Donor’s Tax in the Philippines under TRAIN

Computing for Donor’s Tax is now simply 6% under TRAIN, but do you know everything there is to know when computing for this tax?

The Bureau of Internal Revenue (BIR) has recently issued the implementing guidelines covering Donor’s Taxes in the Philippines, applicable starting 2018 under the TRAIN tax bill signed into law by Pres. Rodrigo Duterte.

Here’s a copy of the relevant BIR Revenue Regulation on Donor’s Taxes.

BIR Revenue Regulations No. 12-2018

Issued on: January 25, 2018

Consolidated Revenue Regulations on Estate Tax and Donor’s Tax Incorporating the Amendments Introduced by Republic Act No. 10963, Otherwise Known as the “Tax Reform for Acceleration and Inclusion (TRAIN) Law”

SECTION 1. SCOPE. – Pursuant to the provisions of Sec. 244 of the National Internal Revenue Code of 1997, as amended (NIRC), and Sec. 84 of Republic Act No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN) Law”, these Regulations are hereby issued to consolidate the rules governing the imposition and payment of the estate and donor’s tax incorporating the provisions of the TRAIN Law, particularly the provisions in Chapters I and II of Title III of the NIRC, thereby repealing Revenue Regulations (RR) No. 2- 2003, as amended.

DONOR’S TAX

SEC. 11. RATE OF DONOR’S TAX. –

• 1.1. Rate. – The donor’s tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts in excess of Two Hundred Fifty Thousand Pesos (P250,000) exempt gift made during the calendar year.
• 1.2. The application of the rates as provided above is imposed on donations made on or after the effectivity date of the TRAIN Law.
• 1.3. Contribution for election campaign. – Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes, shall be governed by the Election Code, as amended.

SEC. 12. THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX. – The donor’s tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L-19201, June 16, 1965; 14 SCRA, 292). The donor’s tax shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee; it is completed by the delivery, either actually or constructively, of the donated property to the donee. Thus, the law in force at the time of the perfection/completion of the donation shall govern the imposition of the donor’s tax.

In order that the donation of an immovable may be valid, it must be made in a public document specifying therein the property donated. The acceptance may be made in the same Deed of Donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.

A gift that is incomplete because of reserved powers, becomes complete when either:

• (1) the donor renounces the power; or
• (2) his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfilment of some condition, other than because of the donor’s death.

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor’s tax whereas general renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.

Where property, other than a real property that has been subjected to the final capital gains tax, is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.

The law in force at the time of the completion of the donation shall govern the imposition of donor’s tax.

For purposes of the donor’s tax, “NET GIFT” shall mean the net economic benefit from the transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed.

SEC. 13. VALUATION OF GIFTS MADE IN PROPERTY. – The valuation of gifts in the form of property shall follow the rules set forth in Section 6 of this regulations: Provided, That the reckoning point for valuation shall be the date when the donation is made.

Sample Computations and Illustrations: Donor’s Tax

SEC. 14. COMPUTATION OF THE DONOR’S TAX. – Donations shall be subject to donor’s tax applicable when the donations are made. Hence, for donor’s tax purposes, donations made before January 1, 1998 shall be subject to the donor’s tax computed on the basis of the old rates imposed under Section 92 of the National Internal Revenue Code of 1977 (R.A. No. 7499), while donations made on or after January 1, 1998 until December 31, 2017 shall be subject to the donor’s tax computed in accordance with the amended schedule of rates prescribed under Section 99 of the National Internal Revenue Code of 1997 (R.A. No. 8424), implemented by RR No. 2-2003, as amended. Only donations made on or after January 1, 2018 shall be subject to the donor’s tax rate provided under the TRAIN Law as implemented by these Regulations.

The computation of the donor’s tax is on a cumulative basis over a period of one calendar year. Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s tax. However, if what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor’s tax purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of the Philippines.

Illustration: 

Donations were made on January 30, 2018 at P2,000,000; on March 30, 2018 at P1,000,000; and August 15, 2018 at P500,000.

How much is the donor’s tax due on these donations?

Filing & Payment – Donor’s Tax

SEC. 15. FILING OF RETURNS AND PAYMENT OF DONOR’S TAX. –

(A) Requirements. – Any person making a donation (whether direct or indirect), unless the donation is specifically exempt under the NIRC or other special laws, is required, for every donation, to accomplish under oath a donor’s tax return in duplicate. The return shall set forth:

1. Each gift made during the calendar year which is to be included in gifts;

2. The deductions claimed and allowable;

3. Any previous net gifts made during the same calendar year;

4. The name of the donee; and

5. Such further information as the Commissioner may require.

(B) Time and place of filing and payment. – The donor’s tax return shall be filed within thirty (30) days after the date the gift is made or completed and the tax due thereon shall be paid at the same time that the return is filed. Unless the Commissioner otherwise permits, the return shall be filed and the tax paid to an AAB, the Revenue District Officer and Revenue Collection Officer having jurisdiction over the place where the donor is domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the Office of the Commissioner. In the case of gifts made by a non-resident, the return may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner. For this purpose, the term “OFFICE OF THE COMMISSIONER” shall refer to the Revenue District Office (RDO) having jurisdiction over the BIR-National Office Building which houses the Office of the Commissioner, or presently, to the Revenue District Office No. 39-South Quezon City.

(C) Notice of donation by a donor engaged in business. – In order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified-donee institutions duly accredited, the donor engaged in business shall give a notice of donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District Office (RDO) which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee institution’s duly issued Certificate of Donation, which shall be attached to the said Notice of Donation, stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such accredited non-stock, non-profit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3) and (B)(2) of the NIRC.

SEC. 16. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION. – Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year: Provided, however, that a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money’s worth.

SEC. 17. EXEMPTION OF CERTAIN GIFTS. – The following are exempt from the donor’s tax:

1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and

2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of this exemption, a ‘non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization’ is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a non-stock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students’ fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation.

SEC. 18. REPEALING CLAUSE. – All existing rules and regulations or parts thereof, which are inconsistent with the provisions of these regulations, are hereby repealed, amended or modified accordingly.

SEC. 19. SEPARABILITY CLAUSE. – If any clause, sentence, provision or section of these Rules shall be held invalid or unconstitutional, the remaining parts thereof shall not be affected thereby.

SEC. 20. EFFECTIVITY. – These regulations are effective beginning January 1, 2018, the effectivity of the TRAIN Law.

 Source: Bureau of Internal Revenue (BIR), Department of Finance Philippines (DOF)

Read these other informative TRAIN-related posts:

• All about TRAIN Tax Law and BIR Guidelines and Regulations
• What’s included in the approved Philippine TRAIN Tax Reform?
• New Personal Income Tax Rates and Income Tax Tables under TRAIN
• Sample BIR Tax Computations under TRAIN