Donor’s
Tax
A.
Nature
of Donor’s Tax
LLadoc
v. CIR (14 SCRA 292)
A
gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos.
Facts: Sometime in 1957, M.B. Estate
Inc., of Bacolod City, donated 10,000.00 pesos in cash to Fr. Crispin Ruiz, the
parish priest of Victorias, Negros Occidental, and predecessor of Fr. Lladoc,
for the construction of a new Catholic church in the locality. The donated
amount was spent for such purpose.
On March 3, 1958, the donor M.B. Estate filed the donor's gift tax return.
Under date of April 29, 1960. Commissioner of Internal Revenue issued an
assessment for the donee's gift tax against the Catholic Parish of Victorias of
which petitioner was the parish priest.
Issue: Whether or not the imposition of gift tax is valid despite the
fact that the Constitution provides an exemptions and that Fr. Lladoc was not
the Parish priest at the time of donation.
Held: Yes, the imposition of the gift tax was valid. Section 22(3) Article
VI of the Constitution contemplates exemption only from payment of taxes
assessed on such properties as Property taxes contra distinguished from Excise
taxes. The imposition of the gift tax on the property used for religious
purpose is not a violation of the Constitution. A gift tax is not a property by
way of gift inter vivos, the imposition of which on property used exclusively
for religious purposes, does not constitute an impairment of the Constitution.
As well observed by the learned respondent Court, the phrase "exempt from
taxation," as employed in the Constitution (supra) should not be
interpreted to mean exemption from all kinds of taxes. And there being no
clear, positive or express grant of such privilege by law, in favor of
petitioner, the exemption herein must be denied.
Pirovano v. CIR (14 SCRA 232)
Sec.
32[B] of the NIRC provides that Gifts,
bequests and devises are excluded from gross income liable to tax. Instead,
such donations are subject to estate or gift taxes. However, if the amount
is received on account of services rendered, whether constituting a demandable
debt or not (such as remuneratory donations under Civil Law), the donation is
considered taxable income.
Facts: De la Rama Steamship Co. insured the life of Enrico Pirovano
who was then its President and General Manager. The company initially
designated itself as the beneficiary of the policies but, after Pirovano’s
death, it renounced all its rights, title and interest therein, in favor of
Pirovano’s heirs.
The CIR subjected
the donation to gift tax. Pirovano’s heirs contended that the grant was not
subject to such donee’s tax because it was not a simple donation, as it was
made for a full and adequate compensation for the valuable services by the late
Priovano (i.e. that it was remuneratory).
Issue: WON the donation is remuneratory
and therefore not subject to donee’s tax, but rather taxable as part of gross
income.
Held:
No. the donation is not remuneratory. There is nothing on record to show that when the late Enrico
Pirovano rendered services as President and General Manager of the De la Rama
Steamship Co. and was “largely responsible for the rapid and very successful
development of the activities of the company", he was not fully
compensated for such services. The fact that his services contributed in a
large measure to the success of the company did not give rise to a recoverable
debt, and the conveyances made by the company to his heirs remain a gift or a
donation. The company’s gratitude was the true consideration for the donation,
and not the services themselves.
1.
Definition:
A tax on the
privilege of transmitting one’s property or property rights to another or
others without adequate valuable consideration.
Donor’s tax
shall be imposed upon the transfer by any person, resident or non-resident,
of any property by gift. This tax shall be applied whether the transfer is by
trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible. (Sec. 98, NIRC)
2.
Composition
of gross gift (Sec. 98 and 104)
Gross gifts
include real and personal property whether tangible or intangible or mixed
wherever situated.
3.
Tax exempt,
net gift (Sec. 99)
If the net gift is
not over PhP100,000, it shall be exempted from donor’s tax.
4.
Minimum and
Maximum Rates (Sec 99)
a) If the Donee is not a stranger- The
minimum donor’s tax rate is 2% in excess of PhP100,000 but not over PhP200,000.
The maximum donor’s tax rate is 15% in
excess of 10M.
b) If the done is a stranger, the
maximum and the minimum tax rate is fixed at 30% of the net gifts.
5.
Who is a
stranger and applicable tax rate (Sec 99)
a)
A stranger is not the brother, sister
(whether by whole or half blood), spouse, ancestor and lineal descendant; or
b)
Relative by consanguinity, in the
collateral line, within the fourth civil degree of relationship.
B. Composition of the gross gift
(Sec. 104)
1. Resident and citizens; resident
alien
All properties, real
or personal, tangible or intangible wherever situated
2.
Non-resident
alien
Only
properties situated in the Philippines provided that, with respect to
intangible personal property, its inclusion in the gross estate is subject to
the rule of reciprocity provided for under Section 104 of the NIRC.
Rule on Reciprocity: No tax shall be collected in
respect of intangible personal property if
a)
the decedent at the time of his death or the donor at the time of
donation was a citizen of 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)
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 to that foreign country.
3.
Corporations
Shall be considered
as situated in the Philippines and therefore the property shall be subject to
tax, provided that-
a)
Franchise
which must be exercised in the Philippines;
b)
Shares,
obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in accordance with its laws;
c)
Shares,
obligations or bonds by any foreign corporation 85% of the business of which is
located in the Philippines;
d)
Shares,
obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines;
e)
Shares, or
rights in partnership, business or industry established in the Philippines,
shall be considered as situated in the Philippines; provided further that
imposition of such donor’s tax is
subject to Reciprocity Rule.
4.
Valuation of
gifts made in the property (Sec 102)
a)
In case of personal
property: the value to be taken into consideration is the fair market value at
the time of the donation
b)
For real
properties: Section 102 refers to Section 88 (B) which provides that the value
to be considered shall be the (i) FMV as determined by the Commissioner; or
(ii) FMV as showed in the schedule of values fixed by the Provincial or City
Assessors, whichever is higher.
5.
Exemption of
certain gifts made in the property (Sec 101)
a)
Resident and
Citizens
-
For dowries
or gifts made on account of marriage, the following should be present (i) the
gift was made on account of marriage; (ii) it was made before or within one
year after the celebration of marriage; (iii) the donor is the parent; (iv) the
donee is the legitimate natural, or adopted children of the donor; and (v) the
amount of the gift exempted is only to the extent of the first PhP100,000.00
-
For Gifts
made for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or any political subdivision of the
said government are exempt from donor’s tax. The only requirement to be exempt
is that the done should be an agency not conducted for profits.
-
Gifts in
favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited nongovernment organization, trust
or philanthropic organization or research institution or organization. To be
exempted
(i)
Not more
than 30% of the said gift should be used for administrative purposes;
(ii)
The donee
must be a non-stock, non profit organization or institution;
(iii)
The donee
organization or institution should be governed by trustees who do not receive
dividends; and
(iv)
Said donee
devotes all its income to the accomplishment and promotion of its purposes.
b)
Non-resident
aliens
-
Gifts made
for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or any political subdivision of the
government;
-
Gifts in
favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or philanthropic
organization or research institution or organization. Unlike in the case of
residents and citizens, for nonresidents who are not citizens of the
Philippines, there is only one requirement that is not more than 30% of the
gift should be used for administrative purposes.
c)
Corporations
-
Incorporated
as a non-stock entity;
-
Pays no
dividends;
-
Governed by
trustee who received no compensation; and
-
Devotes all
its income whether students’ fees or gifts, donations, subsidies or other forms
of philanthropy to the accomplishment and promotion of the purposes enumerated
in its articles of incorporation
C. Other Matters
1. Rule on Political Contributions
(Sec 13 and 14 RA 7166)
As
provided in the Election Code, as amended by RA 7166, Sec 13, if the donee is a
candidate, a political party or a coalition of parties, the donation is exempt
from donor’s tax. As provided in Sec 14 of the law, the only requirement to be
exempt thereof is that the donation
should be duly reported to the COMELEC.
Thus:
Section
13. Authorized Expenses of Candidates and Political Parties. - The
agreement amount that a candidate or registered political party may spend for
election campaign shall be as follows:
(a) For
candidates. - Ten pesos (P10.00) for President and Vice-President; and for
other candidates Three Pesos (P3.00) for every voter currently registered in
the constituency where he filed his certificate of candidacy: Provided, That a
candidate without any political party and without support from any political
party may be allowed to spend Five Pesos (P5.00) for every such voter; and
(b) For
political parties. - Five pesos (P5.00) for every voter currently registered in
the constituency or constituencies where it has official candidates.
Any provision of law to the
contrary notwithstanding any contribution in cash or in kind to any candidate
or political party or coalition of parties for campaign purposes, duly reported
to the Commission shall not be subject to the payment of any gift tax.
Section 14. Statement of Contributions
and Expenditures: Effect of Failure to File Statement. - Every candidate
and treasurer of the political party shall, within thirty (30) days after the
day of the election, file in duplicate with the offices of the Commission the
full, true and itemized statement of all contributions and expenditures in
connection with the election.
No person elected to any public
offices shall enter upon the duties of his office until he has filed the
statement of contributions and expenditures herein required.
The same prohibition shall apply
if the political party which nominated the winning candidate fails to file the
statement required herein within the period prescribed by this Act.
Except candidates for elective
barangay office, failure to file the statements or reports in connection with
electoral contributions and expenditures are required herein shall constitute
an administrative offense for which the offenders shall be liable to pay an
administrative fine ranging from One thousand pesos (P1,000.00) to Thirty
thousand pesos (P30,000.00), in the discretion of the Commission.
The fine shall be paid within
thirty (30) days from receipt of notice of such failure; otherwise, it shall be
enforceable by a writ of execution issued by the Commission against the
properties of the offender.
It shall be the duty of every
city or municipal election registrar to advise in writing, by personal delivery
or registered mail, within five (5) days from the date of election all
candidates residing in his jurisdiction to comply with their obligation to file
their statements of contributions and expenditures.
For the commission of a second or
subsequent offense under this section, the administrative fine shall be from
Two thousand pesos (P2,000.00) to Sixty thousand pesos (P60,000.00), in the
discretion of the Commission. In addition, the offender shall be subject to
perpetual disqualification to hold public office.
2. Transfer for less than adequate
and full consideration (Sec 100)
Under this Section, the property was transferred by the donor for
less than adequate consideration for money or money’s worth. However, the Code
considers this transfer as a donation since what motivated the donor in
transferring the property is his generosity. It is as if the property was
donated but in order to avoid donor’s tax, the donor opted to transfer the
property for inadequate consideration.
By way of exception, Sec 100 provides that for the property
mentioned in Sec 24 (D)(1), this is not applicable. Sec 24(D)(1) refers to real
property located in the Philippines which is capital asset. Hence, under Sec
100, if the property transferred for inadequate consideration was a real
property located in the Philippines which is capital asset, donor’s tax will
not be applicable. In that case, the applicable tax is Final Income Tax of 6%
of the FMV or gross selling price whichever is higher.
Further Sec 100 will not apply if the transfer is a bona fide
donation. In that case, if there was a consideration given by the donee to the
donor, even if such consideration is inadequate, Sec 100 will not apply and the
donation shall be subject to donor’s tax.
3. Manner of Computing the Donor’s
Tax (Sec 12 RR No. 2-03)
-
The
computation of the donor’s tax is on a cumulative basis over a period of one
calendar year. Thus when the donor makes
two or more donation within the same calendar year, it is required that said
donation be included in the return for the last donation. There is no double
taxation. Under this method, the tax paid on the first donation will be
considered as tax credit. Relevant in a donation made not by a strangers in the
computation of tax percentage to be imposed under Sec 99(A).
D. Filing and Payment of Returns
(Sec 103/ Sec 13 RR No. 2-03)
1. Requirements
– Any person making a donation (whether direct or indirect),
unless the donation is specifically exempt under the Code or other special
laws, is required, for every donation, to accomplish under oath a donor’s tax
return in duplicate. The return shall set forth:
(i) Each gift made during the calendar year which
is to be included in computing net gifts;
(ii) The deductions claimed and
allowable;
(iii) Any previous net gifts
made during the same calendar year;
(iv) The name of the donee;
(v) Relationship of the donor to the donee; and
(vi) Such further information as
the Commissioner may require.
2. Time and Place of Filing
-
The Code
provides that the return shall be filed within 30 days after the date the gift
was made and the tax due thereon shall be paid at the time of filing. The “pay
as you file” system is applicable.
-
Unlike in
the estate tax, there is no extension allowed by the Code for the donor tax. At
the time of filing of the return, the donor tax due should be paid.
-
The return
shall be filed and the tax shall be paid at any authorized agent bank, the RDO,
RCO, or duly authorized treasure of the city or municipality where the donor
was domiciled at the time of the transfer, or if there be no legal residence in
the Philippines, with the office of the Commissioner. In case of the gifts made
by a non-resident, the return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of the transfer, or
directly with the office of the Commissioner.
3. Notice of Donation - Exemption
from Donor’s Tax (Sec 13 RR No. 2-03)
-
In
order to be exempt from donor’s tax and to claim full deduction of the donation
given to qualified donee institutions duly accredited by the Philippine Council
for NGO Certification, Inc. (PCNC), the donor engaged in business shall give a
notice of donation on every donation worth at least Fifty Thousand Pesos
(P50,000) to the Revenue District Office (RDO) which has jurisdiction over his
place of business within thirty (30) days after receipt of the qualified donee
institution’s duly issued Certificate of Donation, which shall be attached to the
said Notice of Donation, stating that not more than thirty percent (30%) of the
said donation/gifts for the taxable year shall be used by such accredited
non-stock, non-profit corporation/NGO institution (qualified-donee institution)
for administration purposes pursuant to the provisions of Section 101(A)(3) and
(B)(2) of the Code.
4. Rule on waiver of hereditary
share – correlate with Estate Tax
-
Renunciation
by the surviving spouse of his/her share in the conjugal partnership or
absolute community after the dissolution of the marriage in favor of the heirs
of the deceased spouse of any other person/s is subject to donor tax.
-
General
renunciation by an heir, including the surviving spouse, of his/her share in
the hereditary estate left by the decedent is not subject to donor’s tax,
unless specifically done in favor of an identified heir/s to the exclusion or
disadvantage of the other co-heirs in the hereditary estate
