bir rulings on estate tax

Tax 2 Assignment

December 12, 2013

April 25, 2012

BIR RULING NO. 284-12

Sec. 104 of the Tax Code of 1997; 000-00

Caguioa & Gatmaytan

3/F La Paz Centre

Salcedo corner V.A. Rufino Streets

Legaspi Village, Makati City

Attention: Alfredo Benjamin S. Caguioa

Gentlemen :

This refers to your letter dated March 18, 2010 requesting whether Philip Llani Evans' estate is liable for

estate tax.

It is represented that the deceased, Philip Llani Evans, was a citizen and a resident of New Zealand, died

in Bangkok, Thailand, left a Will upon his death on October 9, 2001, which was probated in the High

Court of New Zealand and on November 22, 2001, judgment was rendered admitting Evan's will to

probate and appoint Barry Samuel Macdonald as Executor; that a Reprobate proceedings were

conducted before Regional Trial Court of Pasig Branch 160 and in a decision dated March 6, 2006 the

Court granted the reprobate of Evan's will and appoint Alfredo Benjanmin S. Caguioa; that prior to

Evan's death, he entered into a Contract to Sell with Atlanta Land Corporation ("Atlanta") a domestic

corporation, for purchase of a condominium unit in Atlanta Center ("Atlanta Condo") on November 7,

1995; that despite full payment, Atlanta refused to execute a deed of absolute sale over the

condominium unit in Evan's favor: that on January 18, 2008, you filed a complaint for specific

performance against Atlanta before the Housing and Land Use Regulatory Board (HLURB); that on

February 26, 2009, Atlanta and you undertook to look for a buyer willing to purchase the Atlanta condo

and to apply the proceeds of the sale as a settlement of the respective claims; that the parties

subsequently found a buyer for the Atlanta condo. Evans' estate received P3,500,000.00, equivalent to

the amount for which the Atlanta condo was sold.

It is your opinion that at the time of Evan's death, he was a non-resident alien; that his Philippine estate

consists solely of intangible personal property; that his country has no transfer taxes and the settlement

price over the Atlanta condo does not form part of the taxable estate hence not liable for Philippine

estate's tax.

In reply, please be informed that pursuant to Section 85 of the Tax Code of 1997, as amended, the value

of the gross estate of the decedent shall be determined by including the value at the time of his death of

all property, real or personal, tangible or intangible, wherever situated.

However, Section 104 of the 1997 Tax Code, as amended, provides, viz.:

SEC. 104. Definitions. — For purposes of this Title, the terms 'gross estate' and 'gifts' include real

and personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however,

That where the decedent or donor was a nonresident alien at the time of his death or donation, as the

case may be, his real and personal property so transferred but which are situated outside the Philippines

shall not be included as part of his 'gross estate' or 'gross gift': Provided, further, That franchise which

must be exercised in the Philippines; shares, obligations or bonds issued by any corporation or sociedad

anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or

bonds by any foreign corporation eighty-five percent (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 a business situs in the Philippines; shares or rights in any partnership, business or

industry established in the Philippines, shall be considered as situated in the Philippines: Provided, still

further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if the

decedent at the time of his death or the donor at the time of the donation was a citizen and resident of

a foreign country which at the time of his death or donation did not impose a transfer tax of any

character, in respect of intangible personal property of citizens of the Philippines not residing in that

foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen

and resident at the time of his death or donation allows a similar exemption from transfer or death

taxes of every character or description in respect of intangible personal property owned by citizens of

the Philippines not residing in that foreign country.

Moreover, Section 2 of Republic Act (RA) No. 4726, provides:

"Sec. 2. A condominium is an interest in real property consisting of separate interest in a unit in a

residential, industrial or commercial building and an undivided interest in common, directly or indirectly,

in the land on which it is located and in other common areas of the building. A condominium may

include, in addition, a separate interest in other portions of such real property. Title to the common

areas, including the land, or the appurtenant interests in such areas, may be held by a corporation

specially formed for the purpose (hereinafter known as the "condominium corporation") in which the

holders of separate interest shall automatically be members or shareholders, to the exclusion of others,

in proportion to the appurtenant interest of their respective units in the common areas.

The real right in condominium may be ownership or any other interest in real property recognized by

law, on property in the Civil Code and other pertinent laws."

As represented, Evans' Philippine Estate consists of an office condominium unit designated as Unit 2401,

Atlanta Centre, located at No. 31 Annapolis St., Greenhills, San Juan Metro Manila and two (2) parking

lots identified as B315 and B316, located at 3rd level basement of the same building. 1 Mr. Evans

already has real rights or interest over the condominium unit, equivalent to its value, as the same has

been fully paid, although the condominium Certificate of Title thereof has yet to be registered in his

name.

Moreover, paragraph 10 of Article 415 of the Republic Act No. 386 also known as the "Civil Code of the

Philippines", provides:

"Article 415. The following are immovable property:

xxx xxx xxx

(10) Contracts for public works, and servitudes and other real rights over immovable property."

(emphasis supplied)

Considering that at the time of death of Evans, the only property left by the latter in the Philippines

consists of P3,500,000.00, equivalent to the amount for which the Atlanta condo was sold, which is a

real right over the immovable, the same shall be included in his gross estate for purposes of computing

the Philippine estate tax under Section 84 of the Tax Code of 1997. Accordingly, this Office holds that

the heirs of the late Evans, a non-resident decedent, should file the estate tax return and pay the

corresponding estate tax due on the transmission of the said estate to the heirs.

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

January 11, 2012


RA 6426, PD 1246

Atty. Atilano Huaben B. Lim

4 Amethyst St., Sta. Monica II

Dalandanan, Valenzuela City

Sir :

This refers to your letters dated June 25, 2010 and October 12, 2010 stating that your client, Romeo B.

Go opened joint accounts with Augusto P. Urrutia at the then Equitable PCI Bank (now Banco de Oro),

and Bank of the Philippine Islands at their Meycauayan, Bulacan branches; that thereafter, on

September 5, 2007, Mr. Urrutia died unmarried, intestate, and without any children or issue; and that

both the aforementioned banks, refused to allow Mr. Romeo B. Go to withdraw/close the subject Peso

and US Dollar deposits unless there is a certification from the Bureau of Internal Revenue that the estate

tax has been paid or that the estate is exempt from the payment of the said tax in compliance with

Section 97 of the National Internal Revenue Code (NIRC).

For this reason, you requested that a ruling be issued in favor of your client allowing him to withdraw his

share of the deposits in the joint accounts without having to pay the estate tax of his deceased co-

depositor.

In reply thereto, please be informed that pursuant to Section 85 of the Tax Code of 1997, the value of

the gross estate of the decedent shall be determined by including the value at the time of his death of

all property, real or personal, tangible or intangible, wherever situated.

Moreover, interest on a deposit account maintained by two persons is deemed to be equally owned by

them for income tax purposes. The same presumption may likewise apply for estate tax purposes, thus,

only half of the balance of the deposit should be reported for estate tax purposes pertaining to the

decedent. Thus, the one-half portion of the balance of the said accounts shall not be included in the

computation of the gross estate of the decedent.

This shall serve as authority for the aforementioned banks to release half of the balances in the joint

accounts between Romeo B. Go and Augusto P. Urrutia. After the shares of Romeo B. Go in the said

bank accounts have been paid to him, the accounts shall cease to be "and/or" accounts and shall be

converted to individual accounts in the name of Augusto P. Urrutia. The aforementioned banks are

further required to submit reports to the Law Division, Bureau of Internal Revenue, National Office

Building, that they have effected these changes within 30 days after the withdrawal by Romeo B. Go of

his share in said bank accounts.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon

investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and

void.

Very truly yours,



November 11, 2011


Sec. 86 (A) (4) NIRC; RR 02-03; CIR vs. Isabela Cultural Corp., G.R. No. 172231

Cynthia L. Tiotuyco

#14 S. Moldero, B.F. Homes

Capitol Site, Quezon City

Ma'am :

This refers to your letter dated February 4, 2011 requesting for a clarificatory ruling on whether the

family home of your father, the deceased Maximo B. Landrito, may be deducted from his gross estate

for purposes of estate tax.

It can be gathered from the documents submitted that Maximo Landrito and his wife, Paz Landrito,

("Spouses Landrito") obtained a loan from Zoilo and Primitiva Espiritu ("Spouses Espiritu") in the amount

of P350,000.00; that to secure the loan, the Spouses Landrito executed a real estate mortgage over their

real property located in Alabang, Muntinlupa covered by Transfer Certificate of Title (TCT) No. S-48498,

in favor of Spouses Espiritu; that said property was being used by Spouses Landrito as their residence.

Furthermore, the Spouses Landrito were unable to settle the loan when the same became due and

demandable. As a consequence, the mortgaged property was foreclosed on October 31, 1990 and sold

to Spouses Espiritu as the sole bidder. The title of the property was subsequently transferred in the

name of Spouses Espiritu under TCT No. 179802 of the Registry of Deeds for Makati. Meanwhile,

Spouses Landrito were ejected from their property and rented an apartment as their residence. On

October 9, 1992, the Spouses Landrito, represented by their son, Zoilo Landrito, filed an action for

annulment or reconveyance of title of the subject property against Spouses Espiritu. The Supreme Court,

in its decision promulgated on April 3, 2007, declared invalid the foreclosure proceedings and ordered

the Spouses Espiritu to reconvey the property to the Spouses Landrito. Pending the execution of the

Court's decision, Maximo Landrito died on December 20, 2007 in his rented apartment in Sampaloc,

Manila.

The sole issue is whether or not the family home constituted on the lot that was foreclosed but

subsequently reconveyed to Spouses Landrito may be deducted from the gross estate of Maximo

Landrito.

In reply, please be informed that Section 6 (D) (b) of the Revenue Regulations No. 02-2003, which

implements Section 86 (A) (4) of the Tax Code of 1997, provides, to wit:

"Conditions for the allowance of FAMILY HOME as deduction from the gross estate —

1. The family home must be the actual residential home of the decedent and his family at the time

of his death, as certified by the Barangay Captain of the locality where the family home is situated;

2. The total value of the family home must be included as part of the gross estate of the decedent;

and

3. Allowable deduction must be in an amount equivalent to the current fair market value of the

family home as declared or included in the gross estate, or the extent of the decedent's interest

(whether conjugal/community or exclusive property), whichever is lower, but not exceeding

P1,000,000."

Based from the above-quoted provision, it is clear that the family home, in order to be allowed as a

deduction from the gross estate, must be the actual residential home of the decedent and his family at

the time of his death. In this case, Mr. Landrito and his family were not actually residing at their family

home at the time of his death. Hence, the said family home may not be allowed as a deduction from the

gross estate for purposes of estate tax.

It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against

the taxpayer and liberally in favor of the taxing authority. One who claims an exemption must be able to

justify the same by the clearest grant of organic or statute law. An exemption from the common burden

cannot be permitted to exist upon vague implications. And since a deduction for income tax purposes

partakes of the nature of a tax exemption, then it must also be strictly construed. (CIR vs. Isabela

Cultural Corporation, G.R. No. 172231 dated February 12, 2007)

Very truly yours,



January 28, 2008


Secs. 85, 24 (D) (1), 196, NIRC; Sec. 9, E.O. 1035

National Power Corporation

Quezon Ave. cor BIR Road,

Diliman, Quezon City

Attention: Ricardo V. Samorio

Officer-in-Charge, South Luzon Projects

Gentlemen :

This refers to your letter dated May 23, 2007, requesting for estate tax assessment for a lot to be

acquired by the National Power Corporation (NPC) for the Caliraya-Botocan-Kalayaan-Build-Operate-

Transfer (CBK-BROT) * Project.

It is represented that the NPC is acquiring lots within the area of the Caliraya Hydro Electric Power Plant

(CHEP). One of these lots is Lot No. 1469-B in Lumban, Laguna wherein the Caliraya tailrace canal is

situated. The subject lot was formerly owned by Lorenza Aaliwin and Aquilina Aquino who died on

January 22, 1987 and October 25, 1990, respectively. The heirs of the deceased then executed an extra-

judicial partition of real estate with special power of attorney on March 29, 2007 to partition the

abovementioned property and negotiate its sale to NPC.

It is further represented that the heirs are being required by BIR San Pablo City, Laguna to settle unpaid

estate taxes for all other real properties including those not involved in this transaction. Apparently, the

net proceeds for the lot to be acquired by NPC is meager compared to the expenses to be incurred. This

has caused the heirs to be unwilling to sell their property to NPC.

You now request this Office to confirm your opinion that under Section 9 (b) of Executive Order (EO) No.

1035, only the lot to be acquired by the NPC should be assessed estate tax in order that the heirs would

proceed with the sale of said land to NPC.

In reply, please be informed that the law in effect at the time of death of the decedents was Section 100

of the Tax Code of 1977 (now Section 85 of the Tax Code of 1997, as amended by Republic Act (RA) No.

9337) which provided that:

"Section 100. Gross Estate. — The value of the gross estate of the decedent shall be determined by

including the value at the time of death of all property, real or personal, tangible or intangible, wherever

situated: . . . —"

Presently, Section 85 of the current version of the NIRC is virtually identical to the abovementioned

provision. As such, the determination of what constitutes the gross estate of decedents subject to estate

tax is the same now as it was at the time of death of the lot owners in the present case (1987 and 1990).

For purposes of determining the estate tax liability of a decedent's estate, the gross estate of the latter

must first be ascertained and this includes all real property owned by the decedent, real or personal,

tangible or intangible, wherever situated. In the present case, the lot which will be acquired by NPC is

included among the mass of properties that form part of the gross estate of Lorenza Aaliwin and

Aquilina Aquino. However, it appears that the estate tax due on the real properties of the deceased has

not yet been paid and that this is now preventing the transfer of the abovementioned lot to NPC for the

operation of the CHEP.

In this regard, Section 9 (b) of EO 1035 states that:

"Sec. 9. Assessment of Taxes Due. — The Bureau of Internal Revenue and the respective

Provincial/City/Municipal Treasurers shall assess the following taxes, where applicable, on the property

being acquired . . . —

b) Estate tax due on the portion of the estate of a deceased owner to be acquired by the

government and;

xxx xxx xxx

Such assessment shall be made and transmitted to the government implementing

agency/instrumentality concerned within one (1) week from the submission of the complete

requirements."

The purpose behind EO 1035 is to expedite the transfer of private property to the government for

infrastructure and development projects. By expediting the processes surrounding such transfers, the

government ensures that its public projects will not be hampered by unnecessary delays and obstacles

that would prevent the people from benefiting from these projects.

The present case is well within the contemplation of the foregoing provision. Section 9 (b) EO 1035

clearly mandates that upon NPC's submission of the complete requirements, the BIR should submit the

estate tax assessment on property to be acquired within one week from such submission. In the present

case, the fact that the subject lot is a common part of the estate of Lorenza Aaliwin and Aquilina Aquino

that have yet to be subjected to estate tax, should not prevent the assessment of said lot in order to

facilitate its transfer to NPC. To do otherwise would certainly be violative of the clear intent of EO 1035

to prioritize the assessment of estate taxes if such prove a hindrance to the proper implementation of

government projects.

It must be stressed, however that the priority given for the assessment of estate taxes on the

abovementioned lot does not exempt the transfer of the same from the imposable taxes under the

same Tax Code of 1997, as amended. Thus, the transfer of the said lot to NPC shall be subject to capital

gains tax and documentary stamp tax under Section 24 (D) (1) and 196, respectively, of the same Tax

Code.

Accordingly, this Office holds that Lot No. 1469-B in Lumban, Laguna should be assessed for estate tax

separately, but the heirs should likewise be assessed on the remainder of the gross estates of Lorenza

Aaliwin and Aquilina Aquino which have not been subjected to estate tax.


investigation, it will be disclosed that the facts are different, then this ruling should be considered null

and avoid.

Very truly yours,

(SGD.) LILIAN B. HEFTI


April 25, 2006

BIR RULING [DA-279-06]

24 (B) (1); DA-064-02

Philippine Veterans Bank

PVB Bldg., 101 V.A. Rufno cor. Dela Rosa Sts.

Legaspi Village, Makati City

Attention: Ma. Milagros Campomanes-Yuhico

VP and Trust Officer

Gentlemen :

This refers to your letter dated December 8, 2005 requesting for a certificate of tax exemption from the

20% final tax imposed under Section 24(B)(1) of the Tax Code of 1997 of the interest income from long

term deposit or investment in the form of a Living Trust or a Trust Estate administered by the Philippine

Veterans Bank through its Trust and Investment Division.

It is represented that the Revocable Living Trust Agreement and the Irrevocable Living Trust Agreement

cover the Living Trust and Trust Estate; and that the accounts opened through these trust vehicles are

generally and fundamentally built for long-term administration and accumulation for the eventual

transfer to the designated beneficiary/ies of the clients.

In reply thereto, please be informed that Section 24(B)(1) of the Tax Code of 1997 provides that "a final

tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any

currency bank deposit and yield or any other monetary benefit from deposit substitute and from trust

funds and similar arrangements; . . . : Provided, further, That interest income from long term deposit or

investment in the form of savings, common or individual trust funds, deposit substitutes, investment

management accounts and other investment evidenced by certificates in such form prescribed by the

Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax, Provided, finally, That should the holder

of the certificate preterminate the deposit or investment before the fifth (5th) year, a final tax shall be

imposed on the entire income and shall be deducted and withheld by the depository bank from the

proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof:

Four (4) years to less than five (5) years - 5%

Three (3) years to less than four (4) years - 12% and

Less than three (3) years - 20%"

Such being the case, the interest income derived by the Philippine Veterans Bank through its Trust and

Investment Division is exempt from final withholding tax provided that the fund is held by the trustee-

bank for at least five (5) years. However, if the participation is for a period of less than 5 years, the

interest income shall be subject to a final withholding tax which shall be deducted and withheld from

the proceeds of said investment and which shall be computed in accordance with the pre-termination

rate schedule under Sections 24(B)(1) and 25(A)(2) of the Tax Code of 1997. (BIR Ruling No. DA-064-02

dated April 03, 2002)

Moreover, it can be gleaned from your representation that the Revocable Living Trust Agreement and

the Irrevocable Living Trust Agreement cover the Living Trust and Trust Estate, and that the accounts

opened through these trust vehicles are generally and fundamentally built for long-term administration

and accumulation for the eventual transfer to the designated beneficiary/ies of your clients. Whereas, as

compared to the Common Trust Fund (CTF), the beneficiaries are one and the same person which is the

trustor or the beneficial ownership of the trust fund remains with the individual participant of the trust.

In a revocable transfer of funds to the designated beneficiary/ies of your client, such as in this case, the

funds continue to be owned by the trustor during his lifetime notwithstanding the transfer, as he still

retains the beneficial ownership. The rationale for taxing such transfer in trust at the time of death of

the trustor is to reach transfers which are really substitutes for testamentary disposition and thus

prevent evasion of estate tax. To be exempt from estate tax, the transfer of trust fund by inter vivos

must be absolute and outright with no strings attached whatsoever by the trustor.

In other words, all trust funds covered by the Revocable Living Trust Agreement of your client shall be

considered as forming part of its gross estate subject to estate tax pursuant to Section 85 of the Tax

Code of 1997, upon the death of the trustor. Thus, in case of death of your client-trustor, the transfer of

funds to the designated beneficiary/ies under the Revocable Living Trust Agreement shall be subject to

estate tax to the extent of your client-trustor's or beneficiary/ies' interest therein, as the case may be, at

the time of death pursuant to Section 85(C) of the Tax Code of 1997. (BIR Ruling No. 013-2005 dated

August 16, 2005)

Finally, for monitoring purposes, the bank shall set up a separate numbering system in its trust books for

its long-term products.


investigation it will be disclosed that the facts are different, then this ruling shall be considered null and

void.

Very truly yours,

(SGD.) JAMES H. ROLDAN

Assistant Commissioner

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