Transfer and Business Taxation (Preliminaries)

7/21/2019 Transfer and Business Taxation (Preliminaries)

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TRANSFER AND BUSINESTAXATIONUNIVERSITY OF SAN JOSE-RECOLETOS

Second Semester 2014

ATTY. GERALD R. YU, CPA, CRB


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FUNDAMEst


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TRANSFER TAX

A. TRANSFER TAXES Taxes imposed upon the gratuitous disposition of property, whether rea

tangible or intangible.

Also called excise or privilege taxes. They are not property taxes becauimposition does not rest upon general ownership but rather consideredtaxes imposed on the act of pasing ownership of property. dada

B. Types of Transfers:

Onerousrefers to the exchange of property for a monetary consideratransfer of goods or services in return for something of equal value like inbarter.

Gratuitousa conveyance of property without any consideration involexchange for the property given away. It is a transfer of property for FRthere is no financial consideration or no performance of service as paytransfer of property.


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KINDS OF TRANSFER

A. DEATH TAXE OR DUTIESlevied on the gratuitous transfers of proones death, formerly comprised of the estate and inheritance two were correlative taxes, they have been imposed on the rigtransmit and to receive property by succession, respectively, i.eexistence of one in any particular case necessarily presupposescorollary existence of the other. (BIR Ruling No. 173-84, 06 Nove

Both taxes are now integrated into an ESTATE TAX. Fundamentally consubject levied upon by all death taxes is the power to transmit or the rprivilege to inherit, or the transmission or receipt of property at death.

B. GIFT TAXES imposed on the gratuitous transfers of property dulifetime, formerly comprised of the donors and donees gift taxBoth taxes are now integrated into a donors tax.


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MODES OF PROPERTY TRA

Properties: (1) Real (2) Personal (Tangible andIntangible)

TRANSFER OF PROPERTY THROUGH:

ONEROUS

Normal Course of

Business (Sale orExchange)

VAT, OPT, ExciseTaxes

Casual Transfer

CGT

TRANSFER TAXES

FACT OF DEATH

ESTATE TAX

DONAT

DONORS TAX


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GRATUITOUS TRANSGE

GRATUITOUS

TRANSFERS

DONATION INTERVIVOS

SUBJECT TODONORS TAX

EFFECTIVITY-DURING LIFETIME OF

DONOR

DONATION MORTISCAUSA

SUBJECT TO ESTATETAX & EFFECTIVITY

UPON DEATH OFPROPERTY OWNER

TESTA

INT


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ESTA

A. ESTATE TAXtax on the right to transmit property at death and transfers by the decedent during his lifetime which are made bthe equivalent of testamentary dispositions. The tax is measuredvalue of the property at the time of death.

B. INHERITANCE TAXtax on the privilege of inheriting the propertperson upon his death. A tax imposed on the legal right or privil

succeed to, receive or take property by or under a will, intestacdeed, grant or gift becoming operative at or after death. (LorePosadas, 64 Phil. 353; 85 C.J.S. 844-845.)

It is also referred to as Succession Tax of Duty or Legacy Tax.Sometimes used in a general sense as including estate tax.


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NATURE OF ESTA

A. ESTATE TAX is not a direct tax on property. Neither is it a capitatis the tax is laid neither on the property nor on the transferor or ttransferee. It is in other words, an excise or privilege tax.

The object of estate tax is to tax the shifting of economic benefits andof property from the dead to the living. (Gregg v. Comm., 315 Mass. 7

B. See Section 84, National Internal Revenue Code.


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PURPOSE AND JUSTIFICATESTATE TAX (FUNDAM

PRINCIPLES OR TH1. PRIMARILY, to augment the revenue of the government.

2. BENEFIT-RECEIVED THEORYConsiders the services the government renders in the the estate of the decedent, either by law or in accordance with his wishes. Becauservices that result to benefits received by the estate and the heir, it is therefore fagovernment collects its equivalent compensation in protecting individual persons or rights.

3. PRIVILEGE OR STATE PARTNERSHIP THEORYAsserts that inheritance is not a right bgranted by the State and large estates have been acquired only with the protectState. Consequently, the State, as a PASSIVE AND SILENT PARTNER in the accumproperty, has the right to collect the share which is properly due to it.

4. ABILITY TO PAY THEORYAsserts that the receipt of inheritance, which is in the natunearned wealth or a windfall, places assets in the hands of the heirs and beneficincreasing the wealth of the heir thereby creating an ability to pay the tax and thto governmental income. The exemption of a minimum amount of inheritance froprovide for cases of need.

5. REDISTRIBUTION OF WEALTH THEORYThe receipt of inheritance is a contributing fainequalities in wealth and incomes. The imposition of death tax reduces the propethe successor, thus helping bring about a more equitable distribution of wealth in base is the value of the property and the progressive scheme of taxation is preciseby the desire to mitigate the evils of inheritance in its original form.


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DEATH, THE GENERATING SOOF P

Art. 777. The rights to the succession are transmitted from the moment oof the decedent. (657a)

Thus, the properties and rights of the decedent are transferred to his suctime of his death without any interruption. In other words, the generatinpower to transfer the properties and rights is death. The transfer accrueof death of the decedent. (Lorenzo v. Posadas, 65 Phil 353)

Ordinarily, an estate or inheritance tax accrues as of the date of the dedeath, although the amount of the tax may then be unknown, but on d

thereof, it relates back to the time of death. Upon the death of the decedent, succession takes place and the right

to tax the transmission of the estate vests instantly upon death.

The obligation to pay the estate tax accrues at the moment of death. (Posadas, 64 Phil. 353)

TAKE NOTE: ACCRUAL OF v. OBLIGATION TO PAY


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APPLICABL

It is well-settled that estate (or inheritance) taxation is governed bstatute in force at the time of the death of the decedent.

The taxpayer cannot foresee and ought not to be required to guoutcome of pending legislative bills or measures.

Tax may be retroactive in its operation. But legislative intent that statute should operate retroactively should be perfectly clear.


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DONORS TAX V. ESTA

Points of Distinction Donors Tax Estate Tax

1. Effectivity of transfer ofproperty

During the lifetime of donorand donee

Upon the deathdecedent

2. Taxpayer The Donor Estate of the de

3. Tax Base Net Gift Net Estate

4. Exempt Amount Net gift of P100,000 and below Net estate of P2

below

5.Filing and Payment Within thirty (30) days after thedate gift is made.

Within six (6) modecedents dea


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DONATION MORTIS CAUSA V. DONATION IN

DONATION MORTIS CAUSA DONATION INTER VIVOS

1. Made, as its name implies, in consideration ofdeath or mortal peril, without the donors

intention to lose the thing or its free disposal incase of survival, as in testamentary dispositions.

1. Made without such considethe donors generosity. (Balaq

Phil. 673).

2. Being testamentary in nature, should be embodied in a last will and testamentcontract unlike a donation inter vivos. It is in reality a legacy. If not embodied in adonation is void. (Puig v. Peaflorida, 15 SCRA 216 [1965]).

3. Transfer conveys no title or ownership to thetransferee before the death of the transferror, or

the transferror retains the ownership, full ornaked, of the property conveyed; it is thedonors death that determines the acquisitionof, or the right to the property.

Effect is produced while the d

4. The transfer is revocable before the transferors death and revocability may beindirectly by means of the reserved power in the donor to dispose of the property

The transfer would be void if the transferor arried the transferee

6. Acceptance by the donee not necessary. 6. Acceptance is a requireme


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GROSS


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COMPO

A. Consists of the totality of the value of all property of the decedent at his death, whether real or personal, tangible or intangible. (Blas v. SanMarch 1961, 1 SCRA 914)

B. It shall not include the separate (exclusive) properties of the surviving

C. The gross estate of a decedent shall be comprised of the following printerest therein AT THE TIME OF HIS DEATH, including:1) Decedents interest2) Transfers in contemplation of death3) Revocable transfers

4) Property passing under general power of appointment

5) Proceeds of life insurance

6) Prior Interests

7) Transfers for insufficient consideration.


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CLASSIFICATION OF DECE

DECEDENT

CITIZEN

RESIDENTA

SI

NONRESIDENTA

SI

ALIEN

RESIDENTA

SI

NON-RESIDENT

ONG.E

PP

Rec


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RESIDENCE, SITUS AND THEOF-DEATH VALUATIO

Residence synonymous with domicile and used interchangeadistinction. It refers to the permanent home, the place to which wabsent, for business or pleasure, one intends to return, and depenand circumstances, in the sense that disclose intent. (Corre v. TanPhil. 321). It is not necessarily the actual place of residence.

DATE-OF-VALUATION RULEProperties comprising the gross estatevalued based on their fair market value as of the time of death. Iemphasis that tax burdens are not to be imposed, nor presumed imposed, beyond what the statute expressly and clearly imports, being construed strictissimi juris against the government. Any douwhether a person, article or activity is taxable is generally resolvetaxation. (Dizon v. CTA, G. R. No. 140944, 30 April 2008, 553 SCRA


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GENERALLY, the situs of a property is the domicile or residence of(51 Am Jur. 494-495)

The principle however is not controlling:

1. When it is inconsistent with express provisions of statute;

2. When justice does not demand that it should be, as where the profact a situs elsewhere. Thus, shares acquired by a nonresident alie

domestic corporation are taxable in the Philippines. (Coll v. Fisher,January 1961; Wells Fargo Bank v. Coll. 70 Phil. 505)


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SUMMARY OF PROPINCLUDED IN THE GROSS

PARTICULARS CITIZEN/RESIDENT ALIEN NONRESID

1. Real of Immovable Propertysituated

(a) In the Phils.

(b) Outside the Phils.

2. Tangible personal property

situated(a) In the Phils.


3. Intangible personal propertywith situs

(a) In the Phils.



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Particulars Citizen/Resident Alien Nonres

4. Franchise exercised

(a) In the Phils.


5. Shares, obligations or bondsissued by corporationsorganized or constitutedunder Phils. Laws

6. Shares, obligations or bondsissued by Foreign corporations(85% of business located in the

Phils.)

7. Shares, obligations or bondsissued by any Foreigncorporation that acquiredbusiness situs in the Phils.

8. Shares or rights inpartnership business or industryestablished in the Phils.


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VALUATION OF THE GROSS

1. GENERAL valued at its fair market value at the time of the deceden(Sec. 88, NIRC).

2. Real propertiesvalued at the current FMV as shown in the schedule fixed by the Provincial/City Assessors, or the FMV as determined by theCommissioner, whichever is higher (ibid).

3. Personal Propertiesreported at the acquisition cost for the recently aproperties or the current market price for the previously acquired prop

4. Stocks, bonds, and other securities:A. If listed in the LSEvalue is the mean between the highest and lowes

selling prices at the date nearest the date of death, if none is availabdate of death;

B. If not listed:a) Unlisted common shares should be valued at book value at the date of d

b) Unlisted preferred shares are valued at par value.


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ADDITIONS TO THE GROSS

Some of the unidentifiable rights or properties to be added in theestate are:

1. Taxable transfers: (transfers during the lifetime of the decedent)

a. Revocable transfers;

b. Transfers in contemplation of death

c. Property passing under general power of appointment

d. Transfers for insufficient consideration.2. Others:

a. Decedents interest accrued at the date of death;b. Proceeds of life insurance with revocable beneficiary;

c. Claims against an insolvent person; and

d. Amount received by heirs under RA No. 4917.


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EXCLUSIONS AND EXEM1. EXCLUSION The separate or exclusive property of the surviving spouse (h

capital or wifes paraphernal or separate property) is not deemed part o

estate of the decedent spouse.2. EXEMPTIONS

A. Section 87 of the NIRCB. Bequests to be used actually, directly, and exclusively for educational purpos

Sec. 4[4], 1987 Constitution)C. Proceeds of life insurance

A. Where the beneficiary is irrevocably appointedB. Under a group insurance taken by the employer in favor of the employee

D. Transfer by way of bona fide sales;

E. Properties held in trust by the decedent;F. Exemptions under reciprocity clause of estate tax law;G. Exemptions under Special Laws, such as:

A. Benefits received from SSS (PD 1161, as amended) or GSIS (PD 1146, as amended)B. Benefits received from US Veterans Administration (RA 360)C. War benefits given by the Philippine government and US government due to dama

during the war (RA 227)D. Grants and donations to the Intramuros Administration. (PD 1616)


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SIMILARITIES BETWEEN CPG AN

PROPERTY CONJUGAL PARTNERSHIP ABSOLUTE COMM

1. Property inherited orreceived as donation duringmarriage

Exclusive Exclu

2. Property acquired duringmarriage other thatninheritance or donation

Conjugal Comm

3. Property acquired fromlabor, industry work orprofession of the spouses

Conjugal Comm

4. Fruits or income due orderived during the marriagecoming from commonproperty

Conjugal Comm


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DIFFERENCES BETWEEN CPG AN

Property Conjugal Partnership Absolute Comm

1. Property before themarriage or brought to themarriage

Exclusive Comm

2. Fruits or income due orreceived during the marriagecoming from exclusive

property

Conjugal Exclu

Documents

Transfer and Business Taxation (Preliminaries)