Transfer Taxation
[Introduction]
Contents:
Concepts of Transfer and its type
Different transfer taxes
Concept of a complex transfer
Rationalizations of Transfer
Nature of transfer taxes
Types of transfer taxpayers and their scope of taxation
Reciprocity rule on non-resident aliens
Situs of properties for purposes of transfer taxation
Rules on timing of valuation of transfers
Differences between donation inter-vivos and mortis causa
Different non-taxable transfers and their nature
Concept of completion of transfers and their taxation
Concepts of Transfer and its type
Transfer by definition is a transposition of a property from one person to the other. Transfer could be either Bilateral, Unilateral or Complex transfer.
Bilateral transfer or what we called an exhange transaction that involves transmission of property with consideration. Unilateral transfer, however,is a gratitous transfer that does not involve any consideration. On the other hand, Complex transfer are both exhange and gratuituos, which means the consideration received is less than the fair value of the property transfered. Hence, the difference between the selling price and the fair value are subject to transfer tax, and the difference between the selling price and the cost is subject to income tax.
Different transfer taxes
Unilateral transfer are subject to transfer taxes. This type of transfers could be either Donation or Succession.
When the living donor donates his properties during his living it is called donation inter-vivos. This Donation is subject to Donor's Tax.
A Succession happens when a deceased person transfer his property [ by virtue of law or his will] upon his death. This transfer are also called donation mortis-causa. And such donatuon is subject to Estate Tax.
Concept of a complex transfer
Complex transfers are transfers for less than full and adequate consideration. This occurs when the consideration received is less than the fair value of the property transferred.
Transfer for adequate consideration is subject to income tax and not to transfer tax, since the substance of this transaction is purely exchange transactions.
Transfer for less than full and adequate consideration compromises two elements: exchange element and transfer element. The realized gain of the former is subject to income tax while the latter is subject to transfer tax which is generally a donation inter-vivos.
Rationalizations of Transfer Taxation
The legal basis of the transfer taxation involves multiple theories. These existing theories helped the lawmaker in making fair and equitable decisions for betterment of general public.
Tax Evasion or Minimization Theory
Tax Recoupment Theory
Benefit Received Theory
State Partnership Theory
Wealth Redistribution Theory
Ability to pay Theory.
Nature of transfer taxes
Priviledge Tax- the legal transmission of the property from one person to other was effectuate by government laws, hence the donor or the decedent was exercising his/her priviledge.
Ad Valorem Tax- the tax imposed on the gratuituous transfer transaction is dependent on the property transferred. So valuation of the transfer is hereby necessary.
Proportional Tax- a 6% flat rate is imposed on the net state or gift under TRAIN law.
National Tax- LGU's are not levied on transfer taxes.
Direct Tax- the obligation of any person or entity involve in gratuitous transfer [ transferor - transferee] cannot be transferred to other parties not primarily involved in the said transaction.
Fiscal Tax- as common rule taxing is a way of government to accumulate funds to support public project.
Types of transfer taxpayers and their scope of taxation
Resident Citizen, Resident Alien and Non-Resident Citizen are subject to global transfers, which mean any gratuitous transfer of the properties of these taxpayer wherever it is located are taxable.
Non-Resident Alien are only taxable on Philippine transfer, which means that the gratitous transfer of the property of the Non-Resident Alien which situated in PH are only taxable.
Domestic Corporations and Resident Foreign Corporation are viewed as resident citizen and alien respectively, in Donor's Taxation. However, Corporation are not subject to a Estate Taxation.
Reciprocity rule on non-resident aliens
Non-Resident Aliens intangible personal properties [ Finacial assets, such as Cash, Receivables, Shares/Bonds, Interest in Partnership or Other Intangible like, patent, copyright, trademark, etc.] are exempt in transfer tax in PH provided that the country which such alien belongs to are likewise exempt the intangible properties of a Non-Resident Filipino from transfer taxation.
Situs of the properties transfer
For transfer taxation purposes, the situs of the property to be transfered is the location of that property.
Donation inter-vivos or Donation mortis causa, properties transferred in the place where they are situated at the date of the donation or at the point of death, and not the place where the deed of donation executed or the place where the decedent died.
Rules on timing of valuation of transfers
Donation inter-vivos valued at the date of donation
Donation mortis causa vakued at the date of death of the decedent.
Differences between donation inter-vivos and mortis causa
Donation inter-vivos happens when the legal ownership of the properties are transferred to the transferee during the living of the donor. Donation mortis causa,however, occurs when the legal ownership of the properties are transferred to the heirs upon the death of the decedent.
Different non-taxable transfers and their nature
There are some transfer of properties are not subject to transfer tax due to their subtance. These transfer may called as
Void transfer mostly happen when the donation was not conform to the legal requirement of the law. Such as donation of real property only made in oral contract.
Quasi-transfer are transfer properties which actually not involve or there is no transfer of ownership. Such as usufrutuary.
Concept of completion of transfers and their taxation
There are some transfers that only delivers the property to the transferee but the owner retain its ownership. This transactions are called incomplete transfer and not subject to transfer tax. This is actually happens when the transfer are conditional or revocable and it is completed intervivos when the condition are meet and fullfilled or the condition was waived by the the donor or may be he lapsed his reserved right to revoke during his or her lifetime.
Transfer are only taxable when the ownership and right to property are transfered to the donee or heir.