INTRODUCTION TO TRANSFER
TAXATION
TYPES OF TRANSFER
Income Taxation
Bilateral/Onerous
Business Taxation
Donation – Donor’s Tax
Unilateral/Gratuitous
Transfer Taxation
Succession – Estate Tax
RATIONALE OF TRANSFER TAXES
1.
2.
3.
4.
5.
Tax Recoupment Theory
Benefit Received Theory
State Partnership Theory
Wealth Redistribution Theory
Ability to Pay Theory
TAX RECOUPMENT THEORY
A person who has 3 businesses donated 1 to a specific person. Each business is earning an income of
100,000
TAX RECOUPMENT THEORY
A, business owner sold a car for sale costing 2,000,000 for 2,500,000 which has fair market value of
5,000,000
Total gain should be 3,000,000. But the
only realized is 500,000
FV – 5,000,000
Indirect Donation
SP- 2,500,000
Realized Gain
COST – 2,000,000
BENEFIT RECEIVED THEORY
Transfer Tax
Privilege tax
Donation
Succession
Guaranteed by law – Civil code
Valid transfer
STATE PARTNERSHIP THEORY, WEALTH REDISTRIBUTION,
ABILITY TO PAY
The Government is a partner in the accumulation of wealth
The collected taxes is to provide benefit to all – Fiscal/General Tax
Since a person is provided by the government a benefit for accumulation of wealth so with
certainty the person transferring the property has the ability to pay
NATURE OF TRANSFER TAXES
a. Privilege Tax – on the transferor of property
b. Direct tax – on the transferor (Decedent, Donor)
c. Ad Valorem Tax - based on the tax basis (value) – (Donor’s tax – Net gift, for a
calendar year) (Estate Tax – Net Taxable Estate – time of death)
d. Proportional tax – (Donor’s tax – 6% in excess of 250,000) (Estate tax – 6% on net
taxable estate)
e. National tax
f. Fiscal tax
TRANSFERS
Donor’s tax – covers transfer on two living person , in general
Estate tax – covers transfer upon death of the decedent, in general
Outliers:
a. Revocable transfers
b. Conditional transfer
c. Transfer in contemplation of death
d. Quasi transfers
- Merger of the usufruct in the owner of the naked title
- Transfer by the fiduciary heir to fideicommissary
- Transmission of 1st transferee – 2nd transferee (Special Power of Appointment)
REVOCABLE TRANSFER
Can be classified as inter vivos or mortis causa
A transfers a property to B with a right to revoke.
There is reservation of ownership, then there is no transfer.
Will be treated as inter vivos when the transfer waived the right the revoke in his life time and
mortis causa upon death of the transferor
CONDITIONAL TRANSFER
Can be classified as inter vivos or mortis causa
A will give B a car when B passed the CPA Board Exam
There is no transfer of ownership yet before fulfillment of the condition. Will be treated as inter
vivos when the transferee fulfilled the condition on the lifetime of A or mortis cause after death of A
Transfer in contemplation of death
Transfer where motives is associated
with life
Mortis Causa
Inter vivos
QUASI TRANSFERS
Quasi Transfers are not considered as donation intervivos or mortis causa
a. Merger of the usufruct in the owner of the naked title
b. Transfer of the fiduciary heir to the fideicommissary
c. Transmission of the 1st transferee to the 2nd transferee
MERGER OF THE USUFRUCT IN THE OWNER OF THE
NAKED TITLE
A transfer a property to C his grandson on his death bed, since C is still under age he appointed B his
son to use first the property. B shall transfer the property to C when B will be in legal age
A
Predecessor
B
Usufruct
C
Owner of the naked title
A- C – Estate Tax
B- C – none
TRANSFER OF THE FIDUCIARY HEIR TO THE
FIDEICOMMISSARY
who takes property as a trustee on behalf of
a person who is not eligible to receive the
property immediately
A
Predecessor
B
Fiduciary heir
C
Fideicommissary
B- C – none
TRANSFER OF 1ST HEIR TO THE 2ND HEIR (SPECIAL POWER
OF APPOINTMENT
B- C – none
A
Predecessor
B
1st Heir
C
2nd Heir