ESTATE TAX itself.
- Proceeds of life insurance policy payable to the
insured’s estate may be communal or exclusive in While there are numerous taxes that may be deducted from
character. gross estate, there is ONLY this FOREIGN ESTATE TAX that
- The time when the policy was taken and the source of may be claimed against Philippine estate tax.
the premium payment shall determine whether the
proceeds are to from part of the gross estate of the ESTATE ENTITLED TO TAX CREDIT
decedent spouse. 1.Resident citizens;
2.Non-resident citizens;
1.If policy was taken before marriage 3.Resident alien.
a. And premiums were FULLY PAID by the decedent-
spouse, proceeds are the exclusive property of The estate tax payable is computed based on the net taxable
the decedent-spouse. estate before tax credit may be deducted.
b. And premiums were FULLY PAID by the surviving-
spouse, proceeds are the exclusive property of Estate Tax Payable xxx
the surviving-spouse. Tax Credit for Foreign Taxes Paid (xxx)
c. And premiums were PARTLY PAID with exclusive Phil. Estate Tax Due xxx
and communal (conjugal) fund during the marriage,
proceeds are the partially exclusive and communal Foreign Estate Taxes
(conjugal) property – shall mean taxes proper only.
2.If policy was taken during the marriage – Interest, surcharge or penalty relative to
- proceeds are communal ( or conjugal) because it is tax delinquency shall not be credited.
presumed that property acquired during the
marriage is communal ( or conjugal). LIMITATIONS ON CREDIT OF FOREIGN ESTATE TAXES
- In this case, the one-half share of the surviving The amount of tax credit shall be subject to the following
spouse in the proceeds is EXCLUDED in the limitations:
taxable gross estate.
1.For estate taxes paid to one foreign country.
CLAIMS AGAINST INSOLVENT PERSON - The amount of the credit shall NOT EXCEED the same
The inclusion of claims against insolvent person in the proportion of the tax against which such credit is taken,
gross estate of the decedent spouse as either exclusive or which decedent’s net estate within such country
communal property will depend on the nature of the claim- - Taxable under the Tax Code bears to the entire net
whether it is for an exclusive or for a communal property. estate.
- Expressed as a formula:
DEDUCTIONS FROM GROSS ESTATE
1. Expenses, Losses, Indebtedness, and Taxes (ELIT) Net estate (per foreign country) X Phil. = Tax Credit
a. Funeral expenses Entire Net Estate Estate Tax
b. Judicial expenses
c.Claims against the estate 2.For estate taxes paid to two or more foreign countries.
d. Claims of the deceased against insolvent - The total amount of the credit shall NOT EXCEED the
persons same proportion of the tax against which such credit
e. Unpaid mortgage is taken, which the decedent’s net estate situated
f. Unpaid Taxes outside
g. Casualty Losses - The Philippines taxable under the Tax Code bears to the
2. Property Previously Taxed (Vanishing deduction) entire net estate.
3. Transfers for Public Use - Expressed as formula:
4. Family Home
(If exclusive – apply yung maximum of 1M *PRETRAIN Net estate (per foreign country) X Phil. = Tax Credit
or maximum of 10M *TRAIN Entire Net Estate Estate Tax
If conjugal – must be ½ of the share only BUT
make sure it follows the allowable maximum limit) The ALLOWABLE TAX CREDIT shall be lower amount between
5. Standard Deduction – P1 million (P5,000,000 – TRAIN) the tax credit limit computed under limitation no. ―1‖ and
6. Medical Expenses that computed under limitation no. ―2‖.
7. Amount received by heirs under RA 4917
8. One half net share of the surviving spouse in the
conjugal partnership property. LIMITATION 1 – solve allowed Tax Credit per country then add
LIMITATION 2 – Add together the entire state in other countries
then solve for the allowed Tax Credit
*then compare kung ano mas mababa limitation 1/2
CHAPTER 10
ADMINISTRATIVE PROVISIONS
DUTIES OF CERTAIN PERSONS

 No judge shall authorize the executor or judicial
administrator to deliver a distributive share to any party
interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown.
 Registers of Deeds shall not register in the Registry of
Property any document transferring real property or
real rights therein or any chattel mortgage, by way of gifts
inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the
estate tax has been paid is shown.
 It shall immediately notify the Commissioner, Regional
Director, Revenue District Officer or Revenue
Collection Officer or Treasurer of the
City/Municipality where their offices are located, of
the nonpayment of tax discovered.
 Any lawyer, notary public or government officer, who, by
reason of his official duties, intervenes in the preparation
or acknowledgement of documents regarding partition
or disposal of donation inter vivos or mortis causa, legacy
or inheritance, shall furnish the Commissioner,
Regional Director, RDO or RCO of the place where he
may have his principal office, with copies of documents
and any information which may facilitate the collection of
estate tax.
 A debtor of the deceased shall not pay his debts to the
heirs, legatee, executor or administrator of his creditor,
unless the certification of the Commissioner that the estate
tax had been paid is shown. But he may pay his debt without
said certification if the credit is included in the inventory of
the estate of the deceased.
 Any person concerned shall not transfer to any new owner
in the books of any corporation, sociedad anonima,
partnership, business or industry organized or established in
the Philippines, any share, obligation and bond or right by
way of gift inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the estate
tax had been paid is shown.
CHAPTER 11 - Donations cannot comprehend future property.
BASIC CONCEPTS OF DONATION - Donations of future property shall be governed by the
provisions on the TESTAMENTARY SUCCESSION and the
GIFT – intentional transfer of property from the transferor out of FORMALITIES OF WILLS
generosity.
 A person can arrange to make a gift DURING LIFE, 3.CAUSE
AT THE MOMENT OF DEATH or BY WILL AFTER - an act of liberality although it may also beon account of
DEATH. the donee’s merits or servicesnot constituting a demandable
debt or of aburden which is less than the value of thething
REASONS WHY A PERSON MAKES A GIFT DURING LIFE given
RATHER THAN BY WILL AFTER DEATH: - Donative intent is not at all essential.
 To avoid estate taxes
4.FORMALITIES
 To have absolute assurance that the intended
- May be made orally or in writing.
done receives the gift
- An oral donation requires the simultaneous delivery, actual or
DONATION
constructive of the thing or of the document representing the right
- act of liberality whereby a person dispose gratuitously of a thing
donated
or right in favor or another, who accepts it
- Personal property exceeds five thousand (5,000) pesos, the
 Donor - person who disposes of the thing or right
donation and acceptance is made in writing. Otherwise, the
 Donee - one who accepts the thing or right
donation shall be VOID.
 there is donation when:
- In order for a donation of an immovable may be VALID, it
 a person gives to another a thing, or right on account of must be made in a public document.
the latter’s merits or on account of the services
rendered by him to the donor, provided they do not
PERSONS WHO MAY GIVE OR RECEIVE A DONATION
constitute a demandable debt
1. All persons who may contract and dispose of their property
 When the gift imposes upon the done a burden which is
may make a donation
less than the value of the thing given, there is also
2. All those who are not specifically disqualified by law
a donation.
 GUARDIANS and TRUSTEES cannot donate the
 does not include a donation of PERSONAL SERVICE (e.g.,
property entrusted to them.
facial) or a donation of a RIGHT TO USE PROPERTY (e.g,
 MINORS and others who cannot enter in a contract may
parking space).
become donees but acceptance shall be done through
their parents or legal representatives
KINDS OF DONATION
 Donations made to CONCEIVED AND UNBORN
CHILDREN may be accepted by those persons
1.DONATION INTER VIVOS who would legally represent them if they were already
- one made between living persons and which is perfected born.
from the moment the donor knows of the acceptance of the
 Donations made to incapacitated persons shall be
donee.
VOID.
- SUBJECT TO DONOR'S TAX  No person may give or receive, by way of donation,
- shall take effect during the lifetime of the donor. more than he may give or receive by will - the
* the fruits of the property from the time of the acceptance of donation shall be INOFFICIOUS in all that may
the donation, shall pertain to the done, unless the donor exceed this limitation.
provides otherwise.  Husband and wife are considered SEPARATE
AND DISTINCT (for the purposes of donor’s tax)
2.DONATION MORTIS CAUSA
except:
- donations which are to take effect upon the death of the
 if what was donated is a conjugal or;
donor and partake of the nature of the testamentary
provisions governed by the rules established in the Title of  community property and only the husband
Succession under the Civil Code. signed the deed of donation.
 Husband and wife cannot donate any conjugal or
ELEMENTS OF DONATION community property without the consent of the other.
 Each spouse may, without the consent of the other,
1.CONSENT make moderate donations for charity or on occasions of
- perfected only from the moment the donor knows of the family rejoicing or family distress.
 Husband and wife may make a joint donation of
acceptance by the donee.
conjugal or community property.
- Vitiated consent - VOIDABLE
- The donee must accept the donation personally, through an
EXEMPT OF DONATIONS UNDER SPECIAL LAWS
authorized person with a special power for the purpose, or with a
Donations made to the following are exempt from donor’s tax:
general and sufficient power; otherwise, the donation shall be
VOID 1. International Rice Research Institute
- ACCEPTANCE must be made during the lifetime of the donor 2. Philippine-American Cultural Foundation
and donee. 3. Ramon Magsaysay Award Foundation
4. Philippine Inventor’s Commission
2.OBJECT 5. Integrated Bar of the Philippines
- An ordinary donation may comprehend all the present property 6. Development Academy of the Philippines
of the donor, or part thereof, provided he reserves, in full 7. Aquaculture Department of the Southeast Asian
ownership or in usufruct, sufficient means for the support of Fisheries Development Center of the Philippines
himself, and of all relatives who, at the time of the donations, are 8. National Social Action Council
by law entitled to be supported by the donor. 9. Intramuros Administration
10. Southern Philippines Development Foundation
11. National Museum
12. National Library
13. National Historic Institute
14. Task Force on Human Settlement consisting of
equipment, materials and services
15. Public Schools in accordance with the ―Adopt-a-School
Act of 1998‖ (R.A. 8525)
16. Philippine Red Cross
VOID DONATIONS
1. Those made between persons who were guilty of ADULTERY
or CONCUBINAGE at the time of donation;
2. Those made between persons found guilty of the SAME
CRIMINAL OFFENSE, in consideration thereof;
3.Those made between the spouses DURING THE MARRIAGE,
except moderate gifts which the spouses may give each other on
the occasion of any family rejoicing.
4. Those made between persons living together as husband and
wife WITHOUT A VALID MARRIAGE.
5. Those made to a public officer or his wife, descendants and
ascendants by reason of his office.
DONOR‟S TAX
- is a tax imposed on the gratuitous transfer of property between
two or more persons who are living at the time of transfer.
- an EXCISE (PRIVILEGE) TAX
- It is a taxed imposed on the transfer of property way of gift
inter vivos.
- It is a tax imposed on the right or privilege of the donor
to make a gift.
- Shall apply whether the transfer is in trust and whether the
property is real or personal.
- Shall not apply unless and until there is a completed gift.
- The TRANSFER OF PROPERTY BY GIFT is perfected from
the moment the donor knows of the acceptance by the donee;
- it is completed by the delivery, either actually or constructively,
of the donated property to the donee.
Rev. Reg. 12-2018

 An immovable donation may be VALID if it is made in
a public Deed of Donation or in a separate public
document and shall be done during the lifetime of the
donor.
 If the acceptance is made in a separate instrument,
the donor shall be notified thereof.
PURPOSE OF DONOR‟S TAX

1.AVOIDANCE OF ESTATE TAX.
- Donor’s tax supplements the estate tax.
- Avoidance of estate tax is prevented by taxing
donations inter vivos.
2.AVOIDANCE OF INCOME TAX
- Donor’s tax compensates for the loss of income tax.
- Avoidance of income tax is done by splitting
income among numerous donees to escape the
effects of progressive income tax rates.
CHAPTER 12 Non- Resident Alien Donor:
GROSS GIFT (Only the properties located in the Philippines)
1. Real Property within the Phil.
Gross Gift - the property or right donated subject to donor’s tax 2. Intangible and Tangible Personal Property within Phil.
before any deductions. Reciprocity Rule: Intangible Personal Property of a non-
resident alien donor. It shall be exempt from Donor’s Tax if either
Resident Citizen, Non-resident Citizen or Resident Alien of one or two conditions are present:
Donor: 1. The country where the said donor is a CITIZEN AND
1. Real or Immovable Property within and without the RESIDENT does not impose a transfer tax on
Philippines. intangible personal property of Filipinos not residing in
2. Tangible Personal Property within and without the that country.
Philippines. 2. The country where the said donor is a CITIZEN AND
3. Intangible Personal Property within and without the RESIDENT allows a similar exemption from transfer tax on
Philippines. This includes: intangible personal property of Filipinos residing in that
a) Franchise which must be exercised in the country.
Philippines;
b) Shares, obligations, or bonds issued by any Summary:
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its
laws; Non- Resident Alien Donor:
c) Shares, obligations or bonds issued by any foreign If the donor was s non-resident foreign corporation, its
corporation 85% of the business of which is located REAL or PERSONAL PROPERTY so transferred which are
in the Philippines; OUTSIDE THE PHILIPPINES shall not be included as part of
its gross gift.
d) Shares, obligations, or bonds issued by any foreign
corporation is such shares, obligations or VALUATION OF GROSS GIFT
bonds have acquired a business situs in the 1. Valuation Date – at the time the gift is made.
Philippines; and 2. Basis of Valuation – FMV of property donated. In case of
e) e. Shares or rights in any partnership, business or Real Property valuation is the FMV or zonal value as
industry established in the Philippines. determined by the commissioner, or the FMV as shown in
4. Where a PERSONAL PROPERTY classified as the schedule of values fixed by the city or provincial
assessor whichever is higher.
CAPITAL ASSET is transferred for less than
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 be deemed a gift, and shall
be included in computing the amount of gifts
made during the calendar year.
The TRAIN Law amends Section 100 of the NIRC providing that
the sale, exchange or other transfer of property in the ordinary
course of business shall be considered as made for an adequate
and full consideration in money or money's worth:
Section 100. Transfer for Less Than Adequate and Full
Consideration. — 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 by this Chapter, 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 bona fide, 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.
CHAPTER 16 CHAPTER 17
NATURE AND CONCEPT OF VAT ON SALE OF GOODS OR PROPERTY
BUSINESS TAXES
Value Added Tax – tax on the value added to purchase price
 To engage in business means to employ or involve or cost in sale or lease of goods, property or services in the
oneself in employment, occupation, profession, or course of trade or business.
commercial activity for gain or livelihood.  Imposed on the value added on each stage of
 Under the Tax Code, the three major business internal distribution
revenue taxes are:  An indirect tax; may be shifted to buyer, transferee or
 Value-added taxes; lessee
 Percentage taxes; and
 Excise taxes RA 9337 – VALUE-ADDED TAX REFORM ACT
Every person who, in the course of TRADE OR BUSINESS,
Business Taxes – are imposed upon ONEROUS SELLS, BARTERS, EXCHANGES, LEASES goods or property
TRANSFERS such as sale, barter or exchange. or renders services is subject to VAT if aggregate amount of
 But a person may, although not engaged in business, his actual or expected gross sales/receipts exceeds
be subject to a business tax such as VAT on importation P1,919,500.
of goods not for business use.
 ”in the course of trade or business”- means the
Value-Added Tax – a tax on CONSUMPTION LEVIED on the regular conduct or pursuit of a commercial or an economic
sale, barter, exchange or lease of goods or properties and activity , including incidental transactions thereto, by any
services in the Philippines and on importation of goods into the person whether or not the person engage therein is non-
Philippines. stock, nonprofit private organization or gov’t. entity.
 The SELLER is the one statutorily liable for the payment  No automatic exemption from VAT registration requirements of
of the tax but the amount of the tax may be shifted or LGUs. (registration for being VAT taxpayer)
passed on the BUYER, TRANSFEREE OR LESSEE of  Any business with gross sales or receipt not exceeding
the goods, properties or services. P100,000 during any 12-month period – considered
 In the case of importation, the IMPORTER is the one principally for livelihood and not in the course of business.
liable for the value-added tax.  Non Resident Foreign Person’s Service rendered in the
 The system of tax shifting is an effective tool in the Philippines – considered rendered in the course of trade
creation of an AUDIT TRAIL which is vital for tax or business even if performance or service is not regular.
administration and enforcement.  Services performed outside the Philippines – not subject to vat.
 VALUE-ADDED TAX and EXCISE TAX may be imposed ILLUSTRATION 1 – Nonprofit org is exempted to income tax
simultaneously on the manufacturer and importation of but not to VAT Tax.
products. ILLUSTRATION 2 – Sale of company ng PPE to employee
 VALUE-ADDED TAX and PERCENTAGE TAX cannot be is subject to VAT
imposed at the same time. It is either that the sale is subject ILLUSTRATION 3 – si M Co. (domestic) nakipartner sa NFRC.
to VAT, or subject to percentage tax, or not subject to any of May service sila na irerender pero sa ibang bansa, kaya
the two taxes at all. not subject to any tax here.
ILLUSTRATION 4 – Tax exemption to non stock corp covers only
income taxes for which said corporations are directly liable.
Kapag yung vat is indirectly passed from supplier or seller, kapag
tinanggap mo yun, it is not tax expense for it but additional cost
na.
VAT ON SALE OF GOODS OR PROPERTY

All tangible or intangible objects that are capable of pecuniary
estimation & shall include the following:
1. Real property held for sale or for lease in the ordinary
course of business;
2. The right or the privilege to use patent, design,
copyright, design, plan, secret formula, goodwill or other
like property or right;
3. The right or the privilege to use in the Philippines of
any industrial, commercial or scientific equipment;
4. The right to use motion picture films, tapes & discs; and
5. Radio, television, satellite transmission and cable
television time.
ILLUSTRATION 5 – May trustor ng pera sa bank. Yung

bank pinambili itong property. Si trustor gusto kunin yung
pinawian kay bank pero yung property nalang. Not subject to
VAT ito kasi the event is not primarily sale to customers and
walang consideration na binigay. Only acknowledgement and
confirmation of the legal title na ipapasa kay trustor.
ILLUSTRATION 6 – Sale of real property held primarily for sale
to customers or held lease in the ordinary course of business
of the seller shale be subject to 10% VAT based on selling
price.
GROSS SELLING PRICE- total amount of money or its

equivalent which the purchaser pays or is obligated to pay the
seller in consideration of sale of goods excluding the VAT.
 Excise tax if any, on such goods or property shall
form part of the gross selling price. Sales Returns
and Allowances are deductions from gross selling
price to arrive at tax base.
TAX BASE & RATES

Pre-TRAIN: there shall be levied, assessed and collected on
every sale, barter or exchange or transactions “deemed sale” of
taxable goods or property, VAT equivalent to 12% of the gross
selling price or gross value in money of the goods or property
sold, bartered or exchanged, or deemed sold in the Philippines.
TRAIN Law: retains the 12% rate & deletes the phrases “or
transactions “deemed sale”’ and „or deemed sold in the
Philippines,‟ and adds the phrase „such tax to be paid by the
seller or transferor‟ towards the end.
VAT ZERO-RATE
TRANSACTIONS DEEMED SALE & are subject to VAT: SALES BY VAT-REGISTERED PERSON SUBJECT TO ZERO-RATE:
1. Transfer, use/ consumption not in the ordinary course of business of  Export Sales;
goods/ property originally intended for sale/ use in the course of  Foreign Currency Denominated Sale – sale to non-resident of goods
business except those mentioned in section 149(automobiles) and 150 (non-
2. Distribution/ transfer to: essential goods)
 shareholders/ investors as share in the profits of VAT TRAIN Law- deletes foreign currency denominated sale in sec. 106
registered persons. (2) of the NIRC
 Creditors in payment of debt/ obligation.  sale of good or property to persons or entities whose exemption under
3. Consignment of goods if actual sale is not made within 60days special law or international agreements to which the Philippines is a
following the date such goods where consigned; and signatory – Asian Development Bank, International Rice Research
4. Retirement from/ cessation of business, with respect to inventories Institute – subject such sale to zero-rate
of taxable goods existing as of such retirement/ cessation.
EXPORT SALE means:
SALE OF REAL PROPERTIES subject to VAT (Based on New 1. Sale and actual shipments of goods from the
Thresholds) Philippines to a foreign country irrespective of any shipping
1. Sale of residential lot with gross selling price exceeding P1,919,500 arrangement and paid for in acceptable foreign currency or its
2. Sale of residential house & lot or other residential dwellings with equivalent in goods or services and accounted for in accordance
gross selling price exceeding P3,199,200, where the instrument of with the rules & regulations of BSP
sale is executed on or after Jan. 1, 2012 shall be subject to 12% vat. 2. Sale of raw materials or packaging materials to a non-
*Sale executed & notarized on or after Nov 5, 2005 but prior to Jan. resident buyer for delivery to a resident local export-oriented
1, 2012- appropriate threshold amount is P1,500,000 & P enterprise to be used in manufacturing, processing or repacking in
2,500,000; excess thereof shall be subject to 10% vat starting Feb. the Philippines of the said buyer’s goods and paid for in acceptable
1, 2006, to 12 foreign currency or its equivalent in goods or services and
% vat, effective 2012. accounted for in accordance with the rules & regulations of BSP
*includes sale, transfer or disposal within 12-month period of 2 adjacent 3. Sale of raw materials or packaging materials to export-
residential lot in favour of 1 buyer from the same seller. oriented enterprise whose export sales exceeds 70% of the
3. Instalment sale of residential house & lot or other residential dwellings total annual production.
with gross selling price exceeding P1,000,000 4. Sale of gold to BSP if the seller is a VAT-registered taxpayer
4. Real estate investment trust (REIT) shall be subject to VAT on its gross
sales from any disposal of real property.
TRAIN Law- item no. 4 was reclassified as among Exempt
Transactions under Sec. 109(1)(Z)
5. Those considered export sales under EO 226,

(Omnibus Investments Code of 1987 and other special laws; and
TRAIN Law- subparagraphs 3, 4 & 5 above shall be subject to
12% vat and no longer be considered export sales subject to
0% VAT rate upon satisfaction of conditions:
(1) The successful implementation of an enhanced VAT refund system-
grants refund of creditable input tax within 90 days from the filing of the
VAT refund application with the bureau. All applications filed in Jan. 1,
2018 shall be processed & must be decided within 90 days from filing
of vat refund application.
(2) All pending VAT refund claims as of Dec. 31, 2017 shall be fully
paid cash by Dec. 1, 2019.
Provided, DOF shall establish VAT refund center in BIR & BOC
that will handle the processing & granting of cash refunds & creditable
input tax
5% of total VAT collection of BIR & BOC from immediately preceding
year- automatically appropriated annually; shall be treated as special
account in the General Fund/ as a trust receipts for the purpose
of funding claims for VAT refund.
- Any unused fund shall revert to the General Fund
BIR & BOC shall be required to submit Congressional Oversight

Committee on the Comprehensive Tax Reform Program
(COCCTRP) – a quarterly report of all pending claims for refund & any
unused funds.
THE FF. ARE CONSIDERED CONSTRUCTIVELY EXPORTED EVEN

WITHOUT ACTUAL EXPORTATION:
a. sales to bonded manufacturing warehouses of export oriented
manufacturers
b. sales to export processing zones
c. sales to enterprises duly registered & accredited with the Subic Bay
Metropolitan Authority
d. sales to registered export traders operating bonded trading warehouses
supplying raw materials in the manufacture of export products
e. sales to diplomatic missions & other agencies & or instrumentalities
granted tax immunities, of locally manufactured assembled or
repacked products whether paid for in foreign currency or not
6. The sale of goods, supplies, equipment & fuel to persons engaged
in international shipping/ air transport operations . Provided, that
the same is limited pertaining to the transport of goods & passengers
from a port in the Philippines directly to a foreign port / vice versa,
without docking at any port in the Philippines unless to unload/ load
passengers or cargoes.
TRAIN Law wordings- The sale of goods, supplies equipment & fuel to
persons engaged in international shipping / air transport
operations. Provided, that the goods, supplies, equipment & fuel shall
be used for international shipping/ air transport operations.
GROSS SELLING PRICE unreasonably lower than the actual revenue collection officers/ deputized city or municipal treasurers
market value- if it is lower by more than 30% of the actual before transporting them from one place of production.
market value of the same goods of the same quality & quantity; Basis: payment shall be determined by applying vat rate of 12%
- Commissioner of BIR shall determine the appropriate tax on corresponding value per cubic meter of the different species
base in such case. of naturally grown & planted products in accordance with specific
 If the gov’t is one of the parties, the output vat shall schedule.
be based on the actual selling price.
ADVANCE VAT- ON SALE OF FLOUR MILLED FROM
 For transaction deemed sale, output tax shall be
IMPORTED WHEAT
based on market value at the time of occurrence of
- Revenue Regulation 29-2003 aim to level the playing fields
the transaction.
among players in the flour-milling industry, to encourage
 In case of retirement or cessation of business, tax base
proper declaration and payment of taxes for efficiency in tax
shall be the lower between acquisition cost or the
administration.
current market value.
Flour miller- a person engaged in the milling of imported
GROSS SELLING PRICE wheat (directly imported or purchased from importer) to produce
flour as finished product.
- basis of VAT; it is the amount higher between selling price
Wheat trader-a person who is engaged in importing/ buying and
stated in the document or fair market value.
selling of imported wheat.
*if VAT is not billed separately, the selling price stated in the
Requirement to Pay Advance VAT- vat shall be paid by the
sales document shall be deemed to be inclusive of VAT
flour miller prior to the release from BOC custody.
* If gross selling price is based on fair market/ zonal value of
- purchases by flour miller from traders shall also be subject to
the property, the fmv is deemed exclusive of vat.
advance tax & shall be paid by the flour miller prior to its
delivery
Formula for VAT in case of sale of real property on
- importation of wheat by any trader shall still be exempt from vat.
installment plan where the zonal/fmv is higher than
However for monitoring purposes, the importer shall be required
the consideration
𝐴𝑐𝑡𝑢𝑎𝑙 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 (𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑜𝑓 𝑣𝑎𝑡) to secure ATRIG (Authority to Release Imported Goods) from
𝐴𝑔𝑟𝑒𝑒𝑑 𝑐𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 (𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑜𝑓 𝑣𝑎𝑡) BIR.
x zonal value
x12% BASIS for Determining the Amount of Advance Payment
of VAT
SALE ON INSTALLMENT PLAN Amount of advance VAT payment shall be determined by
- sale of property by real estate dealer; initial payment of which in applying 12% rate on the tax base as follows:
the year of sale do not exceed 25% of gross selling price For wheat imported by flour millers-75% of the sum of:
-seller is subject to output vat on the installment payment (a) Invoice value X currency exchange rate on payment date
(b) Estimated custom duties & other charges prior to the release of
received actually/ constructively; buyer can claim the input tax in imported wheat from customs custody, except for the advance VAT;
the same period (c) 5% of the sum of (a) and (b).
Total (a + b + c )
SALE ON DEFERRED PAYMENT BASIS X 75%
Tax Base
- initial payment of which in the year of sale exceed 25% X 12%
of gross selling price. Advance Vat
-transaction price is treated as cash sale; entire amount is For wheat purchased from traders- 75% of the sum of:
thereby taxable on month of sale. (a.) Invoice value;
(b.) Estimated freight expenses; and
Initial Payments (c.) 5% mark-up on the sum of (a) and (b)
- payment received by the seller before or upon execution of the
instrument of sale Advance VAT- Sale of Jewelry, Gold, & Other Metallic
-covers any down payments made & includes all payments Minerals to NRA-NETB or NRFC
actually or constructively received during the year of sale, the Revenue Regulation 5-2013 prescribed the tax treatment of the
aggregate of which determines the limit set by law. sale of jewelry, gold & other metallic minerals to non-resident
-mortgage is not included unless such mortgage exceeds the alien individual not engaged in trade or business within the
cost/ other basis of the property to the seller, in which case the Philippines, or to non-resident foreign corporation.
excess is considered part of initial payment.
Sellers of jewelry, gold & other metallic minerals- required to pay
business tax (VAT or percentage tax), income & excise tax if applicable
Liquidating Dividends in advance through Revenue Collection Officer of RDO having
jurisdiction over the place where transaction occurs, regardless whether
- liquidating dividend is not sale subject to income tax, CWT,
the sellers are duly registered with the BIR:
DST a. Advance payment of 12% VAT on gross selling price, or
- a ―deemed sale‖ transaction for vat purposes percentage tax of 3% of gross sales;
 stockholder’s part- any liquidating gain shall be b. Advance payment of income tax at the rate of 5% on
treated as capital gain, subject to regular income gross payment:
tax rate under the tax code, not CGT. c. Actual payment of 2% excise tax based on either the actual
market value of the gross output at the time of removal, in the
ADVANCE VAT- ON TRANSPORT OF NATURALLY GROWN case of those locally extracted; or the value used by VOC in
& PLANTED TIMBER PRODUCTS computing tariff & duties, in the case of importations. Actual market
Requirement to Pay Advance VAT- shall be paid by the value shall refer to the actual consideration paid by the buyer to
the seller.
owner/seller to the BIR through the authorized agent banks/
Advance payment shall be credited against actual business tax
& income tax due from such persons for the taxable period for
which such advance payments were remitted to the BIR.
CHAPTER 18 6. PERSONS ENGAGED IN MILLING, PROCESSING,
VAT ON SALE OF SERVICES AND MANUFACTURING OR REPACKING GOODS FOR
USE OR LEASE OF PROPERTY OTHERS;
Miller- a person engaged in milling for others (except

SALE or EXCHANGE of SERVICES – performance of all kinds palay into rice, corn into corn grits, and sugarcane into raw
of services IN THE PHILIPPINES for others for a fee, sugar), is subject to VAT on sale of services.
remuneration or consideration, including those performed
or rendered by:
 If miller is paid in cash for his services, VAT shall be
1. CONSTRUCTION and SERVICE CONTRACTORS; based on his gross receipts for the month or quarter.
2. STOCK, REAL ESTATE, COMMERCIAL, CUSTOMS and  If he receives a share of the milled products instead
IMMIGRATION BROKER; of cash, VAT shall be based on the actual market
3. LESSORS OF PROPERTY, whether personal or real ; value of his share in the milled products.
 Sale by the owner or the miller of his share of the milled
 ALL FORMS OF PROPERTY FOR LEASE, whether real product (except rice, corn grits and raw sugar) shall be
or personal, are liable to VAT except those that are subject to VAT.
VAT- exempt.
7. PROPRIETORS, OPERATORS OR KEEPERS OF
Real Estate Lessor- any person engaged in the business of HOTELS, MOTELS, REST HOUSES, PENSION HOUSES,
leasing or subleasing real property. INNS, RESORTS, THEATERS AND MOVIE HOUSES;
 Lease of property shall be subject to VAT regardless of the
place where the contract of lease or licensing TRAIN LAW
agreement was executed if the property leased or used
Deletes ― theaters and movie houses‖
is located in the Philippines.
 VAT on rental and/or royalties payable to non-resident  Hotels, resorts and other establishments which do
foreign corporations or owners for the sale of services and not regularly allow SHORT-TIME (less than 24 hours)
use or lease of properties in the Philippines shall be based stay in their establishments are not covered by this RMO
on the contract price agreed upon by the licensor and 16-2010
the licensee.  Motels and other similar establishments shall submit to the
 The licensee shall be responsible for the payment of VAT RDO where they are registered a SWORN
on such rentals and/or royalties in behalf of the non-resident DECLARATION. The information to be included in the
foreign corporation or owner in the manner prescribed. Sworn Declaration includes the room type, number of
rooms and rate per room.
Non-Resident Lessor/Owner – any person, natural or juridical,  The RDO in preparing the monthly OCCUPANCY
an alien, or a citizen who establishes to the satisfaction of the TURNOVER ANALYSIS REPORT (OTAR) per motel will
COMMISSIONER OF INTERNAL REVENUE. consider the following:
 In a lease contract, the advance payment by the lessee a. For peak periods covering the months of January to
may be: February, April to June and December, the
a. A loan to the lessor from the lessee minimum turnover/day of a particular establishment
b. An option money for the property shall be set at a constant factor of 2.
c. Security deposit b. For lean periods covering the other remaining months
d. Prepaid rental of the year, the minimum turnover/day shall be 1.50.
- If ADVANCE PAYMENT (a,b,c) is loan to lessor, NOT
SUBJECT TO VAT
- If security deposit is applied to rental – VAT 8. PROPRIETORS OR OPERATORS OF RESTAURANTS,
 REAL ESTATE INVESTMENT TRUST (REIT) shall be REFRESHMENT PARLORS, CAFES AND OTHER
subject to VAT on its gross receipts from the rental of its EATING PLACES, INCLUDING CLUBS AND CATERERS;
real property.
 The gross receipts of recreational clubs including but not
limited to MEMBERSHIP FEES, ASSESSMENT DUES,
RENTAL INCOME AND SERVICE FEES are subject to
VAT.
4. WAREHOUSING SERVICES;
9. DEALERS IN SECURITIES;
Warehousing Service-rendering personal services of a
warehouseman such as: Dealer in securities-merchant of stock or securities,
a. Engaging in the business of receiving and storing goods whether an individual partnership or corporation, with
of others for compensation or profit; an established place of business, regularly engaged in
b. Receiving goods and merchandise to be stored in his the purchase of securities and sells them to customers
warehouse for hire; or with a view to the gains and profits that may be derived
c. Keeping and storing goods for others, as a business therefrom.
and for use.
 Dealers in securities and lending investors shall be
5. LESSORS OR DISTRIBUTORS OF CINEMATOGRAPHIC subject to VAT on the basis of their gross receipts.
FILMS; However, for dealer in securities, the term “gross
receipts” = gross selling price – cost of securities
sold.
 A REIT shall not be considered a dealer in securities Rev. Reg. 13-2018
and shall not be subject to VAT on its sale, exchange Sale of electricity by generation, transmission by any entity
or transfer of securities forming part of its real estate including the National Grid Corporation of the Philippines
related assets. (NCGP), and distribution companies including electric
cooperatives shall be subject to 12% VAT on their gross
10. LENDING INVESTORS; receipts.
Lending investor- includes all persons other than banks,

non-bank financial intermediaries, finance companies and Generation Companies- persons or entities authorized by
other financial intermediaries not performing quasi- the ENERGY REGULATION COMMISSION (ERC) to
banking functions who make a practice of lending operate facilities used in the generation of electricity.
money for themselves or others at interest.
Transmission Companies- any person or entity that
owns and conveys electricity through the high voltage
11. TRANSPORTATION CONTRACTORS on their transport
backbone system and/or sub-transmission assets, e.g.
of goods or cargoes, including persons who transport
NPC or TRANSCO.
goods or cargoes for hire and other domestic
common carriers by land relative to their transport of  The NGCP, which provides transmission services, is
goods or cargoes; SUBJECT TO 3% FRANCHISE TAX; hence, the
withholding of government money payments shall be thru
Common Carrier - persons, corporations, firms or percentage tax withholding.
associations engaged in the business of carrying or
transporting passengers or goods or both, by land, Distribution Companies – persons or entities which
water or air, for compensation, offering their services to operate a distribution system in accordance with the
the public and shall include transportation contractors. provisions of the EPIRA.
 Common carriers by land shall be subject to the 3% Gross receipts under this subsection shall refer to the
percentage tax, but shall not be liable for VAT. following:
12. DOMESTIC COMMON CARRIERS BY AIR AND SEA a. Total amount charged by generation companies for
relative to their transport of passengers, goods or the sale of electricity and related ancillary services;
cargoes from one place in the philippines to and/or
another place in the philippines. b. Total amount charged by transmission companies for
transmission of electricity and related ancillary services;
TRAIN LAW and/or
Deletes the word ―domestic‖ c. Total amount charged by distribution companies and
electric cooperatives for distribution and supply of
 Domestic common carriers by air and sea are subject to electricity, and related electric service.
12% VAT on their gross receipts from their transport
of passengers, goods or cargoes from one place in  The UNIVERSAL CHARGE passed on and collected by
the Philippines to another place in the Philippines. distribution companies and electric cooperatives shall be
excluded from the collection of gross receipts.
BY LAND:
14. FRANCHISE GRANTEES OF ELECTRIC UTILITIES,
Transporting goods or cargoes 12% VAT TELEPHONE AND TELEGRAPH, RADIO AND/OR
TELEVISION BROADCASTING AND ALL OTHER
Transporting passengers 3% Common
FRANCHISE GRANTEES , EXCEPT FRANCHISE
Carrier‟s tax
GRANTEES OF RADIO AND/OR TELEVISION
BY AIR OR SEA;
BROADCASTING WHOSE ANNUAL GROSS RECEIPTS
From/To Within the Philippines-
OF THE PRECEDING YEAR DO NOT EXCEED PHP
Transporting goods or cargoes 12% VAT
10,000,000, AND FRANCHISE GRANTEES OF GAS AND
Transporting passengers 12% VAT
WATER UTILITIES;
From one point in the Philippines to abroad- (export)
Transporting goods or cargoes 0% TRAIN LAW
VAT
Transporting passengers 0% VAT ―services of franchise grantees of electric utilities, telephone
(Subject to 3% Percentage Tax) and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 119
 Gross receipts of international air and sea carriers doing of this code;‖
business in the Philippines are liable to a
PERCENTAGE OF 3% based on their gross receipts  FRANCHISE GRANTEES OF TELEPHONE AND
derived from the transport of cargo from the Philippines to TELEGRAPH shall be subject to vat on their gross
another country. receipts derived from their telephone, telegraph, telewriter
exchange, wireless and other communication equipment
services.
 Amounts received for OVERSEAS DISPATCH,
MESSAGE, OR CONVERSATION ORIGINATING FROM
THE PHILIPPINES are subject to the percentage
13. SALE OF ELECTRICITY BY GENERATION, tax under Sec. 120 of the tax code and hence exempt
TRANSMISSION AND DISTRIBUTION COMPANIES; from VAT.
 FRANCHISE GRANTEES OF RADIO AND/OR 18. SIMILAR SERVICES REGARDLESS WHETHER OR
TELEVISION BROADCASTING whose annual gross NOT THE PERFORMANCE THEREOF CALLS FOR
receipts of the preceding year do not exceed php THE EXERCISE OR USE OF THE PHYSICAL OR
10,000,000 shall not be subject to VAT, but to the 3% MENTAL FACULTIES.
franchise tax.
 FRANCHISE GRANTEES OF GAS AND WATER GROSS RECEIPTS
UTILITIES shall be subject to 2% franchise tax on their -means the total amount of money or its equivalent
gross receipts. representing the contract price, compensation, service fee, rental
or royalty, including the amount charged for materials supplied
15. NON-LIFE INSURANCE COMPANIES INCLUDING with the services and deposits applied as payments for
SURETY, FIDELITY, INDEMNITY AND BONDING services rendered and advanced payments actually or
COMPANIES; constructively received during the taxable period for the
services performed or to be performed for another person,
TRAIN LAW excluding value-added tax.
Train Law*
Modifies this item - ―non-life insurance companies -deletes in the definition of ―gross receipts‖ the phrase
(except their crop insurances), including surety, fidelity, ―applied as payments for services rendered‖ in Section 108 (A) of
indemnity and
bonding companies; and‖ the NIRC.
CONSTRUCTIVE RECEIPT
Non-life insurance companies- including surety, fidelity,
-occurs when the money consideration or its equivalent is
indemnity and bonding companies, shall include all
placed AT THE CONTROL OF THE PERSON who rendered the
individuals, partnerships, associations, or corporations,
service without restrictions by the payor.
including professional reinsurers defined in Sec. 280 of P.D.
612,(Insurance code of the Philippines), mutual benefit
TAX BASE AND RATE
associations and government-owned or controlled
-There shall be levied, assessed and collected, a
corporations, engaging in the business of property
value- added tax equivalent to TWELVE PERCENT (12%) of
insurance, as distinguished from insurance on human lives,
the gross receipts excluding the value added tax, derived
health, accident and insurance appertaining thereto or
connected therewith which shall be subject to from the sale or exchange of services, including the use or
PERCENTAGE TAX under Sec. 123 of the tax code. lease of properties.
 non-life insurance including surety, fidelity, indemnity and

Train Law*
bonding companies are subject to VAT.
-retains the rate and base of value-added tax on sale of
 The gross receipts from non-life insurance shall mean
services and use or lease of property and deletes the
total premiums collected, whether paid in money, notes, phrase
―excluding the value-added tax:”
credits or any substitute for money.
There shall be levied, assessed and collected, a value-
 Non-life insurance premiums – subject to VAT added tax equivalent to twelve percent (12%) of the gross
 Non-life reinsurance premium – not subject to VAT receipts derived from the sale or exchange of services,
including the use or lease of properties.
16. PRE-NEED COMPANIES;
ZERO-RATED SALE OF SERVICES
Pre-need companies are corporations registered with -is a taxable transaction for VAT purposes, but shall not
the Securities and Exchange Commission and result in any output tax. However, the input tax on purchases of
authorized/licensed to sell or offer for sale pre- goods, properties or services related to such zero-rated
need plans whether a single plan or multi-plan. sale shall be available as tax credit or refund in accordance
- Engaged in a business as seller of services wit regulations.
providing services to plan holders by managing the
funds provided by them and making payments at THE FF. SERVICES PERFORMED IN THE PHILIPPINES BY A
the time of need or maturity of the contract. VAT-REGISTERED PERSON SHALL BE SUBJECT TO ZERO
17. HEALTH MAINTENANCE ORGANIZATIONS; AND PERCENT (0%) VAT RATE:
Health and Maintenance organizations (HMOs) are Processing, manufacturing or repacking goods for other persons
entities, organized in accordance with the provisions DOING BUSINESS OUTSIDE THE PHILIPPINES which goods
of the Corporation Code of the Philippines and are subsequently exported where the services are paid for
licensed by the appropriate government agency, which in acceptable foreign currency and accounted for in
arranges for coverage or designated managed care accordance with the rules and regulations of the Bangko Sentral
services needed by plan holders/members for fixed ng Pilipinas (BSP);
prepaid membership fees and for a specified period of
time. 1. SERVICES OTHER THAN PROCESSING,
MANUFACTURING OR REPACKING rendered to a
TRAIN LAW* person engaged in business conducted OUTSIDE THE
Deletes the foregoing items in 16 and 17 in Section PHILIPPINES or to a NON-RESIDENT PERSON
108(A) of the NIRC. ENGAGED IN BUSINESS WHO IS OUTSIDE THE
PHILIPPINES when the services are performed,
the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with
the rules
and regulations of the Bangko Sentral ng Pilipinas
(BSP);
2. Services rendered to persons or entities WHOSE
EXEMPTION UNDER SPECIAL LAWS OR
INTERNATIONAL AGREEMENTS to which the
Philippines is a signatory effectively subjects the supply
of such services to zero percent (0%) rate;
3. Services rendered to PERSONS ENGAGED IN
INTERNATIONAL SHIPPING OR AIR TRANSPORT
OPERATIONS, including leases of property for use
thereof; Provided, that these services shall be
exclusively for international shipping or air
transport operations. (Thus, the services referred to
herein shall not pertain to those made to common
carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the
same being subject to twelve percent (12%) VAT
under Sec. 108 of the Tax Code, as amended);
4. Services performed BY SUBCONTRACTORS AND/OR
CONTRACTORS in processing, converting, or
manufacturing goods for an enterprise whose export
sales exceeds seventy percent (70%) of total
annual production;
5. Transport of passengers and cargo by DOMESTIC AIR
or SEA CARRIERS from the Philippines to a
foreign country.
(Gross receipts of international air carriers and

international sea carriers doing business in the
Philippines derived from transport of passengers and
cargo from the Philippines to another country shall be
exempt from VAT; however they are still liable to a
percentage tax of three percent (3%) based on their
gross receipts derived from transport of cargo from the
Philippines to another country as provided for in Sec.
118 of the Tax Code, as amended); and
6. SALE OF POWER OR FUEL GENERATED THROUGH

RENEWABLE SOURCES OF ENERGY such as, but
not limited to, biomass, solar, wind, hydropower,
geothermal and steam, ocean energy, and other
shipping sources using technologies such as fuel cells
and hydrogen fuels;
Provided, however that zero-rating shall apply strictly to

the sale of power or fuel generated through renewable
sources of energy, and shall not extend to the sale of
services related to the maintenance or operation of
plants generating said power.
Effectively Zero-Rated Sale of Services

-shall refer to the local sale of services by a VAT-
registered person to a person or entity who has granted
indirect tax exemption under special laws or international
agreement.
-Under these regulations, effectively zero-rated
sale of services shall be limited to sales to persons or
entities that enjoy exemptions from indirect taxes under
nos. 3,4 and 5 of the immediately preceding discussion.

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CHAPTER 1 CHAPTER 2

INTRODUCTION BASIC CONCEPTS OF SUCCESSION

CAPACITY TO MAKE A WILL

 All of her separate property legitime of legitimate

REVOCATION OF WILLS AND TESTAMENTARY

LEGAL OR INTESTATE SUCCESSION the other.

 Legal or intestate succession take place:

 It takes place in the direct descending line, but never

ORDER OF INTESTATE SUCCESSION

1/2 if only none

1/3 each if 2 none

none none none

none none none None

none none none

none none none none

none none none none none

none none none none none none

WHEN DISTRIBUTION OF HEREDITARY ESTATE TAKES PLACE

 In estate taxation, the gross estate of citizens and

 This gross estate is allowed deductions under the

 Once the estate is closed and a final distribution of

PURPOSES OF ESTATE TAX b.)Revocable Transfer

Right to Usufruct, Use or Habitation, Annuity – value shall

EXEMPTIONS FROM ESTATE TAX

I. Resident Citizen, Non-Resident Citizen And

II.Non-Resident Alien Decedents

*No deduction shall be allowed unless the executor, or anyone of

PROVISIONS ON THE DEDUCTIBLE ITEMS FOR

 Any unpaid portion in excess of P200,000 threshold

b. Judicial Expenses – expenses incurred DURING

c.Claims Against the Estate

Requisites for Deductibility of Liability/Claim/Indebtedness:

II.Property Previously Taxed or Vanishing Deduction III.Transfers for Public Use

Requisites for Deductibility

VII. Amount Received by the Heirs under Republic Act

VIII. Net Share of the Surviving Spouse

NET TAXABLE ESTATE MARRIAGE SETTLEMENT- The determination of the

In other words, the following are placed in a common fund:

Gross Estate under Conjugal Partnership of Gains

EXCLUSIVE PROPERTIES OF EACH SPOUSE

CONJUGAL PARTNERSHIP PROPERTY

CLAIMS AGAINST INSOLVENT PERSON

DEDUCTIONS FROM GROSS ESTATE

DUTIES OF CERTAIN PERSONS

Rev. Reg. 12-2018

PURPOSE OF DONOR‟S TAX

VAT ON SALE OF GOODS OR PROPERTY

ILLUSTRATION 5 – May trustor ng pera sa bank. Yung

GROSS SELLING PRICE- total amount of money or its

TAX BASE & RATES

5. Those considered export sales under EO 226,

BIR & BOC shall be required to submit Congressional Oversight

THE FF. ARE CONSIDERED CONSTRUCTIVELY EXPORTED EVEN

Miller- a person engaged in milling for others (except

Lending investor- includes all persons other than banks,

 non-life insurance including surety, fidelity, indemnity and

(Gross receipts of international air carriers and

6. SALE OF POWER OR FUEL GENERATED THROUGH

Provided, however that zero-rating shall apply strictly to

Effectively Zero-Rated Sale of Services