Introduction to Transfer Taxation.pptx

EPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY  INTRODUCTION TO TRANSFER TAXATION TRANSFER - Any transmission of property from one person to another - Bilateral vs Unilateral vs Complex  TRANSFER BILATERAL UNILATERAL COMPLEX Definition Trans...

EPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY  INTRODUCTION TO TRANSFER TAXATION TRANSFER - Any transmission of property from one person to another - Bilateral vs Unilateral vs Complex  TRANSFER BILATERAL UNILATERAL COMPLEX Definition Transmission of Transmission of Transfers for less property for a property WITHOUT than full and CONSIDERATION CONSIDERATION adequate consideration Also Onerous Gratuitous Called Transaction or Transaction or Exchange Transfers Examples Sale, barter Donation (Inter- Sales made at lower vivos), Succession price than the fair (Mortis Causa) value of the property sold UNILATERAL TRANSFER Inter-vivos Mortis Causa Transferor Living Donor Decedent Nature Voluntary Involuntary Reason Gratuity Death Scope of transfer Only properties All properties of the selected by the donor decedent at death Property Given Gift Estate Transferee Donee Heir Transfer Tax Donor’ tax Estate tax Timing of valuation Date of donation Date of death Types of Transfer Tax Donor’s Tax Estate Tax Subject Inter-vivos Mortis Causa Transfer Nature Annual Tax One-time tax Taxpayer Donor Decedent Who The donor himself Executor, actually pay administrator or heirs the tax? in behalf of the decedent Nature of Transfer Taxes 1. Privilege tax 2. Ad valorem tax 3. Proportional tax 4. National tax 5. Direct tax 6. Fiscal tax  Classification of Transfer Taxpayers and their extent of Taxation Taxpayers Inter-vivos Mortis Causa Resident (Resident Global Global Alien) or Citizens Donation Estate (Resident and Non- resident Citizens) Non-Resident Aliens Philippine Philippine Donation Estate SITUS OF TRANSFER 1. Mortis Causa - Place where they are located at the point of death 2. Inter-vivos - Place where they are located at the date of donation SITUS OF TRANSFER 1. Interest in domestic business 2. Foreign securities, under certain conditions - share, obligations, or bonds issued by any foreign corporation 85% of the business is located in the Philippines or acquired its business situs in the Philippines 3. Franchise exercisable in the Philippines 4. Personal property, whether tangible or intangible, located in RECIPROCITY - Intangible personal properties of non-resident aliens are EXEMPT from Philippine transfer taxes PROVIDED that the THEIR COUNTRY also exempts the intangible personal properties of FILIPINO RESIDENTS therein from transfer taxes - Examples are cash, receivables, investments, patent, franchise, copyright, trademark, interest CLASSIFYING DONATION AS INTER-VIVOS OR MORTIS CAUSA If gratuitous transfer of Type of Transfer ownership occurs During the lifetime of the Inter-vivos transferor Upon death of the Mortis-causa decedent EXCEPTIONAL RULES ON TRANSFER Exceptional rules on Inter- Mortis transfer vivos Causa Transfer in contemplation of X √ Death Transfer intended to take effect X √ at death Incomplete Transfers √ √ TRANSFER IN CONTEMPLATION OF DEATH A donation that is inspired or motivated by the thought of death of the decedent is donation mortis causa. If the donation is inspired by motives associated with life, it is donation inter- vivos. Motive of donation is the determining factor TRANSFER INTENDED TO TAKE EFFECT UPON DEATH A donation that is made on the decedent’s last will and testament is a donation mortis causa. Last will and testament- is a document expressing the decedent’s desire on how his properties will be distributed after his death. Donation that is made during the lifetime of the decedent with a stipulation that ownership shall INCOMPLETE TRANSFERS Involve the transmission or delivery of properties from one person to another, but ownership is not transferred at the point of delivery. The actual transfer of ownership will take effect in the future upon the happening of certain future events or satisfaction of certain conditions. Incomplete transfers are not subject to transfer taxes upon delivery of property. They are subject to transfer in Types of Incomplete Transfers 1. Conditional Transfers Completed inter-vivos upon the happening of the following duri the lifetime of the donor: -fulfillment of the condition by the transferee or -waiver of the condition by the transferor 2. Revocable Transfers Completed inter-vivos upon: -waiver by the transferor to exercise his right of revocation or -lapse of his reserved right to revoke 3. Transfers with reservation of title to property until death Completed by the death of the decedent COMPLEX INCOMPLETE TRANSFERS Are sometimes made for less than full and adequate consideration. Similar to complex transfers, the gratuity component of the complex transfers is subject to the appropriate type of transfer tax. TEST OF TAXABILITY OF COMPLEX INCOMPLETE TRANSFERS The following must be established before complex incomplete is taxable: 1. The incomplete transfer must have been paid for less than full and adequate consideration at the date of delivery of the property. 2. At the completion of the transfer, the property must not have decrease in value below the consideration paid VALUATION OF COMPLEX INCOMPLETE TRANSFERS MORTIS CAUSA INTER-VIVOS Fair value at death Fair value at less consideration completion or upon transfer perfection of donation less consideration upon transfer NON-TAXABLE TRANSFERS VOID TRANSFERS -Prohibited by law or those that do not conform to legal requirements for their validity. - Examples are donation not owned by donors, donation between spouses, donations refused by done, oral donations of real properties NON-TAXABLE TRANSFERS QUASI-TRANSFERS -Transmissions of property which will never involve transfer of ownership - Examples are transmission of the property by the usufructuary to the owner of naked title, by a trustee to the real owner, from the first heir to a second heir in accordance with the desire of predecessor Reference Business and Transfer Taxation 2019 edition by Rex Banggawan