Introduction to Transfer Taxation PDF

# Introduction to Transfer Taxation **MJ Caseja** ## Nature of Transfer Taxes - Transfer taxes are classified as "excise tax" or privilege tax imposed on the act of passing the ownership of property and not on the value of the property or right. ## Types of Transfers - **Bilateral Transfers** (...

# Introduction to Transfer Taxation **MJ Caseja** ## Nature of Transfer Taxes - Transfer taxes are classified as "excise tax" or privilege tax imposed on the act of passing the ownership of property and not on the value of the property or right. ## Types of Transfers - **Bilateral Transfers** (onerous transactions) - Exchanges - Sale - Barter - **Unilateral Transfers** (gratuitious transactions) - Transfers - Succession - Donation - **Complex Transfers** - "Transfers for less than full or adequate consideration" - Result in income tax **and** transfer tax ## Illustration - Property sold (except in the case of real property) - Fair market value: P500,000 - Selling Price: P300,000 - Cost: P150,000 - Difference of Fair value less Selling Price is **gratuitous** - Difference of Selling Price less cost is **onerous** ## Complex Transfers - "Transfers for less than full or adequate consideration" **ILLUSTRATION** - A taxpayer sold his car which was previously purchased for P100,000 and with a current Fair Value of P180,000 for only P130,000. The transaction will be analyzed as follows: | | | | |-----------|--------------|-------------| | **Fair value** | P180,000 | P50,000 | | **Business tax** | **Selling price** P130,000 | P30,000 | | **Cost** | P100,000 | | - Transfer tax is applied to the excess of the fair value over the selling price. - Income tax is applied to the excess of the selling price over the cost. ## Donation vs. Succession Donation is a **donation inter vivos**, meaning it occurs while the donor is alive. Succession is a **donation mortis causa**, meaning it occurs after the death of the donor. ## Donation **REQUISITES OF A VALID DONATION** - Donor must have the capacity to donate - Donative intent - Delivery - Donee must accept or consent to the donation ## Comparison of Transfer Taxes | | Donation (inter vivos)| Succession (mortis causa) | |---------------|-----------------------|--------------------------| | **Transferor** | Living donor | Decedent | | **Transferee** | Donee | Heir | | **Nature** | Voluntary | Involuntary | | **Reason** | Gratuity | Death | | **Property Given**| Only properties selected | All properties of the decedent | | **Scope of Transfer** | Donor's tax | Estate tax | | **Transfer Tax** | Date of donation | Date of death | | **Timing of Valuation**| Annual tax | One-time tax | | **Nature** | Donor pays the tax | Heirs, administrator or executor in behalf of the decedent | ## Examples of Motives for Donation - To reward services rendered - To relieve the donor of the burdens of the management of the property - To save on income tax - To see children financially independent - To see children enjoy the property while the transferor still lives - To settle family disputes ## Examples of Donation "Mortis Causa" - Donation to take effect at the death of the donor - Donation in the last will and testament - Donation with retention of certain rights until death - Revocable Transfers - Conditional Transfers ## Non-Taxable Transfers - Void Transfers - Transfer of property not owned - Donation between spouses - Donations refused by donee - Oral donation of real properties - Quasi Transfers - Merger of usufruct in the owner of the naked title - Transmission of trustee/fiduciary heir to the fideicommissary - Transmission of first heir/legatee/done to another beneficiary in accordance with the desire of the predecessor - Incomplete Transfers - Conditional transfers - Revocable transfers - Transfer in contemplation of death - Transfers with reservation of title to property until death ## Rationale of Transfer Taxation - Benefit received theory - Wealth redistribution - Ability to pay theory - Tax evasion/minimization - State partnership - Tax recoupment theory ## Nature of Transfer Taxes - Privilege Tax - Ad Valorem Tax - Proportional Tax - National Tax - Direct Tax - Fiscal Tax ## Classification of Transfer Taxpayers ### Resident or Citizen - Resident citizens - Resident aliens - Non-resident citizens **TAXABLE ON GLOBAL TRANSFERS** - Global Donation - Global Estate ### Non-Resident Alien **TAXABLE ON PHILIPPINE TRANSFERS** - Reciprocity rule on intangible personal property - Philippine Donation - Philippine Estate ## Classification of Transfer Taxpayers (Corporations) | | Resident or Citizen (Equal) | Non-Resident Alien | |---------------|------------------------------|--------------------| | Donor's Tax | Domestic Corporation | | | | Resident Foreign Corporations | | | Estate Tax | **Corporations are not subject to estate tax.** | | ## Situs of Transfer - **Location of Property** ### Inter Vivos - Location at date of donation **ILLUSTRATION** - A tourist Filipina in Cambodia donated a parcel of her land located in Vietnam to her Italian friend whom she met in one of her travels and made an impact to her life. ### Mortis Causa - Location at point of death **ILLUSTRATION** - A resident citizen who has P19 million total properties in the Philippines and P5.8 million worth of properties in Singapore died in an accident in Taiwan. ## Determining the Situs of the Property - **Personal properties (tangible or intangible)**: Reciprocity rule on non-resident aliens - Shares, obligations, and bonds in a corporation. - **Interest in Domestic Business:** Rights in a partnership. - **Franchise Exercisable in the Philippines:** Shares, obligations, and bonds issued by a foreign corporation with 85% business located in the Philippines. - **Foreign Securities:** Business situs must be in the Philippines. <start_of_image> Diagrams are not included in this formatted document.