B.

Donor’s Tax
PRINCIPLES
Definition
Not defined under the Tax Reform Act of 1997 . A
“gift” is merely subjected to donor’s tax.
GIFT or DONATION- “an act of liberality
whereby a person disposes gratuitously of a thing
or right in favor of another who accepts it.” (Art
725, Civil Code)
REQUISITES for a gift to be subject to
donor’s tax: [ACID]
1. The donor must have CAPACITY
2. There must be an INTENT TO DONATE
3. There must be DELIVERY, either actual or
constructive
4. The donee must ACCEPT the donation
Kinds of Donations
1. Donations inter vivos – a donation made
between living persons, which is perfected the
moment the donor knows of the acceptance
of the gift by the donee21; subject to donor’s
tax
2. Donations mortis causa – a donation which
takes effect upon the death of the donor;
subject to estate tax
Q: What are considered donations for tax
purposes?
1. Sales, exchanges and other transfers of
property for less than an adequate and full
consideration in money or money’s worth
2. Condonation or remission of debt where the
debtor did not render service in favor of the
creditor
è Noteworthy, the element of donative intent is
conclusively presumed in transfers of property for
less than an adequate or full consideration in
money or money’s worth. However, real
property considered capital assets under the Tax
Code are excepted from this rule. (Sec 100 in
relation to Sec 24(d)) Under Section 24(d), the
fair market value itself, if higher than the gross
selling price, is the base for computing the capital
gains tax imposed upon the sale of such capital
assets. Thus, what the seller avoids in the
payment of the donor’s tax, it pays for in the
capital gains tax.
Applicable Law
The law in force at the time of the perfection/
completion of the donation (Sec 11, RR 2-2003)
NOTE: 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. (Sec. 99(C), NIRC)
CASE LAW: Abello v. CIR (Feb. 23, 2005)— The
contributions of the ACCRA partners to the
campaign funds of Sen. Angara during the 1987
• 21 In the case of donations of immovable property,
they must be made in a public document specifying
therein the property donated. 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. 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.
national elections constitutes a donation, thus,
subject to gift taxes. However, the SC noted
that succeeding cases shall be governed by RA
7166 enacted by Congress on Nov. 25, 1991.
The RA provides in Sec 13 that political/electoral
contributions, duly reported to the Commission
on Elections, are NOT subject to the payment of
any gift tax.
PROPERTIES INCLUDED
Classes of Donors and their Gross Gift
1. Citizens or Residents of the Philippines – all
properties located not only within the
Philippines but also in foreign countries
2. Nonresident Alien – all real and tangible
properties within the Philippines, and
intangible personal property, unless there is
reciprocity, in which case it is not taxable
Q: What are the intangible properties which
are considered by law as situated in the
Philippines?
1. Franchise which must be exercised in the
Philippines
2. Obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines
3. Shares, obligations or bonds issued 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
5. Shares or rights in any partnership, business
or industry established in the Philippines
Rule on Reciprocity (Sec 104, NIRC)
There is reciprocity if the foreign country of which
the decedent was a citizen and resident at the
time of his death:
1. 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
2. allowed a similar exemption from transfer tax
in respect of intangible personal property
owned by citizens of the Philippines not
residing in that country
This rule applies to the transmission by gift of
intangible personal property located or with a
situs within the Philippines of a nonresident alien.
EXEMPTIONS
• Deductible from gross gifts in order to arrive at
the taxable net gifts.
• Not to be treated as exclusions from the gross
gifts of the donor.
1. Dowries or donations made on account of
marriage before its celebration or within one
year thereafter by parents to each of their
legitimate, recognized natural, or adopted
children to the extent of the first P10,000.
However, this exemption may not be availed
of by a non-resident not a citizen of the
Philippines.
Q: Can both parents making a donation
to a child in consideration of marriage
avail of the P10,000 deduction?