CHAPTER 6: DONOR’S TAX

Donation Law that Governs the Imposition of Donor’s Tax

- An act of liberality whereby a person - The law in force at the time of the
disposes gratuitously of a thing or right in perfection/completion of the donation shall
favor of another, who accepts govern the imposition of donor’s tax.
- Although the law used the term “act”, the
Essential Requisites of Donation
law considers donation as a “contract”, as
shown by the fact that it requires 1. Capacity of the Donor to make donation
acceptance, and that the rules on - Condition and legal competence of the
obligations and contracts apply to it as a donor to enter into contract
suppletory law - All persons who may contract and dispose
of their property may make a donation.
Nature of Donor’s Tax
Thus, it is not enough that a person be
- A tax levied, assessed, collected and paid capacitated to contract, he must also have
upon the transfer by any person, resident the capacity to dispose.
or nonresident, of the property by gift. - Capacity of the donor is determined at the
- Tax imposed on the exercise of the donor’s perfection of the donation.
right during the lifetime to transfer - Donation made by a minor, an insane, or by
property to others in the form of gift. under hypnotic spells, force or intimidation
- Hence, donor’s tax is not a property tax, is unenforceable.
but an excise tax imposed on the transfer of
property by way of gift inter-vivos. 2. Donative Intent to make a gift on the part
- It Is a direct tax because the tax imposed on of the Donor.
the donor and determined with reference - Donative intent refers to the proper
to all the donor’s gifts. declaration of the legal owner of a
property or right to transfer ownership to
“Transfer of Property in Trust or otherwise,
another without consideration
Direct or Indirect”
- Such intent followed by a donative act is
- Used by the law in the most comprehensive essential to constitute a gift, and no
sense. strained and artificial construction of a
- It includes not only the transfer of supplementary statue should be included
ownership in the fullest sense but also the to tax as gift a transfer actually lacking a
transfer of any right or interest in the donative intent
property, but less than the title
Note: Donative intent is required only in direct
- Transfer becomes complete and taxable
gifts
only when the donor has deprived himself
of all beneficiary interest in the property Note: If a gift is indirect taking place by way of the
transferred and has no power to deprived sale, exchange, or other transfer of property,
any such interest in himself or his estate. donative intent is not necessary. The intention to
donate is known by observing the forms required
Perfection or Completion of Donation
by law to make it valid.
- Donor’s tax shall not apply unless and until
3. Delivery
there is a completed gift
- Donor’s tax applies to a completed gift
- Transfer of property by gift is perfected
- Transfer is perfected from the moment the
from the moment the donor knows the
donor knows the acceptance by the donee
acceptance by the done
- It is completed by the delivery, either
- It is completed by the delivery, either
actual or constructively, of the donate
actually or constructively, of the donated
property or the instrument, to the donee.
property to the donee.
- Law in force at the time of the perfection
of donation shall govern the imposition of
donor’s tax based on the FMV.
 - If the acceptance is made in a separate
instrument, the donor shall be notified in
4. Acceptance
an authentic form, and this step shall be
- Donation is perfected not from the time of
noted in both instrument
acceptance but from the time of knowledge
of the donor that the donee accepted the
same
Reason: Tax law consider donation not merely as
an act of gratuitously transferring property or
right but as a contract. Hence, there should be Characteristics of Donor’s Tax
meeting of the minds between the donor and the
1. Excise Tax
done before the donation is perfected
2. Contract
- Delivery and acceptance is required to 3. Transfer is Perfected from the moment the
consummate donation. donor knows the acceptance of the donee.
- Acceptance must be made during the 4. Direct Tax
lifetime of the donor and done 5. Renunciation by the surviving spouse of
his/ her share in conjugal partnership or
Note: Donations made to conceived and unborn
absolute community after the dissolution
children may be accepted by those who would
of the marriage is subject to donor’s tax
legally represent them if they were already born.
6. General renunciation by an heir, including
Incomplete Gift the surviving spouse, of his/her share in the
hereditary estate is not subject to tax,
- A gift that is incomplete because of
unless specifically and categorically done in
reserved powers become complete when
favor of identified heirs to the exclusion or
either
disadvantage of the other co-heirs in the
a. Donor renounces the power
hereditary estate
b. Donor’s right to exercise the power ceases
because of the happening of some event or Types of Inter-Vivos Donation
contingency or the fulfillment of some
1. Direct Donation
condition, other than the death of the
- One made by the donor directly to the
donor.
donee
Purpose of Donor’s Tax 2. Indirect Donation
- Involves transfer of property by the donor
1. To prevent avoidance of estate tax
in favor of the donee but under supervision
- Donor’s tax supplements the estate tax by
of another party. This is called donation in
preventing avoidance of the latter through
trust
the device of donating the property during
the lifetime of the deceased Designation of donation in trust may either be
2. To prevent or compensate for the loss of
a. Revocable – Not a completed donation and
the progressive rates of income tax when
is not taxable
large estates are split up by gifts to
b. Irrevocable – Completed donation; hence,
numerous donees.
taxable
Donation of Immovable Property
Types of Donors
- It will be valid donation if it is made in a
1. Resident or Citizen- taxable on global
public instrument, specifying the property
donations
donated and the value of the charges
a. Resident Citizen
which the donee must satisfy
b. Non-resident Citizen
- Donation that does not comply with
c. Resident Alien
formalities shall be deemed void
2. Non-resident Alien – taxable only on PH
- Acceptance may be made in the same deed
donations, except intangible personal
of donation or in a separate public
property subject to reciprocity conditions
document, but it shall not take effect unless
it is done during the lifetime of the donor
Reciprocity rule for non-resident aliens - Sellers of goods and properties may
intentionally set the selling price below the
- Applies if their country also exempts the
fair value for some personal reasons
donations of intangible personal properties
- The gratuity is an unrealized benefit which
by Filipino non-residents
will not be taxed under income taxation
Donees - Donor’s tax supports income tax by taxing
the gratuity
- NIRC required classification of donees
between relative and strangers.
 Donation to relatives are then subject to a Donation to the government for public use
progressive tax
- Gifts made for the use of national
 Donation to Strangers are subject to 30%
government which are not conducted for
tax
profit or political subdivision are exempt
- Under TRAIN LAW, no need to classify
from donor’s tax
donees as donation to any donee is now
subject to flat 6% Donation to accredited non-profit organization

Summary of rules on taxable donation - Gifts in favor of an educational, charitable,

religious, cultural, social welfare
corporation, institution, accredited
nongovernment organization, trust or
philanthropic organization are exempt from
donor’s tax

Donor’s Tax Requisite for exemption

- Tax upon gratuitous transfer of property a. Not more than 30% of said gift shall be
between two or more living persons at the used by such donee for administrative
time of transfer whether the transfer is purposes
direct or in trust and without regard to the b. Donee entity must be organized as a
type of property transferred non-stock entity.
c. Donee entity does not pay dividends.
Nature of Donor’s Tax d. Donee entity’s board of trustees earns
1. Privilege Tax – Tax upon the privilege to no compensation
transfer property gratuitously during the
lifetime of the donor. 3. To recoup future loss of income tax
2. Proportional Tax – Tax is based on a fixed revenue
percentage of net gift - Similar to succession, a donation of property
will cause the spread of income-generating
3. Annual Tax – Tax is imposed on yearly net
properties to multiple individual taxpayers.
gifts of donor’s in excess of 250,000
This will cause a reduction in future income tax
4. Ad Valorem Tax – Tax depends upon the
- The transfer is subject to donor’s tax to recoup
value of the property donated future loss of government income tax revenue
5. National Tax – Tax imposed by the national
government Exempt Gifts
6. Revenue or Fiscal Tax – Tax intended to 1. Donations to exempt donees under the
provide the government income. NIRC and special laws
Rationale of Donor’s Taxation 2. Donation for election campaign
3. Transfers for insufficient consideration
1. To control tax evasion of the estate tax involving real property classified as capital
- If there is no tax on donation, a person may assets
transfer his properties while he is still living 4. General renunciations of inheritance
to avoid estate tax 5. Donations with reserved powers
- Donor’s tax is intended to minimize tax 6. Donations to the government for public use
evasion on estate tax 7. Donation to accredited non-profit
2. To control tax evasion on income tax institution.
8. Quasi-transfers
 9. Void donations - The gratuitous portion of transfers for
10. Foreign donation of non-resident alien insufficient consideration (complex
donors transfers) is subject to donor’s tax
11. Donations of property exempt under - This is intended to control tax evasion on
reciprocity income tax when the selling price is
intentionally set a lower amount
Donation to certain exempt donees under the
- However, this rule does not apply to the
NIRC and special laws
sale of real property capital asset. The sale,
exchange, and other disposition of real
property classified as capital asset is subject
to a capital gains tax of 6% based on FV or
gross selling price, whichever is higher
- This income tax scheme has a flexible tax
base. If the selling price is set lower than
FV, FV is taxed.
- There could be no income tax evasion to
arise from manipulation of the selling price.
Hence, there is no need to impose the

Donation for election campaign

- Any contribution in cash or in any kind to
any candidate, political party, or coalition of
parties for campaign purposes shall be
governed by the Election Code, as donor’s tax
amended Note: Exemption applies only to the real properties
- Exemption is not automatic. These subject to the 6% capital gains tax. Such as
donations must be reported to the
Commission on Elections to be exempt 1. Sale of real properties classified as ordinary
from donor’s tax asset
- Supporting political candidates or parties by 2. Sale of personal or movable property
making campaign donation to them during Note: Sale of vacant and unused lot is subject to 6%
elections is an exercise of one’s political capital gains tax because it is an onerous
freedom – a constitutionally vested right. disposition
Hence not subject to taxation
Note: Building and equipment are properties used
Transfers for insufficient consideration involving in business which are ordinary assets than capital
real property as capital assets assets
- Where property, other than a real property Note: Investment in stocks is a personal property
has been subjected to the final capital subject to 15% capital gains tax where actual gains
gains tax, is transferred for less than an is taxed, not the 6% capital gains tax
adequate and full consideration in money
is not a contract of sale, but a donation Insufficient consideration on transfer of other
properties
Intention – To discourage the parties to a sale
from manipulating their selling price in order to - For other properties, the insufficient
save on income taxed. consideration is a gift to the extent of the
difference between the fair value and the
If parties declared a lower selling price per selling price of the property disposed of
document of sale than the actual amount of - However, in the absence of a donative
money, there is a foregone revenue and the intent, the same shall be exempt
government is placed at a very disadvantage - The donor shall have the burden of proving
the absence of an intention to donate
General Renunciation of Inheritance
 - Occurs when an heir or the surviving spouse
renounces his/her share in the hereditary
estate of a decedent in favor of no
particular coheir Donation to accredited non-profit organization
- It is a repudiation of inheritance which
- Gifts in favor for non-profit organization are
cannot be imputed as donation
exempt from donor’s tax
Note: To be exempt, the renunciation of
Requisite for exemption
inheritance must not be done categorically in favor
of an unidentified heir to the exclusion of other 1. Not more than 30% of said gift shall be used
heirs by such done for administrative purposes
2. Donee must be organized as a non-stock
Renunciation by the surviving spouse
entity
- Renunciation by the surviving spouse of 3. Donee entity does not pay dividends
his/her share in the hereditary estate of the 4. Donee entity’s board of trustees earns no
decedent will subject to tax compensation
- However, the renunciation by the surviving 5. Donee entity must devote all its income,
spouse of his/her share in the net conjugal donation, subsidies or other forms of
or communal properties upon dissolution philanthropy to the accomplishment and
of the marriage is a taxable donation promotion of its purposes enumerated in
regardless of whether it is general or Articles of Incorporation
specific.
Note: In practice, done entities are accredited by
Summary of rules on renunciation the applicable government agency. Donations to
accredited donee institutions are exempt.
Donations to non-accredited donee institutions
are taxable

Donation with reserved powers (Incomplete Accredited Agencies

transfers) - Handled by the Philippine Council for NGO
- Pertains to transfer of property where Certification (PCNC). Effective November
ownership will transfer upon the happening 16, 2007, the accreditation was transferred
of future event specified by donor, such as by Executive Order No. 671 to the ff
1. Conditional donation government entities
2. Recoverable transfers 1. DSWD – for charitable, social welfare
organizations, foundations including but not
Note: Donor’s tax shall not apply unless and until limited to those engaged in youth, child,
there is a completed gift. Incomplete transfers are women, family, disabled persons, old
not subject to tax upon delivery of the property. persons, welfare and development
They are taxable upon completion of donation 2. DOST – for research and other scientific
A gift that is incomplete because of reserved activities
powers become complete when either 3. PSC – for sports development
4. NCCA – for cultural activities
a. Donor renounces the power 5. CHED – for educational purposes
b. His right to exercise the reserved power
ceases because of the happening of some Gratuitous donations to associations
event or contingency or the fulfillment of - Associations do not qualify as exempt
some condition, other than because of donee institutions. Hence, endowments or
donor’s death gifts received by associations are not
Donation to the government for public purpose exempt from donor’s tax
- All donations for tax purposes must be
- Gifts made for the use of national covered by a donor’s tax return
government created by any of its agencies
which are not conducted for profit are Onerous donations to associations
exempt from donor’s tax
 - Donations with an onerous cause are not in - Foreign corporation effecting a donation are
the nature of an endowment or donation subject to donor’s tax only if the property
- They are in the concept of a fee or price in donated is located in the PH
exchange for the performance, use of - Donation of foreign corporation of its own
property or delivery of an object shares of stocks is not subject to donor’s tax
- However, if 85% of the business is located
Quasi- Transfers
in PH, or the shares donated have acquired
- Involve delivery of property to another business situs in the PH.
person but will never results in transfer of - Donation of foreign corporation of its own
ownership shares in favor of resident employee is not
- Not subject to donor’s tax subject to donor’s tax because it should be
assumed that such were given to the
Examples
resident employee in consideration of his
1. Merger of the usufruct in the owner of the services to the corporation
naked title during the lifetime of the
Donation of property exempt under reciprocity
usufructuary
2. Transmission or delivery of inheritance or - Donations of intangible personal property in
legacy by the fiduciary heir or legatee to the PH by a non-resident alien are exempt if
fideicommissary during the lifetime of the the reciprocity exemption applies
fiduciary heir
The Reciprocity rule
3. Transmission from the first heir, legatee, or
donee during his lifetime in favor of another No tax shall be imposed if:
beneficiary, in accordance with the desire of
a. Donor was a citizen and resident of foreign
the predecessor
country which at the time of his death or
Void Donation donation did not impose a transfer of any
character in respect of intangible personal
- Invalid donations which include those
property of citizens of the PH residing
prohibited by law and those with defects in
b. Law of foreign country allows a similar
their execution
exemption from transfer tax
- Void donations are not objects of donation
Condonation or cancellation of indebtedness
Prohibited donation under civil code
- It is a mode of extinguishing an obligation
- Condonation or Remission of debts is an act
of liberality, by virtue of which the creditor,
without receiving any equivalent,
renounces the enforcement of the
obligation which is extinguished in its
entirety.
- Generous act of a person who lends money
to another with an obligation to repay,
hence subject to donor’s tax
Donation with defects at execution Payment of Loan by the Guarantor
- A guarantee as a rule is gratuitous unless
stated otherwise
Foreign donations of non-resident alien donors - However, if the obligation is jointly entered
into by the guarantor and the borrower
- Donations of property situated in foreign with a creditor-bank, the security given by
country by non-resident alien (NRA) donors the guarantor to fulfill the obligation of the
are not subject to donor’s tax borrower is not gratuitous because the
Donations made by a foreign Corporation guarantor must be indemnified by the
principal debtor in case guarantor pays for
debt. In such case, payment by the
guarantor is not subject to donor’s tax
Splitting of Gift b. Partner as conduit/ logistical machinery
with, accredited to NGO or national
- A tax minimization scheme (tax avoidance)
government, or any entity created by
which is done by spreading gifts over
any of its agencies which is not
numerous calendar years instead of adding
conducted for profit, or to any political
it to the donations made during the same
subdivision of government
calendar year to avoid a higher tax due to
higher tax base if such gifts were made in PHILIPPINE RED CROSS
the same calendar year
- Exempt from payment of all direct and
BAYANIHAN TO HEAL AS ONE ACT (RA 11469) indirect taxes, all provisions of law to the
contrary, notwithstanding, including VAT,
- A state of national emergency had been
fees and other charges of all kinds on all
declared over the entire country
income from its operations
- It granted the President of PH to adopt
- Exempt from mentioned tax on
temporary measures as immediate
importations and purchases for its
response to the crisis brought by the
exclusive use
COVID-19 pandemic
- Donations, legacies and gifts made by
Exempt from Donor’s tax Philippine Red Cross shall be exempt from
donor’s tax and shall be deductible from
1. Donation of Critical or needed healthcare
the gross income of the donor for income
equipment or supplies intended to combat
tax purposes from the computation of
the COVID- 19 public health emergency.
donor’s decedent net estate as a transfer
2. Donation of materials needed to make
for public use for estate tax purposes
health equipment and supplies deemed as
critical or needed to address the current
public health emergency; provided that the
No condonation of indebtedness or donation in
importing manufacturer is included in the
the ff case
Master list of the DTI and other incentive
granting bodies 1. Condonation due to the rendition of
service – Transaction has the effect of
Effectivity/ Duration
payment of compensation. Thus, debtor is
- Regulation shall be in full force only during subject to income tax
the 3-month effectivity of RA 11469, unless 2. Condonation was made by a corporation in
extended or withdrawn by Congress or favor of its shareholders – Transaction has
ended by Presidential Proclamation the effect of payment of dividend

Exemptions Diminution of gift as specified by the donor

a. Cash donations; - Donor may specify that a portion of

b. Donations of all critical or needed donation will be given to another person
healthcare equipment or supplies other than donee.
c. Relief goods, such as but not limited to, - Diminution is not exempt from donor’s tax.
food packs and water It is merely a deduction against the original
d. Use of property, whether real or personal donation but it is in itself another form of
(shuttle service, use of lots/buildings) donation from the same donor which may
be subject to donor’s tax
To be exempt from tax, the donations shall be
given to the following: Diminution

1. Private hospitals, non-profit educational, - Reduction in the value of the donated

charitable, religious, cultural or social property as provided by the donor
welfare entities - It refers to the decrease in the value of the
2. Local private corporations, civic donated property as a result of a condition
organizations, or international organizations made by donor to the donee.
provided that they shall
a. Directly and exclusively distribute or
transfer said donations
Taxable Donation - Donation is perfected upon by the
acceptance of donee.

Gross Gifts
- Real and personal property, whether
tangible or intangible, or mixed wherever
situated
- Composition of gross gift will depend on the
Valuation of Gross Gifts
citizenship and residence of donor
Consideration in measuring net gift
Amount to be included in the gross gifts
1. Valuation rules
2. Timing of Valuation
3. Donation of common properties
4. Encumbrances on the property donated

Composition of Gross Gifts

Intangible Personal Property in the PH

Valuation of property donated

A. Real Property
- Zonal value or FV per assessor’s office,
whichever is higher
B. Personal Properties
1. Shares of Stock
a. If listed in the PSE Donor’s Tax Rate
- The average high and low price of the
stocks at the date of donation - Tax rate payable for each calendar year
b. If not listed shall be 6% beginning (January 1, 2018 upon
i. Preferred Stocks – par value TRAIN Law) in excess of 250,000 exempt gift
ii. Common Stock – book value Cumulative basis on computing the net taxable
appearing in FS published gift
nearest to the date of
donation - Should be on cumulative basis, regardless of
2. Other Properties the relationship of the donor and donee
a. Newly purchased – purchased price (relative or stranger, natural or juridical
b. Old items – second hand value person)
c. Monetary claims – amount fixed in Donation of common properties
the contract
- Husband and wife are considered as
Timing of valuation of gift separate and distinct taxpayers for the
- Donation is value at the point of purposes of donor’s tax
completion or perfection of donation
 - Donation of conjugal or community Tax Credit for Foreign Donor’s Tax
property shall file separate donor’s tax
- In order to minimize the harsh effect of
returns for the donations
taxing the same gift twice, donor is allowed
- However, if the donated is a conjugal or
to claim the gift tax paid in the foreign
community property and only the husband
country as tax credit against the gift tax
signed the deed of donation, there is only
paid in the PH
one donor for donor’s tax purposes,
without prejudice to the right of the wife Note: Formulas and procedures used in computing
to question the validity of donation the allowable foreign donor’s tax credit are sane
without her consent when computing allowable foreign estate tax credit
Encumbrances on the property donated assumed - Foreign donor’s tax credit can only be
by the done claimed only by citizens or residents of PH
at the time donation was made
- Obligations on the donated property which
- Nonresident alien decedents cannot claim
are assumed by the donee are diminutions
for tax credit on estate tax paid abroad
to the gratuity accruing to the donee
- These are onerous assignments of debt and Place of Filing
are not gratuity. Hence, these are
1. Authorized Agent Bank
deductible from the valuation of donation
2. Revenue District Officer
3. Revenue Collection Officer
*In case gifts made by a nonresident, the return
may be filed with
a. Philippine Embassy or consulate in the country
where he is domiciled
b. Directly with the Office of the Commissioner
Donor’s Tax Return
Civil Penalties and Interest
- Person making donation, direct or indirect,
unless the donation is specifically exempt 1. 25% if there is no false or fraudulent intent
under the Code or other special laws is 2. 50% if there is false, malice, or fraudulent
required to accomplish under oath a intent
donor’s tax return in duplicate for every 3. Interest on the unpaid amount of tax from
donation the date computed until fully paid
a. TRAIN LAW – 12%
Note: Law requires duplicate copies. In practice, b. Prior to 2018 - 20%
the return is filed in triplicate copies. Two copies
will be taken by BIR. One copy will be the
taxpayer’s copy
Filing Date
- BIR Form 1800 is filed within 30 days after
donation is made.
- Separate return is required for donation
made at different dates during the year
reflecting any previous net gift is made in
the same year
- Only one return is required for donations
made in a single day even if made to
several donees
- If the donation is conjugal or communal
property, each spouse shall file a separate
return corresponding to their share in
property
Comparison between estate tax and donor’s tax