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Week 1 - Tax 2 - Estate Tax, Computation of Value of Estate (Sec. 88) -…

- - - - 2. Inclusions
        
        3. Valuations of Properties (- Secs. 6(E) and 88, NIRC)
        
        a. Real Properties - Appraised value, whichever is higher between
        
        FMV determined by the CIR OR
        
        FMV determined by the Provincial/City ASsessor
        
        b. Shares of Stock -
        
        Listed - FMV is mean between highest and lowest quotation at a date nearest the date of death. If no date, then on date of death.
        
        Unlisted
        2a. Common Shares - book value at time of death
        2b. Preferred Shares - par Value
        
        c. Receivables
        
        d. Bank Deposits
        
        1 more item...
        
        Determination of Book Value - In determining the book value, appraisal surplus and the value assigned to preferred shares, if any, shall not be considered. The valuation of unlisted shares shall be exempt from the provisions of RR 6-2013, which prescribes the use of the Adjusted Net Asset Method. [Sec. 5, RR 12-2018]
        
        Effect of Improvements - the value of improvement is the construction cost per building permit or the FMV per latest tax declaration. [Sec. 5, RR 12-2018]
        
        Personal Property -
        
        If Recently Acquired - Purchase price may indicate the FMV
        
        If not Recent - Some evidence of FMV
        
        Gross Estate = Excess of the FMV of the property at time of death OVER/ the consideration received
        
        a. Decedent’s Interest - Sec. 85(A), NIRC - This covers all property owned by the decedent tot he extent of his interest therein AT THE TIME of his death. Including any interest having value, capable of being valued or transferred, in property owned or possessed by the decedent at the time of death. Also includes those transferred by the decedent at the time of his death.
        
        b. Transfer in Contemplation of Death Sec. 85(B), NIRC - Considered a Transfer if the decedent either has retained for his life OR for any period which does not in fact end before his death:
        
        the possession or enjoyment of, or the right to the income from the property, or
        
        the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom
        
        c. Transfers Taking Effect at Death aSec. 85(B), NIRC
        
        d. Transfers with Retained Interest Sec. 85B - Refers to properties that the decedent purportedly transferred during his lifetime but over which he had retained some interest:
        
        FOR LIFE OR
        
        FOR A PERIOD which does not in fact end before his death,
        
        for any period not ascertainable without reference to his death.
        
        e. Revocable Transfers Sec. 85C - A transfer where the terms of the enjoyment of the property may be altered, amended, revoked or terminated by the decedent. This covers lifetime transfers where the enjoyment of property at the time of death to any change via decedent or, where any powers is relinquished by the decedent in contemplation of death.
        
        f. Property Passing Under General Power of Appointment Sec. 85D
        
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        i. Nature of Power Power to alter or amend; Power to revoke; Power to terminate
        
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        Rule on Transfer - Transfers are revocable where:
        
        There is a transfer by trust or otherwise
        1a. EXCEPTION - In case of a bona fide sale for an adequate and full consideration in money or money’s worth
        
        The enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by:
        2a. The decedent alone
        2b. The decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate; or
        2c. Where any such power is relinquished in contemplation of the decedent’s death.
        
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        Period for Which Interest is Retained -
        
        For life
        
        For a period not ascertainable without reference to death
        
        For any period which does not in fact end before death
        
        Nature of Interest Retained -
        
        Possession or enjoyment
        
        Right to income
        
        Right to designate person who shall have possession or enjoyment
        
        Right to designate person who shall receive income
        
        Exception - In case of a bona fide sale for an adequate and full consideration in money or money's worth
        
        Meaning of Contemplation of Death (Alejandro v. Gonzales) - Must refer to imminence of death which is the cause of the transfer. Not a general expectation of death. This is generally an evidentiary matter. Circumstances to be considered are:
        
        Age and State of health of decedent
        
        Length of time between transfer an death
        
        Concurrent making of a will or making of a will short time after transfer
        
        Disputable Presumption - There is a disputable presumption that the transfers are in contemplation of death if the recipients are compulsory heirs
        
        This generally means that the full/naked ownership of the donated properties pass to the donee ONLY because of hte death of the donor.
        
        Examples:
        
        a. Dividend declared on or before death, but is received by the estate after death
        
        b. Partnership profits which have accrued before his death, but received after death
        
        Properties not in the Estate - properties which at the time of the decedent’s death, are not in the estate because they were transferred by him during his lifetime:
        
        Transfers in a of death
        
        Revocable transfers
        
        Transfers under a general power of appointment; and
        
        Transfers for an insufficient consideration.
      - Taxable on Worldwide Estate - All properties, real or personal, tangible or intangible, WHEREVER situated.
        
        Taxable on Local Estate - Only that part of the entire gross estate which is situated in the Philippines
        
        d. Non-resident Aliens - Covers both engaged/not engaged in trade or business.
        
        Situs of Intangible Personal Properties (Collector v. Fisher) -
        
        GR - Movables follow the person.
        
        XCPN - When it is inconsistent with an express provision of law.
        
        XCPN 2 XCPN - Rule of reciprocity applies to a non-resident alien.
        
        Intangible Properties Considered Situated in Philippines (Sec. 104) -
        
        Franchise which must be exercised in the Philippines
        
        Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws
        
        Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines
        
        Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines
        
        Shares or rights in any partnership, business or industry established in the Philippines
        
        Rule of Reciprocity -
        
        Presence of Reciprocity - The intangible personal property of an NRA shall not be included in his gross estate.
        
        No Reciprocity - Intangible personal property will be included.
        
        When Present - There is reciprocity if the foreign country of which the decedent was a citizen and resident at the time of his death:
        
        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
        
        Allowed a similar exemption from transfer tax in respect of intangible personal property owned by citizens of the Philippines not residing in that country
        
        a. Resident Citizens
        
        b. Non-resident Citizens
        
        c. Resident Aliens
      - Concept of Resident (Corre v. Tan Corre) - For estate tax, residence is domicile. the permanent home or the place to which whenever absent, one intends to return (animus revertendi), and depends on facts and circumstances, in the sense that they disclose intent. It is, therefore, not necessarily the actual place of residence
        
        e. Married vs. Single -
        
        (C) Share in the Conjugal Property. - The net share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property shall, for the purpose of this Section, be deducted from the net estate of the decedent.
        
        (H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be deemed a part of his or her gross estate.
    - - Tax Exemptions of Acquisitions and Transmissions (87)
        
        transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
        
        transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor
        
        All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes
        
        Definitions (Sec. 104) -
        
        Gross estate’ and ‘gifts’ include real and personal property, whether tangible or intangible, or mixed, wherever situated.
        
        Provided, however, That where the decedent or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his ‘gross estate’ or ‘gross gift’:
        
        Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines, shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines:
        
        Provided, still further, That no tax shall be collected under this Title in respect of intangible personal property:
        a. if the decedent at the time of his death or the donor at the time of the donation was a citizen 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. if 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 in that foreign country.
        
        Foreign Country (CIR v. Rueda) - Reciprocity in exemption does not require the “foreign country” to possess international personality. To be a “foreign country” exempted under Sec. 122 of the NIRC, international law does not exact independence as a condition of statehood. Even a tiny principality, that of Liechtenstein, hardly an international personality in the tradition sense, did fall under this exempt category.
      - Citizen/Resident Computation -
      - Non-Resident Alien Computation -
  - - - Inheritance Tax - Tax on the right of the heirs or beneficiaries to receive the estate of the deceased person. Levied on the part of the estate received by the heir. Note that this has been integrated into Estate Tax.
    - - Benefits-received theory – The State collects the tax because of the services it renders in the distribution of the estate of the decedent, either by law or in accordance with his will.
        
        Privilege/State Partnership Theory - Succession tot he property of a deceased is not a right, but a privilege granted by the State. Consequetnly, the legislature can burden such succession with a tax.
        
        Ability-to-pay theory – Receipt of inheritance is in the nature of unearned wealth which creates an ability to pay the tax and thus contributes to government income.
        
        Redistribution of wealth theory – The imposition of estate tax reduces the property received by the successor, which helps promote a more equitable distribution of wealth in society.
      - Time of Transfer of Properties (NCC 777, NIRC 85A) - Transmitted from the moment of the death of the decedent.
        
        Withholding of Delivery Pending Tax - The executor or administrator shall not deliver a distributive share to any party interested in the estate despite the transfer of properties and rights at the time of death, unless there is a certification from CIR that estate tax has been paid. [Sec. 94, NIRC]
        
        Importance of Time of Death - It governs the following:
        
        The determination of the extent of the decedent’s interest for computing his gross estate.
        
        The statute that governs estate taxation.
        
        The accrual of the estate tax.
        
        Taxable Transfers - Covers Transfers Mortis cause and inter vivos.
        
        Transfers Inter Vivos -
        
        General Rule: Donation Inter Vivos is subject to donor’s tax.
        
        Exceptions: Donation Inter Vivos is subject to estate tax when it is treated by law as substitutes for testamentary dispositions:
        a. Transfers in contemplation of death [Sec. 85(B), NIRC]
        b. Revocable transfers [Sec. 85(C), NIRC]
        c. Transfers of property arising under general power of appointment [Sec. 85(D), NIRC]
        d. Transfers for insufficient consideration [Sec. 85(G), NIRC]
    - - Formula -
        
        Items of Gross Estate - Deductions = Net Taxable Estate
        
        Net Taxable Estate x 6%
        
        Further subtracted from estate tax due
        
        Family Home - The family home is the dwelling house, including the land on which it is situated
        
        Law - Law at time of death applies.