DONOR'S TAX

I. DONATION

Donation is 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 of the
Philippines)

TWO KINDS:
1. Inter vivos – is one which takes effect during the lifetime of the donor:
a. When the donor intends that the donation shall take effect during the lifetime of the donor, though the property shall not be delivered till after the
donor's death (Art. 739);
b. The fixing of an event or the imposition of a suspensive condition, which may take place beyond the natural expectation of life of the donor is also
considered a donation inter vivos, unless a contrary intention appears. (Art. 730); or
c. When a person donates something, subject to the resolutory condition of the donor’s survival. (Art. 731)

Types of Inter Vivos Donations:

(1) Pure or simple; A pure or simple donation is one where the underlying cause is plain gratuity. This is donation in its truest form.
(2) Remuneratory or compensatory; a remuneratory or compensatory donation is one made for the purpose of rewarding the donee for past services,
which services do not amount to a demandable debt.
(3) Conditional or modal; A conditional or modal donation is one where the donation is made in consideration of future services or where the donor
imposes certain conditions, limitations or charges upon the donee, the value of which is inferior than that of the donation given.
(4) Onerous: an onerous donation is that which imposes upon the donee a reciprocal obligation or, to be more precise, this is the kind of donation made
for a valuable consideration, the cost of which is equal to or more than the thing donated.

Only simple donations are covered by Donor’s tax. However, the excess of the fair market value of the thing covered by an onerous donation over the
value received therefor may be subject to donor’s tax under Sec. 100 of the Tax Code if not pursuant to a sale, exchange or other transfer of property
made in the ordinary course of business.

Requisites of a valid donation under the Civil Code:

(1) the reduction of the patrimony of the donor;
(2) the increase in the patrimony of the donee; and,
(3) the intent to do an act of liberality or animus donandi

2. Mortis causa – takes effect upon the death of the donor and partakes of the nature of testamentary provisions. These are governed by the rules
established in the Titles on Succession (Art. 728) and are accordingly subject to estate tax not donor’s tax.

FORMAL REQUIREMENTS FOR VALIDITY OF DONATION:

1. Donation of immovable property – must be made in a public instrument specifying therein the property donated. The acceptance must 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.
2. Donation of personal property – generally must be accompanied by delivery. But if the value thereof exceeds P5,000, it is required to be in writing for the
donation to be valid. The acceptance must likewise be in writing.

II. DONOR’S TAX

Donor’s Tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L-
19201, June 16, 1965; 14 SCRA, 292)

The donor’s tax shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected from the moment the donor knows of the
acceptance by the donee; it is completed by the delivery, either actually or constructively, of the donated property to the donee. (Sec. 11, RR No. 2-03, par. 1)

Applicable Law: the law in force at the time of the perfection/completion of the donation shall govern the imposition of the donor’s tax. Hence, for donations
made on January 1, 2018 onwards, or the effectivity of the TRAIN, the TRAIN provisions would be applicable. For donations completed prior to such date, the
Tax Code provisions prior to the amendment shall aply.

VALUATION: The principles of valuation under estate tax are applicable to gifts subject to donor’s tax.

III. RATES OF TAX AND TAX DUE

Rates: Under the TRAIN, the rate of donor’s tax is now 6% regardless of the relationship of the donor to the donee, where the first P250,000 of the net gifts
is exempt.

However, for donations made prior to Jan. 1, 2018, the following rates are applicable:

1. Relatives – (1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral
line within the fourth degree of relationship.

The fourth degree of relationship is applicable only to collateral relatives. Accordingly, lineal ascendants and descendants are not limited by the degree of
relationship.

OVER BUT NOT THE TAX PLUS OF THE

OVER SHALL BE EXCESS OVER

P 100,000 Exempt
 P 100,000 200,000 0 2% P100,000
500,000 2,000 4% 200,000
200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000

2. Strangers – donees other than relatives, the rate is 30%. A corporation shall always be considered a stranger.

THE COMPUTATION OF THE DONOR’S TAX:

1. Cumulative basis over a period of one calendar year – accordingly, prior net gifts are included in the computation of subsequent gifts which are
made within the same calendar year.

For donations made after the TRAIN, the first P250,000 exempt amount is only once every calendar year.

ILLUSTRATION: Mr. X donated cash to his brother Mr. Y on the following dates, together with their corresponding amounts:

January 30, 2016 P 2,000,000

March 30, 2016 1,000,000
August 15, 2016 500,000

Note that the donations were all made in 2016, prior to the effectivity of the TRAIN. As such, since the donee is a brother of the donor, the graduated rates
for relatives shall apply, as follows:

Date of donation Amount of Amount Donor’s Tax

Donation Donor’s Payable
Tax
1. January 30, 2016 P 2,000,000 P 124,000 P 124,000

2. March 30, 2016

March 30, 2016 1,000,000
January 30, 2016 2,000,000
Total 3,000,000 204,000
Less: Tax due/paid on January donation (124,000)
Tax Due/Payable on the March donation 80,000 80,000

3. August 15, 2016

August 15,2016 500,000
March 30, 2016 1,000,000
January 30, 2016 2,000,000
Total 3,500,000 254,000
Less: Tax due/paid on January donation (124,000)
Less: Tax due/paid on March donation (80,000)
Tax Due/Payable on the August donation P 50,000 P 50,000

What if the donations were dated 2018? Donor’s due/payable on each shall be as follows:

Date of donation Amount of Amount Donor’s Tax

Donation Donor’s Payable
Tax (6%)
1. January 30, 2018 P 2,000,000
Less: Exempt gift (250,000)
Net taxable gift 1,750,000 P105,000 P 105,000

2. March 30, 2018

March 30, 2016 1,000,000
January 30, 2016 2,000,000
Less: Exempt gift (250,000)
Taxable Net Gift P2,750,000
Donor’s tax due 165,000
Less: Tax due/paid on January donation (105,000)
Tax Due/Payable on the March donation 60,000 60,000

3. August 15, 2018

August 15,2016 500,000
March 30, 2016 1,000,000
January 30, 2016 2,000,000
Less: Exempt gift (250,000)
Taxable net gift 3,250,000
Donor’s tax due 195,000
Less: Tax due/paid on January donation (105,000)
 Less: Tax due/paid on March donation (60,000)
Tax Due/Payable on the August donation P 30,000 P 30,000

2. Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s tax.

However, if what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor’s
tax purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of
the Civil Code of the Philippines and the Family Code of the Philippines.

IV. GROSS GIFTS

TYPES OF TAXPAYERS FOR DONOR’S TAX: is similar to that of estate taxation. Net gifts include:
1. Resident or citizen: includes all real and personal property, whether tangible or intangible, or mixed, wherever situated.
2. Non-resident alien: real and personal property situated outside the Philippines are not included. (Sec. 104 of the Tax Code)

SPECIFIC RULES:
1. INCOMPLETE GIFTS BECAUSE OF RESERVED POWERS: becomes complete when either: (1) the donor renounces the power; or (2) his right to
exercise the reserved power ceases because of the happening of some event or contingency or the fulfilment of some condition, other than because of the
donor’s death. (Sec. 11, RR No. 2-03, par. 3)
2. GENERAL RENUNCIATION BY AN HEIR, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to
donor’s tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary
estate. (Sec. 11, RR No. 2-03, par. 4)
3. RENUNCIATION OF SURVIVING SPOUSE of his/her share in the conjugal partnership or absolute community after the dissolution of the
marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor’s tax.

Note that unlike the general renunciation by an heir, here, what is being renounced is the share of the surviving spouse in the conjugal property which is
his/her own, not his/her share in the inheritance of the deceased spouse.
4. CONDONATION OR FORGIVENESS OF DEBT: The cancellation and forgiveness of indebtedness may amount to a gift if a creditor merely desires to
benefit a debtor and without any consideration therefor cancels the debt, the amount of the debt is a gift from the creditor to the debtor and need not be
included in the latter's gross income.
5. POLITICAL CONTRIBUTIONS: Under Sec. 13 of RA No. 7166, any contribution in cash or in kind to any candidate or political party or coalition of parties
for campaign purposes, duly reported to the Commission shall not be subject to the payment of any gift tax.
6. TRANSFER TO CHILDREN WITH NO SOURCE OF INCOME CONSIDERED A DONATION: In determining a taxpayer's liability for donor's tax under
Section 98 of the NIRC of 1997, not only the legal documents will be considered, but also some other external factors surrounding the transaction, such
as the capacity of the buyer in cases of transfer of properties. The transfer of properties to minors who have no source of income is deemed to be a
donation within the meaning of the law. (Sps. Hordon and Maribel Evono vs. Department of Finance, CTA EB Case No. 705, June 4, 2012)
7. TRANSFER FOR LESS THAN AN ADEQUATE AND FULL CONSIDERATION IN MONEY OR MONEY’S WORTH: the amount by which the fair market
value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell
exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts
made during the calendar year. (Sec. 11, RR No. 2-03, par. 5)

Not Applicable: the above rule does not apply and accordingly, no donor’s tax is due on such difference, in the following cases:
a. The transferred property is a real property subject to 6% CGT;
b. A sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, and free
from any donative intent) which is now considered as made for an adequate and full consideration in money or money’s worth. (No. 2 is an amendment
introduced by the TRAIN and accordingly, shall apply only to gifts made from Jan. 1, 2018 ownards)

8. PAST SERVICES AND ‘GRATITUDE’ CANNOT BE CONSIDERED CAUSE OR CONSIDERATION THAT WOULD MAKE A CONVEYANCE OF
PROPERTY ANYTHING ELSE BUT A GIFT OR DONATION: the term consideration used in [Sec. 111 of the NIRC] refers to the technical "consideration"
defined by the American Law Institute (Restatement of Contracts) as "anything that is bargained for by the promisor and given by the promisee in exchange
for the promise" (Also, Corbin on Contracts, Vol. I, p. 359). xxx [T]he actual consideration for the cession of the policies xxx was the Company's gratitude
to Pirovano; so that under section 111 of the Code there is no consideration the value of which can be deducted from that of the property transferred as
a gift. Like "love and affection," gratitude has no economic value and is not "consideration" in the sense that the word is used in this section of the Tax
Code. (MARIA CARLA PIROVANO, etc., et al., vs. THE COMMISSIONER OF INTERNAL REVENUE; G.R. No. L-19865; July 31, 1965)

V. EXEMPTION OF CERTAIN GIFTS

EXEMPT GIFTS – the following gifts or donations shall be exempt from the donor’s tax:

A. RESIDENT CITIZENS/NON-RESIDENT CITIZENS/RESIDENT ALIENS:

1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political
subdivision of the said Government;
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for administration purposes.
3. Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, illegitimate,
or adopted children to the extent of the first Ten thousand pesos (P10,000). Note, however, that under the TRAIN, dowires are no longer exempt. Note
still, that dowries made prior to the effectivity of the TRAIN are still exempt.

Deduction for dowry: deductible from the gross gifts of the parent who made the donation out of his exclusive property; or the 50% of the value of the
gift to each spouse if the donation was made from the conjugal/community property, but in either case, the deduction cannot exceed P10,000.
 Note also that the donation must be for a child of the donor AND on account of the former’s marriage. As such, if the donation is to both the child and
his/her spouse, the donation to the spouse is considered a donation to stranger and is not subject to the P10,000 dowry deduction.

DONATIONS EXEMPT FROM THE DONOR’S TAX:

1. Donation to the International Rice Research Institute;
2. Donation to the Ramon Magsaysay Award Foundation;
3. Donation to the Philippine Inventor’s Convention;
4. Donation to the Integrated Bar of the Philippines;
5. Donation to the Development Academy of the Philippines;

B. NON-RESIDENT ALIEN
1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political
subdivision of the said Government.
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization
or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes.

OTHER DEDUCTIONS: the BIR has allowed the following deductions to arrive at net gifts subject to donor’s tax:
1. Encumbrance on the property donated, if assumed by the done (e.g., loan secured by a mortgage on the property to be shouldered by the donee); and
2. Those specifically provided by the donor as a diminution of the property donated.

TAX CREDITS – similar to estate taxation, tax credits are allowed for donations subject to foreign taxes. Accordingly, the tax credits are available only for
citizen donors and resident alien donors, who are taxable on their worldwide gifts.

The limitations are computed in the same manner as those for estate taxation.

VI. FILING AND PAYMENT OF TAX

Requirements: any person making a donation (whether direct or indirect), unless the donation is specifically exempt under the NIRC or other special laws, is
required, for every donation, to accomplish under oath a donor’s tax return in duplicate, which shall set forth:
1. Each gift made during the calendar year which is to be included in gifts;
2. The deductions claimed and allowable;
3. Any previous net gifts during the same taxable year.
4. The name of the donee; and
5. Such other information as the Commissioner may require.

Time of Filing and Payment: the donor’s tax return shall be filed within 30 days after the date the gift is made or completed and the tax due thereon
shall be paid at the same time the return is filed.

Place of Filing and Payment: Unless the Commissioner otherwise permits, the return shall be filed and the tax paid to an Authorized Agent Bank, the Revenue
District Officer and Revenue Collection Officer having jurisdiction over the place where the donor is domiciled at the time of the transfer, or if there be no legal
residence in the Philippines, with the Office of the Commissioner.

As to non-residents, the return may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly
with the Office of the Commissioner which is interpreted to be RDO 39 – South Quezon City.

Notice of Donation: in order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified-donee institutions duly accredited,
the donor engaged in business shall give a notice of donation on every donation worth at least P50,000 to the Revenue District Office which as jurisdiction over
his place of business within 30 days after receipt of the qualified donee institution’s duly issued Certificate of Donation, which shall be attached to the said Notice
of Donation, stating that not more than 30% of the said donation/gifts for the taxable year shall be used by such accredited non-stock, non-profit
corporation/NGO institution for administration purposes.

Documentary Stamp Taxes: donations of real property are now subject to the DST of P15 for each P1,000 of the fair market value of the real property
donated under the TRAIN. Accordingly, there shall likewise be a requirement for the filing of BIR Form No. 2000-OT (Documentary Stamp Tax Declaration/Return
[One Time Transactions]) and the payment of the corresponding DST with the AAB.