ESTATE TAX AND DONORS TAX ESTATE TAX REV. REGS NO. 17-93 REVENUE REGULATIONS NO.

17-93 SUBJECT : Estate and Donor's Taxes as Restructured by Republic Act No. 7499. TO : All Internal Revenue Officers and Others Concerned. Pursuant to Section 245 in relation to Section 4(h) of the National Internal Revenue Code (NIRC), as amended, these regulations are hereby promulgated to implement the provisions of RA No. 7499 which restructured Estate and Donor's Taxes amending for the purpose Sections 77, 79(a), 83(b), Chapter I and 92(a) and (b), Chapter II, Title III of the NIRC. SECTION 1. Scope. These regulations shall govern the taxation of the transmission of the decedent's estateand donations made by persons, natural or juridical, whether citizens or aliens, residents or non-residents. For purposes of these regulations, the provisions of the Family Code of the Philippines (E.O. No. 209) which took effect on August 3, 1988shall govern the property relations between husband and wife whose marriage was celebrated on or after such date. SECTION 2. Rates of Estate Tax. The transfer of the net estate of every decedent, whether resident or non-resident of the Philippines as determined in accordance with Sections 78 and 79 of the NIRC, as amended, shall be subject to the estate tax in accordance with the following amended schedule under Section 77 of the NIRC. The entire value of the net estate is divided into brackets and each rate is imposed on the corresponding bracket. Below is a table showing the tax on each bracket and the cumulative total tax for the entire net estate: If the Net Estate is:
Over P 200,000 500,000 2,000,000 5,000,000 10,000,000 But Not Over P 200,000 500,000 2,000,000 5,000,000 10,000,000 And Over The Tax shall be Exempt 0 P 15,000 135,000 495,000 1,545,000 Plus 5% 8% 12% 21% 35% Of the Excess Over P 200,000 500,000 2,000,000 5,000,000 10,000,000

SECTION 3. What Law Governs the Imposition of Estate Tax? It is a well settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. (26 R.C.L., p. 206, 4 Cooley on Taxation) Accrual of the estate tax as of the date of death of the decedent is distinct from the obligation to pay the same. (Lorenzo vs. Posadas, 64 Phil. 353) Upon the death of the decedent, succession takes place and the right of the state to tax vests instantly. R.A. No. 7499 was published in Volume 88, No. 24 of the Official Gazette in its issue of July 13, 1992.Accordingly, R.A. No. 7499 took effect after fifteen (15) days following said publication or on July 28, 1992 pursuant to Article 2 of the New Civil Code and in line with the Supreme Court decisions in the case of Taada, et. al. vs. Tuvera, 146 SCRA 446; Caltex (Phils.), Inc. vs. The Commissioner of Internal Revenue, G.R. No. 97282, 26 June 1991) SECTION 4. Computation of Net Estate and Estate Tax. Pursuant to the amendments to Section 79(a) of the NIRC, the value of the net estate of a citizen or resident of the Philippines shall be determined by deducting from the value of the gross estate: (1) Expenses, losses, indebtedness, and taxes Such amounts for: (A) Actual funeral expenses or an amount equal to five per centum (5%) of the gross estate, whichever is lower, but in no case to exceed P100,000; The maximum amount that can be allowed as deduction for funeral and burial expenses is the actual amount incurred or an amount equal to five per centum (5%) of the gross estate, whichever is lower, but not to exceed P100,000. The term "funeral expenses" is not confined to its ordinary or usual meaning. They include: 1. Medical expenses during the last illness of the deceased; 2. The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial; 3. Expenses of the wake preceding the burial, including food and drinks; 4. Publication charges for death notices; 5. Telecommunication expenses in informing relatives of the deceased; 6. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a Family Estate or several burial lots, only the value corresponding to the plot where he is buried is deductible;cdt 7. Interment fees and charges; and 8. All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased, such as, contributions or mutual assistance, are not deductible.

Actual funeral expenses shall mean those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that the expenses was really incurred. For example 1. If 5% of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed as deduction. 2. If the expenses actually incurred amount to P90,000 and 5% of the gross estate is P70,000, only P70,000 will be allowed as deduction. 3. If 5% of the gross estate is P120,000, and the amount actually incurred is P115,000, the maximum amount that may be deducted is only P100,000. (B) Judicial expenses of the testamentary or intestate proceedings; (C) Claims against the estate: Provided; That at the time the indebtedness was incurred the debt instrument was duly notarized and, if the loan was contracted within three years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan; (D) Claims of the deceased against insolvent persons where the value of the decedent's interest therein is included in the value of the gross estate; and (E) Unpaid mortgages upon, or any indebtedness, with respect to property,where the value of decedent'sinterest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, but not including any income taxes upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate tax. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness, shall when founded upon a promise or agreement, be limited to the extent that they were contracted bona fideand for an adequate and full consideration in money or money's worth. There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery, theft, or embezzlement, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return, and provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in Section 84(a) of the NIRC. cda (2) Property previously taxed. An amount equal to the value specified below of any property forming part of the gross estate situated in the Philippines of any person who died within five years prior to the death of the decedent, or transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: One hundred per centum of the value if the prior decedent died within one year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; Eighty per centum of tax-value if the prior decedent died more than one year but not more than two years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; Sixty per centum of the value if the prior decedent died more than two years but not more than three years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; Forty per centum of the value if the prior decedent died more than three years but not more than four years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and cdt Twenty per centum of the value if the prior decedent died more than four years but not more than five years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death. These deductions shall be allowed only where a gift tax, or estate tax imposed under Title III of the NIRC, was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and only if in determining the value of the estate of the prior decedent no deduction was allowableunder paragraph (2), subsection (a) of Section 79, NIRC, in respect of the property or properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which were paid in whole or in part prior to the decedent's death, then the deduction allowable under said paragraph shallbe reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of subsection (a), Section 79, NIRC as the amount otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the property referred to consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction. (3) Transfers for public use. The amount of all bequests, legacies, devises, or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes. (4) The family home. An amount equivalent to the current or fair market value or zonal value of the decedent's family home, whichever is higher: Provided, however, That, if the said "current or fair market value or zonal value exceeds one million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as certified by the Barangay Captain of the locality. cd

(5)

Net share of the surviving spouse in the conjugal partnership or community property.

SECTION 5. Definitions. a) Family home The dwelling house, including the land on which it is situated, where the husband and wife, or an unmarried person who is the head of a family and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad, etc. In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return. The family home must be part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties of either spousewith the latter's consent. It may also be constituted by an unmarried head of a family on his or her own property. (Art. 156, Ibid) For purposes of availing of a family home deduction to the extent provided in R.A. 7499, a person may constitute only one family home. (Art. 161, Ibid) b) Husband and Wife Legally married man and woman. c) Unmarried Head of a Family unmarried man or woman with any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent upon the head of the family for legal support. The beneficiaries of a family home are: (1) The husband and wife, or an unmarried person who is the head of a family; and aisa dc (2) Their parents, ascendants, descendants, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. (Art. 154, Ibid) d) Absolute community of property a property regime/system whereby there is merger of all the properties of the husband and the wife respectively owned by them at the time of the celebration of the marriage, or those acquired thereafter unless excepted in the Family Code or in the marriage settlement. The regime of absolute community of property shall apply: (1) If the future spouses stipulate upon it in their marriage settlement; or (2) If they married without entering into or executing a marriage settlement; or (3) If they entered into a marriage settlement and the same is void. e) Conjugal partnership of gains In order to govern the property relations of the future spouses, this regime must be agreed upon in the marriage settlement. Under this regime/system the spouses retain the ownership of the property which they respectively brought to the marriage as well as those they may acquire during the marriage by gratuitous title or by right of redemption, barter or by exchange with separate property and those which they purchased with their own money. (Art. 109, Family Code) The spouses place in a common fund the proceeds, products, fruits and income from their separate propertiesand those acquired by either or both spouses through their efforts, or by chance, and upon dissolution of the marriage, the net gains or benefits obtained by either or both spouses shall be divided equally between them, unless otherwise agreed in the marriage settlements. (Art. 106, Ibid) f) Exclusive property of each spouse: (1) That which is brought to the marriage as his or her own; (2) That which each acquires during the marriage by gratuitous title; (3) That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the spouses; and (4) That which is purchased with exclusive money of the wife or of the husband. g) Marriage settlement a contract entered into by man and woman about to be married for the purpose of fixing the terms and conditions of their property relations with regard to their present and future property. It is also referred to as antenuptial agreement or matrimonial contract. SECTION 6. Computation for the Allowance of the Family Home as Deduction from the Gross Rate. A. Valuation of Family Home. The decedent's family home shall be appraised as of the time of his death, at its current or fair market value or zonal value, whichever is higher. acd B. 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 to 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 a person who died on or after July 28, 1992, the date of effectivity of R.A. 7499; and 3. Allowable deduction must be in an amount equivalent to the fair market value or zonal value of the family home as declared or included in the gross estate but not exceeding P1,000,000. To illustrate:
(1) Decedent is an unmarried head of a family: (a) Real and personal properties Family home P5,000,000 2,000,000

Gross Estate Less: Deductions: Family home Other deductions

P7,000,000 P1,000,000 3,000,000 ----------------- P3,000,000 ========

Total Deductions

4,000,000

Net Taxable Estate

Note: Although the family home is valued at P2 million, the maximum allowable deduction for the family home is P1 million only. b) Real and personal properties P5,000,000 Family home 800,000 Gross Estate P5,800,000 Less: Deductions: Family home Other deductions 3,800,000

P800,000 3,000,000

----------------

Total Deductions

P2,000,000 ======== Note: Deduction for family home is allowed for P800,000 only which is the declared value of the home. Net Taxable Estate

(2)
(a)

Decedent is a married man with surviving spouse:

The family home is his exclusive property Exclusive Conjugal Total

Conjugal Properties: Real Properties

P5,000,000 P5,000,000

Exclusive Properties: Family Home P2,000,000 Other Exclusive Properties 2,500,000 4,500,000 __________________________________________________ Gross Estate P4,500,000 P5,000,000 P9,500,000 Less Conjugal Deductions: Other deductions (2,000,000) (2,000,000) Share of surviving spouse: Conjugal Properties P5,000,000 Less: Conjugal Deductions 2,000,000 Net Conjugal Estate 3,000,000 1/2 share of surviving spouse Family Home Net Taxable Estate (1,000,000) P3,500,000 P1,500,000 ======== (1,500,000) (1,000,000) P5,000,000 ======== ========

(b)

Family home is a conjugal or community property. Exclusive Conjugal Total

Conjugal Properties: Family Home Other Real Properties Exclusive Real Properties Gross Estate Less Deductions: Conjugal deductions

P2,000,000 5,000,000 P7,000,000 P2,000,000 2,000,000 P2,000,000 P7,000,000 P9,000,000

(2,000,000) (2,000,000)

Share of surviving spouse: Conjugal property 7,000,000 Less: Conjugal deductions 2,000,000 Net conjugal estate P5,000,000 1/2 share of surviving spouse Family Home Net Taxable Estate (2,500,000) (1,000,000) (1,000,000) P2,000,000 P1,500,000 P3,500,000

======== ======== ======== Note: Family home allowance of P1,000,000 is considered as one item of deduction after the computation and deduction of the net share of the surviving spouse in the conjugal property. casia (c) Same facts and figures as in (b) except for Family home which has a fair market value/zonal value of only P1,500,000. Exclusive Conjugal Properties: Family home Other Real Properties Exclusive Real Properties Gross Estate Conjugal Total

P6,500,000 P2,000,000 2,000,000 P2,000,000 P6,500,000 P8,500,000

1,500,000 5,000,000

Less Deductions: Conjugal deductions (2,000,000) (2,000,000) Share of surviving spouse: Conjugal property P6,500,000 Less: Conjugal deductions 2,000,000 Net Conjugal estate P4,500,000 1/2 share of surviving spouse (2,500,000) (750,000) (750,000) Net Taxable Estate P2,000,000 P1,500,000 P3,500,000 ======== ======== ======== NOTE: Since the fair market value/zonal value of Family home (Conjugal) in the above example is P1,500,000, the Family home deduction corresponding to 1/2 of such fair market value/zonal value is P750,000 only. (d) Family home is conjugal property, but lot on which it stands is exclusive property. cda Exclusive Conjugal properties: Other real properties Family house Exclusive properties: Other real properties Family lot Gross estate Conjugal Total Family Home

P3,000,000 1,000,000 P4,000,000

P2,000,000 400,000 2,400,000 P2,400,000 P4,000,000 P6,400,000

Less Deductions: Other deductions (2,000,000) (2,000,000) Share of surviving spouse: Conjugal properties 4,000,000 Less: Conjugal Deductions 2,000,000 Net conjugal estate P2,000,000 1/2 share of survivingspouse Family house and lot (500,000 + 400,000) (900,000) Net taxable estate P2,000,000 P500,000 (1,000,000)

P2,500,000 ======== ========

========

(3) A.

Family home is conjugal property and both spouses died in the same year, leaving THREE (3) children: Estate of HUSBAND: Exclusive Community Total

Conjugal Properties: Real Properties Personal Properties Family Home Exclusive Properties: Real Properties Personal Properties Gross Estate Less Deductions: Conjugal Deductions Net Estate

P6,000,000 P6,000,000 4,000,000 4,000,000 2,000,000 2,000,000

4,000,000 4,000,000 1,000,000 1,000,000 P5,000,000 P12,000,000 P17,000,000 (4,000,000) (4,000,000) P5,000,000 P8,000,000 P13,000,000

Less:

Share of surviving spouse Family Home Net taxable Estate P5,000,000 =========

(1,000,000) P3,000,000 ========

(4,000,000) (4,000,000) (1,000,000) P8,000,000 ========

B.

Estate of WIFE: Inheritance Conjugal Share Share Total

Conjugal Real Properties Conjugal Personal Properties Family Home Exclusive Real Properties Exclusive Personal Properties

Gross Estate Less Deductions: Other deductions (500,000) Family Home Vanishing deductions * (1,964,286) Net taxable estate P285,714 ======== * Vanishing deductions: P2,750,000 2,750,000

P750,000 500,000 250,000 1,000,000 250,000 P2,750,000

P3,000,000 2,000,000 1,000,000 P6,000,000 (2,000,000) (1,000,000) P3,000,000 ========

P3,750,000 2,500,000 1,250,000 1,000,000 250,000 P8,750,000 (2,500,000) (1,000,000) (1,964,286) P3,285,714 ========

Inherited properties Less:

P2,500,000 = 8,750,000

785,714

Amount subject to vanishing deductions 100% Vanishing deduction

P1,964,286 P1,964,28 =======

SECTION 7. (a) Time for filing estate tax return. For purposes of determining the estate tax provided for in Section 77 of the NIRC, the estate tax return shall be filed within six (6) months from the decedent's death. The Court approving the project of partition shall furnish the Commissioner with a certified copy thereof and its order within thirty (30) days after the promulgation of such order. cdi (b) Place of filing. Except in cases where the Commissioner of Internal Revenue permits, the estate tax return shall be filed with the Revenue District Officer, Collection Agent or duly authorized treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there be no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue. (c) Time for payment of estate tax. The estate tax imposed under Section 77 of the NIRC and Section 2 of these Regulations shall be paid at the time the return is filed by the executor, administrator or the heirs. SECTION 8. RATES OF DONOR'S TAX. (a) The transfer of the total net gifts made during the calendar year shall be subject to tax in accordance with the following amended schedule under Section 92 of the NIRC. The entire value of the net gifts for each calendar year is divided into brackets and each rate is imposed on the corresponding brackets as shown below: If the net gift is:

OVER P50,000 100,000 200,000 500,000 1,000,000 3,000,000 5,000,000

BUT NOT OVER P50,000 100,000 200,000 500,000 1,000,000 3,000,000 5,000,000

THE TAX SHALL BE Exempt 750 3,750 18,750 58,750 285,750

PLUS 1.5% 3% 5% 8% 10% 15% 558,750

OF EXCESS OVER P50,000 100,000 200,000 500,000 1,000,000 3,000,000 20% 5,000,000

(b) Tax payable by the donor if donee is a stranger. When the donee or beneficiary is a stranger, the tax payable by the donor shall be ten percent (10%) of the net gifts. For purposes of the donor's tax, a "stranger" is a person who is not a: (i) Brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant; or (ii) Relative by consanguinity in the collateral line within the fourth degree of relationship. acd

(c) 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. SECTION 9. What Law Governs the Imposition of the 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, p. 292) The donor's gift tax shall not apply unless and until there is a completed gift. (34 Am. Jur. 2d, p. 845) The transfer of property by gift is perfected from the moment the donor knows of the acceptance by the donee; and completed by the delivery to the donee either actually or constructively of the donated property. (Art. 734 Civil Code; Richardson, 39 BTA 927, Macomber, T.C. Memo, 6-6-51) Thus, the law in force at the time of the perfection/completion of the donation shall govern the imposition of the donor's tax. R.A. No. 7499 took effect on July 28, 1992. SECTION 10. Computation of the Donor's Tax Due on Donations made in 1992. For donor's tax purposes, donations made on or before July 28, 1992 shall be subject to the donor's tax computed on the basis of the old rates imposed under Section 92 of the NIRC (before RA 7499 amendment), while donations made on or after July 28, 1992 shall be subject to the donor's tax computed in accordance with the new/amended schedule of rates prescribed under Section 92 of the NIRC as amended. cdtai Illustration:
Donations made on: January 30, 1992 March 30, 1992 August 15, 1992 September 15, 1992 1. January 30, 1992 donation Donor's tax due 2. P2,320,000.00 3,840,000.00 2,160,000.00 4,970,000.00

P2,320,000.00 P667,460.00 P3,840,000.00 2,320,000.00 P6,160,000.00 ========== P2,189,860.00 667,460.00 1,522,400.00 2,160,000.00 174,750.00 P4,970,000.00 2,160,000.00 P7,130,000.00 ========== P984,750.00 174,750.00 810,000.00 P3,174,610.00 ==========

March 30, 1992 donation Add: January 30, 1992 donation Total Donor's tax due Less: Donor's tax due on January 30 donation Donor's tax due on March 30, 1992 donation

3.

August 15, 1992 donation Donor's tax due September 15, 1992 donation Add: August 15, 1992 donation Total

4.

Donor's tax due Less: Donor's tax on August 15 donation Donor's tax on September 15, 1992 donation

Total

SECTION 11. (a) Time and Place of Filing. The donor's tax return shall be filed within thirty days from the date the gift is made and, except in cases where the Commissioner permits, the return shall be filed with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality in which the donor was domiciled at the time of transfer or if there be no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue. (b) Time for payment of donor's tax. The donor's tax imposed under Section 92 of the NIRC and Section 8 of these Regulations shall be paid by the donor at the time the donor's tax return is filed. SECTION 12. Penalties. There shall be imposed in addition to the tax required to be paid under this Act and these Regulations, the civil penalties and interest prescribed under Sections 248 and 249 of the Tax Code in the cases enumerated therein. These penalties shall be collected at the same time, in the same manner and as part of the tax. The provisions of Sections 253 and 254 of the same Code imposing fine or imprisonment, or both shall be applied to any person, upon conviction, for violation of any provision of this Act and these Regulations.

SECTION 13. Repealing Clause. All regulations, rulings, orders, or portions thereof, which are inconsistent with the provisions of these regulations are hereby revoked and/or amended. SECTION 14. Effectivity. These regulations shall take effect fifteen (15) days after publication in the Official Gazette or newspaper of general circulation whichever comes first and shall apply to transfers of property by death or donation made on or after July 28, 1992.

ESTATE TAX REGULATIONS, AS AMENDED BY RR 2-2003 REVENUE REGULATIONS NO. 02-03 SUBJECT: Consolidated Revenue Regulations on Estate Tax and Donor's Tax Incorporating the Amendments Introduced by Republic Act No. 8424, the Tax Reform Act of 1997 TO: All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 244 , in relation to Sections 84 to 104 of the Tax Code of 1997 (Code), these Regulations are hereby promulgated for the purpose of consolidating all the regulations on estate tax and donor's tax, thereby amending Revenue Regulations No. 17-93 relative to the change in the tax rates of estate tax and donor's tax pursuant to Republic Act No. 8424 , the manner of claiming the deductions from the gross estate of the decedent, and for other purposes. These regulations shall govern the taxation of the transmission of the decedent's estate and donations made by persons, natural or juridical, whether citizens or aliens, residents or non-residents. For purposes of these regulations, the provisions of the Family Code of the Philippines (E.O. No. 209) which took effect on August 3, 1988shall govern the property relations between husband and wife whose marriage was celebrated on or after such date. For marriages celebratedprior to the effectivity of the Family Code of the Philippines, the Civil Code of the Philippines shall govern the property relations between husband and wife in relation to the pertinent provisions of the Family Code. aIcETS SECTION 2. Rates of Estate Tax. The transfer of the net estate of every decedent, whether resident or non-resident of the Philippines, as determined in accordance with the Code, shall be subject to the estate tax. The entire value of the net estate is divided into brackets and each rate is imposed on the corresponding bracket. Below is a table showing the tax on each bracket and the cumulative total tax for the entire net estate, pursuant to the rates provided in the Code.

If the Net Estate is:

Over P 200,000 500,000 2,000,000 5,000,000 10,000,000 But Not Over P 200,000 500,000 2,000,000 5,000,000 10,000,000 And Over The Tax shall be Exempt 0 15,000 135,000 465,000 1,215,000 Plus 5% 8% 11% 15% 20% Of the Excess Over P 200,000 500,000 2,000,000 5,000,000 10,000,000

SECTION 3. The Law that Governs the Imposition of Estate Tax. It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. The application of the rates herein prescribed and the procedures in determining the estate tax due shall apply to estate taxes falling due or have accrued beginning January 1, 1998, the effectivity date of Republic Act No. 8424, otherwise known as "The Tax Reform Act of 1997". SECTION 4. Composition of the Gross Estate. The gross estate of a decedent shall be comprised of the following properties and interest therein at the time of his death, including revocable transfers and transfers for insufficient consideration, etc.: A) Residents and citizens all properties, real or personal, tangible or intangible, wherever situated. B) Non-resident aliens only properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the Code. SECTION 5. Valuation of the Gross Estate. The properties comprising the gross estate shall be valued based on their fair market value as of the time of death. If the property is a real property, the fair market value shall be the fair market value as determined by the Commissioneror the fair market value as shown in the schedule of values fixed by the provincial and city assessors, whichever is higher. For purposes of prescribing real property values, the Commissioner is authorized to divide the Philippines into different zones or areas and shall,

upon consultation with competent appraisers, both from the private and public sectors, determine the fair market value of real properties located in each zone or area. In the case of shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges. - Unlisted common shares are valued based on their book valuewhile unlisted preferred shares are valued at par value.In determining the book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any. For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself. To determine the value of the right to usufruct, use or habitation, as well as that of annuity, there shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner. SECTION 6. Computation of the Net Estate of a Decedent Who is Either a Citizen or Resident of the Philippines. The value of the net estate of a citizen or resident alien of the Philippines shall be determined by deducting from the value of the gross estate the following items of deduction: (A) Expenses, losses, indebtedness, and taxes Such amounts for: (1) Actual funeral expenses (whether paid or unpaid) up to the time of interment,or an amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000. Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been paid or still payable, shall not be allowed as a deduction under this Subsection. Neither shall the unpaid portion of the funeral expenses incurred which is in excess of the P200,000 threshold be allowed to be claimed as a deduction under "claims against the estate" provided under Subsection (C) hereof. The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include: (a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial; (b) Expenses for the deceased's wake, including food and drinks; (c) Publication charges for death notices; (d) Telecommunication expenses incurred in informing relatives of the deceased; (e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; (f) Interment and/or cremation fees and charges; and (g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not. deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. Medical expenses as of the last illness will not form part of funeral expenses but should be claimed under subsection (F) of this section. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred. Illustrations on how to determine the amount of allowable funeral expenses (a) If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed as deduction; (b) If the expenses actually incurred amount to P90,000 and five percent (5%) of the gross estate is P70,000, only P70,000 will be allowed as deduction; (c) If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is P215,000, the maximum amount that may be deducted is only P200,000; TIaCAc (d) If five percent (5%) of the gross estate is P100,000 and the total amount incurred is P150,000 where P20,000 thereof is still unpaid, the only amount that can be claimed as deduction for funeral expenses is P100,000. The entire P50,000 excess amount consisting of P30,000 paid amount and P20,000 unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted from the gross estate as CLAIMS AGAINST THE ESTATE under Subsection (C) hereof . (2) Judicial expenses of the testamentary or intestate proceedings. Expenses allowed as deduction under this category are those incurred in the inventory-taking of assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may include: (a) Fees of executor or administrator; (b) Attorney's fees; (c) Court fees; (d) Accountant's fees; (e) Appraiser's fees; (f) Clerk hire; (g) Costs of preserving and distributing the estate; (h) Costs of storing or maintaining property of the estate; and

(i)

Brokerage fees for selling property of the estate. Any unpaid amount for the aforementioned cost and expenses claimed under "Judicial Expenses" should be supported by a sworn statement of account issued and signed by the creditor. (3) Claims against the estate. The word "claims" is generally construed to mean debts or demands of a pecuniary nature whichcould have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. Claims against the estate or indebtedness in respect of property may arise out of: (1) Contract; (2) Tort; or (3) Operation of Law. (i) Requisites for Deductibility of Claims Against the Estate (a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of interment) and unpaid medical expenses which are classified under a different category of deductions pursuant to these Regulations; (b) The liability was contracted in good faith and for adequate and full consideration in money or money's worth; (c) The claim must be a debt or claim which is valid in law and enforceable in court; (d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed. (ii) Substantiation Requirements. All unpaid obligations and liabilities of the decedent at the time of his death (except unpaid funeral or medical expenses which are deductible under a different category) are allowed as deductions from gross estate. Provided, however, that the following requirements/documents are complied with/submitted (a) In case of simple loan (including advances): (1) The debt instrument must be duly notarized at the time the indebtedness was incurred, such as promissory note or contract of loan, except for loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender; (2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death. If the creditor is a corporation, the sworn certification should be signed by the President, or Vice-President, or other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. In case the creditor is a bank or other financial institutions, the Certification shall be executed by the branch manager of the bank/financial institution which monitors and manages the loan of the decedent-debtor. If the creditor is an individual, the sworn certification should be signed by him. In any of these cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with. When the lender, or the President/Vice-president/principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof. (3) In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance sheet with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. In case the creditor is an individual who is no longer required to file income tax returns with the Bureau, a duly notarized Declaration by the creditor of his capacity to lend at the time when the loan was granted without prejudice to verification that may be made by the BIR to substantiate such declaration of the creditor. If the creditor is a non-resident, the executor/administrator or any of the legal heirs must submit a duly notarized declaration by the creditor of his capacity to lend at the time when the loan was granted, authenticated or certified to as such by the tax authority of the country where the non-resident creditor is a resident; (4) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent; (b) If the unpaid obligation arose from purchase of goods or services: (1) Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed by decedentdebtor, and creditor, and statement of account given by the creditor as duly received by the decedent-debtor; (2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death. If the creditor is a corporation, the sworn Certification should be signed by the President, or Vice-President, or other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. If the creditor is a sole proprietorship, the sworn certification should be signed by the owner of the business. In any of these cases, the one who issues the certification must not be a relative of the decedent-debtor within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with. When the lender, or the President/Vice-President/principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDOhaving jurisdiction over the borrower within fifteen days from the execution thereof. (3) Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary ledger/records of the debt of the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding paragraphs) should likewise be submitted. (c) Where the settlement is made through the Court in a testate or intestate proceeding, pertinent documents filed with the Court evidencing the claims against the estate, and the Court Order approving the said claims, if already issued, in addition to the documents mentioned in the preceding paragraphs.

(4) Claims of the deceased against insolvent personswhere the value of the decedent's interest therein is included in the value of the gross estate; and, (5) Unpaid mortgages, taxes and casualty losses (a) Unpaid mortgages upon, or any indebtedness in respect to, property where the value of the decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate. The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. (b) Taxes which have accrued as of the death of the decedent which were unpaid as of the time of death. This deduction will not include income tax upon income received after death, or property taxes not accrued beforehis death, or the estate tax due from the transmission of his estate. (c) There shall also be deducted losses incurredduring the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return, and provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in Subsections (A) and (B) of Section 91. In case unpaid mortgage payable is being claimed by the estate, verification must be made as to who was the beneficiary of the loan proceeds. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to recognize the same as receivable of the estate, said unpaid obligation/mortgage payable shall not be allowed as a deduction from the gross estate. In all instances, the mortgaged property, TO THE EXTENT OF THE DECEDENT'S INTEREST THEREIN, should always form part of the gross taxable estate. "(B) Property previously taxed . . . "(C) Transfers for public use . . . "(D) The family home An amount equivalent to the current fair market value of the decedent's family home: Provided, however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality. a) Definition of terms Family home The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad, etc. In other words, the family home is generally characterized by permanency, that is, the place to which,whenever absent for business or pleasure, one still intends to return. The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the exclusive properties of either spouse depending upon the classification of the property (family home) and the property relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a family on his or her own property. (Art. 156, Ibid) For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home. (Art. 161, Ibid) Husband and Wife Legally married man and woman. Unmarried Head of a Family An unmarried or legally separated man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and dependent upon him or her for their chief support, where such brothers or sisters or children are not more than twenty one (21) years of age, unmarried and not gainfully employedor where such children, brothers or sisters, regardless of age are incapable of self-support because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home and dependent upon the head of the family for legal support. The beneficiaries of a family home are: (1) The husband and wife, or the head of a family; and (2) Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. (Art. 154, Ibid) b) 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.

(E) Standard deduction. A deduction in the amount of One Million Pesos (P1,000,000) shall be allowed as an additional deduction without need of substantiation. The full amount of P1,000,000 shall be allowed as deduction for the benefit of the decedent. The presentation of such deduction in the computation of the net taxable estate of the decedent is properly illustrated in these Regulations. (F) Medical expenses. All medical expenses (cost of medicines, hospital bills, doctors' fees, etc.) incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly substantiated with official receipts for services rendered by the decedent's attending physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof and provided, further, that the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000). Any amount of medical expenses incurred within one year from death in excess of Five Hundred Thousand Pesos (P500,000) shall no longer be allowed as a deduction under this subsection. Neither can any unpaid amount thereof in excess of the P500,000 threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as claim against the estate. Illustrations on how to determine the amount of allowable medical expenses given the P500,000 threshold amount a. If the actual amount of medical expenses incurred is P250,000, then only P250,000 shall be allowed as deduction and not to the extent of the P500,000 threshold amount; b. If the actual amount of medical expenses incurred within the year prior to decedent's death is P600,000, only the maximum amount of P500,000 shall be allowed as deduction. If in case the excess of P100,000 (P600,000-500,000) is still unpaid, such amount shall not be allowed to be deducted from the gross estate as "claims against the estate". (G) Amount received by heirs under Republic Act No. 4917 . Any amount received by the heirs from the decedent's employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent. CSIcTa (8) Net share of the surviving spouse in the conjugal partnership or community property. After deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedent's interest in the estate is taxed. SECTION 7. Computation Of The Net Estate Of A Decedent Who Is A Non-Resident Alien Of The Philippines. The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions: (1) Expenses, losses, indebtedness, and taxes That proportion of the total expenses, losses, indebtedness, and taxes which the value of such part bears to the value of his entire gross estate wherever situated. The allowable deduction under this subsection shall be computed using the following formula: "(2) Property previously taxed . . ." "(3) Transfers for public use . . ." "(4) Net share of the surviving spouse in the conjugal property or community property. . . ." No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 of the Code the value at the time of the decedent's death of that part of his gross estate not situated in the Philippines. SECTION 8. Proper Presentation Of Funeral Expenses, Family Home, Standard Deduction, And Medical Expenses As Deductions From The Gross Estate. Illustrative examples to properly present the manner of deducting funeral expenses, family home, standard deduction, and medical expenses from the gross estate in accordance with the provisions of the Code. "Illustrations:
(1) (a) Decedent is an unmarried head of a family: Real and personal properties Family Home Gross Estate Less: Deductions Ordinary Deductions Funeral Expenses Other Deductions P5,000,000 2,000,000 P7,000,000 ==========

P200,000 1,300,000

P1,500,000

Special Deductions Family Home Standard Deduction Medical Expenses*

P1,000,000 1,000,000 500,000

2,500,000

Total Deductions Net Taxable Estate ==========

P4,000,000 P3,000,000

Although the family home is valued at P2 million, the maximum allowable deduction for the family home is P1million only. Note: * Medical expenses are not included in the deductions referred under Section 86(A)(1) of the Code but are treated as a special item of deduction under Section 86(A)(6) of the same Code.
(b) Real and personal properties Family Home Gross Estate Less: Deductions Ordinary Deductions Funeral Expenses Other Deductions P5,000,000 800,000 P5,800,000 ==========

P200,000 1,300,000

P1,500,000

Special Deductions Family Home Standard Deduction Medical Expenses Total Deductions Net Taxable Estate ==========

P800,000 1,000,000 500,000 P3,800,000 P2,000,000

2,300,000

Note: Deduction for family home is allowed for P800,000 only which is the declared value of the family home.

(2) (a)

Decedent is a married man with surviving spouse: The family home is his exclusive property
Exclusive Conjugal Total

Conjugal Properties: Real Properties

P5,000,000 P5,000,000

Exclusive Properties: Family Home P2,000,000 Other Exclusive properties 2,500,000 4,500,000 Gross Estate P4,500,000 P5,000,000 P9,500,000 ========= ========= ========= Less: Ordinary Deductions Conjugal Deductions Funeral Expenses Other Deductions Total Conjugal Deductions Net Conjugal Estate

(P200,000) (200,000) (1,300,000) (1,300,000) (P1,500,000) (P1,500,000) P3,500,000

Special Deductions Family Home Standard Deduction Medical Expenses Total Deductions Net Estate Less:

(1,000,000) (1,000,000) (500,000) (P4,000,000) P5,500,000

Share of Surviving Spouse Conjugal Property P5,000,000 Conjugal Deduction (1,500,000) Net Conjugal Estate P3,500,000 (P3,500,000/2)

Net Taxable Estate

(1,750,000) P3,750,000

(b)

Family home is a conjugal or community property

Exclusive

Conjugal

Total

Conjugal Properties: Family Home P2,000,000 Other Real Properties P5,000,000 P7,000,000 Exclusive Properties P2,000,000 2,000,000 Gross Estate P2,000,000 P7,000,000 P9,000,000 Less: Deductions Ordinary Deductions Conjugal Deductions Funeral Expenses Other Deductions Total Conjugal Deductions Net Conjugal Estate Special Deductions Family Home Standard Deduction Medical Total Deductions Net Estate Less: P5,500,000 Share of Surviving Spouse Conjugal Property P7,000,000 Conjugal Deduction (1,500,000) Net Conjugal Estate P5,500,000 (P5,500,000/2)

(P200,000) (200,000) (1,300,000) (1,300,000) (P1,500,000) (P1,500,000) P5,500,000 (1,000,000) (1,000,000) (500,000) (P4,000,000)

(2,750,000) Net Taxable Estate P2,250,000 (c) Same facts and figures as in (b) except that the family home has a fair market value/zonal value of only P1,500,000. Exclusive Conjugal Total Conjugal Properties: Family Home Other Real Properties Exclusive Properties Gross Estate

P1,500,000 P5,000,000 P2,000,000 P2,000,000 P6,500,000

P1,500,000 P5,000,000 2,000,000 P8,500,000

Less: Ordinary Deductions Conjugal Deductions Funeral Expenses Other Deductions Total Conjugal Deductions Net Conjugal Estate Special Deductions Family Home Standard Deduction Medical Expenses Total Deductions Net Estate Less:

(P200,000) (200,000) (1,300,000) (1,300,000) (P1,500,000) (P1,500,000) P5,000,000 (750,000) (1,000,000) (500,000) (P3,750,000) P4,750,000

(2,500,000) Net Taxable Estate P2,250,000 Note: Since the fair market value/zonal value of the conjugal family home in the above example is P1,500,000, the family home deduction corresponding to of such fair market value/zonal value is P750,000 only.

Share of Surviving Spouse Conjugal Property P6,500,000 Conjugal Deduction (1,500,000) Net Conjugal Estate P5,000,000 (P5,000,000/2)

(d)

Family home is conjugal property, but lot on which it stands is exclusive property Exclusive Conjugal Total

Conjugal Properties Other Real Properties Family Home Exclusive Properties Other Real Properties Family lot Gross Estate

P3,000,000 P3,000,000 P1,000,000 1,000,000

P2,000,000 2,000,000 400,000 400,000 P2,400,000 P4,000,000 P6,400,000

Less: Ordinary Deductions Conjugal Deductions Funeral Expenses Other Deductions Total Conjugal Deductions Net Conjugal Estate

(P200,000) (200,000) (1,300,000) (1,300,000) (P1,500,000) (P1,500,000) P2,500,000

Special Deductions Family Home Exclusive Lot P400,000 Conjugal Home (P1,000,000/2) (500,000) Standard Deduction (1,000,000) Medical Expenses (500,000) Total Deductions (P3,900,000) Net Estate P2,500,000 Less: Share of Surviving Spouse Conjugal Property P4,000,000 Conjugal Deduction (1,500,000) Net Conjugal Estate P2,500,000 (P2,500,000/2)

(900,000)

Net Taxable Estate

(1,250,000) P1,250,000

SECTION 9. Time And Place Of Filing Estate Tax Return And Payment Of Estate Tax Due. (A) Time for filing estate tax return. For purposes of determining the estate tax, the estate tax return shall be filed within six (6) months from the decedent's death. The Court approving the project of partition shall furnish the Commissioner with a certified copy thereof and its order within thirty (30) days after promulgation of such order. (B) Extension of time to file estate tax return. The Commissioner or any Revenue Officer authorized by him pursuant to the Code shall have authority to grant, in meritorious cases, a reasonable extension, not exceeding thirty (30) days, for filing the return. The application for the extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO likewise, has jurisdiction over the donor's tax return required to be filed by any party as a result of the distribution of the assets and liabilities of the decedent. (C) Place of filing the return and payment of the tax. In case of a resident decedent, the administrator or executor shall register the estate of the decedent and secure a new TIN thereforfrom the Revenue District Office where the decedent was domiciled at the time of his death and shall file the estate tax return and pay the corresponding estate tax with the Accredited Agent Bank (AAB), Revenue District Officer, Collection Officer or duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of his death, whichever is applicable, following prevailing collection rules and procedures. In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Revenue District Office where such executor or administrator is registered: Provided, however, that in case the executor or administrator is not registered, the estate tax return shall be filed with and the TIN of the estate shall be secured from the Revenue District Office having jurisdiction over the executor or administrator's legal residence. Nonetheless, in case the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Office of the Commissioner through RDO No. 39 South Quezon City. The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may continue to exercise his power to allow a different venue/place in the filing of tax returns. (D) Time for payment of the estate tax. As a general rule, the estate tax imposed under the Code shall be paid at the time the return is filed by the executor, administrator or the heirs. LLjur

(E) Extension of time to pay estate tax. When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for deficiency assessment shall be suspended for the period of any such extension. For purposes of these Regulations, the application for extension of time to file the return and extension of time to pay estate tax shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TINand file the estate tax return. This application shall be approved by the Commissioner or his duly authorized representative. Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. Any amount paid after the statutory due date of the tax, but within the extension period, shall be subject to interest but not to surcharge. (F) Payment of the estate tax by installment. In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid. There shall, therefore, be as many clearances (Certificates Authorizing Registration) as there are as many properties released because they have been paid for by the installment payments of the estate tax. The computation of the estate tax, however, shall always be on the cumulative amount of the net taxable estate. Any amount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto. However, if the payment of the tax after the due date is approved by the Commissioner or his duly authorized representative, the imposable penalty thereon shall only be the interest. Nothing in this paragraph, however, prevents the Commissioner from executing enforcement action against the estate after the due date of the estate tax provided that all the applicable laws and required procedures are followed/observed. (G) Liability for payment The estate tax imposed under the Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance. SECTION 10. Rates Of Donor's Tax. (A) Schedular rates of donor's tax imposable on donation made to a doneewho is not a stranger. The transfer of the total net gifts made during the calendar year shall be subject to tax in accordance with the schedule provided in Section 99 of the Code. The entire value of the net gifts for each calendar year is divided into brackets and each rate is imposed on the corresponding brackets as shown below: "If the net gift is:

Over P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

But not over P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

The tax shall be Exempt 0 2,000 14,000 44,000 204,000 404,000 1,004,000

Plus

Of the excess over

2% 4% 6% 8% 10% 12% 15%

P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000

(B) Tax payable by the donor if donee is a stranger. When the donee or beneficiary is a stranger, the tax payable by the donor shall be thirty per cent (30%) of the net gifts. For purposes of the donor's tax, a "stranger" is a person who is not a: (1) Brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant; or (2) Relative by consanguinity in the collateral line within the fourth degree of relationship. A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger. Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. (C) 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.

The application of the rates as provided above is imposed on donations made beginning January 1, 1998, which is the effectivity date of Republic Act No. 8424, otherwise known as "The Tax Reform Act of 1997". SECTION 11. 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 fulfillment 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. SECTION 12. Computation Of The Donor's Tax. 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 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). 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 made on: January 30, 2002 March 30, 2002 August 15, 2002 Solution/computation: Date of donation 1. January 30, 2002 2. P2,000,000 1,000,000 500,000

Amount P2,000,000

Donor's Tax P124,000

March 30, 2002 1,000,000 March 30, 2002 donation Add: January 30, 2002 donation Total Tax Due Thereon Less: Tax due/paid on January donation Tax Due/Payable on the March donation

1,000,000 2,000,000 3,000,000 204,000 124,000 P80,000

3.

August 15, 2002 500,000 August 15, 2002 donation Add: January 2002 donation March 2002 donation Total Tax Due Thereon Less: Tax due/paid on Jan/March donation Tax Due/Payable on the August donation

500,000 2,000,000 1,000,000 3,500,000 254,000 204,000 P50,000

SECTION 13. 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 Code 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 computing net gifts; (2) The deductions claimed and allowable; (3) Any previous net gifts made during the same calendar year, (4) The name of the donee; (5) Relationship of the donor to the donee; and (6) 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 authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of the city or municipality where the donor was 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 by the Philippine Council for NGO Certification, Inc. (PCNC), 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 Code. SECTION 14. Repealing Clause. All rulings, revenue regulations, including Revenue Regulations No. 17-93, and other revenue issuances, or portions thereof which are not consistent with the provisions of these Regulations are hereby amended or revoked accordingly. SECTION 15. Effectivity Clause. These Regulations shall take effect after fifteen (15) days following the date of publication in a newspaper of general circulation unless otherwise provided hereof, provided that those provisions which are mere reiterations or clarifications of statutory provisions shall be deemed to have become effective on the same date that the statute/law (R.A. No. 8424) became effective.

REV. REGS 2-82: TAXATION OF SHARES OF STOCK AS AMEDED BY RR 66-2008 March 29, 1982 REVENUE REGULATIONS NO. 02-82 SUBJECT :Taxation of Sales of Shares of Stock Classified as Capital Assets. TO :All Internal Revenue Officers and Others Concerned. Pursuant to the provisions of Section 1 of Batas PambansaBlg.221 and Section 326 in relation to Section 4 of the National Internal Revenue Code, as amended, the following regulations are hereby promulgated: cdi SECTION 1. assets. Scope. These regulations shall define the manner of taxation of sales of shares of stock classified as capital

SECTION 2. Definition of Terms. For the purpose of these regulations, the following definitions of terms are hereby adopted: aisa dc (a) "Stock classified as capital assets" shall mean all stocks and securities held by taxpayers other than dealers in securities. (b) "Dealer in securities" includes all persons who for their own account are engaged in the sale of stock, bonds, exchange, bullion, coined money, bank notes, promissory notes, or other securities as licensed by the Securities and Exchange Commission. Notwithstanding the foregoing, nothing in these regulations shall preclude the Commissioner of Internal Revenue from treating other taxpayers engaged in similar activities but not licensed by the Securities and Exchange Commission as a dealer in securities. (c) "Gross selling price" is the total amount of money or its equivalent which the purchaser pays the vendor to receive or get the goods. SECTION 3. Persons Liable to the Tax. The following persons are liable to the tax provided for in Section 5 of these Regulations: (a) individual taxpayer, citizens or alien; (b) corporate taxpayer, domestic or foreign;

(c)

other taxpayers not falling under (a) or (b), such as estate, trust, trust funds and pension funds among others.

SECTION 4. Persons Not Liable to the Tax. The taxes imposed herein shall not apply to the following: (a) gains derived by dealers in securities; (b) gains on sale of shares of stock to the extent invested in new shares of stock in banks, non-bank financial intermediaries and corporations organized primarily to hold equities in banks, in accordance with Presidential Decree No. 1739 ; and (c) all other gains which are specifically exempt from income tax under existing investment incentives and other special law. SECTION 5. Imposition of the Tax. (a) Sales of shares of stock listed and traded through a local stock exchange. A tax of 1/4 of 1% shall be imposed on the gross selling price of the shares of stock sold, exchanged or transferred through the facilities of a stock exchange registered with the Securities and Exchange Commission. (b) Shares of stock not traded through a local stock exchange. Net capital gains derived during the taxable year from sales, exchanges, transfers or similar transaction shall be taxed as follows: Not over P100,000 10% Over P100,000 20% SECTION 6. Determination of Tax Base. In determining the tax base, the following rules shall apply: cdi (a) Determination of selling price. The selling price of the shares of stocks shall be the fair market value of the shares of stocks transferred or exchanged and not the fair market value of the property received in exchange. If the total consideration of the sale or disposition consists partly in cash or money and partly in kind, the selling price shall be the fair market value of the shares disposed. (1) In the case of shares traded through the stock exchange, "fair market value" shall consist of the actual selling price as shown in the sales confirmation issued by the member of the stock exchange through whom the sale was effected. (2) In the case of shares not traded through the stock exchange, but listed in one or more stock exchanges, the highest closing price on the day when the shares are sold, transferred or exchanged, shall be the "fair market value." When no sale is made in any stock exchange, the highest closing price on the day nearest to the day of sale, transfer or exchange of the shares shall be the fair market value. acd (3) In the case of sale, transfer or exchange of shares not listed in the stock exchange, the following rules shall be observed: (i) In general, the unlisted shares shall be valued at their book value nearest the valuation date. The book value of these unlisted shares of stock shall be prima facie considered as their fair market value. (ii) In case the shares are valued on a basis lower than their book values, a justification for the deviation from the book value, together with the evidences in support thereof, should be submitted. The following factors are considered relevant in the valuation of shares of stock of closed corporations. A) The nature of the business and the financial history of the enterprise, from the date of incorporation B) The economic outlook in general and the business condition and outcome of the specific industry in particular C) The financial condition of the business D) The earning capacity of the company E) The dividend paying capacity F) Goodwill G) Sales of stocks and size of the block of stock to be valued H) Market price of stocks of corporations engaged in the same or similar line of business to be valued I) Existence of corporate debts in favor of the family of the principal shareholder J) Restrictive agreements impairing the alienability of the stock K) Investments in business or property maintained at a deficit L) Dividend arrearages M) Voting rights of stockholders N) Difficulty in liquidating the assets If such lower fair market valuation is not clearly established and documented, the book value of the unlisted shares of stock shall be adopted. If there have been previous sales/exchanges of the unlisted shares of stock, the price at which these shares exchanged hands should be taken/considered as its fair market value/s. (b) Determination of cost. The cost basis for determining the capital gains or losses shall be the basis as determined in accordance with the provisions of Section 35 of the National Internal Revenue Code, as amended, and its implementing regulations applied in the following manner: (1) If the stocks can be identified, then the cost shall be the actual purchase price plus all costs of acquisition such as commission, documentary tax, transfer fees, etc. (2) If the stocks cannot be properly identified, then the cost to be assigned shall be computed on the basis of the first-in, firstout (FIFO) method. However (3) If books of accounts are maintained by the seller where every transaction of a particular stocks are recorded, then the moving average method shall be applied rather than the first-in, first-out, (FIFO) method. (4) In all cases, stock dividend received must be assigned a corresponding cost by allocating the original cost of acquisition to the total number of shares composed of the original shareholdings plus the number of shares of stocks received as stock dividend. (c) In determining the deductibility of capital losses, the following rules shall apply:

(1) The provisions of Section 33 of the National Internal Revenue Code, as amended, and its implementing regulations on the non-deductibility of losses on wash sales. (2) The net capital losses sustained during the taxable year shall be allowed as a capital loss deductible in the same taxable year only. (3) The entire amount of capital gains and capital loss shall be considered without taking into account the period or duration during which the stocks were held by the seller up to disposition for purposes of computing net capital gains. (d) Installment sales of shares of stock not listed and traded through any local stock exchange. In cases of gains arising from installment sales of shares of stocks, the provisions of Section 43 of the National Internal Revenue Code, as amended, and its implementing regulations shall apply. cdasia SECTION 7. Payment of Tax and Manner of Filing Returns. The tax imposed by Section 5 of these Regulations shall be collected as follows: (a) Payment of tax. (1) Tax on sale of shares of stock listed and traded through a stock exchange. For purposes of the tax herein imposed, the stockbroker shall be constituted as withholding agent. He shall withhold the tax from the seller upon issuance of the confirmation of sale and issue the corresponding official receipt to the seller or transferor. (2) Tax on gains on sale of shares of stock not traded through any local stock exchange. The tax on net capital gains shall be paid by the seller on a per transaction basis upon filing the required return within 30 days following each sale or other disposition of shares of stock. (b) Manner of Filing Returns. (1) Tax on sale of shares of stock listed and traded through a local stock exchange. It shall be the duty of every stockbroker to turn over the sums collected by him as tax to the Bureau of Internal Revenue within five banking days from the date of collection thereof; and to submit on Monday of each week to the secretary of the stock exchange of which he is a member, a true and complete return, which shall contain a declaration that he made it under the penalties of perjury, of all transactions effected through him during the preceding week and of the taxes collected by him and turned over to the Bureau of Internal Revenue. The secretary of the stock exchange shall reconcile the same with the weekly reports of stockbrokers and in turn transmit to the Bureau of Internal Revenue on the first and sixteenth day of each month a consolidated return of all transactions effected during the preceding period through the stock exchange. (2) On sale of shares of stock not traded through any local stock exchange. Taxpayers subject to the net capital gains tax shall, within 30 days following each sale or other disposition of shares of stock, file in duplicate a capital gains tax return on BIR form No. ______ showing, among others, the name of seller and buyer; amount realized (selling price or fair market value of other property received) and contract price; cost or adjusted basis; date of acquisition; sale or disposition. The return shall be accompanied with a copy of the instrument of sale. A final consolidated return or an adjustment return (BIR Form No. _____ ) covering all stock transactions during the taxable year shall be filed on or before the fifteenth day of the fourth month following the close of the taxable year. The return shall include all stock transactions resulting in capital gains or capital losses for the whole year. The tax shown on the final or adjustment return after deducting therefrom the taxes paid during the taxable year shall be paid upon filing or refunded as the case may be. If a taxpayer elects and is qualified to pay the capital gains tax on stock transaction on installments, the amount of the tax due on its installment payment shall be determined as follows: The net capital gains tax shall be computed on the basis of the entire amount of gain realized from the sale or disposition of shares of stock and the tax so computed may be paid in installments. The amount of the tax on each installment shall be the proportion of the tax so determined which bears to the total installment payment received over the total selling price or to the total contract price, in case of sale or mortgaged shares of stock or where the mortgage on such shares is assumed by the purchaser. For this purpose, installment received shall mean (i) On the date of sale or disposition. First payment received, including the excess of the mortgage, if any, assumed by the purchaser over the basis of the property sold. (ii) Succeeding installments. Installment payments actually received by seller. SECTION 8. Effect of Non-payment of Tax. No sale, exchange, transfer or similar transaction intended to convey ownership of, or title to any share of stock shall be registered in the books of the corporation unless the receipt of payment of the tax herein imposed is filed with and recorded by the stock transfer agent or secretary of the corporation. It shall be duty of the aforesaid persons to inform the Bureau of Internal Revenue in case of non-payment of tax. acd Any stock transfer agent or secretary of the corporation who caused the registration in violation of the aforementioned requirement shall be punished by a fine of not more than P2,000.00 or by imprisonment for not more than six months, or both. SECTION 9. Penalties. In addition to civil and criminal penalties for violation of the Income Tax Laws as provided for under Sections 73, 74 and 337 of the National Internal Revenue Code, as amended, the following administrative penalties incident to delinquency or deficiency prescribed in Sections 51 and 72 of the National Internal Revenue Code, as amended, shall be imposed. These penalties shall be collected at the same time in the same manner and as part of the tax. (a) Surcharges. In case of any failure to make and file a return within the time prescribed by law, not due to willful neglect, there shall be added to the tax twenty-five per centum (25%) of its amount, except that when a return is voluntarily and without

notice from the Commissioner or any other revenue officer filed after such time, and it is shown that the failure to file it was due to a reasonable cause, no such addition shall be made to the tax. If a false or fraudulent return is filed, there shall be added to the tax or the deficiency tax, in case payment had been made on the basis of the return before the discovery of the falsity or fraud, a surcharge of 50% thereof plus 25% of the tax or deficiency tax due. (b) Interest on deficiency tax. Where a deficiency tax is determined to exist, there shall be collected as part of the tax, deficiency interest at the rate of twenty per centum (20%) per annum from the date prescribed for the payment of the tax to the date the deficiency is assessed: Provided, That the maximum amount of interest that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three (3) years. (c) Addition to tax in case of non-payment. (1) Tax shown on the return. Where the amount determined by the taxpayer as the final capital gains tax is not paid on or before the date prescribed for its payment, there shall be collected as part of the tax, interest upon such unpaid amount at the rate of twenty per centum (20%) per annum from the date prescribed for its payment until it is paid: Provided, That the amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three (3) years. (2) Deficiency. Where a deficiency, or any interest assessed in connection therewith, or any addition to the final capital gains tax provided herein is not paid in full within thirty days from the date of notice and demand from the Commissioner of Internal Revenue, there shall be collected upon the unpaid amount, as part of the tax, interest at the rate of twenty per centum (20%) per annum from the date of such notice and demand until it is paid: Provided, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years. (3) Surcharge. If any amount of final capital gains tax included in the notice and demand from the Commissioner of Internal Revenue is not paid in full within thirty days after notice and demand, there shall be collected in addition to the interest prescribed herein and in paragraph (b) above and as part of the tax a surcharge of ten per centum (10%) of the amount of tax unpaid. Similar surcharges and penalties shall be collected from the person selling, transferring or exchanging, in case of trading outside the stock exchange, who fails to pay the tax to the stock transfer agent or secretary of the corporation. cd SECTION 10. Repealing Clause. All regulations, rules, orders or portion thereof which are inconsistent with the provisions of these regulations are hereby repealed. SECTION 11. Effectivity. These regulations shall take effect fifteen (15) days after publication in any newspaper of general circulation in the Philippines or in the Official Gazette. April 22, 2008 REVENUE REGULATIONS NO. 006-08 SUBJECT : Consolidated Regulations Prescribing the Rules on the Taxation of Sale, Barter, Exchange or Other Disposition of Shares of Stock Held as Capital Assets TO: All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 244, in relation to Sections 24 (C), 25 (A) (3), 25 (B), 27 (D) (2), 28 (A) (7) (c), 28 (B) (5) (c), 34 (D) (4) (5), 38, 40, and Section 127 (A) and (B) of the 1997 National Internal Revenue Code (Tax Code), as amended, these Regulations are hereby promulgated in order to harmonize and consolidate the rules relative to the imposition of tax for the sale, barter, exchange or other disposition of shares of stock of domestic corporation that are listed and traded through the Local Stock Exchange, or disposition of shares through Initial Public Offering (IPO) or disposition of shares not traded through the Local Stock Exchange. CTDacA SECTION 2. Definition of Terms. For purposes of these Regulations, the following definitions of words and phrases are hereby adopted: (a) "Stock Classified as Capital Assets" means all stocks and securities held by taxpayers other than dealers in securities. (b) "Dealer in securities" means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and the resale thereof to customers; that is, one who, as merchant, buys securities and re-sells them to customerswith a view to the gains and profits that may be derived therefrom. "Dealer in securities" means any person who buys and sells securitiesfor his/her own account in the ordinary course of business (Sec. 3.4, SRC). ESDHCa (c) "Shares of Stock" shall include shares of stock of a corporation; warrants and/or options to purchase shares of stock; as well as units of participation in a partnership (except general professional partnerships), joint stock companies, joint accounts, joint ventures taxable as corporations, associations, and recreation or amusement clubs (such as golf, polo or similar clubs); and mutual fund certificates. (d) "Option" refers to an option to acquire stock or an option to acquire such an option and each one of a series of options to acquire stock. "Options" are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying security at a predetermined price, called the exercise or strike price, on or before a predetermined date, called the expiry date, which can only be extended by the Commission upon stockholders' approval. (SRC Rule 3 (1) (F) (1)) (e) "Shareholder" shall include holders of a share/s of stock, warrants and/or options to purchase shares of stock of a corporation, as well as a holder of a unit of participation in a partnership (except general professional partnerships), in a joint stock company, a joint account, a taxable joint venture, a member of an association, recreation or amusement club (such as golf, polo or similar clubs) and a holder of a mutual fund certificate, a member in an association, joint stock company or insurance company.

(f) "Stockbroker" includes all persons whose business it is, for other brokers, to negotiate purchases or sales of stocks, or engaged in the business of effecting transactions in securities for the account of others but does not include a bank or underwriters for one or more investment companies as defined in the Investment Company Act. "Broker" is a person engaged in the business of buying and selling securities for the account of others. (Sec. 3.3, SRC) (g) "Local Stock Exchange" refers to any domestic organization, association, or group of persons, whether incorporated or unincorporated, licensed or unlicensed, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of stocks, and includes the market place and the market facilities maintained by such exchange. "Exchange" is an organized domestic marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities, duly registered with the Securities and Exchange Commission. (Sec. 3.7, SRC) (h) "Gross selling price" refers to the total amount of money or its equivalent which the purchaser pays the seller as consideration for the shares of stock. SEDaAH (i) "Gross value in money" means the "fair market value". In the case of shares traded thru the stock exchange, "fair market value" shall consist of the actual selling price at which the transaction was executed in the trading system and/or facilities of the Local Stock Exchange. (j) "Initial Public Offering (IPO)" refers to a public offering of shares of stock made for the first time in the Local Stock Exchange. (k) "Primary Offering" refers to the original sale made to the investing public by the issuer corporation of its unissued Shares of Stock. ECDAcS (l) "Secondary Offering" refers to an offer for sale to the investing public by the existing shareholders of their securities which is conducted during an IPO or a follow-on/follow-through offering. (m) "Follow-on/Follow-through Offering of Shares" refers to an offering of shares to the investing public subsequent to an IPO. (n) "Shares Listed and Traded through the Local Stock Exchange", for purposes of these Regulations, refers to all sales, trades or transactions of listed Shares of Stock executed through the trading system and/or facilities of the Local Stock Exchange. This term includes block sale or other types of sales, trades or transactions in the Local Stock Exchange and executed through the trading system and/or facilities of the Local Stock Exchange in accordance with the rules of the Local Stock Exchange as approved by the Securities and Exchange Commission. (o) "Net Capital Gain" means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges. (p) "Net Capital Loss" means the excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges. (q) "Closely-held Corporation" means corporation at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. Rules in Determining Whether the Corporation is a Closely-Held Corporation insofar as such Determination is based on Stock Ownership: cDCaTH (q.1) Stock not owned by individuals. Stock owned directly or indirectly by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries. (q.2) Family and partnership ownerships. An individual shall be considered as owning the stock owned, directly or indirectly, by or for family, or by or for his partner. For purposes of this paragraph, the family of an individual includes only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants. (q.3) Option. If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be considered as an option to acquire such stock. (q.4) Constructive ownership as actual ownership. Stock constructively-owned by reason of the application of paragraph (q.1) or (q.3) shall, for purposes of applying paragraph (q.1) or (q.2), be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application of paragraph (q.2) hereof shall not be treated as owned by him for purposes ofagain applying such paragraph in order to make another constructive owner of such stock. (r) "Family of an individual" includes only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants. (s) "Mutual Fund Company" means an open-end and close-end investment company as defined under the Investment Company Act. TcHCDE (t) "Acquired" as used in Sec. 7 (c.6) of these Regulations when dealing with wash sales of shares of stock, means acquired by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law, and comprehends cases where the taxpayer has entered into a contract or option within the sixty-one-day period to acquire by purchase or by such an exchange. (u) "Capital Asset" means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34 of the Tax Code, as amended, or real property used in trade or business of the taxpayer. (v) "Book Value per Share" refers to the value per share computed by dividing the total Stockholders' Equity of a corporation or net assets of the company by the number of outstanding shares or units of participation in a company. In case there are preferred shares as well as common shares, the book value per common share is computed by deducting the liquidation value of the preferred shares from the total equity of the corporation and dividing the result by the number of common shares outstanding as of balance

sheet date. The liquidation value of the preferred shares is equal to the redemption price as of balance sheet date, including any premium and cumulative preferred dividends in arrears. (w) "Treasury Shares" are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption which is not for cancellation, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors. (x) "Redeemed Shares" are shares bought back by the issuing corporation for the purpose of retirement or cancellation. CTDHSE (y) "Acquisition Cost" shall include the purchase price, tax assumed and the commission paid. (z) "Shares Considered as Worthless" refers to shares when offered for sale or requested for share redemption, no amount can be realized by the owner of the share. ETDAaC SECTION 3. Persons Liable to the Tax. The following sellers or transferors of stock are liable to the tax provided for in Sec. 5 of these Regulations: (a) Individual taxpayer, whether citizen or alien; (b) Corporate taxpayer, whether domestic or foreign; and (c) Other taxpayers not falling under (a) and (b) above, such as estates, trusts, trust funds and pension funds, among others. SECTION 4. Persons Not Liable to the Tax. The taxes imposed herein shall not apply to the following: (a) Dealers in securities; (b) Investors in shares of stock in a mutual fund company, as defined in Section 22 (BB) of the Tax Code, as amended, and Sec. 2 (s) of these Regulations, in connection with the gains realized by said investor upon redemption of said shares of stock in a mutual fund company; and (c) All other persons, whether natural or juridical, who are specifically exempt from national internal revenue taxes under existing investment incentives and other special laws. SCEDaT SECTION 5. Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the Local Stock Exchange. There shall be levied, assessed and collected on every sale, barter, exchange or other disposition of Shares of Stock Listed and Traded through the Local Stock Exchange other than the sale by a dealer of securities, under the following rules: (a) Tax Rate. A stock transaction tax at the rate of one-half of one percent (1/2 of 1%) based on the amount determined in subsection (b) hereunder. (b) Tax Base. Gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be assumed and paid by the seller or transferor through the remittance of the stock transaction tax by the seller or transferor's broker. SECTION 6. Sale, Barter or Exchange, or Issuance of Shares of Stock Through IPO. There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering (IPO) of shares of stock in closely held corporations, as defined in Sec. 2 (q) hereof, under the following rules: CSTEHI (a) Tax Rates. A tax at the rates provided hereunder shall be imposed based on subsection (b) hereof in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the Local Stock Exchange: Proportion of Disposed Shares to Outstanding Shares Tax Rate Up to twenty-five percent (25%) 4% Over twenty-five percent (25%) but not over thirty three and one-third percent (33 1/3%) 2% Over thirty-three and one third percent (33 1/3%) 1% (b) Tax Base. Gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed of. (c) Determination of the Persons Liable to Pay the Tax. (c.1) Primary Offering. The tax herein imposed shall be paid by the issuer corporation with respect to the Shares of Stock corresponding to the Primary Offering. (c.2) Secondary Offering. The tax herein imposed shall be paid by the selling shareholder(s) with respect to the Shares of Stock corresponding to the Secondary Offering. IDAaCc (c.3) Illustration. RFB Corporation, a closely-held corporation, has an authorized capital stock of 100,000,000 shares with par value of Php1.00/share as of January 1, 2008. Of the 100,000,000 authorized shares, 25,000,000 thereof is subscribed and fully paid up by the following stockholders:
Mr. Estoy B. Zabala 5,000,000 Mrs. Rowena V. Posadas 5,000,000 Mr. Conrado G. Cruz 5,000,000 Mr. Benedict O. Sison 5,000,000 Mrs. Linda O. Evangelista 5,000,000 Total Shares Outstanding 25,000,000 ========

RFB Corporation finally decides to conduct an IPO and initially offers 25,000,000 of its unissued shares to the investing public. After the IPO in March 2008, RFB Corporation's total issued shares increased from 25,000,000 to 50,000,000 shares. CASTDI At the IPO, one of the existing stockholders, Mrs. Linda O. Evangelista, has likewise decided to sell her entire 5,000,000 shares to the public. Thus, 25,000,000 shares have been offered in the primary offering and 5,000,000 shares in the secondary offering. CcEHaI Computation of the percentage to be used.
(i) Total Number of Shares Outstanding

Number of Shares issued by RFB prior to IPO Add: Number of Additional Shares Through Primary Offering for IPO Total Shares Outstanding after Listing at the Stock Exchange or IPO =========

25,000,000 shares 25,000,000 shares 50,000,000 shares

(ii) (ii.a)

Computation of Percentage Ratio to the Total Outstanding Shares For Primary Offering:
25,000,000 shares 50,000,000 shares 50%

Number of Shares offered by RFB Corporation to the public Divide by the number of shares outstanding after the Listing at the Stock Exchange Ratio of Percentage

Percentage Ratio is 50% which is over 33 1/3% so the Rate of Tax to be used for Primary Offering (IPO) of shares is 1%. ASDTEa (ii.b) For Secondary Offering: Number of Shares offered by existing Stockholder of RFB Corporation to the public 5,000,000 shares Divide by the number of shares outstanding after the Listing at the Stock Exchange 50,000,000 shares Ratio of Percentage10% Percentage Ratio is 10% which is under 25% so the Rate of Tax to be used for Secondary Offering (IPO) of shares is 4%. (iii) Computation of the Tax
(iii.a) RFB Corporation newly issued shares (25,000,000 shares x Php1.50/share x 1%) = (iii.b) Mrs. Linda O. Evangelista's shares (5,000,000 shares x Php1.50/share x 4%) = Php375,000 Php300,000

If in June 2008, RFB Corporation again decides to increase capitalization by offering another 30,000,000 of unissued shares to the public at Php2.00/share consequently bringing the total issued shares to 80,000,000 shares, such follow-on/follow-through sale which are shares issued subsequent to IPO shall no longer be taxed pursuant to Section 6 hereof. The transaction, however, is subject to Documentary Stamp Tax similar to the transaction covered by Primary Offering as well as Secondary Offering of shares of stock. DcCASI Nonetheless, in case another existing shareholder decides to offer his existing shares to the public subsequent to IPO, as in the above illustration, if Mr. Benedict O. Sison ever decides to sell his 5,000,000 shares to the public at Php2.00 per share (for the Php10,000,000 he received as consideration for the shares he sold), he shall be taxed pursuant to Section 127 (A) of the Tax Code as implemented by Sec. 5 of these Regulations which is 1/2 of 1% of the gross selling price or PhpP50,000 (i.e., 5,000,000 shares x Php2.00/share = Php10,000,000 x 1/2 of 1%). SECTION 7. Sale, Barter or Exchange of Shares of Stock Not Traded Through a Local Stock Exchange Pursuant to Secs. 24 (C), 25 (A)(3), 25 (B), 27 (D) (2), 28 (A) (7) (C), 28 (B) (5) (C) of The Tax Code, as Amended. (a) Tax Rate. The provisions of Sec. 39 (B) of the Tax Code, as amended, notwithstanding, a final tax at the rates prescribed below is hereby imposed on the sale, barter or exchange of shares of stock not traded through the Local Stock Exchange pursuant to Secs. 24 (C), 25 (A) (3), 25 (B), 27 (D) (2), 28 (A) (7) (c), 28 (b) (5) (c) of the said Tax Code, as amended.cIETHa Amount of Capital Gain Tax Rate Not over Php100,000 5% On any amount in excess of Php100,000 10% (b) Tax Base. The tax imposed in Subsection (a) above shall be upon the net capital gains realized during the taxable year from the sale, barter, exchange or disposition of shares of stock, except shares sold or disposed of through the Local Stock Exchange which is covered by the provisions of Secs. 5 and 6 above. (c) Determination of Amount and Recognition of Gain or Loss. (c.1) Determination of Selling Price. In determining the selling price, the following rules shall apply: (c.1.1) In the case of cash sale, the selling price shall be the total consideration per deed of sale. (c.1.2) If the total consideration of the sale or disposition consists partly in money and partly in kind, the selling price shall be sum of money and the fair market value of the property received. (c.1.3) In the case of exchange, the selling price shall be the fair market value of the property received. (c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the amount of money and/or fair market value of the property received, the excess of the fair market value of the shares of stock sold, bartered or exchanged over the amount of money and the fair market value of the property, if any, received as consideration shall be deemed a gift subject to the donor's tax under Sec. 100 of the Tax Code, as amended. AHTICD (c.2) Definition of "fair market value" of the Shares of Stock. For purposes of this Section, "fair market value" of the shares of stock sold shall be: (c.2.1) In the case of listed shares which were sold, transferred, or exchanged outside of the trading system and/or facilities of the Local Stock Exchange, the closing price on the day when the shares are sold, transferred, or exchanged. When no sale is made in the

Local Stock Exchange on the day when the listed shares are sold, transferred, or exchanged, the closing price on the day nearest to the date of sale, transfer or exchange of the shares shall be the fair market value. caIDSH (c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of the shares of stock as shown in the financial statements duly certified by an independent certified public accountant nearest to the date of sale shall be the fair market value. Illustrations. (i) Assume that Ms. Girl Cantillep sold on October 31, 2008, 100 shares of stock of "A Corporation". The corporation's accounting period consistently employed in keeping its books of accounts is on a calendar year basis. In this case, the book value of the shares of stock of "A Corporation" shall be determined based on its audited financial statements for the calendar year 2007 since its audited financial statements for the calendar year 2008 is yet nonexistent as of the date of sale. (ii) Assume that Ms. MapeSison sold on March 31, 2008, 100 shares of stock of "B Corporation". The corporation likewise uses calendar year basis accounting period. In this case, the books of accounts of "B Corporation" have already been closed and adjusted for Calendar Year 2007, but the independent Certified Public Accountant has yet to issue the audited financial statements for said calendar year 2007 which financial statements together with the annual income tax returns are due to be filed on or before April 15, 2008. ETDHaC In this particular case, the book value of the shares of stock of "B Corporation" shall tentatively be based on the financial statements for Calendar Year 2007 yet to be audited and not on the audited financial statements of Calendar Year 2006. Once the 2007 audited financial statements have been issued, adjustment to the book value shall be made for the difference. (c.2.3) In the case of a unit of participation in any association, recreation or amusement club (such as golf, polo, or similar clubs), the fair market value thereof shall be its selling price or the bid price nearest to the date of sale as published in any newspaper or publication of general circulation, whichever is higher. (c.3) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. The gain from the sale or other disposition of shares of stock shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain, and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received, if any. DTIaCS (c.3.1) Basis for Determining Gain or Loss from Sale or Disposition of Shares of Stock. Gain or loss from the sale, barter or exchange of property, for a valuable consideration, shall be determined by deducting from the amount of consideration contracted to be paid, the vendor/transferor's basis for the property sold or disposed plus expenses of sale/disposition, if any. ">(c.3.1.1) Acquired by Purchase. If the property is acquired by purchase, the basis is the cost of such property. "> Determination of the Cost. The cost basis for determining the capital gains or losses for shares of stock acquired through purchase shall be governed by the following rules: aACHDS ">(i) If the shares of stock can be identified, then the cost shall be the actual purchase price plus all costs of acquisition, such as commissions, documentary stamp taxes, transfer fees, etc. ">(ii) If the shares of stock cannot be properly identified, then the cost to be assigned shall be computed on the basis of the firstin first-out (FIFO) method. ">(iii) If books of accounts are maintained by the seller where every transaction of a particular stock is recorded, then the moving average method shall be applied rather than the FIFO method. ">(iv) In general, stock dividend received shall be assigned with a cost basis which shall be determined by allocating the cost of the original shares of stock to the total number shares held after receipt of stock dividends (i.e., the original shares plus the shares of stock received as stock dividends). "> Illustration of cost allocated to stock dividends declared. Five (5) shares of stock in XYX Company were acquired at a total cost of Php1,000.00 or at two hundred pesos per share (Php200/share). XYX Company declared and issued five (5) shares of stock as stock dividend. In this case, the cost basis for each of the ten (10) shares of stock shall be computed by dividing the cost basis of the original shares by ten (10) shares, or one thousand pesos (Php1,000.00) divided by ten (10) shares equals one hundred pesos (Php100.00) per share. ECTIHa ">(c.3.1.2) Acquired by Devise, Bequest or Inheritance. If the property was acquired by devise, bequest or inheritance, the basis shall be the fair market value of such property at the time of death of the decedent. "> The term "property acquired by bequest, devise or inheritance" as used herein means acquisition through testamentary or intestate succession and includes, among others: ">(i) Property interests that the taxpayer received as a result of a transfer, or creation of a trust, in contemplation of or intended to take effect in possession or enjoyment at or after death; and ScHADI ">(ii) Such property interests as the taxpayer has received as the result of the exercise by a person of a general power of appointment by will or by deed executed in contemplation of or intended to take effect in possession or enjoyment at or after death, otherwise known as a donation mortis causa or a donation in contemplation of death. ">(c.3.1.3) Acquired by Gift. If the property was acquired by gift, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis is greater than the fair market value of the property at the time of the gift, then for the purpose of determining the loss, the basis shall be such fair market value. "> Illustration. Assume that "Mr. Era" bought shares of stock in 1970 at a cost of Php100,000. He donated these shares to "Mr. Aio" on January 1, 1998, during which time, the said shares has a fair market value of Php1,000,000 and on the basis of such fair market value, "Mr. Era" paid the corresponding donor's tax. "Mr. Aio", the donee, sold the shares on January 1, 1999 for a consideration of PhP2,000,000. In this case, the basis of "Mr. Aio" in computing his gain from the sale shall be at the historical cost basis thereof in the hands of "Mr. Era", the donor, or at Php100,000. The gain from the sale in the hands of "Mr. Aio" is Php1,900,000

(i.e., selling price of Php2,000,000 less historical cost thereof in the hands of "Mr. Era" the donor, at Php100,000 equals gain from the sale made by "Mr. Aio" in the amount of Php1,900,000). ">(c.3.1.4) Acquired for Inadequate Consideration. If the property was acquired for less than an adequate consideration in money or money's worth, the basis of such property is the amount paid by the transferee for the property. "> Illustration. Assume that "Mr. Esq" sold to "Mr. Nma", shares of stock for a consideration of Php1,000,000. At the time of the sale, its fair market value is Php3,000,000. If "Mr. Nma" later on sells this property and he is taxable on his gain derived from the sale, his gain from the sale shall be determined by deducting from the amount of consideration received his purchase price thereof at Php1,000,000. However, at the time of sale by "Mr. Esq" to "Mr. Nma", the former should pay Capital Gains Tax and Documentary Stamp Tax on the over-the-counter sale transactions of shares and at the same time Donor's Tax on the indirect gift which is the difference between fair market value of shares/stocks sold and the actual consideration for the sold shares of stock. HEISca (c.3.2) Rules on Substituted Basis in cases of Tax-Free Exchanges of Shares of Stock under Section 40 (C) (2) of the Tax Code, as Amended. (c.3.2.1) Substituted Basis of Stock or Securities Received by the Transferor. The substituted basis of the stock or securities received by the transferor on a tax-free exchange shall be as follows: AEDISC (i) The original basis of the property, stock or securities transferred; (ii) Less: (a) money received, if any, and (b) the fair market value of the other property received, if any; (iii) Plus: (a) the amount treated as dividend of the shareholder, if any, and (b) the amount of any gain that was recognized on the exchange, if any. However, the property received as 'boot' shall have as basis its fair market value. The term "boot" refers to the money received and other property received in excess of the stock or securities received by the transferor on a tax-free exchange. SICaDA If the transferee of property assumes, as part of the consideration to the transferor, a liability of the transferor or acquires from the latter property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of computing the substituted basis, be treated as money received by the transferor on the exchange. Finally, if the transferor receives several kinds of stock or securities, the Commissioner is authorized to allocate the basis among the several classes of stocks or securities. (c.3.2.2) Substituted Basis of the Transferred Property in the Hands of the Transferee. The substituted basis of the property transferred in the hands of the transferee shall be as follows: (i) The original basis in the hands of the transferor; (ii) Plus: the amount of the gain recognized to the transferor on the transfer. (c.3.2.3) The Original Basis of Property to be Transferred. The original basis of the property to be transferred shall be the following, as may be appropriate: (i) The cost of the property, if acquired by purchase on or after March 1, 1913; (ii) The fair market price or value as of the moment of death of the decedent, if acquired by inheritance; (iii) The basis in the hands of the donor or the last preceding owner by whom the property was not acquired by gift, if the property was acquired by donation. If the basis, however, is greater than the fair market value of the property at the time of donation, then, for purposes of determining loss, the basis shall be such fair market value; or, aHTDAc (iv) The amount paid by the transferee for the property, if the property was acquired for less than an adequate consideration in money or money's worth. (v) The adjusted basis of (i) to (iv) above, if the acquisition cost of the property is increased by the amount of improvements that materially add to the value of the property or appreciably prolong its life less accumulated depreciation. (vi) The substituted basis, if the property was acquired in a previous tax-free exchange under Section 40 (C) (2) of the Tax Code, as amended. (c.3.2.4) Basis for Determining Gain or Loss on a Subsequent Sale or Disposition of Property Subject of the Tax-free Exchange. The substituted basis as defined in Section 40 (C) (5) of the Tax Code as amended, and implemented in Section (c.3.2.1) and (c.3.2.2) above, shall be the basis for determining gain or loss on a subsequent sale or disposition of property subject of the tax-free exchange. (c.4) Limitation of Capital Losses. For sale, barter, exchange or other forms of disposition of shares of stock subject to the 5%/10% capital gains tax on the net capital gain during the taxable year, the capital losses realized from this type of transaction during the taxable year are deductible only to the extent of capital gains from the same type of transaction during the same period. If the transferor of the shares is an individual, the rule on holding period and capital loss carry-over will not apply, notwithstanding the provisions of Section 39 of the Tax Code as amended. HTSaEC (c.5) Shares of Stock Becoming Worthless. Losses from shares of stock, held as capital asset, which have become worthless during the taxable year shall be treated as capital loss as of the end of the year. However, this loss is not deductible against the capital gains realized from the sale, barter, exchange or other forms of disposition of shares of stock during the taxable year, but must be claimed against other capital gains to the extent provided for under Section 34 of the Tax Code, as amended. For the 5% and 10% net capital gains tax to apply, there must be an actual disposition of shares of stock held as capital asset, and the capital gain and capital loss used as the basis in determining net capital gain, must be derived and incurred respectively, from a sale, barter, exchange or other disposition of shares of stock. (c.6) Losses from Wash Sales of Shares of Stock. The following rules shall apply with respect to losses from wash sales of shares of stock: (c.6.1) A taxpayer cannot deduct any loss claimed to have been sustained from the sale or other disposition of stock, if, within a period beginning thirty (30) days before the date of such sale or disposition and ending thirty (30) days after such date (referred to in this section as the sixty-one (61)-day period), he has acquired (by purchase or by an exchange upon which the entire amount of gain

or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock. However, this prohibition does not apply in the case of a dealer in stock if the sale or other disposition of stock is made in the ordinary course of the business of such dealer. ASEIDH (c.6.2) Where more than one loss is claimed to have been sustained within the taxable year from the sale or other disposition of stock or securities, the provisions of this Section shall be applied to the losses in the order in which the stock the disposition of which resulted in the respective losses were disposed of (beginning with the earliest disposition). If the order of disposition of stock disposed of at a loss on the same day cannot be determined, the stock or securities will be considered to have been disposed of in the order in which they were originally acquired (beginning with earliest acquisition). (c.6.3) Where the amount of stock or securities acquired within the sixty-one (61)-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with this rule: The stock or securities sold will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. (c.6.4) Where the amount of stock or securities acquired within the sixty-one day period is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which resulted in the nondeductibility of the loss shall be those with which the stock or securities disposed of are matched in accordance with this rule: The stock or securities sold or otherwise disposed of will be matched with an equal number of the shares of stock or securities acquired in accordance with the order of acquisition (beginning with the earliest acquisition) of the stock or securities acquired. (c.6.5) The acquisition of any share of stock or any security which results in the non-deductibility of a loss under the provisions of this Section shall be disregarded in determining the deductibility of any other loss. (c.6.6) As provided in Sec. 2 of these Regulations, the word "acquired" as used in this Section means acquired by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law, and comprehends cases where the taxpayer has entered into a contract or option within the sixty-one-day period to acquire by purchase or by such an exchange the subject shares of stock. Examples of losses from wash sales of stock or securities. (i) On December 1, 2000, Ms. Rose Miranda whose taxable year is the calendar year, purchased 100 shares of common stock of M company for Php10,000. On December 15, 2000, she purchased 100 additional shares for Php9,000. On January 2, 2001, she sold the 100 shares purchased on December 1, 2000 for Php9,000. Because of the provisions of this Section, no loss from the sale is allowable as deduction. HDTSIE (ii) Ms. KarrenPunzalan, whose taxable year is the calendar year, had the following stock transactions: On September 21, 2000, purchased 100 shares of the common stock of M Company for Php5,000 or at Php50.00/share. On December 21, 2000, she purchased 50 shares of substantially identical stock for Php2,750 or at Php55/share. IDSaEA On December 26, 2000, she purchased 25 additional shares of such stock for Php1,125 or at Php45/share. On January 2, 2001, she sold for Php4,000 the 100 shares purchased on September 21, 2000 or at Php40.00/share. Computation of the Indicated Loss Proceeds from sale of 100 shares Php4,000 Cost of shares bought on September 21, 2000 5,000 Indicated Loss from the sale (Php1,000) ======== Computation of Non-deductible Loss due to the Sixty-one Day Period of Purchase of Substantially Identical Shares. Number of Shares Purchased Within the 61-day period 75 shares x Cost/share for shares bought on September 21, 2000 Php50.00/share Amount Php3,750.00 Less: Proceeds from Sale on January 2, 2001 for 75 shares (i.e. 75 x P40/share) 3,000.00 Non-Deductible Loss Php750.00 ======== The loss on the sale of the remaining 25 shares (Php1,250 less Php1,000 or Php250) is deductible subject to the limitations provided in items (c.6.3) above and (c.4) above. TcaAID (iii) Ms. Ding Cruz, whose taxable year is the calendar year, had the following stock transactions: On September 15, 2000, purchased 100 shares of the stock of M Company for Php5,000. ScHADI On February 1, 2001, she sold these shares for Php4,000. On each of the four days from February 15, 2001 to February 18, 2001, she purchased 50 shares per day of substantially identical stock for Php2,000 per purchase. There is an indicated loss of P1,000 from the sale of the 100 shares on February 1, 2001, but since within the sixty-one-day period she purchased not less than 100 shares of substantially identical stock, the loss is not deductible. The particular shares of stock, the purchase of which resulted in the nondeductibility of the loss are the first 100 shares purchased within such period, that is, the 50 shares purchased on February 15, 2001, and the next 50 shares purchased on February 16, 2001.

SECTION 8. Taxation of Surrender of Shares by the Investor Upon Dissolution of the Corporation and Liquidation of Assets and Liabilities of Said Corporation. Upon surrender by the investor of the shares in exchange for cash and property distributed by the issuing corporation upon its dissolution and liquidation of all assets and liabilities, the investor shall recognize either capital gain or capital loss upon such surrender of shares computed by comparing the cash and fair market value of property received against the cost of the investment in shares. The difference between the sum of the cash and the fair market value of property received and the cost of the investment in shares shall represent the capital gain or capital loss from the investment, whichever is applicable. If the investor is an individual, the rule on holding period shall apply and the percentage of taxable capital gain or deductible capital loss shall depend on the number of months or years the shares are held by the investor. Section 39 of the Tax Code, as amended, shall herein apply in all possible situations. SHADEC The capital gain or loss derived therefrom shall be subject to the regular income tax rates imposed under the Tax Code, as amended, on individual taxpayers or to the corporate income tax rate, in case of corporations. SECTION 9. Taxation of Shares Redeemed for Cancellation or Retirement. When preferred shares are redeemed at a time when the issuing corporation is still in its "going-concern" and is not contemplating in dissolving or liquidating its assets and liabilities, capital gain or capital loss upon redemption shall be recognized on the basis of the difference between the amount/value received at the time of redemption and the cost of the preferred shares. Similarly, the capital gain or loss derived shall be subject to the regular income tax rates imposed under the Tax Code, as amended, on individual taxpayers or to the corporate income tax rate, in case of corporations. This section, however, does not cover situations where a corporation voluntarily buys back its own shares, in which it becomes treasury shares. In such cases, the stock transaction tax under Sec. 127 (A) of the Tax Code shall apply if the shares are listed and executed through the trading system and/or facilities of the Local Stock Exchange. Otherwise, if the shares are not listed and traded through the Local Stock Exchange, it is subject to the 5% and 10% net capital gains tax. cHDaEI SECTION 10. Time of Payment of Tax and Manner of Filing Returns. The tax imposed under Section 5 of these Regulations shall be collected as follows: (a) Tax on Sale of Shares of Stock Listed and Traded through the Local Stock Exchange. The stock broker who effected the sale has the duty to collect the tax from the seller upon issuance of the confirmation of sale, issue the corresponding official receipt thereof and remit the same to the collecting bank/officer of the Revenue District Officers (RDO) where the broker is registered within five (5) banking days from the date of collection thereof and to submit on Mondays of each week to the secretary of the Local Stock Exchange, of which he is a member, a true and complete return, which shall contain a declaration, that he made under the penalties of perjury, of all the transactions effected through him during the preceding week and of taxes collected by him and turned over to the concerned RDO. The secretary of the Local Stock Exchange shall reconcile the records of the Local Stock Exchange with the weekly reports of stockbrokers and in turn transmit to the RDO, on or before the 15th day of the following month, a consolidated return of all transactions effected during the preceding month through the Local Stock Exchange. (b) Tax on Shares of Stock Sold or Exchanged through IPO. The corporate issuer in Primary Offering shall file the return and pay the corresponding tax to the RDO which has jurisdiction over said corporate issuer within thirty (30) days from the date of listing of the shares of stock in the Local Stock Exchange. The return shall be accompanied with a copy of the instrument of sale. STaCIA In the case of shares of stock sold or exchanged through Secondary Offering at the time of listing at the Local Stock Exchange of shares of closely-held corporations, the provisions of subsection (a) of this Section shall apply as to the time and manner of the payment of the tax on the sale thereof. (c) Tax on Shares of Stock Not Traded through the Local Stock Exchange. Persons deriving capital gains from the sale or exchange of listed shares of stock not traded through the Local Stock Exchange as prescribed by these regulations shall file a return within thirty (30) days after each transaction and a final consolidated return of all transactions during the taxable year on or before the fifteenth (15th) day of the fourth (4th) month following the close of the taxable year. IAEcCT In the case of an individual taxpayer, the filing of the final consolidated return of all transactions shall be during the calendar year. However, for corporate taxpayers, the filing of the final consolidated return of all transactions shall be in accordance with the accounting period employed by such taxpayer which may either be calendar or fiscal year basis. SECTION 11. Effect of Non-Payment of Tax. No sale, exchange, transfer or similar transaction intended to convey ownership of, or title to any share of stock shall be registered in the books of the corporation unless the receipts of payment of the tax herein imposed is filed with and recorded by the stock transfer agent or secretary of the corporation. It shall be the duty of the aforesaid persons to inform the Bureau of Internal Revenue in case of non-payment of tax. Any stock transfer agent or secretary of the corporation or the stockbroker, who caused the registration of transfer of ownership or title on any share of stock in violation of the aforementioned requirements shall be punished in accordance with the provisions of Title X, Chapters I and II of the Tax Code, as amended. SECTION 12. Penalties. In addition to the civil and criminal liabilities of the taxpayer, for violation of the provisions of these Regulations, the following administrative penalties prescribed under Secs. 248 and 249 of the same Tax Code shall be imposed, which shall be collected at the same time, in the same manner and as part of the tax. (a) Surcharges. (a.1) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases: TADIHE (a.1.1) Failure to file any return and pay the tax due thereon as required by the provisions of the Tax Code, as amended, and these Regulations, on the date prescribed; (a.1.2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or (a.1.3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

(a.1.4) Failure to pay the full or part of the amount of the tax shown on any return required to be filed under the provisions of the Tax Code, as amended, and these Regulations, on or before the date prescribed for its payment. (a.2) In case of willful neglect to file the return within the period prescribed by the Tax Code or these Regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. ASEIDH (b) Interest. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum. (c) Deficiency Interest. Any deficiency in the tax due shall be subjected to interest at the rate of twenty percent (20%), which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. (d) Delinquency Interest. In case of failure to pay the amount of the tax due on the return required to be filed, or a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue, there shall be assessed and collected on the unpaid amount, interest at the rate of twenty percent (20%) per annum until the amount is fully paid, which interest shall form part of the tax. DTSaIc SECTION 13. Repealing Clause. All regulations, rules, orders or portions thereof which are inconsistent with the provisions of these Regulations are hereby amended, modified or repealed. SECTION 14. Effectivity Clause. These Regulations shall take effect fifteen (15) days after its publication in any newspaper of general circulation in the Philippines.

DONORS TAX REV. REGULATIONS NO. 7-2011 (Feb. 18, 2001): TAX TREATMENT OF CAMPAIGN CONTRIBUTIONS AND EXPENDITURES February 16, 2011 REVENUE REGULATIONS NO. 007-11 SUBJECT :Policies in the Tax Treatment of Campaign Contributions and Expenditures TO: All Internal Revenue Officers and Others Concerned SECTION 1. Background. In the course of an election period, various contributions are given to candidates "for the purpose of influencing the result of the elections" [Sec. 94 (a) of Batas PambansaBilang 881, otherwise known as the Omnibus Election Code of the Philippines]. The final paragraph of Section 13 of Republic Act No. 7166, provides that such campaign contributions in cash or in kind to any candidate, duly reported to the Commission on Elections (COMELEC), are exempt from the imposition of Donor's Tax. However, in instances when these campaign contributions are not fully utilized by a candidate for campaign purposes, there is a need to clarify the treatment of these excess campaign funds, for tax purposes. SECTION 2. Policies and Guidelines. 1. As a general rule, campaign contributions are not included in the taxable income of the candidate to whom they were given, the reason being that such contributions were given not for the personal expenditure/enrichment of the concerned candidate, but for the purpose of utilizing such contributions for his/her campaign. Thus, to be considered as exempt from income tax, these campaign contributions must have been utilized to cover a candidate's expenditures for his/her electoral campaign. 2. Unutilized/excess campaign funds, that is, campaign contributions net of the candidate's campaign expenditures, shall be considered as subject to income tax, and as such, must be included in the candidate's taxable income as stated in his/her Income Tax Return (ITR) filed for the subject taxable year. ADScCE 3. Any candidate winning or losing who fails to file with the COMELEC the appropriate Statement of Expenditures required under the Omnibus Election Code, shall be automatically precluded from claiming such expenditures as deductions from his/her campaign contributions. As such, the entire amount of such campaign contributions shall be considered as directly subject to income tax. SECTION 3. Repealing Clause. All existing issuances, or portions thereof, which are inconsistent herewith are hereby revoked, repealed or amended accordingly. SECTION 4. Effectivity. These Regulations shall take effect immediately

REV. REGS. 8-2009 (OCT. 22, 2009): WITHHOLDING TAX ON ALL POLITICAL CONTRIBUTIONS AND CAMPAIGN EXPENDITURES OF CANDIDATES RUNNING FOR PUBLIC OFFICE October 22, 2009 REVENUE REGULATIONS NO. 008-09 SUBJECT : Amending Further Secs. 2.57.2 and 2.57.3 of Revenue Regulations No. 2-98, as Amended, Subjecting to Creditable Withholding Tax the Income Payments Made by Political Parties and Candidates of Local and National Elections of All Their Campaign Expenditures and Income Payments Made by an Individual or Juridical Person Forming Part of Their Campaign Contributions to Candidates of Local and National Elections and to Political Parties TO: All Internal Revenue Officers and Others Concerned

SECTION 1. Objective. It is anticipated that candidates for electoral offices in the national and local elections, their political parties and political supporters will incur substantial campaign expenditures. The candidates have the civic duty of assisting in nation building which can be attained with them being involved in complying with their tax obligations. These regulations are promulgated to ensure that the purchases of goods and services for the campaign and election activities of the candidates and their contributors and supporters shall be subject to withholding of tax. SECTION 2. Amendments to Section 2.57.2 of Revenue Regulations No. 2-98, as Amended. Sec. 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended, to read as follows: "Sec. 2.57.2. Income payments subject to creditable tax and rates prescribed thereon. Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxxxxxxxx "(W) Income payments made by political parties and candidates of local and national elections of all their campaign expenditures, and income payments made by individuals or juridical persons for their purchases of goods and services intended to be given as campaign contribution to political parties and candidates Five percent (5%). SECTION 3. Amendments to Section 2.57.3 of Revenue Regulations No.2-98, as Amended. Sec. 2.57.3 of Revenue Regulations No. 2-98, as amended, is hereby further amended, to read as follows: "Sec. 2.57.3. Persons required to deduct and withhold. The following persons are hereby constituted as withholding agents for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2: xxxxxxxxx "(D) All individuals, juridical persons and political parties, with respect to their income payments made as campaign expenditures and/or purchase of goods and services intended as campaign contributions. SECTION 4. Repealing Clause. The provisions of any revenue regulations, revenue memorandum orders or circulars or any other revenue issuance inconsistent herewith are hereby repealed, amended, or modified accordingly. SECTION 5. Effectivity Clause. These Regulations shall take effect fifteen (15) days following publication in a newspaper of general circulation.