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MANILA - The Bureau of Internal Revenue will look into transfers of property to recoup substantial losses from donor's and estate taxes.
Commissioner Kim Jacinto-Henares told Interaksyon.com that a donation is taxable even though it is defined by the New Civil Code as "an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it.”
"Donor's tax is neither a property nor an income tax. Just like estate tax, it's actually an excise tax. It is a tax imposed upon a right to gratuitously transmit property between two or more persons who are living at the time of the transfer," Jacinto-Henares said.
The donor’s tax has a two-fold purpose:
- Supplement estate tax, such as transfers in contemplation of death as well as transfers for insufficient consideration in money or money’s worth; and
- Prevent avoidance of income tax done by splitting income among numerous persons or donees - who are usually members of a family - or into many trusts, with the donor thereby escaping the effect of the progressive rates of income tax.
BIR data show that estate and donor’s taxes contributed P2.4 billion to its 2011 revenues, accounting for only 0.37 percent of the total 16.872 million tax returns filed last year.
"That is extremely low, and needs to be looked at," Jacinto-Henares said.
She said the donor's tax remains a collection problem because most donations are concealed through simulated sales.
"When they donate, they don't make it a donation, rather they would make it appear as a sale transaction," she said.
"The donor's tax rate will not apply anymore, since the transaction is converted into a contract of sale notwithstanding the absence of or for insufficient consideration. Hence, our remedy is to go after the donee posing as buyer and the payment which was originally a donor's tax collectible against the donor would now shift to the donee in the form of income tax," she said.
Given such a scheme, the donee is placed in the position of a buyer, thus presupposing "income" in order to purchase goods.
“Thus, if his or her ITR does not reflect such income that would prove his or her capacity to buy such and such things, there is actually an unreported income. That we will recover, and he or she could likewise be liable for tax evasion,” Jacinto-Henares said, referring to the buyer’s income tax return.
Under Revenue Regulation 2-2003, donor's tax is classified and imposed as follows:
- For donations of personal property made to a stranger, the first P100,000 within the same calendar year is tax exempt, while the excess is charged at the rate of 30 percent of the fair market value or amount of the property donated;
- For donations of personal property made to a relative, the first P100,000 within the same calendar year is tax exempt, while the excess would be charged at the graduated rate of 2-15 percent, depending on the value of the property donated; and
- For donations of real properties held as capital asset, a 6 percent capital gains tax on the fair market value of the real property donated is slapped.
Under the law, a "stranger" is a person who is not a brother or sister, spouse, ancestor, or lineal descendant; nor are they a relative by consanguinity in the collateral line within the fourth civil degree.
Claro Ortiz, BIR head revenue executive assistant and overall coordinator for the Run After Tax Evaders Program, told InterAksyon.com that the bureau’s move is anchored on the doctrine of “estoppel,” which is embodied in the New Civil Code, which is likewise considered as a “conclusive presumption” under the Revised Rules on Evidence of the Rules of Court.
Through estoppel, an admission or representation is rendered conclusive upon the party making it, and any evidence tending to rebut such presumption is not admissible in evidence.
“When a party simulates a sale, we will no longer inquire whether it is a bona fide one or not. We can either assess it as income tax collectible against the donee posing as buyer, or if it is a valid donation but the corresponding tax is unpaid, or was transferred for insufficient consideration, we will go after the estate of the decedent who made the transfer in contemplation of death,” Ortiz said.
Josephrally Chavez Jr., who wrote a book on Philippine taxation, told Interaksyon.com that the BIR’s strategy in recovering revenues from donor’s tax is “legitimate.”
“Based on the net worth method, an increase in asset is synonymous with the increase in revenues. Therefore, unreported asset connotes unreported revenue. If there is unreported asset, there is understatement of income, which would result in tax exposure or liabilities,” he said.
The BIR’s move however is only feasible with respect to donations of registrable properties such as stocks, motor vehicles and real property, all of which have deeds of sale, Chavez said.
“It is very difficult to audit cash gifts, especially when they are not notarized. But if said donation is later on purchased with registrable properties, the BIR could likewise assess the buyer who was originally the donee for unreported income,” he said.
In such cases, the donee could put up the defense that "the money used to acquire property was in fact, only donated to him, making the donee not a party to the tax evasion,” Chavez said.
“Hence, if he is able to establish himself as a mere donee, the BIR cannot hold him liable. Instead, the BIR could either go after the donor if still living, or if the donation was made in contemplation of death, the bureau can institute a claim against the estate of the decedent who made the transfer," he said.
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