Business Transfer Tax CHAPTER 11 –Transfer Taxation Transfers – Transfers – transmission of property natural/juridical person created by law Types of transfers: 1. Bilatera Bila terall transfe tran sfer r –transfer for consideration –onerous transaction/exchange –subject to income taxation for realized gain Ex. Sale –exchange for money Barter –exchange for another property 2. Unilateral Unilate ral transfer transfe r –transfer without consideration –gratuitous transactions or transfer Types of Unilateral Transfer 1. Dona Donati tion on (on (onat atio ion n inte inter! r!"i "i"o "os# s# –gratuitous transfer from living donor $u%%es essi sion on (on (onat atio ion n &o &ort rtis is %aus %ausa# a# – . $u%% gratuitous transfer from deceased person upon death to his heirs '. Co&plex Co& plex transfe tran sfer r –transfer for less than full and ade!uate consideration –sales made lower "#$ of property Tax rules on transfer for aeuate %onsieration %ure exchanges& subject to income tax only Transfer for less t)an aeuate * full %onsieration Transfer element 'gratuity( – subject to transfer tax either mortis causa or inter)vivos Exchange element 'indirect 'indirect donation( –subject to income tax Ex. +,/0 *;, transfer $ell $ellin in Pri% Pri%e e '/0 '/0 element Costtax 3asis240 Types of transfer taxes tax –imposed donation inter)vivos *. Donor5s tax –imposed tax –imposed donation mortis causa . Estate tax –imposed Rationale of transfer taxation 1. Tax evasion evasion/mi /minim nimiza izatio tion n theory theory – – a way to defeat income taxation with with the intention/ intention/ illegal 2. Tax reco recoup upmen mentt theor theory y –natural decreasing of income taxation 3. Bene Benet t rec recei eived ved theo theory ry –most dominant rationalization rationalization of transfer taxation 4. tate partnership theory –gov+t is ta,ing fair share by taxing the transfer of wealth to other person !. "ealth ealth redis redistri tri#ut #ution ion theo theory ry –transfer tax is redistributed to bene-t society $. %#il %#ilit ity y the theor ory y –transfer property is ability to pay tax •
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6ature of Transfer Taxes 1. Pri" Pri"il ile ee e tax tax 2. A "alo "alore re& & tax tax '. Pro Prore ress ssi" i"e e tax tax . 6ati 6ation onal al tax tax 4. Dir Dire%t tax 7. +is%al tax Classi8%ation of Transfer Taxpayers 1. Re Resi sie ent ntC Cit iti9 i9en en
Resident Citizen Resident Alien Non-resident Non-resident citizen 2. 6on! 6on!re resi sie ent nt alie alien n • • •
%orporationpartners)ip –-xed place of business in re side den nt, if not xed is non&resident %hilippines is resi %iti9en of %orp. partners)ip –determined by incorporation test ;E6ERA< RU
AT=?6 1. Re Resi sie ent ntC Cit iti9 i9en en – subject to tax on all transfer of properties& global transfer of properties 2. 6on!re 6on!resi sient ent alien alien (6RA# (6RA# –taxable only on properties located in the %hilippines at the date of transfer $=TU$ ?+ PR?PERT=E$ –location – location of the property he . properties considered located in %hilippines 1. +ran%)i ran%)ise se exer%is exer%isa3l a3le e in P)ilip P)ilippin pines es 2. $)ares@ $)ares@ o3li o3liation ations@ s@ or 3ons issue issue 3y 3y any %orp. or so%iea anoni&a or %onstitute in t)e P)il@ '. $)ares@ $)ares@ o3li o3liation ations s or 3ons 3y any any forein forein %orp@ 4 of t)e 3usiness is lo%ate in P)il. . =f su%) su%) s)ares s)ares@@ o3liati o3liations ons or 3ons 3ons issue issue 3y any forein %orp.@ a%uire 3usiness situs in P)ilippines. 4. $)ares $)ares or ri)ts ri)ts in any 3usine 3usiness ss or or inustry inustry esta3lis)e in P)ilippines 7. Any person personal al prope property rty@@ tani3l tani3leinta eintani3 ni3le le lo%ate in P)il@. Re%ipro%ity rule on non!resient aliens intangible personal properties of 012 or "ilipino non) resident are exempt from %hilippine transfer tax 'xamples of intan(i#le properties) 1. *ina *inanc ncia iall asse assets ts 2. %ccou ccount ntiin( a. +ash intan(i#le assets #. ,ecei eceiva va#l #les es or or a. atent credit #. *ranch anchiise c. -nve -nvest stme ment nt in c. 0eas 0easeh ehol old d ri(h ri(ht t d . + o p y r i ( ht #onds d. har hares es of stoc stoc in in a e. trademar corp. e. -nt -nteres erestt in partnership
T=,=6; -A
0on)axable ransfer 1. -oi Transfer –prohibited by law3 invalid transfer property not owned donation between spouses refusal of done oral donation 2. uasi!transfer –transfer that not involve transfer of ownership right to usufruct over the property to the owners na,ed title transfer of property to real owner transfer from -rst heir to second& predecessor '. =n%o&plete transfer – transfer or deliver but ownership is not& it will transfer upon happening future events/conditions Types of -ncomplete transfer *. 4onditional transfer . 1evocable transfer 7. ransfer in contemplation of death 8. ransfer with reservation of title until death Ho to in%o&plete transfer are %o&plete "# Conditional transfer inter-vivos a. "ul-llment of condition by transferee b.
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C?,P =6C?,P "$ ? date of completion of transfer less consideration . 6onation mortis causa > "$ ? date of death less consideration Test of Taxa3ility of =n%o&plete Co&plex Transfer The # m!st %e esta%lished to %efore )CT is taxa%le* *. @ncomplete transfer is paid for less than full and ade!uate consideration at the date of deliver . %roperty must not be decrease in value less than the consideration paid at the completion of transfer CHAPTER 12 –$u%%ession an Estate Tax $u%%ession –mode of ac!uisition of property& rights& and obligation of a person to the extent of the value of inheritance are transfer through his death A=n)eritan%e includes all property& rights and obligation of a person which are not extinguished by death De%eent –deceased or dead person Types of $UCCE$$=?6 1. Testa&entary $u%%ession –made in a will last an ill an testa&ent – o written document testate – a person who died with a o will 2. =ntestate $u%%ession –without will or with invalid one '. ,ixe $u%%ession –partly with written will and partly by operation of law Fill –act whereby person is permitted to control to a certain degree of the disposition of this estate& to ta,e eect after his death –expression of the decedent+s desire
Types of ill 1. Holorap)i% ill –written& dated and signed by testator 2. 6otarial ill –notarized& signed by decedent and witnesses '. Coi%il –supplement or addition to a will& made after execution of a will 3 need to be executed to be valid 6ote: Every will must be ac,nowledge before notary public by testator and witnesses 6ature of su%%ession $u%%ession –is gratuitous transfer from deceased person in favor of his successor3 donation mortis causa –involves net properties of decedent3 heirs will inherit remaining of decedent after satisfying decedent+s indebtedness and obligation incl. estate tax 6ote: eir shall not inherit the debt of decedent Ele&ents of $u%%ession 1. De%eent –person who transfer properties through his succession& whether or not with will3 if left will& he is called C testator 2. Estate –transfer of right& obligation and properties not extinguished by his death3 also calledC inheritance of the decedent '. Heirs –person called to the succession either by will or operation of law F)o are t)e )eirs Co&pulsory )eir –certain person who is identi-ed by law Types of Co&pulsory Heirs 1. Pri&ary Heirs –legitimate children and direct descendants 2. $e%onary Heirs –legitimate/illegitimate parents/ascendants '. Con%urrin Heirs –surviving spouses and illegitimate descendants De8nition of ter&s 1.
in a#sence of compulsory heirs . shall inherit in order of priority) *. 4ollateral relatives up to 9 th degree of consanguinity . %hilippine gov+t Apriority is given to collateral relative in closest degree $u&&ary of Rules: 1. 4oncurring heirs a. 6escendants b. 2scendants 2. 1elatives in the collateral line up to 9 th degree '. 1epublic of the %hilippines 6ote: second cousins are on : th degree& cannot inherit
?t)er persons in su%%ession 1. : 1. E>C=$E TA> –estate tax is not tax on property but privilege tax to transfer property through death 2. RE-E6UE;E6ERA< TA> –estate tax is intended as revenue or -scal measure '. AD -A –estate tax is depend upon the value of estate . 6AT=?6A< TA> –estate tax is imposed by gov+t 4. PR?;RE$$=-E TA> –estate tax is tax based on progressive rates Classi8%ations of De%eents for taxation Purposes 1. Resient or Citi9en De%eents 2. 6on!Resient De%eents E$TATE TA> ,?DE< ;ross Estate G >>> >> ;R?$$ E$TATE –pertains to the totality of the properties owned by decedent at point of his death T5o concepts under (ross estate) a. Ex%lusion ross estate –not included from estate taxation 3. =n%lusion ross estate –included as part of taxable gross estate Deu%tion 'exp. of death& obligation of decedent& losses of property which also exemption from estate tax( 6et Taxa3le estate –net properties of the decedent after deductions allowable by law3 subject to estate tax
C)apter 1'!A –Estate Tax!;ross Estate ;ross Estate –consist of all tangible and intangible& real or personal properties of the decedent where situated at point of death ANRA decedent, gross estate incl!des onl' properties in the +hilippines, except intangi%le personal propert' hen reciprocit' r!le applies ,esiden 6,% 5/o 6,% 5/ t/ reciprocit reciproci +itizen y ty Property @n 5ut @n 5ut @n 5ut
;R?$$ E$TATE +?R,U
@rrevocable
@nclude
Exclude
e. f. g.
%roperties held in trust by decedent Separate properties of surviving spouse ransfer by bona -de sales 'because it+s onerous transactions( 2. Transfer leal ex%lusion a. %roceeds of group insurance b. %roceeds of GS@S policy or bene-ts from GS@S c. 2ccruals from SSS d. HS $eterans 2dministration 'HS$2( bene-ts e.
a.
$alue at 4@1 (zonal val!e, if no zonal val!e it shall %e %ased on ./ appears at latest tax declaration b. $alue -xed by %rovincial/4ity 2ssessor (Assessed val!e 2. $)ares of sto%0 a. %referred share at par value b. Hnlisted common or ordinary share at Boo, $alue c. =isted in the stoc, exchanges or %SE& "#$ closest at date of death or trading price at date nearest to the date of death& if none is available on the date of death. '. Usufru%t an annuities included in gross estate A2nnuity at present value AHsufruct right to income over property . ?t)er properties a. Hsed propertiesC brand new'purchase price(& "$ at second hand b. %awned jewelry properties ' loan)to)value ratio( c. =oan receivables –fair value at -xed amount in the contract 4. Taxa3le Transfer –transfer without consideration are included in gross estate at fair val!e at date of death less consideration paid at the date of transfer . C)apter 1'!B –,arrie De%eents ;ross Estate of ,arrie De%eents *. 6ecedent+s exclusive properties . 4ommon properties of spouses Ex%lusi" ConualCo& Total e &on G15SS Fxxx&xxx Fxxx&xxx Fxxx&x ES2E xx =essC 6eductions Co&&on types of property rei&es: 1. A3solute separation of property (A$P# –all properties of spouses are separate properties& except those properties which they may ac!uire jointly 2. Conual partners)ip of ains (CP;# –all properties that accrues fruit of their individual or joint labor or fruits of their properties during marriage will be common properties of spouses '. A3solute %o&&unity of property (ACP# –all present properties owned by spouses at date of celebration of marriage shall be common properties including future fruit of separate or joint industry or fruits of their common properties Appli%a3le property rei&e in efault of an aree&ent 0in a%sence of an agreement or regime agreed %' spo!ses is void#
Basi% Rules in t)e Deter&ination of Property =nterest
1. Presu&ption in t)e in"entory ta0in of t)e estate Uner A$P@ properties are pres!med separate of either spo!ses !nless proven to %e 1oint properties Uner CP; an ACP@ properties of spouses are presumed common unless proven exclusive properties 2. T)e sale or ex%)ane of properties o not alter t)eir %lassi8%ation properties ac!uired using separate properties are still separate properties vice versa& common properties are still common properties. '. A%%ruals in "alue or ains on sale of properties increase in value or gains on the sale properties are fruits subject to rules of the property regime agreed upon spouses C?6LU;A< PART6ER$H=P ?+ ;A=6$ (CP;# –common properties begin to accrue only from the date of marriage es%ri3e as rospective Ex. of fruits during marriage *. Salaries& pro-ts or gains of labor or industry of either spouses . @ncome of properties ac!uired during marriage 7. @ncome of separate properties of either husband or wife Ex%eption to prospe%ti"ity: ac2!isitions %' grat!ito!s such as donation and inheritance unless designate to both spouses
AB$?
