AMENDEMENTS TO ESTATE TAX

IN December 19, 2017, package 1 of the Tax Reform for Acceleration and
Inclusion (TRAIN), otherwise known as Republic Act (RA) 10963, was
signed into law.

The law made several amendments to the National Internal Revenue Code
of 1997 (Tax Code), specifically on personal-income taxation, passive
income, estate tax, donor’s tax, value-added tax, excise tax and documentary
stamp tax. The law took effect on January 1, following its complete
publication in the official gazette. Below is a brief discussion of the changes
under estate taxation under the Train law.

I. Amendment of the Estate Tax Rate

Section 22 of the TRAIN law amends Section 84 of the Tax Code, which
provides for the estate-tax rate. Previously, a  tax based on the value of the
net estate of the decedent, whether resident or nonresident of the
Philippines, was computed based on a tax schedule where an estate worth
P200,000 and over was taxed from 5 percent to 20 percent. Under the
TRAIN law, it will now be subject to a flat rate of 6 percent.

II. Amendments on Estate Tax Deductions

Section 23 of the TRAIN law amends Section 86 of the Tax Code, which
provides for the computation of the net estate or, effectively, the deductions
allowed to the gross estate of an individual.

The TRAIN law removes funeral expenses, judicial expenses and medical
expenses as allowable deductions.

Instead, the law increases the Standard Deduction to P5 million, which

previously only amounted to P1 million. Only available to citizens (resident
or nonresident) and resident aliens, TRAIN law now provides that
nonresident aliens can avail themselves of a standard deduction, although
only up to P500,000.
Another  TRAIN law significant change from the old tax rule is that now,
family homes that are worth up to P10 million will be exempted from estate
tax. Previously, only family homes worth P1 million are exempted.

III. Amendments on the Procedure for Estate Tax Settlement

A. Repeal of Filing of Notice of Death provision

Section 24 of the TRAIN law repeals Section 89 of the Tax Code. The
repealed provision provides for when a notice of death should be filed and
the period to file the same.

B. Amendment on Filing of Estate Tax Return

Section 25 of the TRAIN law amends Section 90 of the Tax Code, which
provides for the procedural requirements for the estate-tax return.

The TRAIN law requires that estate-tax returns showing a gross value
exceeding P5 million must be certified by a certified public accountant. This
is P3 million higher than the old tax rule, which only required CPA
certifications for estate-tax returns that exceed a gross value of P2 million.
The TRAIN law has also increased the period for filing of estate-tax returns
from six months from the decedent’s death to one year.

C. Amendment of Payment of Estate Tax by Installment

Section 26 of the TRAIN law amends Section 91(c) of the Tax Code, which
provides for the payment of estate tax by installment.

Under the TRAIN law, payment by installment has been particularly

simplified. However, the law has provided for an implied limitation of two
years for the payment of the full estate-tax liability, which was previously
not contained in the old tax rule.

IV. Amendment on Withdrawals from Deceased’s Bank Account

Section 27 of TRAIN Law amends Section 97 of the Tax Code, which
concerns allowable withdrawals from the deceased person’s account.

Under the old Tax Rule, only withdrawals up to P20,000 are allowed. The
administrator of the estate or any one of the heirs may, when authorized by
the commissioner, withdraw an amount not exceeding P20,000. However,
the Train Law has increased allowable withdrawals from the deceased
person’s account to any amount, subject to a 6-percent final withholding tax.

The amendments on estate taxes were enacted with the end in view of
enticing the heirs to declare the real value of their deceased kin’s estate and
to pay the proper estate tax.  Filing requirements have also been made
simpler and filer-friendly. It remains to be seen whether collection of estate
taxes will improve.

June 15, 2019, is the start of the two-year period provided for by Republic
Act 11213 (RA 11213) or the “Tax Amnesty Act” within which the
taxpayers can avail themselves of the benefits of the Estate Tax Amnesty
law. Revenue Regulations  6-2019 (RR 6-2019), which was issued to
implement the law, aims “to provide the taxpayers a one-time opportunity to
settle estate tax obligations through an estate tax amnesty program that will
give reasonable tax relief to estates with outstanding estate tax liabilities.”

From the purpose of the said regulations, it can be gleaned that the
Philippine government is encouraging all the concerned taxpayers to avail
themselves of the benefits of the Tax Amnesty Act. There would be a
substantial decrease in tax liabilities for transferring the properties of the
decedent, as all the penalties, surcharges and interest will be foregone by the
government in favor of those concerned taxpayers who will avail themselves
of the Estate Tax Amnesty. 

Note that the Estate Tax Amnesty shall cover the estate of decedent/s who
died on or before December 31, 2017, with or without assessments duly
issued therefor, whose estate taxes have remained unpaid or have accrued as
of December 31, 2017. Would this be unfair or prejudicial to those
decedents who died from January 1, 2018, up to the present as their estate
cannot avail of the amnesty? The answer is no. To recall, the Tax Reform
for Acceleration and Inclusion (TRAIN) law became effective on January 1,
2018.

One of the amendments brought about by the TRAIN law is the tax rate
used in computing the Estate Tax. Under the TRAIN law, a tax rate of 6
percent is imposed on the value of the net estate of the decedent. Likewise,
the estate tax amnesty rate of 6 percent is imposed on decedent’s total net
estate. In both laws, the tax base used is the net estate at the time of the
death of the decedent and all other deductions are applicable. The minimum
estate amnesty tax for the transfer of the estate of each decedent shall be
P5,000. Thus, there is no grave prejudice to those decedents who died after
December 31, 2017, even though their estates cannot avail of the Estate Tax
Amnesty.

The gross estate of the decedents who are residents and citizens at the time
of their death should include all properties, real and personal, tangible and
intangible, wherever situated. The gross estate of the decedents who are
nonresident aliens would include only real and personal properties situated
in the Philippines.

How can an ordinary individual avail himself of the benefits of Estate Tax
Amnesty? RR 6-2019 provided the step-by-step process on how to avail of
the Estate Tax Amnesty.

First, the executor or administrator, legal heirs, transferees or beneficiaries

should file an Estate Tax Amnesty Return (Etar or BIR Form 2118-EA) with
the Revenue District Office having jurisdiction over the last residence of the
decedent. In case of a nonresident decedent with no executor or
administrator in the Philippines, the return shall be filed with RDO 39-South
Quezon City.

Next, the duly accomplished and sworn Etar, and Acceptance Payment
Form (APF or BIR Form 0621-EA), together with the complete documents
as enumerated in the Etar, shall be presented to the concerned RDO for
endorsement of the APF prior to the payment of the estate amnesty tax with
the Authorized Agent Banks (AABs) or Revenue Collection Officers
(RCOs).
After payment, the duly accomplished and sworn Etar and APF with proof
of payment, together with the complete documentary requirements, shall be
immediately submitted to the RDO in triplicate copies.

Under the second step, the concerned taxpayer must submit the complete
documents as enumerated in the Etar with the RDO. What are the mandatory
documentary evidence or requirements needed? Certain documentary
requirements would vary depending on the type of properties the estate may
have. In all cases, the following are the mandatory documentary evidence or
requirements to be submitted with the RDO:

1. Certified true copy of the Death Certificate;

2. Taxpayer Identification Number of decedent and heir/s;

3. Estate Tax Amnesty Return;

4. Estate Tax Acceptance Payment Form, Revenue Official Receipt, if paid

to RCO;

5. Affidavit of Self Adjudication or Deed of Extrajudicial Settlement  of the

Estate of the decedent; or Court decision/judgement if the estate has been
settled judicially, or if there is a last will and testament;

6. Certification of the Barangay Captain for the last residence of the

decedent and claimed Family Home, if any;

7. For “Claims Against the Estate” arising from Contract of Loan, Notarized
Promissory Note, if applicable;

8. Proof of the claimed “Property Previously Taxed,” if any;

9. Proof of the claimed “Transfer for Public Use,” if any; and

10. At least one valid government ID of the executor/administrator of the

estate, or if there is no executor or administrator appointed, the heirs,
transferees, beneficiaries or authorized representative.
For Real Property/ies, if any:

11. Certified true copy/ies of the Transfer/Original/Condominium

Certificate/s of Title of real
property/ies;

12. Certified true copy of the Tax Declaration of real property/ies, including
the improvements at the time of death or the succeeding available tax
declaration issued nearest to the time of death of the decedent, if none is
available at the time of death; and

13. Where declared property/ies has/have no improvement, Certificate of No

Improvement issued by the Assessor’s Office at the time of death of the
decedent.

For Personal Property/ies, if any:

14. Certificate of Deposit/Investment/Indebtedness owned by the decedent

alone, or decedent and the surviving spouse, or decedent jointly with others;

15. Certificate of Registration of vehicle/s and other proofs showing the

correct value of the same;

16. Certificate of stocks;

17. Proof of valuation of shares of stock at the time of death; and

18. Proof of valuation of other types of personal property.

For the documentary requirements for the real and personal properties, the
original copies of each requirement must be presented and two photocopies
must be submitted with the concerned RDO.

After the submission of the complete documentary requirements with the

duly validated APR, the Certificate of Availment of the Estate Tax Amnesty
shall be issued by the concerned RDO within 15 calendar days from the
receipt of the application for estate tax amnesty. The wordings of the
regulations require that it is mandatory for the concerned RDO to issue the
Certificate of Availment within 15 days from receipt of the complete
documentary requirements from the taxpayer. Otherwise, the concerned
personnel who have been found remiss in their responsibilities shall be
meted with the applicable administrative sanctions.

Lastly, one electronic Certificate Authorizing Registration shall be issued

per real property including the improvements, if any, covered by Original
Certificate of Title/Transfer Certificate of Title/Condominium Certificate of
Title or Tax Declaration for untitled properties. For personal properties
included in the estate, a separate eCAR shall be issued.

Once you complied with all the requirements provided for by the
regulations, you shall be considered immune from the payment of all estate
taxes, as well as any increments and additions thereto, arising from the
failure to pay any and all estate taxes for taxable year 2017 and prior years,
and from all appurtenant civil, criminal and administrative cases, and
penalties under the Tax Code.

While it is true that it is taxing and demanding to comply with all the
documentary requirements, all your efforts would be worthwhile as you can
already enjoy those properties under your name and with peace of mind.