Chapter S

Estate Tax Credit and Distributable Estate

Estate Tax Credit

Allowable deductions are deductions from the gross estate. Tax
credit, on the other hand, is a deduction from Philippine estate tax itself.
While there are numerous taxes that may be deducted from the gross
estate, there is only this foreign estate tax that may be claimed against
Philippine estate tax.

Estate Tax credit refers to the

taxpayer's right to deduot from the tax due The amount of
the amount of tax it has paid to a foreign credit for estate tax
country. The amount could be claimed as paid to a foreign
a deduction if such taxes pertain to
country shall not
properties which are included in the gross exceed the proportion
estate for Philippine estate tax of the tax due in the
computation. This deduction is allowed Philippines which the
by law to lessen the harshness of decedent's net estate
international double taxation where the situated within such
same estate is being subject to both the country bears to his
foreign estate tax and the Philippine entire net estate.
estate tax. Nonresident alien_decedents
are not entitled to estate tax credit.

Philippine Estate Tax Due

The estate tax payable is computed first based on the net taxable estate
before tax credit may be deducted as follows:

Estate tax due (based on estate tax table) Pxx

Less: Tax credit for foreign estate taxes paid (xx)
Philippine estate tax payable Pxx

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 Estale Tar Crdit (A Distributabl a ale
OF ESTATE TAX CREDIT
STATUTORY FORMULA FOR THE COMPUTATION
cOUNTRY
OR LIMIT 1-IF THERE
IS ONLY ONE (1) FOREIGN
LIMITA
Philippine Estate
Net estate foreign country Tax Due Pxxx (Limit)
Net estate, world X

Versus Pxxx (Actual)

Actual Tax paid, foreign country
Allowed Tax Credit(Lower amount) Pxxx(Taxcredit)

ILLUSTRATION1:
A resident citizen died in 2018 leaving the following:
Taxable net estate, Philippines P8,000,000
Taxable net estate, USA 2,000,000
Estate tax paid, USA 400,000

How much is the estate tax payable?

Answer: P480,000 computed as follows:
Limit Actual Allowed
P2,000,000
P10,000,000 X P600,000 =P120,000 P400,000 P120,000

Estate Tax Due (P10M x 6%) P600,000

Less: Estate tax credit
(120,000)
Estate tax still due and payable P480,000

LIMIT B OR LIMIT 2:
IF THERE
ARE> 1 FOREIGN COUNTRIES
Step 1-compute limit 1 per foreign country as shown above.
Step 2-compute Limit 2 using the following formula:
Net estate al foreign countries Philippine Estate
Net estate, world
X Tax Due Pxxx (Limit)
Versus
Actual Tax paid, all
Limit B (Lower
foreign countries
amount) Pxxx (Actual)
Pxxx (Limit B)
Step 3 -Choose the lower amount between
Limit A (from Step Limit A and Limit B
1)
Limit B (from Step Pxxx
2)
Allowed Tax Credit (Lower amount) Pxxx
Pxxx

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 Estate Tae Credit TDistribalable Estate

ILLUSTRATION2:
A nonresident citizen died in 2018
Net estate, Philippines
leaving the following:
(net of special deductions) P8,000,000
Net estate, Japan
Estate tax paid, Japan 3:000,000
Net estate, UK
(HaK trttj" 200,000
2,000,000
Estate tax paid, UK
100,000
Net estate, Russia .
(1,000,000)
Question: How much is the estate tax payable áfter estate
tax credit?
Answer: P480,000
Solution:
Total taxable net estate P12,000,000
Estate tax % (TRAIN Law) 6%
Estate tax due P720,000
Less: Estate Tax Credit (240,000)**
Estate Tax Payable P480,000
LIMIT 1:
JAPAN:
Limit Actual Allowed
P3,000,000
P12,000,000%, X P720,000 P180,000 P200,000 P180,000

UK:
P2,000,000
P12,000,000 XP720,000 =P120,000 P100,000 P100,000
LIMIT 1 P280,000
LIMIT 2:
P4,000,000
P12,000,000 X P720,000 =P240,000 P300,000 P240,000
ALLOWABLE TAX CREDIT (Lower between Limit 1 &2) P240,000
NOTE: Under Limit 1, the allowed tax credit for Russia was not computed because the net estate
therein was negative. There was no estate tax paid in Russia. However, for purposes of computing
Limit 2, the negative net estate of a foreign country shall be included in the numerator (net estate all
foreign countries).

Jagan u

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 (A /Distribuluble 1
date ta (udit at
NET DISTRIBUTABLE ESTATE
Net taxable estate is the result of the application of the law
estate taxation. Net distributable estate, on the other hand, is the am
arrived at from gross estate consisting all properties In the possession a
control of the decedent at the time of death and actual expenses, charqu
and payments from the gross estate. Shown below is a
schedule of net taxable estate and net distributable estate.
comparati

Net Taxable Estate Distributable

GROSS ESTATE Estate
Real or immovable property included included
Tangible personal properly included included
Intangible personal property included included
Transfers in contemplation of death included included
Revocable transfers included included
Transfers under the general power included included
of appointment
Proceeds of life insurance included included
Exclusions such as SSS, GSIS, etc. not included included
ALLOWABLE DEDUCTIONS
Funeral expenses** No longer allowed actual
Judicial* No longer allowed actual
Unpaid taxeS actual
Claims against the estate actual
actual actual
Claims against insolvent person actual
Losses actual
actual (setement period) actual
Transfer forpublic purpose actual
Vanishing deduction actual
as computed
Standard deduction not considered
PIM not considered
Family home with limit
Medical expenses not considered
No longer allowed
Amount received under RA 4917 actual
actual
Share of surviving spouse not considered
% net conjugal
NET TAXABLE ESTATE % net conjugal
Pxxx
ESTATE TAX DUE
Pxxx
DISTRIBUTABLE NET ESTATE XXx
Pxxx
Nolonger allowed
The rules in as deductions from gross estate beginning January 1,2018.
classifying property
purposes of computing
into conjugal and exclusive
the net distributable estate. property are the same o

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 date tay (rrdat ( Titribatable lstale

ILLUSTRATION 3
Aresidefit alien decederit, head of trhe
House and L6t, Ayala family, died in 2018 leaving the following
Car in Ayala Alatang Alatbang (Family tHorme) P0,000,000
Cash in bank, Ayala Alabang sut5,000,000
House and Lot-Global City 15,000.000
Cash in bank-Global City 10,000.000
House and Lot-Libis, 0C 15,000,000
Cash in 10,000,000
bank-Libis, O.C 15,000,000
Funeral expenses
Judicial expenses 1,000,000
Claim against the estate 1.500,000
Losses
3,000,000
4,000,000
(50% were incurred more than 1 year after death)
Medical expenses
3,000,000
Determine the correct amount of estate tax due and the net distributable estate.

Solution-ESTATE TAX DUE:

Gross Estate P100,000,00
Deductions
Claim against the estate P3,000,000
Losses (within the settlement period) 2,000,000
Medical expenses Not allowed
Standard deduction 5,000,000
Family Home 10,000,000 (20,000,000)
Net Taxable Estate P80,000,000
xEstate tax rate 6%
Estate Tax Due P4,800,0000
Solution-NET DISTRIBUTABLE ESTATE:
Gross Estate P100,000,000
Deductions:
Funeral expenses P1,000,000
Judicial Expenses 1,500,000
Claim against the estate 3,000,000
Losses 4,000,000
Medical expenses 3,000,000.
Estate Tax Due 4,800,000 (17,300,000)
Net Distributable Estate P82,700,000

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 CHAPTER EXERCISES

PROBLEMS toWtd
2,m
1p010D 70.5)
P5.1. xo), nv*
died with the following information
The administrator of a decedent (single)
P12,000,000
Net estate before special deductions, Philippines
Net estate, France 3,000,000
bO,70 Estate tax paid, France 200,000
AMn (1
TON AM,it
REQUIRED: Determine the estate tax payable assuming:
a) The decedent was a resident citizen, determine the estate tax tax
im
payable. P.I d00,8191 t. 4t6,t
b) The decedent was a nonresident alien 1o

P5.2.
1nge t oA Filipino decedent, residing in U.S. died in 2020 leaving the following:
Net taxable estate, Philippines P10,000,000
axDut Net taxable estate, Canada 8,000,000
TAY (rrd
Net taxable estate, USSA 2,000,000
Estate tax paid In USA 90,000
Estate tax paid in Canada 520,000
REQUIRED: Determine the estate tax payable.

P5.3.
A resident alien decedent died in 2018 leaving the following:
Net taxable estate, Philippines P10,000,000
Net taxable estate, Singapore 5,000,000
O,0 Net taxable estate, China 3,000,0000
Net taxable
taxable estate
estate, Japan
oDg et 2,000,0000
Gr Estate tax paid in Singapore 200,000
state tax paid in China
3i 0. Estate tax paid in Japan
100,000
REQUIRED: Determine the estate tax payable. °t
ftuel
Japan L
0
2 nov

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iT
0 o t 100 %0
 Chaper Eeerrises Tag Crdit (do Distribulahle Estate

P5.4.
Anonresident citizen (head of the family) from Quezon City died intestate on
November 2, 2018. The following data were provided to you:
House and lot, USA (family home) P8,000,000
Investment in stock, Philippines 800,000
Parcel of land in Quezon City inherited from his father 2 2 1,000,000
years ago
Investment in bonds of a foreign corporation (85% of its 700,000
business is located in the Philippines)
Cash in bank, USA 650,000
Cashin bank, Philippines 450,000
Accounts receivable from a debtor who resides in Quezon 200,000
City (fully uncollectible)
Car, USA 2,000,000
Car, Philippines 800,000
Actual funeral expenses 480,000
Judicial expenses 300,000
Claim against the estate (indebtedness of the decedent in the 940,000
Philippines during his lifetime)
Unpaid Philippine income tax for income in 2016 and 2017 320,000
Loss on December 31, 2018 due to theft (Q.C., Philippines) 180,000
Devise to Quezon City for children's playground 1,400,000
Medical expenses incurred prior to death 500,000
DETERMINE THE FOLLOWING:
a)Net Taxable estate
b)Estate tax due
c)Netdistributable estate

MULTIPLE CHOICE. Choose the letter of the correct answer.

1. Tax credit for death taxes paid to a foreign country is not allowed to a

decedent who was

a. Non- resident citizen of the Philippines
Resident alien decedent
b.
in the
C. Non-resident alien with intangible personal property
Philippines and there is reciprocity.
d. None of the above.

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 Cdit (A Distribuluble lt
hapter tterises Ya
with tax credit for paymente
is not allowed of
2. Which of the following
countries?
estate tax on foreign date of death
Philippines at the
An American residing in the
a. who migrated in
the United States.
A Filipino citizen
b. own country at the date
C. An alien who was a resident of his
death
d. None of the above

foreign estate tax is allowed to minimize the

tho
3. Statement 1: Tax credit for
effect of multiplicity of situs.
whether resident or non-resident
Statement 2: Filipino citizen decedents
are allowed of tax credit
for foreign estate tax.
a. Statements 1 & 2 are false
false
b. Statement 1 is true but statement 2 is
C. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

4. The amount derived by the ratio of net estate in foreign country over net
estate from all locations on the Philippine estate tax.
a. Vanishing deductions C. Estate tax credit limit
b. Estate tax credit d. Limitation A

5. A
Filipino taxpayer died in 2018 leaving the following:
Net taxable estate, Philippines, P3,000,000; Net Estate - Korea,
Korea,
P1,000,000; Estate tax paid in Korea, P80,000.

How much is the estate tax due after tax credit?

a. P60,000 C. P200,000
b. P180,000 d. P240,000

6. An American, residing in the Philippines, died in 2018

following estate before deducting special leaving the
Net taxable estate, deductions, if any:
Net taxable estate,
Philippines P6,000,000
Qatar 3,000,000
Net taxable estate, Dubai
Estate tax paid, Qatar 1,000,000
Estate tax paid, Dubai

There is no estate tax law

in Qatar and Dubai.
after tax credit is The estate tax due
a. PO
b. P400,000 C. P600,00
d. P1,000,000

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 Chapler tvercises Tay Credit ( Distribulable lstate

7. The decedent is a resident citizen under the absolute

regime. The following data community property
were provided:
Gross estate, Philippines
Gross estate, France P14,000,000
6,000,000
Deductions, Philippines 3,000,000
Deductions, France 2,000,000
Estate tax paid, Philippines
Estate tax paid, France
30,000
Community property is composed of 60% of the total estate including
a family home amounting to P8,000,000.
The correct estate tax due after tax credit is

a. P90,000 C. P150,000
b. P60,000 d. P125,000

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