TRANSFER TAXES Flashcards
What is a Transfer Tax? What are the types of transfers?
Transfer Taxes are taxes imposed upon the GRATUITOUS disposition of private property or rights.
Transfers have 3 types:
- Bilateral Transfer
- Unilateral Transfer
- Complex Transfer
What are Bilateral Transfers?
Bilateral Transfers involve the transmission of property for a consideration. It is also referred to as “onerous transactions” or “exchanges” It includes sales and barters.
What are Unilateral Transfers?
Unilateral Transfers involve the transmission of property by a person WITHOUT CONSIDERATION. They are also referred to as “Gratuitous transactions” or simply, “TRANSFERS”. Only Unilateral Transfers are subject to transfer taxes.
What are the types of Unilateral Transfers/Transfer Taxes?
- Donation/Donation Inter Vivos - gratuitous transfer of property from a living donor to a donee.
- Succession/Donation Mortis Causa - gratuitous transfer of property from a deceased person upon death to his heirs.
What are Complex Transfers?
Complex Transfers are transfers for “less than full and adequate consideration” It occurs when sales are made at prices which are significantly lower than the fair value of the property sold.
Suppose Roger sells to Mike a car with a FMV of 40,000 for only 30,000. Roger bought the car for 25,000. How shall this transfer be taxed?
This is an instance of complex transfer.
The 10,000 difference between the FMV and SP is subject to transfer tax. Whether it is donation mortis causa or inter vivos depends on the intent of the indirect donation.
The 5,000 difference between selling price and cost is subject to income tax.
What is the rationale of Transfer Taxation? Briefly explain each rationale.
- Tax evasion/minimization theory - exchanges may be structured in a way so as to defeat income taxation. To remedy this limitation of income taxation, the government taxes the lost profits(the gratuity portion) to transfer taxation.
- Tax Recoupment theory - Transfers have a natural effect of decreasing future income tax collections of the government, such as when a property is divided among the heirs and the fruits will be subject to a lower tax base per heir. To recoup on future losses, the government taxes the transfer of properties.
- Benefit Received theory - This is the most DOMINANT RATIONALIZATION OF TRANSFER TAXATION. The transferor is exercising a privilege to transfer his property under government security of an effective and orderly transmission, therefore it is taxed.
- State Partnership theory - state ensures a civilized and orderly society, and is therefore an indirect partner behind all forms of wealth accumulation by any person. Therefore when a person transfers properties, the government should take its fair share through transfer taxation.
- Wealth Redistribution theory - equitable distribution of wealth is widely accepted as an element of social progress and stability. Through transfer taxes, wealth is redistributed, and will benefit society.
- Ability to Pay theory - The ability to transfer property is an indication of an ability to pay tax, hence, the transfer is subject to tax.
What is the nature of transfer taxes?
- Privilege tax - tax on the exercise of a privilege
- Ad Valorem tax - tax that is dependent on the value of the properties transferred
- Proportional tax - Taxes are based on a fixed rate
- National tax - tax imposed by the national government
- Direct Tax - Transfer taxes cannot be shifted. Transferor-donor or the transferor decedent is the one subject to tax.
- Fiscal Tax - transfer taxes are levied to raise money for the support of the government.
Which theory is the most dominant rationalization for charging transfer taxes?
Benefit Received theory.
Explain the classification of taxpayers FOR TRANSFER TAX PURPOSES.
Taxpayers of Transfer Taxes are classified as follows:
- RESIDENT OR CITIZENS - Taxable WITHIN AND OUTSIDE PHILIPPINES
A. Resident Citizens
B. Non-Resident Citizens
C. Resident Aliens - NON-RESIDENT ALIENS - Taxable only on PROPERTIES LOCATED IN PH (If with reciprocity, only on tangible properties)
What are the non-taxable transfers?
Non-taxable transfers are transfers of properties WHICH ARE NOT ACTUALLY DONATIONS, hence not taxable. It includes:
a. Void Transfers - NOT SUBJECT
b. Quasi-Transfers - NOT SUBJECT
c. Incomplete Transfers - NOT SUBJECT YET
What are void transfers?
Void Transfers are those that are prohibited by law or those that do not conform to legal requirements for their validity, and are not subject to donor’s or estate tax. It includes:
a. Transfers of property not actually owned
b. Donation between spouses
c. Donations that do not manifest all essential requisites to validity such as donations refused by donee
d. Donations that do not conform to formal requirements such as oral donation of real properties
What are Quasi-transfers?
Quasi-transfers are transmissions of property which DO NOT INVOLVE THE TRANSFER OF OWNERSHIP. These are not subject to transfer tax. It includes:
a. Transmission of the property by a person with a right of usufruct over the property to the owners of the naked title
b. Transmission of property by a trustee to the real owner
c. Transmission of the property from the first heir to a second heir in accordance with the desire of a predecessor
What are incomplete transfers?
Incomplete transfers involve the transmission or delivery of properties from one person to another, but ownership is not yet transferred at the point of delivery. Actual transfer ownership is yet to occur in the future. Incomplete transfers include:
a. Conditional Transfers
b. Revocable Transfers
c. Transfer in Contemplation of death
d. Transfers with reservation of title to property until death
What are the valuation rules on complex incomplete transfers?
- Donation Inter vivos - FV at the date of completion of transfer less consideration given
- Donation mortis causa - FV at the date of death less consideration given at the date of transfer
