CHAPTER 6: DONOR’S TAX - Hence, there should be meeting of minds between the donor and

the donee before donation is perfected

Donation – an act of liberality whereby a person disposes gratuitously - Delivery and acceptance is required to consummate donation
of a thing or right in favor of another, who accepts it. - Acceptance must be made DURING the lifetime of both the donee
- The law considers donation as a contract and the donor
- It is considered as a contract because:
• It requires acceptance Donations to Conceived and Unborn Children may be accepted by
• The rules of obligations and contracts apply to it as suppletory those persons who would legally represent them if they were already
law born.

NATURE OF DONOR’S TAX INCOMPLETE GIFT

- The donor’s tax shall be imposed to the transfer of property by gift - A gift is incomplete because of reserved powers
whether the transfer is in trust or otherwise, whether the gift is direct - It becomes complete when:
or indirect, and whether the property is real or personal, tangible or 1. Donor renounces the power
intangible 2. The donor’s right to exercise the power ceases because of the
happening of some event or contingency or the fulfillment of
DONOR’S TAX some condition, other than the death of the donor
- Also called as “Gift Tax”
- It is a tax levied, assessed, collected and paid upon the transfer by PURPOSE OF DONOR’S TAX
any person, resident or non-resident, of the property by gift 1. To prevent avoidance of estate tax
- It is a tax imposed on the exercise of the donor’s right during 2. To prevent or compensate for the loss of the progressive rates of
lifetime to transfer property to others in the form of gift income tax when large estate is split up by gifts to numerous
- Donor’s tax is an excise tax donees
• It is an excise tax imposed on the transfer of property by way
of gift inter-vivos FORMALITIES
- It is a direct tax A. Donation of Movable Property
• The tax is imposed on the donor - May be made orally or in writing
• It is determined with reference to all the donor’s gifts Oral Donation - Requires simultaneous delivery of the thing
- It applies to both: or document
1. Natural persons Donation in - Applied when value of property donated
2. Juridical persons Writing exceeds P5,000
- Otherwise, VOID
“Transfer of property in trust or otherwise, direct or indirect” **Donation is a formal contract, thus, those which are not in
- Term used by the law in the most comprehensive sense accordance with the formalities as required by the law shall be
- It includes: considered void
1. Transfer of ownership in the fullest sense
2. Transfer of any right or interest in property, but less than the B. Donation of Immovable Property
title - Must be in a public instrument
- It must specify:
When does a transfer considered complete and taxable? 1. Property donated
1. When the donor has divested himself of all beneficiary interest in 2. Value of the charges which the donee must satisfy
the property transferred - If not complied, considered VOID
2. The donor has no power to revest any such interest to himself or - Acceptance may be made in the same deed of donation or in a
his estate separate public document but it shall not take effect unless it is
done during the lifetime of the donor
PERFECTION OR COMPLETION OF DONATION ➢ If acceptance is made in a separate public document, the
- Donor’s tax will only be applied if the property to be gifted is donor shall be notified in an authentic form and this step shall
completed be noted in both instruments
- The transfer of property by gift is perfected once the donor knows
of the acceptance by the donee Summary of Formal Requirements
- It is completed by the delivery of the donated property either Personal Property Real or Registrable
actually or constructively Property
Amount Less than or More than Regardless of
THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX equal to P5,000 P5,000 amount
- The imposition of donor’s tax shall be governed by the law in force Form of Oral or In In writing In a public instrument
at the time of the perfection/completion Donation Writing
ELEMENTS OF DONATION CHARACTERISTICS OF DONOR’S TAX
1. Capacity of the donor to make donation 1. Excise tax
- Refers to the condition and legal competence of the donor to enter - It is a right imposed on the “right” or “privilege” to transfer
into a contract property by way of gift inter-vivos
- Capacity to make a contract AND capacity to dispose a property 2. It is a contract
- Capacity of the donor is determined at the perfection of the - Does not apply until there is a completed gift
donation - It is completed by delivery of donated gift, either actual or
constructive
2. Donative Intent 3. Perfected from the moment the donor knows of the
- Refers to the proper declaration of the legal owner of a property or acceptance of the donee
right to transfer ownership to another without consideration 4. Direct Tax
- Consideration – means money or equal value or some goods - The tax is imposed on the donor and determined with
or service capable of being evaluated in money reference to all the donor’s gifts
- Must be followed by a donative act to constitute a gift 5. Renunciation of surviving spouse
- No strained and artificial construction of a supplementary statute - Renunciation of surviving spouse of his/her share in the
should be included to tax as gift a transfer actually lacking of conjugal partnership or absolute community after the
donative intent dissolution of the marriage is subject to donor’s tax
- Donative intent is required only in direct gifts 6. General renunciation by an heir, including the surviving
- If indirect gift take place by way of sale, exchange, or other spouse
transfer of property (transfer for inadequate consideration), - General renunciation by an heir, including the surviving
donative intent is not necessary. spouse of his/her share in the hereditary estate is not subject
- The intention to donate is known by observing the forms required to donor’s tax
by the law to make it valid - UNLESS: (1) Specifically and categorically done in favor of
identified heir/s (2) To the exclusion or disadvantage of the
3. Delivery others co-heirs in the hereditary estate
- It is completed by the delivery, either actual o constructively, of the
donated property or instrument to the donee CLASSIFICATION OF DONATION
- The law in force at the time of perfection or completion shall A. As to motive or purpose:
govern the imposition of donor’s tax based on the fair market 1. Simple – The cause is pure liberality
value of the property 2. Renumeratory
- Donations made due to past services rendered or future
4. Acceptance services or charges and burdens
- Donation is perfected from the time of knowledge of the donor that - Not really considered as donation in substance
the donee has accepted the same - Not subject to donor’s tax because it is not gratuitous
- NOT from the time of acceptance 3. Modal – Consideration is less than the value of the thing
- This is because the tax law consider donation as a contract donated
B. As to time of taking effect (Perfection): 2. The foreign country described in the preceding paragraph allows a
1. Donation inter-vivos similar exemption from transfer taxes of every character or
2. Donation mortis-causa description in respect of intangible personal property owned by
citizens of the Philippines not residing that foreign country
VALUATION OF GROSS GIFTS (same as estate tax) Intangible Personal Property in the Philippines (same as estate tax)
- Donor’s tax should be based on the fair market value of the
property donated at the time the donation is perfected COMPUTATION OF TAXABLE NET GIFT
GROSS GIFTS PXX
Donation of real FMV = amount provided by CIR or 1. Direct Gifts
property Provincial and City assessors, 2. Gift/s through creation of trust
whichever is higher. 3. Transfer for insufficient consideration
Stocks, bonds, and other securities: 4. Repudiation of inheritance
If traded in the stock FMV = mean between the highest and 5. Renunciation by the Surviving Spouse of his/her
exchange lowest quoted selling prices share in the common property
If NOT traded in the stock exchange: 6. Condonation of debt
1. Ordinary Shares FMV = book value or security on the DEDUCTIONS (XX)
valuation date 1. Encumbrances
2. Preferred Shares FMV = par value of the security 2. Diminution(s)
3. Government, charitable/educational, etc.
Note: LESS: Exempt Gift (TRAIN LAW) (P250,000)
- Installment Price is not equivalent to FMV Taxable Net Gifts PXX
- FMV determined by independent real estate appraisers/assessors
are ignored for donor’s tax purposes DONOR’s TAX RATE
Beginning January 1, 2018 (Upon effectivity of TRAIN LAW)
COMPARISONS BETWEEN ESTATE TAX AND DONOR’S TAX Tax Rate: 6% in excess of P250,000 exempt gifts
Estate Tax Donor’s Tax
Concepts • Succession • Gift or Donation Notes:
Involved • Donation Mortis • Donation Inter- • Computation of donor’s tax is on a cumulative basis over a
Causa Vivos period of one calendar year
Requisites • • The donor’s tax rate of 6% is regardless of the relationship of
Death of the • Donative Intent of
or the donor and the donee
decedent the donor
• Any contribution (in kind or in cash) to any candidate or
Elements • Heir or successor is • Capacity or
alive at the time of authority of the political parties for campaign purposes shall be governed by
the Election Code, thus, not subject to donor’s tax
the decedent’s donor
• Husband and wife are considered as separate and distinct
death and is • Delivery of donated
qualified to inherit taxpayers for purposes of computing donor’s tax
property
➢ Compulsory • Acceptance by the
Heir CUMULATIVE RULE
donee
➢ Voluntary Heir - Applicable regardless of the relationship of the donor and the
• Donation must be
• Estate/Inheritance donee
in proper form
- Only as to gifts made within the same calendar year ‘
Accrual Upon the death of the Upon completion or
Period decedent perfection of the gift or Pro-forma (based only on page. 170)
donation Donations for the year:
Governing Statute in force at time of Statute in force at the January 1 = Donation 1, April 1 = Donation 2, August 15 = Donation 3
Law the death of decedent time of the perfection or
completion of the January 1 tax due and payable:
donation Donation 1 Pxxx
Tax Rate 6% net estate 6% net gifts in excess of LESS: Exempt gift (250,000)
250,000 Net Taxable Gift xxx
Filing and • Within one year • Within 30 days Donor’s tax rate 6%
Payments from the death from donation Donor’s Tax Due (1) Pxxx
• Extension to file: • No extension to file
Not more than 30 • Pay as you file April 1 tax due and payable:
days system Donation 1 Pxxx
• Pay as you file • No extension for Donation 2 xxx
system payment LESS: Exempt gift (250,000)
• With extension to Net Taxable Gift xxx
pay: Donor’s tax rate 6%
• 5 years – if judicial Donor’s Tax Due (2) Pxxx
• 2 years – if extra LESS: DTD 1 (xxx)
judicial Donor’s tax payable xxx
Scope • RC, NRC, RA – on • RC, NRC, RA – on
estate within and gifts within and August 15 tax due and payable:
without without Donation 1 Pxxx
• NRA – on estate • NRA – on gifts Donation 2 xxx
within only within only Donation 3 xxx
LESS: Exempt gift (250,000)
GROSS GIFTS Net Taxable Gift xxx
- Composition of the gross gift will depend upon the citizenship Donor’s tax rate 6%
and/or residence of the donor Donor’s Tax Due (3) Pxxx
➢ Resident or Citizen – Taxable on properties situated within LESS: DTD 2 (xxx)
or without the Philippines Donor’s tax payable xxx
➢ Non-resident Alien – Taxable on properties situated within
the Philippines only
STRANGER
Property Citizen/Resident Non-resident Alien A person who is not:
Property within Include Include 1. A brother, sister (whether by whole or half blood), spouse,
(R or P) ancestor, and lineal descendant
Property without Include Exclude 2. Relative by consanguinity in the collateral line within the 4th
(R or P) civil degree
Intangible Property Include Include, if without Note: Relationship of the donor and the donee is already irrelevant
within reciprocity starting 2018 or upon effectivity of the TRAIN LAW
Intangible Property Include Exclude
outside Donations to/between:
Legally adopted child Not considered as
Reciprocity Rule (with the same rights and obligations donation to a stranger
1. The donor, at the time of the donation was a citizen and resident of to a legitimate child)
a foreign country which at the time of the donation did not impose Business to business organization Considered donations to
a transfer tax on intangible personal property of the citizens of the Individual to business organization strangers
Philippines not residing in that foreign country
TRANSFER FOR INSUFFICIENT CONSIDERATION marriage in favor of the heirs of the deceased spouse or any other
• A property, other than a real property subject to capital gains person/s is subject to donor’s tax.
tax, is transferred for less than an adequate or full consideration in - General renunciation by an heir, including the surviving spouse of
money or money’s worth. his/her share in the hereditary estate is not subject to tax
UNLESS:
• The amount by which the fair market value of the property at the 1. Specifically and categorically done in favor of identified heir/s
time of the execution of the Contract to Sell or execution of 2. To the exclusion or disadvantage of the others co-heirs in the
the Deed of Sale exceeded the value of the agreed or actual hereditary estate
consideration or selling price shall be deemed as a gift and shall
be included in computing the amount of donor’s tax. CONDONATION OR CANCELLATION OF INDEBTEDNESS
Condonation or Remission of debt
Real Property (ordinary asset) Deemed as gift - an act of liberality, by virtue of which the creditor, without receiving
Real Property (capital asset) Not deemed as gift any equivalent, renounces the enforcement of the obligation which
Except: Real Property (capital asset) clearly Deemed as gift is extinguished in its entirety or in that part or aspect of the same
states as a donation to which the remission refers.
Bargain Transactions/Negotiations Not deemed as gift - The generous act of a person who, for instance, lends money to
another with an obligation repay, the borrower is released from
such obligation, hence, subject to donor’s tax.
DONOR’S TAX FOR SALE OR EXCHANGES NOT THROUGH THE - There is no condonation of indebtedness or donation in the ff
LOCAL STOCK EXCHANGE OF SHARES OF STOCK OF DOMESTIC cases:
CORPORATIONS 1. Condonation is due to the rendition of service
➢ Has the effect of payment of compensation
• Provision prior to 2018:
➢ Debtor is subject to income tax
- “Where property, other than a real property subject to capital gains
2. Condonation was made by a corporation in favor of its
tax, is transferred for less than an adequate or full consideration in
shareholders
money or money’s worth, then the amount by which the fair market
- Has the effect of payment of dividend
value of the property exceeded the value of the consideration shall,
for the purpose of donor’s tax, be deemed a gift, and shall be
PAYMENT OF LOAN BY A GUARANTOR
include in computing the gifts made during the calendar year.”
Guarantee – in general, is gratuitous unless otherwise stated
➢ UNLESS, the obligation is jointly entered into by the guarantor and
• Intention of the provision:
the borrower with a creditor-bank:
- To discourage the parties to a sale from manipulating their
- The security given by the guarantor to fulfill the obligation of the
selling price in order to save on income taxes
borrower is not gratuitous because the guarantor must be
- If parties would declare a lower selling price per document of
indemnified by the principal debtor in case the guarantor pays for
sale than the actual amount of money which changed hands,
the debt
there is a foregone revenue and the government is placed at
- In such case, payment by the guarantor is not subject to donor’s
a very disadvantageous position
tax
- Section 100 automatically treats disparity between the FMV
and the selling price of the property as gift subject to donor’s
SPLITTING OF GIFTS
tax
- Tax minimization scheme which is done by spreading the gifts over
• “The absence of donative intent does not exempt the sale of stock numerous calendar years
transaction from donor’s tax since Section 100 categorically states
- To avoid a higher tax due to a higher tax base
that the amount by which the FMV of the property exceeded the - Under TRAIN Law, the first P250,000 donation during the year is
value of the consideration shall be deemed as a gift. Thus, even if exempt, therefore, splitting the gift into several taxable years may
there is no actual donation, the difference in price is considered
result to a lower tax due
donation”
• Under rules of statutory construction, exceptions, as a general DONATIONS MADE BY A FOREIGN CORPORATION
rule: - Subject to donor’s tax only if the property donated is located in the
1. Should be strictly but reasonably construed Philippines
2. They extend only so far as their language fairly warrants - Donation of a foreign corporation of its own shares of stocks, in
3. All doubts should be resolved in favor of the general general, is NOT subject to donor’s tax
provisions rather than the exception
- Thus, starting January 1, 2018, when shares of stock not traded Donation of a foreign corporation of its own shares of stocks in
in the stock exchange are sold for less than its fair value, the favor of a resident
excess of the FMV over the selling price shall be treated as a - Not subject to donor’s tax
gift subject to donor’s tax - Shall constitute taxable compensation income
- EXCEPT: If it is sold at arm’s length, free from any donative - Subject to income tax
intent (in the ordinary course of business) - Assumed to be compensation for services performed under an
- The parties must present proof of business purpose to fall employee-employer relationship
within the exception to rule on the imposition of donor’s tax - Value of shares shall be deductible expense to the corporation
Capital Gains Tax VOID DONATIONS
Selling Price Pxxx 1. Those made between persons who were guilty of adultery or
Purchase Price (Cost) (xxx) concubinage at the time of donation
Capital Gain xxx ➢ The action for declaration of nullity may be brought by
CGT rate 15% the spouse of the donor or donee
Capital Gains Tax xxx ➢ The guilt of the donor and donee may be proved by
preponderance of evidence in the same action
Donor’s Tax Due 2. Those made between persons found guilty of the same criminal
Fair Market Value at the time of sale Pxxx offense, in consideration thereof
Selling Price (xxx) 3. Those made to a public officer or his wife, descendants and
Insufficient Consideration (gift) xxx ascendants, by reason of his office
LESS: Tax exempt gift (250,000)
Amount subject to Donor’s Tax xxx EXEMPT GIFTS
Donor’s Tax Rate 6% - Not the same as exclusions from gross estate
Donor’s Tax Due xxx - Partakes the nature of deductions, thus, deductible from gross
gifts
- Same amount shall be presented in the “gross gifts” of the donor
RENUNCIATION OF SHARE IN COMMON PROPERTY BY THE
SURVIVING SPOUSE AND INHERITANCE DEDUCTIONS FROM THE GROSS GIFTS
- The items of “deductions” from the gross gifts are the same with
the enumeration for “exempt gifts” because “exempt gits” partake
the nature of deductions and are therefore deductible from the
gross gifts in order to arrive at taxable net gifts.

Exclusions/Deductions from Gross Gifts

1. Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for
profit or to any political subdivision of the said Government which
is not conducted for profit, or to any political subdivision of the
said Government

- Renunciation of surviving spouse of his/her share in the conjugal

partnership or absolute community after the dissolution of the
 ➢ If conducted for profit, subject to donor’s tax. The amount is - Shall also be exempt from direct and indirect taxes, including vat
included in gross gifts but NOT allowed to be part of duties, fees, and other charges on importations and purchases for
deduction. its exclusive use.
2. Gifts in favor of non-profit educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited DONOR CITIZEN OR NON-RESIDENT
nongovernment organization, trust or philanthropic organization or RESIDENT ALIEN
research institution or organization. Provided that not more than Dowry (repealed under - -
30% of said gifts shall be used by such donee for administration TRAIN law)
purposes. Encumbrances Allowed Allowed
- If more than 30% is used for administration purposes, Diminutions Allowed Allowed
subject to donor’s tax. The amount is included in gross gifts Gifts to National Allowed Allowed
but NOT allowed to be part of deduction. Government
Gifts to educational, Allowed Allowed
Non-Profit Educational and/or Charitable Corporation charitable institutions, etc.
A nonprofit educational and/or charitable corporation, institution, Under Special Laws Allowed Allowed
accredited non-government organization, trust or philanthropic
organization and/or research institution or organization is a school, TAX CREDIT FOR FOREIGN DONOR’S TAX
college, or university and/or charitable corporation, accredited - In order to minimize or lessen the harsh effect of taxing the same
nongovernment organization, trust or philanthropic organization and/or gift twice
research institution or organization, incorporated as a nonstock entity, - Foreign donor’s tax credit
paying no dividends, governed by trustees who received no ➢ Can only be claimed by Citizens or Residents of the
compensation, and devoting all its income, whether student’s fees Philippines at the time of donation
or gifts, donation or subsidies or other forms of philanthropy, to ➢ Non-resident Alien cannot claim for tax credit on estate tax
the accomplishment and promotion of the purposes enumerated in paid abroad
its Articles of Incorporation. - Amount of tax credit allowed to citizen and resident decedents is
the amount of donor’s tax paid to the foreign country
Notice of Donation by a donor engaged in business
- In order to be exempted from donor’s tax and to claim full deduction Limit 1 or Limit A – If there is only one (1) foreign country
of the donation, the donor engaged in business shall give a Notice
of Donation on every donation worth at least P50,000 to the
Revenue District Office (RDO)
versus
- Within 30 days after receipt of the qualified donee institution’s duly
issued Certificate of Donation, which shall be attached to the
Actual Tax paid, foreign country = Pxxx (Actual)
said Notice of Donation, stating that not more than thirty percent
Allowed Tax Credit (lower amount) = Pxxx (Tax Credit)
(30%) of the said donation/gifts for the taxable year shall be used
by such accredited non-stock, nonprofit corporation/NGO
institution (qualified donee institution) for administration purposes Limit 2 or Limit B – If there is more than one foreign countries
Step One: Compute for Limit 1 or Limit A per country
The function of accrediting donee-institutions has been transferred Step Two: Compute limit 2 using the following formula:
from Philippine Council for NGO Certification, Incorporated (PCNC)
to the following government agencies:

Department of Social For charitable and/or social welfare versus

Welfare and organizations, foundations and
Development (DSWD) associations including but not limited to Actual Tax paid, all foreign countries = Pxxx (Actual)
those engaged in youth, child, women, Limit B (lower amount) = Pxxx (Tax Credit)
family, disabled persons, older
persons, welfare and development Step 3 – Choose the lower amount between Limit A and Limit B
Department of Science For research and other specific Limit A Pxxx
and Technology activities Limit B Pxxx
Philippine Sports For sports development
Commission Allowed Tax Credit (lower amount) Pxxx
National Council for For cultural activities
Culture and Arts PROFORMA COMPUTATION
Commission on Higher For educational activities Total Gross Gifts Pxxx
Education Total Deductions (xxx)
Net Gift xxx
3. Encumbrances on the property donated if assumed by the donee LESS: Tax exempt (250,000)
- “Net Gift” shall mean the net economic benefit from the Net Taxable Gift xxx
transfer that accrues to the donee Tax Rate 6%
- If mortgaged property is transferred as a gift, but imposing Donor’s Tax Due xxx
upon the donee the obligation to pay the mortgage liability, LESS: Tax Credit xxx
then the net gift is measured by deducting from the FMV of
Donor’s Tax Payable Pxxx
the property the amount of mortgage assumed
4. Donations NOT exceeding P250,000 in one year (regardless of
ADMINISTRATIVE PROVISIONS
the relationship of donor and the donee)
Filing and Payment
5. Donations made to entities as exempted under special laws
- Any individual who makes any transfer by gift shall make a return
a) Prizes and awards given to athletes
in duplicate
b) Donation to the International Rice Research Institute
- The return shall set forth:
c) Donation to the Ramon Magsaysay Award Foundation
1. Each gift made during the calendar year which is to be
d) Donation to the Philippine Inventor’s Commission included in computing net gifts:
e) Donation to the Integrated Bar of the Philippines
2. The deduction claimed and allowable
f) Donation to the Development Academy of the Philippines
3. Any previous net gifts made during the same calendar year
g) Donation to the Philippine-American Cultural Foundation 4. The name of the donee
h) Donation to Philippine Health Insurance Corporation
5. Such further information as may be required by rules and
i) Donations to equipment, materials, services to the Task Force
regulations made pursuant to law
on human settlement - The return is filed and paid within 30 days after the date the gift is
j) Donations to Intramuros Administration
made or completed
k) Donations to Southern Philippines Development
- Pay-as-you-file system
Administration
l) Donations to National Social Action Council
Place of Filing
m) Donations to the Aqua-culture Department of Southeast Asia
The return shall be filed and the tax paid to:
Fisheries Development Center of the Philippines 1. An authorized agent banks
2. Revenue District Officer
PHILIPPINE RED CROSS
3. Revenue Collection Officer
- Shall be exempt from payment of all direct and indirect taxes, all
provisions of law to the contrary, not withstanding, including value
If there is no legal residence in the Philippine, file at Office of the
added tax, fees and other charges of all kinds on all income from
Commissioner
its operations, including the use, lease or sale of its real property,
and provision of services.