Law - Donation

• Donation is an act of freely giving something of value without expecting anything in return, involving voluntary transfer of ownership or rights, as per Article 725 of the Civil Code
• Donation necessitates acceptance by the donee, aligning with contract principles of offer and acceptance

Legal Considerations

• Rules on obligations and contracts are a supplementary law for donations, according to Article 732 of the Civil Code
• Donations must comply with essential contract elements like consent, object, and cause

Essential Requisites

• Donor must be legally competent, of legal age and sound mind
• Intent to donate must be clear, conscious, and explicitly expressed
• Delivery as a real contract is completed upon physical or legal transfer of property
• Donee's acceptance perfects the donation when the donor is aware; donee can accept or refuse

Formal Requirements

• Real property donations require a public instrument
• Intangible personal property donations also require a public instrument

Tangible Personal Property Donation

• Can be oral if value is P5,000 or less
• Must be in writing if value exceeds P5,000
• Oral donations require simultaneous delivery and acceptance

Types of Donors and Taxation

• Resident/citizen donors (RC/NRC/RA) have worldwide donations taxed
• Non-resident alien donors (NRA) are taxed on Philippine donations, except for intangible personal properties under reciprocity conditions

Reciprocity Rule

• The Philippines exempts non-resident aliens' donations of intangible personal property if their country exempts Filipino non-residents

Location of Property Implications

• Real and personal properties are subject to different taxation rules based on location (within/abroad) and donor residency/reciprocity

Donee Classifications

• Relatives include immediate family members and direct relatives
• Strangers are individuals not classified as relatives, including business entities

Donation Classifications

• Simple donations have pure liberality as the motive
• Remuneratory donations are due to past or future services

Timing of Effect

• Donation inter-vivos takes effect during the donor's and donee's lifetimes
• Donation mortis-causa takes effect upon the donor's death

Donor's Tax Defined

• A tax on the transfer of property by gift, an excise tax imposed on the act of transferring property
• Applied at a 6% rate under the TRAIN Law on net gifts exceeding P250,000, computed cumulatively

Donor's Tax vs Estate Tax

• Donor's tax concerns gifts during the donor's lifetime ("inter vivos")
• Estate tax relates to succession based on "donation mortis causa" (inheritance upon death)
• Governed by different requisites, accrual periods, and laws
• Donor's tax has no extension available for filing or payment; follows "pay-as-you-file"

Donor's Tax Nature

• It's a privilege flat-rate, annual, ad valorem, national, revenue/fiscal tax

Donor's Tax Model

• Involves determining taxable net gift by subtracting allowable deductions from gross gift

Valuation of Properties

• Valuation for donor's tax follows estate taxation rules
• Real Property: Higher of zonal or assessed value
• Personal Properties: Fair value
  • Shares of Stock:
    • Listed (PSE): Closing price
    • Unlisted:
      • Preferred: Par value
      • Common: Adjusted Net Asset Value Method
  • Other Properties:
    • Newly Purchased: Purchase price
    • Old Items: Second-hand value
    • Monetary Claims: The amount fixed in the contract

Timing of Valuation

• Donation is valued at the time of perfection when acceptance is received
• In conditional donations, valuation occurs upon satisfaction of conditions

Deductions from Gross Gift

• Annual Donations: Gifts up to P250,000 are deductible regardless of relationship
• Gifts to Government Entities: Deductions for donations to specified government entities
• Gifts to Non-Profit Organizations: Deductible donations to accredited non-profit entities with administrative expense limits
• Donations Exempted by Special Laws: Include prizes to athletes, donations to research institutes, etc

Foreign Tax Credit

• Residents/citizens with foreign donations may be subject to foreign donor's tax
• Philippine tax law allows a credit for taxes paid in a foreign country to minimize double taxation

Foreign Tax Credit Limit

• Determined by whether single or multiple foreign countries are involved

Donor's Tax Reporting

• Computed cumulatively for each calendar year
• Net gift and additional tax must be computed, reported, and paid within 30 days of the gift
• Must accomplish a donor's tax return in duplicate, setting forth each gift, the deductions claimed and allowable, any previous net gifts, the name of the donee, and such further information as the Commissioner may require
• Donor's tax return must be filed within 30 days after the date the gift is made or completed, and the tax due thereon shall be paid while the return is filed
• Notice of Donation:
  • A donor engaged in business who intends to claim a full deduction of the donation shall give notice of donation on every donation worth at least P50,000, 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