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Questions and Answers
What are transfer taxes classified as?
What are transfer taxes classified as?
In a bilateral transfer, which of the following is NOT an example?
In a bilateral transfer, which of the following is NOT an example?
What is the key characteristic of a unilateral transfer?
What is the key characteristic of a unilateral transfer?
When a property is sold for less than its fair market value, what type of transfer is it considered?
When a property is sold for less than its fair market value, what type of transfer is it considered?
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What differentiates donation from succession?
What differentiates donation from succession?
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Which of the following is not a requisite for a valid donation?
Which of the following is not a requisite for a valid donation?
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What is the main difference between donation inter vivos and succession mortis causa?
What is the main difference between donation inter vivos and succession mortis causa?
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Which motive is least likely to be a reason for making a donation?
Which motive is least likely to be a reason for making a donation?
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What type of donation is classified as 'mortis causa'?
What type of donation is classified as 'mortis causa'?
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Which of the following best describes the general principle of transfer taxation?
Which of the following best describes the general principle of transfer taxation?
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Which type of transfer is subject to the reciprocity rule?
Which type of transfer is subject to the reciprocity rule?
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Which statement regarding donor's tax is correct?
Which statement regarding donor's tax is correct?
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Which of the following is classified as a non-taxable transfer?
Which of the following is classified as a non-taxable transfer?
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What is the nature of the estate tax concerning corporations?
What is the nature of the estate tax concerning corporations?
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Study Notes
Introduction to Transfer Taxation
- Transfer taxes are classified as excise or privilege taxes.
- They are imposed on the act of transferring ownership, not the value of the property.
Types of Transfers
- Bilateral Transfers: Involve exchanges like sales, barter, and other "onerous transactions". These are taxed under income tax.
- Unilateral Transfers: Includes successions (inheritance), donations, and other "gratuitous transactions". These are taxed under transfer tax.
- Complex Transfers: Transfers for less than full or adequate consideration. These are analyzed as a combination of income and transfer tax.
Illustration
- Example scenario: A car previously worth P100,000, currently valued at P180,000, is sold for P130,000.
- The P50,000 difference between the fair value and selling price is subject to transfer tax.
- The P30,000 difference between selling price and cost is subject to income tax.
Requisites of a Valid Donation
- Capacity to donate: Donor must have the legal capacity to make a donation..
- Donative intent: Clear intention to make a gift.
- Delivery: Actual or constructive delivery of the property to the donee.
- Acceptance by donee: Donee must accept the gift.
Comparison of Transfer Taxes (Donation vs. Succession)
- Donation (Inter Vivos): Made during the donor's lifetime. Motivations may include rewarding services, relieving burden, saving on income tax, or for the donee's financial independence.
- Succession (Mortis Causa): Made upon death. It is involuntary, initiated by the death of the deceased. All properties of the deceased are subject to estate tax.
Rationale of Transfer Taxation
- Benefit Received Theory: Tax based on the benefits received.
- Wealth Redistribution: Tax to reduce wealth concentration.
- Ability to Pay Theory: Tax based on the taxpayer's ability to pay.
- Tax Evasion/Minimization: Prevention of tax avoidance.
- State Partnership: Tax to fund public services.
- Tax Recoupment Theory: Government's recovery of lost tax revenue.
Nature of Transfer Taxes
- Privilege Tax: A general term covering many transfer taxes.
- Ad Valorem Tax: Tax based on the value of the property being transferred.
- Proportional Tax: Tax levied at a fixed percentage of the value transferred.
- National Tax: A tax levied by a national government.
- Direct Tax: A tax paid directly by the person on whom it is imposed.
- Fiscal Tax: Tax collected by a central government.
Classification of Transfer Taxpayers
- Resident or Citizen: Residents and citizens paying tax on global transfers.
- Non-Resident Alien: Taxes based on reciprocity and location.
Situs of Transfer
- Inter Vivos: Location of property at the time of the transfer.
- Mortis Causa: Location of property at the time of death.
Properties Located in the Philippines
- Personal Properties: Tangible and Intangible properties
- Interest in Domestic Business: Shares, Obligations, and Rights in a partnership
- Franchise Exercisable in the Philippines: Issued by foreign corporations
- Foreign Securities: Shares, Obligations, and Bonds issued by foreign corporations.
Exceptional Rules on Transfers
- Transfer in Contemplation of Death: Donation made due to anticipated death.
- Motives of the transfer are relevant.
- Transfer of ownership, valuation, and date of donation are key factors.
- Transfer Intended to Take Effect at Death: Gift to take effect after death. The last will and testament are major components.
- Incomplete Transfers: Transfers with conditions or reserved rights:
- Conditional transfers
- Revocable Transfers
- Reservation of property title until death
Complex Incomplete Transfers
- Assessing the fair valuation of assets transferred for less than their true value.
- Establishing the part of the transaction subject to tax.
- Establishing the point in time when the transfer was completed.
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