M1 Introduction To Transfer Taxaion Students PDF

Introduction to
Transfer Taxation
Module 1
Chapter 12
Prepared by: Nelia I. Tomas, CCA, LPT
Business and Transfer Taxation, Laws, Principles and Application. 2019 Edition. Banggawan, Rex B.
Learning Objectives
After completing the lesson, the students will be able to:
 Understand the concept of transfer, identify its types and differentiate each type
 Discuss the rationalizations of transfer taxation and its nature
 Identify the types of transfer taxpayers and their scope of taxation
 Explain the reciprocity rule on non-resident aliens, the situs of properties for purposes
of transfer taxation and the rules on timing of valuation of transfers
 Differentiate donation inter-VIVOS from mortis causa
 Enumerate the different non-taxable transfers and their nature
 Comprehend the concept of completion of transfers and their taxation
WHAT IS TRANSFER?
Transfers refer to any transmission of property from one person to another.
A person may be:

a. natural person
b. juridical created
Types of transfers:
1. Bilateral transfers
2. Unilateral transfers
3. Complex transfers
Types of Transfers
BILATERAL TRANSFERS
 Involve transmission of property for a consideration
 Also referred to as onerous transactions or exchanges.
 Examples:
1. Sale - exchange of property for money
2. Barter - exchange Of property for another property
If the seller is
Taxation Rules on Sales or Barter Business Not Business
This is subject to
Consideration P 1,000 Business tax No tax
Less: Cost of property given ( 600)
Realized gain P 400 Income tax Income tax
Types of Transfers
UNILATERAL TRANSFERS
 Involve the transmission of property by a person without consideration
 Also commonly referred to as gratuitous transactions or simply, transfers.
The right or privilege to transfer properties is subject to “transfer taxes”.
Types of Unilateral Transfers

1. Donation is the gratuitous transfer of property from a living donor to a donee. Since it is
made between living persons, it is called donation inter vivos.
2. Succession is the gratuitous transfer of the properties of the deceased person upon his
death to his heirs. It is a donation of all the properties of the decedent caused by his
death. Hence, it is called donation mortis causa.
Types of Transfers
COMPLEX TRANSFERS
 These are transfers for less than full and adequate consideration.
Tax rules on transfers for adequate consideration

 Transfers for adequate consideration are deemed pure exchanges and subject to income
tax, not to transfer tax.
Transfer for less than adequate and full consideration

 Transfers for less than full and adequate consideration are split into components: transfer
element and exchange element.
 The transfer elements is subject to transfer tax while the realized gain on the exchange
element subject to income tax.
RATIONALE OF TRANSFER TAXATION
1. Tax evasion or minimization theory

2. Tax recoupment theory
3. Benefit received theory
4. State partnership theory
5. Wealth redistribution theory
6. Ability to pay theory
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
1. Residents or citizens – such as:

 Resident citizens
 Resident aliens
 Non-resident citizens
These are taxable on global transfers of property.
2. Non-resident aliens
These are taxable on Philippine transfers of property.
SITUS OF TRANSFER
 Transfers occur in the location of the property.

 Properties are transferred mortis causa in the place where they are located at the point of
death. They are not transferred at the place where the decedent died.
 Properties are transferred inter-vivos in the place where they are located at the date of
donation. They are not transferred at the place where the donor executed the deed of
donation.
GENERAL RULE IN
TRANSFER TAXATION
Taxpayers Inter-vivos Mortis-causa
Resident or citizen Global donation Global estate
Non-resident aliens Philippine donation Philippine estate
PROPERTIES LOCATED IN THE PHILIPPINES

1. Interest in a domestic business
 Shares, obligations, or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws
 Shares or rights in any partnership. business or industry established in the Philippines
2. Foreign securities, under certain conditions:
 Shares, obligations, or bonds issued by any foreign corporation 85% of the business
of which is located in the Philippines
 Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired business situs in the Philippines
GENERAL RULE IN
TRANSFER TAXATION
3. Franchise exercisable in the Philippines

4. Any personal property, whether tangible or intangible, located in the Philippines
RECIPROCITY RULE ON NON-RESIDENT ALIENS

 The intangible personal properties of non-resident aliens are exempt from Philippine
transfer taxes provided that the country in which such alien is a citizen also exempts the
intangible personal properties of Filipino non-residents therein from transfer taxes.
CLASSIFYING DONATION AS
INTER-VIVOS OR M ORTIS CAUSA
If the gratuitous transfer of ownership occurs Type of transfer

During the lifetime of the transferor Inter-vivos
Upon death of the decedent Mortis causa
Exceptional rules on transfers Inter-vivos Mortis-causa

1. Transfer in contemplation of death x /
2. Transfer intended to take effect at death x /
3. Incomplete transfers / /
Types of incomplete transfers:

1. Conditional transfers
2. Revocable transfers
3. Transfers with reservation of title to property until death
How are incomplete transfers completed?
1. Conditional transfers are completed inter-vivos upon the happening of the following during the lifetime
of the donor.
 fulfillment of the condition by the transferee or
 waiver of the condition by the transferor
2. Revocable transfers are completed inter-vivos upon:
 waiver by the transferor to exercise his right of revocation or
 the lapse of his reserved right to revoke
3. Transfers with reservation of title to property until death are completed by the death of the decedent.
Timing of Taxation of Incomplete Transfers

 Revocable and conditional transfers that are completed during the lifetime of the transferor constitute
donations inter-vivos subject to donor's tax at the fair value of the property at the date of their
completion or perfection.
 Revocable transfers and conditional transfers that are pre-terminated by the death of the transferor
shall be subject to estate tax at the point of death of the transferor.
Complex Incomplete Transfers
 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 ta the
appropriate type of transfer tax.
Test of Taxability of Complex Incomplete Transfers

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 less consideration upon transfer Fair value at completion or perfection of donation less
consideration upon transfer
NON-TAXABLE TRANSFER
There are transfers of properties which are not actually donations and hence, not subject to transfer
taxes, such as:
1. Void transfers
2. Quasi-transfers
Void Transfers
 These are transfers that are prohibited by law or those that do not conform to legal requirements
for their validity.
 These transfers do not transfer ownership over property and are therefore not subject to transfer
tax.
Quasi-transfers
 There transmissions of property which will never involve transfer of ownership.
 These transfers are not taxable
Questions to Ponder:
1. What is a transfer? Discuss the types of transfers.
2. What are the types of unilateral transfers and the type of tax applicable to each?
3. What is a “complex transfer”? Explain.
4. Enumerate and explain the theories rationalizing transfer taxation.
5. Enumerate and discuss the nature of transfer taxes.
6. What are the two taxpayer classifications in transfer tax? Discuss the of transfer taxation for
each taxpayer class.
7. Why is situs of property relevant in transfer taxation? Explain.
8. Discuss the reciprocity rule in transfer taxation.
9. Enumerate examples of motives associated with life.
10. Why is it essential to classify donations? Explain briefly.
11. Enumerate the non-taxable transfers. Cite examples.
12. Differentiate void transfers, quasi-transfers and incomplete transfers.
13. Discuss how conditional transfer and revocable transfer are completed.
14. Discuss the taxation of incomplete complex transfers.
Required Readings:
Chapters 12, pp.416 – 431:
Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION, Laws,

Principles and Application. Real Excellence Publishing., Pasay Default
Barangay, Pasay City, Philippines.
Learning Activities
Chapters 12, pp. 432 – 445:
Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION, Laws,

Principles and Application. Real Excellence Publishing., Pasay Default
Barangay, Pasay City, Philippines.
Appendix: Course Materials Evaluation
Adopted: BEST PRACTICES AND SAMPLE QUESTIONS FOR COURSE EVALUATION SURVEYS. Retrieved from
https://assessment.provost.wisc.edu/best-practices-and-sample-questions-for-courseevaluation-surveys//.

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Introduction to

A person may be:

Types of Unilateral Transfers

Tax rules on transfers for adequate consideration

Transfer for less than adequate and full consideration

1. Tax evasion or minimization theory

1. Residents or citizens – such as:

 Transfers occur in the location of the property.

PROPERTIES LOCATED IN THE PHILIPPINES

3. Franchise exercisable in the Philippines

RECIPROCITY RULE ON NON-RESIDENT ALIENS

If the gratuitous transfer of ownership occurs Type of transfer

Exceptional rules on transfers Inter-vivos Mortis-causa

Types of incomplete transfers:

Timing of Taxation of Incomplete Transfers

Test of Taxability of Complex Incomplete Transfers

Valuation of complex incomplete transfers

Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION, Laws,

Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION, Laws,

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