ESTATE

TAXATION

Bagul
Blanco Manginsay
Dinganon Reuyan
1
Layasan Virtudazo
ESTATE TAX
Estate Tax is a tax on the right of the deceased person to transmit his/her
estate to his/her lawful heirs and beneficiaries at the time of death and on
certain transfers, which are made by law as equivalent to testamentary
disposition. It is not a tax on property. It is a tax imposed on the privilege of
transmitting property upon the death of the owner. (bir.gov.ph) 2
 GOVERNING LAW ON
IMPOSITION OF
ESTATE TAX

STATUTE IN FORCE AT THE TIME OF

THE DEATH OF THE DECEDENT
The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary. (bir.gov.ph)

The estate tax accrues as of the death of the decedent and the
accrual of the tax is distinct from the obligation to pay the same.
Upon the death of the decedent, succession takes place and the
right of the state to tax the privilege to transmit the estate vests
instantly upon death. (Sec.3, RR 12-2018, BIR)
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 Transferring property to heirs or beneficiaries will
not be executed unless the estate tax is paid.

TAXPAYER OF ESTATE
TAX
The “estate” is the statutory taxpayer of the estate tax.

▪ The “estate” is treated as a person for purposes of paying the taxes.

(Section 22(A), NIRC.)
▪ The executor or administrator of an estate has the primary obligation
to pay the estate tax, before the delivery of the distributive share in
the inheritance to any heir or beneficiary.
▪ If there are two or more executors or administrators, they shall be
severally liable for the payment of estate tax.
▪ An estate tax clearance (eCAR) shall then be issued by the
Commissioner or RDO having jurisdiction over the estate. This serves
as the authority to distribute remaining properties in the
inheritance.(Section 9(9) RR-12,2018)

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 6%
ESTATE TAX RATE
▪ 6% tax rate based on the value
of net estate. (Sec. 84 of NIRC
as amended by TRAIN Law)

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 Gross Estate
Valuation

Net Estate

ESTATE TAX
Computation of Net Estate based on Classification of Decedent

Time and Place of Filing of Estate Tax

Return and Payment of Estate Tax Due

Proper Presentation for Computation

Illustrations

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 GROSS ESTATE
▪ Decedent: value at the time of his death
-resident citizen of all property, real or
-non-resident citizen personal, tangible or
intangible, wherever situated
-resident alien
only properties situated in the
Philippines, provided that in
▪ Decedent:
respect to intangible personal
-non-resident alien property, its inclusion is
subject to rule of reciprocity
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 RULE OF
RECIPROCITY

Section 104, NIRC

No tax shall be collected under this Title in respect of intangible personal property:

(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen
and resident of a foreign country which at the time of his death or donation did not impose a
transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or

(b) (b) if the laws of the foreign country of which the decedent or donor was a citizen and
resident at the time of his death or donation allows a similar exemption from transfer or
death taxes of every character or description in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign country.

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 Rule of Reciprocity
• Applies only to a non-resident alien decedent and only his intangible personal properties
located in the Philippines.
• Decedent who must be a citizen AND resident of a foreign country that does not impose
estate tax or grants exemption thereto

1 Nature 2 Why?
3 Some Examples in Sec 104
of Intangible property

Form of exemption from If the non-resident alien can • Franchise exercised in the
Philippines;
estate tax avail of this rule, the intangible
personal properties located in • Shares, obligations, or bonds issued
the Philippines are not included by corporation constituted in the
Philippines;
in the gross estate and
therefore not subject to estate • Shares or rights in any partnership,
tax business, or industry established in
the Philippines
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 A. Taxable Transfers
(Sec. 85, NIRC)

Transfers of properties during the lifetime of the

Inclusions in the decedent or transfer inter-vivos.
Gross Estate However, the nature and circumstances attending
the transfers indicate that the transfers are actually
mortis causa or suggest that the decedent still owns
and control properties up to the date of his death.

1. Transfer in Contemplation of Death

2. Revocable Transfer
3. Property passing under general power
of appointment
4. Transfers for insufficient consideration
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 B. Other Inclusions
(Sec. 85, NIRC)

Inclusions in the 5. Decedent’s Interest (Sec. 85(A))

-any interest having value or capable of being valued and transferred

Gross Estate by the decedent at the time of his death.

6. Proceeds of Life Insurance (Sec. 85(E))

BUT: If the designated beneficiary is other than the decedent’s
estate, executor or administrator and the designation is irrevocable, the
proceeds of life insurance are EXCLUDED from the gross estate.

7. Prior Interests (Sec. 85(F))

-Except as otherwise specifically provided therein, transfer in

contemplation of death, revocable transfers, and proceeds of life insurance
shall apply to the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and described therein,
whether made, created, arising, existing, exercised or relinquished before
or after the effectivity of this Code. 11
 Properties within the Philippines Located
Decedent Real Personal Properties outside the
Properties Tangible Intangible Philippines
Summary of Resident Citizen ✓ ✓ ✓ ✓
Inclusions to Gross Non-resident
✓ ✓ ✓ ✓
Estate Citizen
Resident Alien ✓ ✓ ✓ ✓
Non-Resident
Alien with
As a rule, all properties owned by the ✓ ✓ x x
decedent and existing at the time of his reciprocity
death are included in the gross estate.
Non-Resident
Alien without ✓ ✓ ✓ x
reciprocity

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 Exempt Acquisitions and Transmissions (Section 87, NIRC)

(A) The merger of usufruct in the owner of the naked title;

(B) The transmission or delivery of the inheritance or legacy by the

Exclusions to fiduciary heir or legatee to the fideicommissary;

Gross Estate (C) The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor; and

(D)All bequests, devises, legacies or transfers to social welfare,

cultural and charitable institutions, no part of the net income of
which inures to the benefit of any individual: Provided, however,
That not more than thirty percent (30%) of the said bequests,
devises, legacies or transfers shall be used by such institutions for
administration purposes.

Excluded Properties
• Amounts withdrawn from deposit accounts of a decedent subjected
to 6% final withholding tax (Section 4, RR 12-2018)
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VALUATION OF THE GROSS 3. Usufruct
ESTATE Probable life of the beneficiary in
(Section 5, RR 12-2018) accordance with the latest basis
standar mortality table

4. Units of
Fair Market Value (FMV) as of the
▪ .Participation in any
time of decedent’s death
2. Shares of Stocks Association,
Recreation or
Shares if listed in stock exhange
▪ Price quote on the date of death
Amusement Club
1. Real Property ▪ If none available, FMV shall be the Bid price nearest the death of
Whichever is higher between: arithmetic mean between highest death published in any newspaper
and lowest quotation at a date or publication of general
▪ FMV as determined by the nearest the date of death. circulation
Commissioner. Shares if not listed
▪ FMV as shown in the schedule ▪ Based on book value (common
of values fixed by the shares)
provincial and city assessors ▪ Based on par value if preferred

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 NET ESTATE (either a
citizen or resident of
the Philippines)
-shall be determined by deducting from the value
of the gross estate the following items:

1. Standard deduction
2. Claims against the estate
3. Claims of the deceased against insolvent persons
4. Unpaid mortgages, taxes and casualty losses
5. Property previously taxed
6. Transfers for public use
7. Family Home
8. Amount received by heirs under RA 4917

MM.DD.20X 9. Net share of surviving spose in the conjugal partnerhip or

community property 15
DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

1. Standard Deduction
▪ -without need of substantiation
P5 Million

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DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

2. Claims against the estate Requisites for deductibility:

a) The liability represents a personal obligation of
the deceased existing at the time of his death;
May arise out of: b) The liability was contracted in good faith and for
adequate and full consideration;
1. Contract c) The claim must be a debt or claim which is valid
and enforceable in court;
2. Tort d) The indebtedness must not have been condoned
by the creditor or the action to collect from the
3. Operation of Law decedent must not have been prescribed.

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DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

Why allowed as a deduction?

3. Claims of the deceased
against insolvent persons Because the claim against insolvent
persons is a decedent’s interest or
Insolvent as defined in FRIA and decedent’s property at the time of his
other existing laws death

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DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

Unpaid mortgage
-When founded upon a promise
4. Unpaid mortgages, taxes or agreement, be limited to the
and casualty losses extent that they were contracted
bona fide and for an adequate and
full consideration in money or
money’s worth.

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DEDUCTIONS FROM THE GROSS ESTATE(Sec.6, RR 12-
2018)

Unpaid taxes
-taxes must have accrued as of the death
of the decedent which were unpaid as of the
time of death.
4. Unpaid mortgages, taxes -taxes cannot be claimed as deductions:
and casualty losses a. income tax upon income received
after death
b. property taxes not accrues before
his death
c. estate tax due from transmission of
his estate 20
DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

Losses
-incurred during settlement of the estate
a. losses from fires, storms, shipwreck, or
other casualties, or from robbery, theft or
embezzlement
4. Unpaid mortgages, taxes b. when such losses are not compensated for
and casualty losses by insurance or otherwise,
c. losses have not been claimed as a
deduction for the income tax purposes in
an income tax return
d . losses were incurred not later than the
last day for the payment of the estate tax 21
DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

REQUISITES TO CLAIM DEDUCTION:

a. The present decedent died within five (5) years from the date of
death of the prior decedent or the present decedent died within
five (5) years from the date of donation;

b. The property must be located in the Philippines and can be

5. Property previously taxed specifically identified as the one received from the prior decedent
or from the donor, or which can be identified as having been
acquired in exchange for property so received.
(Section 6(5) RR 12-2018)
-or called vanishing deduction, is a deduction c. The value of the property must be included in the gross estate
allowed from the gross estate which were previously of the present decedent;
subject to donor’s or estate taxes. (Estate of Reyes v.
Commissioner of Internal Revenue, CTA. Case No. 6747,
d. The donor’s tax or estate tax on the prior transfer must be
January 16, 2006) finally determined and paid by or on behalf of such donor, or the
estate of such prior decedent; and

e. The estate of prior decedent did not claim or was not allowed to
claim vanishing deduction in the case of multiple succession. 22
DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

The decreasing percentages of deduction (hence the

word “vanishing”) are:

a. 100% of the value, if the prior decedent died within 1

year prior to death of the decedent or if the propery was
transferred to him by gift within same period;
5. Property previously taxed
(Section 6(5) RR 12-2018) b. 80% if the period is more than 1 year but not more than
2 years;
-or called vanishing deduction, is a deduction
allowed from the gross estate which were previously c. 60% if the period is more than 2 years but not more
subject to donor’s or estate taxes. (Estate of Reyes v. than 3 years;
Commissioner of Internal Revenue, CTA. Case No. 6747,
January 16, 2006) d. 40%, if the period is more than three 3 years but not
more than 4 years; and

e. 20% if the period is more than 4 years but not more

than 5 years. 23
DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

The amount of all bequests, legacies, devises or

6. Transfers for public use transfers to or fo5r the use of the Government of
the Republic of the Philippines, or any political
subdivision thereof, for exclusively public
purposes.

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DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

7. Family Home
-the dwelling house, including the land on which it The amount equivalent to fair market value of
is situated, where the husband and wife, or a head the decedent’s family home: Provided
of the family, and members of their family reside. howerver, that if the said current fmv exceeds
P10Million, the excess shall be subject to
estate tax.
-deemed constituted on the house and lot from the
time it is actually occupied as a family residence
and is considered as such for as long as any of its
beneficiaries actually resides.
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DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

8. Amount received by heirs

under RA No. 4917
An act providing that retirement benefits of Any amount received ny the heirs from
employees of private firms shall not be subject to decedent’s employer as a consequence of the
attachment, levy, execution, or any tax whatsoever death of the decedent-employee in
accordance with RA 4917 provided that the
amount of of the separation benefit is
included as part of the gross estate of the
decedent.

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DEDUCTIONS FROM THE GROSS ESTATE (Sec.6, RR 12-
2018)

9. Net share of the surviving The share of the surviving spouse mustbe
removed to ensure that only the decedent’s
spouse in the conjugal interest in the estate is taxed.
partnership or community
property

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 NET ESTATE (Non-
resident Alien)
-shall be determined by deducting from the value
of the gross estate the following items:

1. Standard deduction (P500,000)

2. Expenses, losses, indebtedness
Claims against the estate
Claims of the deceased against insolvent persons
Unpaid mortgages, taxes and casualty losses
3. Property previously taxed

Formula for No. 2 4. Transfers for public use

5. Net share of surviving spouse in the conjugal partnership or
Phil Gross Estate x Expenses, Losses = Allowable community property
World Gross Estate Indebtedness, and Taxes Deduction 28
Proper Presentation of Deductions
(Sec 8., RR 12-2018)

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Proper Presentation of Deductions
(Sec 8., RR 12-2018)

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Proper Presentation of Deductions
(Sec 8., RR 12-2018)

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Proper Presentation of Deductions
(Sec 8., RR 12-2018)

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Proper Presentation of Deductions
(Sec 8., RR 12-2018)

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Proper Presentation of Deductions
(Sec 8., RR 12-2018)

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TIME AND PLACE OF FILING ESTATE TAX RETURN
AND PAYMENT OF ESTATE TAX DUE
Sec. 9, RR 12-2018

Certification by Time for Filing Extension of Time of Cash

Time to file Payment Installment
CPA payment

Estate Tax in meritorious at the time the Now allowed

Within 1 year under TRAIN Law .
Returns cases, a return is filed by
from decedent’s Payment shall be
showing a gross reasonable the executor,
death allowed within
value exceeding extension not administrator or two years from
P5 Million Pesps exceeding thirty the heirs. the statutory date
(30) days for Extension: for its payment
filing the return. if settled through the courts: without civil
5 years penalty and
interest.
if settled extrajudicially:
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2 years
PLACE OF FILING
Resident Decedent:
▪ Domicile of the decedent at the time of death

Non-Resident Decedent:
▪ If executor or administrator is registered in the
Philippines, RDO where such is registered.
▪ If executor or administrator is NOT registered in the
Philippines, RDO having jurisdiction over the executor
or administrator’s legal residence
▪ If no executor or administrator, Office of the
Commissioner through RDO No. 39- South Quezon
City 36
 As to Withdrawal Limit. The TRAIN Law
removes the P20,000 limit under 1997 NIRC
Payment of Tax Antecedent that may be withdrawn from the bank account
of the decedent without certification from the
to the Transfer of Shares, BIR and allows for the withdrawal of any
Bonds or Rights and Bank amount but subject to 6% final withholding
tax. However, the withdrawal shall only be
Deposits Withdrawal (Sec made within one year from the date of death
of the decedent.
10. RR 12-2018)

there shall not be transferred 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,
bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless an eCAR is
issued by the Commissioner or his duly authorized
representative

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 OUR TEAM
ESTATE TAXATION GROUP REPORTING

JUDITH BLANCO SADDAM BAGUL JEFFREY

Team Member Team Member DINGANON
Team Member

GIMELLE ESEDRO REUYAN

JOVEL LAYASAN MANGINSAY
Team Member Team Member
Team Member

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THANK
YOU!
ESTATE TAXATION

Subject
Taxation II
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