DONOR'S TAX

DONOR'S TAX

Definitions:

Donation – an act of liberality whereby a person disposes

gratuitously of a thing or right in favor of another, who
accepts it. (NCC, Art. 725)
Donor’s/Gift tax – a tax levied, assessed, collected and
paid upon the transfer by any person, resident or non-
resident, of the property by gift.
- a tax imposed on the exercise of the donor’s right
during lifetime to transfer property to others in the form
of gift.
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Nature of donation:

 A contract
 Requires acceptance
 The rules on obligations and contracts apply to
it as a suppletory law. (NCC, Art. 732)
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Nature of donor’s tax:

1. Not a property tax but an excise tax
2. Imposed on the transfer of property by way of gift
inter-vivos (RR 12-2018)
3. Imposed whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible.
4. A direct tax
5. Applies to both natural and juridical persons.
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Transfer of property in trust or otherwise, direct or

indirect:
 Includes not only the transfer of ownership in the
fullest sense but also the transfer of any right or
interest in property but less than the title.
 A transfer becomes complete and taxable only when
the donor has divested himself of all beneficiary
interest in the property transferred and has no power
to revest any such interest in himself or his estate.
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Perfection or completion of donation:

 The donor’s tax shall not apply unless and until
there is a completed gift.
 The transfer of property by gift is perfected
from the moment the donor knows of the
acceptance by the donee.
 It is complete by delivery, either actually or
constructively, of the donated property to the
donee.
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Elements of donation:
1. Capacity of the donor to make donation
 Refers to the condition and legal competence
of the donor to enter into a contract
 The donor must also have the capacity to
dispose.
 The capacity is determined at the perfection
of the donation.
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2. Donative intent or intent to make a gift on the

part of the donor.
 Refers to the proper declaration of the legal
owner of a property or right to transfer
ownership to another without consideration.
 No strained and artificial construction of a
supplementary statute should be included.
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 If a gift is indirect taking place by way of sale,

exchange, or other transfer of property (transfer
for inadequate consideration), donative intent is
not necessary (NIRC, Sec. 100)

Consideration – money or equal value or some

goods or service capable of being evaluated in
money.
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3. Delivery
 Donation is completed by delivery, either actual
or constructively, of the donated property or the
instrument, to the donee.
 The law at the time of perfection or completion
shall govern the imposition of donor’s tax based
on the FMV of the property.
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4. Acceptance
 Donation is a contract, thus, there should be
meeting of minds between the donor and the
donee before the donation is perfected.
 Acceptance should be made during the lifetime
of the donor and donee (NCC, Art. 746).
 Donations made to conceived and unborn
children may be accepted by those who would
legally represent them if they were already born
(NCC, Art. 742).
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Incomplete gift because of reserved powers becomes

complete when:
 Donor renounces the power; or
 The donor’s right to exercise the power ceases
because of the happening of some event or
contingency or the fulfillment of some condition
other than the death of the donor.
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Purposes of donor’s tax:

1. To prevent avoidance of estate tax
2. To prevent or compensate for the loss of the
progressive rates of income tax when large
estates are split up by gifts to numerous donees.
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Formalities:

Donation of movable property:

1. Oral donation – requires the simultaneous

delivery of the thing or of the document
representing the right donated.
2. Written donation – required if the value of the
donated personal property exceeds P5,000 (NCC,
Art. 748).
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Donation of immovable property:

1. Must be made in a public document, specifying

therein the property donated and the value of the
charges which the donee must satisfy (NCC, Art.
749).
2. Deemed void if it does not comply with the
formalities required by law.
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3. The acceptance may be made in the same deed of

donation or in a separate public document, but it
shall not take effect unless it is done during the
lifetime of the donor.
4. If the acceptance is made in a separate instrument,
the donor shall be notified thereof in an authentic
form, and this step shall be noted in both
instruments.
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Characteristics of donor’s tax:

1. It is an excise tax, not property tax.

2. It is a contract, thus, it does not apply unless and
until there is a completed gift.
3. The transfer is perfected the moment the donor
knows of the acceptance of the donee.
4. It is a direct tax imposed on the donor and
determined with reference to all the donor’s
gifts.
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5. Renunciation by the surviving spouse of his/her

share in the conjugal partnership or absolute
community after the dissolution of the marriage is
subject to donor’s tax.
6. General renunciation by an heir, including the
surviving spouse, of his/her share in the hereditary
estate is not subject to tax, unless specifically and
categorically done in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs in the
hereditary estate.
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Classification of donation:

As to motive or purpose:
1. Simple – pure liberality
2. Renumeratory – made due to past services
rendered or future services or charges and
burdens; not considered donation in essence.
3. Modal – consideration is less than the value of
the thing donated.
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As to time of perfection:

1. Donation inter-vivos
2. Donation mortis-causa
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Valuation of gross gifts:

 As a rule, based on FMV of the property donated at
the time the donation is perfected.

1. Real property – FMV determined by the

Commissioner of Internal Revenue or FMV shown
on the schedule of values fixed by the Provincial
and City Assessors, whichever is higher.
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2. Stocks, bonds, and other securities:

a. If traded in the stock exchange – FMV = the
mean between the highest and lowest quoted
selling prices of the securities on the valuation
date.
b. If not traded in the stock exchange
1) Ordinary/common shares – book value of the
security on the valuation date or on the date nearest
the valuation date.
2) Preferred shares – par value of the security.
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Composition of gross gifts

Citizen/resident Non-resident
Property alien donor alien donor
Property within (personal or real) I I
Property without (personal or real) I E
Intangible property within I I (subject to
reciprocity)
Intangible property without I E
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Reciprocity rule:

1. The donor, at the time of the donation, was a citizen and

resident of a foreign country which at that time of the
donation did not impose a transfer tax on intangible
personal property of the citizens of the Philippines not
residing in that foreign country; or
2. That foreign country allows a similar exemption from
transfer 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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Intangible personal property in the Philippines:

1. Franchise exercised in the Philippines
2. Shares, obligations, or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with
its laws
3. Shares, obligations, or bonds issued by any
foreign corporation, 85% of the business of
which is located in the Philippines
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4. Shares, obligations, or bonds issued by a foreign

corporation if they have acquired a business situs
in the Philippines
5. Shares or rights in any partnership, business, or
industry established in the Philippines.
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Inclusions in Gross Gifts:

1. Direct gifts
2. Gift(s) through creation of trust
3. Transfer for insufficient consideration
4. Repudiation of inheritance
5. Renunciation of the surviving spouse of his/her
share in the common property
6. Condonation of debt
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Deductions from gross gifts:

1. Encumbrances – ex. mortgage assumed by donee

2. Diminution(s)
3. Government – not conducted for profit
4. Non-profit charitable, educational, religious,
cultural, or social welfare institutions – not more
than 30% of said gifts is used for administrative
purposes (RA 1916)
5. Exemption of P 250,000
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Net gift:

 The net economic benefit from the transfer that

accrues to the donee.
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Donor’s tax rate:

1. Donations made before Jan. 1, 1988 – old

donor’s tax rates under Sec. 92 of NIRC of 1977
(RA 7499).
2. Donations made from Jan. 1, 1988 – Dec. 31,
2017 – amended donor’s tax rates under Sec. 99
of NIRC of 1997 (RA 8424).
3. Donations made from Jan. 1, 2018 onwards – 6%
(RA 10963 – Sec. 14, RR 12-2018).
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Other rules on donations:

 The computation of donor’s tax is on a cumulative basis
over a period of one year.
 The tax rate of 6% is regardless of the relationship of the
donor and the donee.
 Any contribution in cash or in kind to any candidate,
political party, or coalition of parties for campaign purposes
shall be governed by the Election Code, as amended.
 Husband and wife are considered as separate and distinct
taxpayers for the purpose of computing donor’s tax.
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Stranger (in the context of donor’s tax):

Any person who is not:
 A brother or sister (whether by whole or half

blood), spouse, ancestor, and lineal descendant

 A relative by consanguinity in the collateral line

within the 4th civil degree

 A legally adopted child who is entitled to all the

rights and obligations provided by law to

legitimate children
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Donations made:
 between business organizations and
 between an individual and a business
organization
shall be considered as donation to strangers.
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Transfer for insufficient consideration:

 Property, other than a real property already subjected to
final CGT, transferred for less than an adequate and full
consideration in money or money’s worth
 Thus, the amount by which the FMV of the property at
the time of the execution of the Contract to Sell or
execution of the Deed of Sale exceeded the value of the
agreed or actual consideration or selling price shall be
“deemed a gift” to be included in gross gifts during the
year.
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 Transfers made bona fide in the ordinary course

of business and free from any donative intent,
even if the consideration, is inadequate on
account of bad bargain shall not be subject to
donor’s tax.
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Condonation or remission of debt – 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 or in that part or aspect of the same to
which the remission refers. (Supreme Court, Rafael
Arsenio Dizon vs. CTA – G.R. No. 140944)
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Payment of loan by guarantor:

 Guarantee is gratuitous unless stated otherwise.
 However, if the obligation is “jointly” entered into
by the guarantor and the borrower with a creditor-
bank, the security given by the guarantor to fulfill
the obligation of the borrower is not gratuitous
because the debtor still has to indemnify the
guarantor in case the latter pays for the debt.
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Contribution for election campaign:

 Governed by the Election Code, hence, not
subject to donor’s tax (RR 2-2003)
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Splitting of gift:
 A tax minimization scheme which is done by
spreading the gifts over numerous calendar years
instead of adding it to the donations made during
the same calendar year to avoid a higher tax
owing to a higher tax base if such gifts were
made in the same calendar year.
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Donations made by a foreign corporation:

 Subject to donor’s tax only if property donated is
located in the Philippines.
 Donation of its own shares of stocks is not subject
to donor’s tax.
 However, if 85% of its business is located in the
Philippines or the donated shares have acquired
business situs in the Philippines, it may be taxed
in the Philippines subject to the rule of reciprocity.
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 Donation of its shares in favor of a resident

employee is not subject to donor’s tax because
it is assumed that they were given for his
services to the corporation. It is subject to
income tax. It is a deductible expense to the
corporation provided it is subject to applicable
withholding tax on compensation.
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Void donations: (NCC, Art. 739)

1. Those made between persons who were guilty of

adultery or concubinage at the time of donation.
2. Those made between persons found guilty of the
same criminal offense, in consideration thereof.
3. Those made to a public officer or his wife,
descendants, and ascendants, by reason of his
office.
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Exempt gifts:

 Not to be treated as exclusions from the gross

gifts.
 Treated as deductions from gross gifts to arrive at
taxable net gifts, hence, the same amount is
presented in the “gross gifts.”
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Notice of donation by a donor engaged in business: (RR

12-2018)
 For donation to qualified and duly accredited donee-
institutions to be claimed in full, the donor shall give
notice of donation on every donation of P50,000 to the
RDO which has jurisdiction over his place of business
within 30 days after receipt of Certificate of Donation
from the donee, with attachment stating that not more
than 30% of the said donation/gifts shall be used for
administration purposes. (NIRC Sec. 101(A)(3) and (B)
(2)).
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Exempt donations under special laws:

1. Prizes and awards given to athletes

2. Donation to the IRRI
3. Donation to the Ramon Magsaysay Award
Foundation
4. Donation to the Philippine Inventor’s
Commission
5. Donation to the IBP
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6. Donation to the DAP

7. Donation to the Philippine-American Cultural
Foundation
8. Donation to PHIC
9. Donations of equipment, materials, services to
the Task Force on human settlement
10. Donations to Intramuros Administration
11. Donations to Southern Philippines Development
administration
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12. Donations to Social Action Council

13. Donations to the Museum of Philippine
Costumes
14. Donations to the Aqua-culture Department of
Southeast Asia Fisheries Development Center of
the Philippines
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Philippine Red Cross:

 Exempt from all direct and indirect taxes (RA
10072, RMC 59-2010)
 Consequently, donations to the Philippine Red
Cross are exempt for donor’s tax and treated as
deductible expense from gross income of the donor
for income tax purposes or from the donor-
decedent’s net estate as a transfer for public use for
estate tax purposes.
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Tax credit for foreign donor’s tax:

 May be claimed only by citizens or residents of

the Philippines at the time the donation was
made.
 Computed in the same way as the computation
of foreign estate tax credit.
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Administrative provisions: (RR 12-2018)

Filing and payment:

 When – within 30 days after the date each gift is
made or completed.
 Where – AAB or RDO or Revenue Collection
Officer having jurisdiction over the place where
the donor is domiciled at the time of the transfer, or
if there is no legal residence, with the Office of the
Commissioner.
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Details shown on the Donor’s Tax Return:

 Each gift made during the calendar year
 Deduction claimed and allowable
 Any previous net gifts made during the same
calendar year
 The name of the donee
 Other information that may be required by rules
and regulations
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Filing of return by non-residents:

 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
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Civil penalties:
1. Surcharge of 25% if there is no false or fraudulent
intent on the part of the taxpayer.
2. Surcharge of 50% if there is false, malice, or
fraudulent intent on the part of the taxpayer.
3. 12% interest on the unpaid amount of tax from the
due date until fully paid.
4. Compromise penalty in accordance with the table