Donor's Tax A) Basic Principles, Concept and Definition
Donor's Tax A) Basic Principles, Concept and Definition
Donor's Tax A) Basic Principles, Concept and Definition
Donor’s Tax
Donation can be of two kinds: donations mortis causa and donations inter vivos. The former
takes effect upon the death of the donor and partakes of a testamentary disposition, and is thus,
properly the subject of estate tax. The latter is a donation between two living persons which is
perfected from the time the donor has knowledge of the donee’s acceptance, and is properly the
subject of donor’s tax.
Purpose: The purposes of donor’s tax are the following: to prevent avoidance of estate taxes, and
to compensate for loss of income tax when large estates are split by donations. As a rule, all
donations whether outright gifts or made to a trust, are subject to donor’s gift tax except
donations enumerated in the NIRC and other special laws. For the application of donor’s tax,
there must be a completed gift.
Coverage of the Tax “Gifts” include real and personal property, whether tangible or intangible,
or mixed wherever situated. In case of a nonresident alien, his real and personal property so
transferred but which are situated outside the Philippines are not included as part of the gross
gift.137 The following are considered situated in the Philippines and includible as gifts: (1)
Franchise which must be exercised in the Philippines; (2) Shares, obligations or bonds issued by
any corporation or sociedad anonima organized or constituted in the Philippines; (3) Shares,
obligations or bonds by any foreign corporation 85% of the business of which is located in the
Philippines; (4) Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired a business situs in the Philippines; and (5) Shares or rights in
any partnership, business or industry established in the Philippines, which are to be considered as
situated in the Philippines.
c) Time and transfer of properties
The transfer of property by gift is perfected from the moment the donor knows of the acceptance
by the done; it is completed by the delivery, either actually or constructively, of the donated
property to the donee.
Thus, the law in force at the time of the perfection/completion of the donation shall govern the
imposition of donor’s tax.
But TRAIN law now gives an exception: When the transfer is made in the ordinary course of
business, it will be considered as made for an adequate and full consideration. The requisites are:
1. bona fide transaction;
2. arm’s length; and
3. free from any donative intent.
If the donor is a resident or a citizen of the Philippines, gross gifts would consist of:
1. Real estate, regardless of location
2. Tangible personal property, regardless of location
3. Intangible personal property, regardless of location
If the donor is a non-resident, not citizen of the Philippines, gross gifts would consist of:
1. Real estate located in the Philippines
2. Tangible personal property located in the Philippines
3. Intangible personal property located in the Philippines, subject to the “reciprocity clause”
a. If donor at the time of the donation was a citizen and resident of a foreign country
which at the time of the donation did not impose a transfer tax of any character in
respect of intangible personal property of Filipino citizens not residing in that
country, or
b. If the laws of the foreign country of which the donor was a citizen and resident at the
time of donation allow a similar exemption from transfer taxes of every character in
respect of intangible personal property owned by citizens of the Philippines not
residing in that country
A resident citizen is taxable on all income derived from worldwide sources and it is not unlikely
that the foreign-source income may also be subject to taxation in the country from which it was
derived. To minimize the possibility of double taxation, the taxpayer may avail of the benefits
provided under the applicable and effective tax treaty, which may either be in the form of tax
exemption or a preferential tax rate. The amount of income taxes paid during the taxable year to
any foreign country may be used as credits against Philippine income taxes.