The Law on Transfer Business tax
Kinds of Transfer taxes
History of Death Taxes
Definition of estate taxes
Definition of Inheritance tax
Reasons for repeal of Inheritance tax
Nature and Object of estate tax
Purpose and Justification of estate tax
Incidence or Burden of estate tax
Power of Impose estate tax
The Law on Transfer Business tax
Kinds of Transfer taxes
History of Death Taxes
Definition of estate taxes
Definition of Inheritance tax
Reasons for repeal of Inheritance tax
Nature and Object of estate tax
Purpose and Justification of estate tax
Incidence or Burden of estate tax
Power of Impose estate tax
The Law on Transfer Business tax
Kinds of Transfer taxes
History of Death Taxes
Definition of estate taxes
Definition of Inheritance tax
Reasons for repeal of Inheritance tax
Nature and Object of estate tax
Purpose and Justification of estate tax
Incidence or Burden of estate tax
Power of Impose estate tax
1. Concept and Nature of Transfer Taxes The transfer of private property may be either gratuitous or onerous. (1) Transfer taxes are taxes imposed upon the gratuitous disposition of private properties. Under our law, they are taxes levied on the transmissions of properties from a prior decedent to his heirs in the case of the estate tax or from a donor to a donee in the case of the donors tax.
(2) Taxes of this general character are predicted on the passing of property as distinguished from those imposed on property as such because of its ownership and possesion.
2. Kinds of Transfer taxes There are thus two kinds:
(1) Death taxes or duties. They are those levied on the gratuitous transfers of property upon ones death, formerly comprised of the estate and inheritance taxes. The two were correlative taxes, they having been impose on the right to transmit and to receive property by succession, respetively, i.e., the existence of one in any particular case necessarily presupposes the corollary existence of the other. (BIR Ruling No. 173-84, Nov 6, 1984) Both taxes are now integrated into an estate tax. Fundamentally considered, the subject levied upon by all death duties is the power to transmit, or the transmission or receipt of property at death (Knowlton vs Moore, 178 US 41); and
(2) Gift Taxes. They are imposed on the gratuitous transfers of property during ones lifetime, formerly comprised of the donors and donees gift taxes. Both taxes are now integrated into a donors tax.
3. History of Death Taxes (1) Existed in ancient times Taxes upon the transmission of property at death are not new. History reveals that they existed in ancient Egypt (as early as the 7th century before Christ), Greece and Rome. While the early middle ages showed no evidence of their imposition, Germany and Italy were known to have instituted death taxes by the end of the 14th century; and at the close of the 17th century, many European countries including England, France, Portugal, and Spain had developed various types of inheritance taxation. (2) In the United Estates. The first legislation imposing federal estate taxation system really began during the first World War with the imposition made by Revenue Act No. 1916 when the U.S. Congress was confronted with the necessity of an increae in the appropriations for the army and navy and the fortifications of the United Estates. Subsequently, Congress enacted other statutes providing for legacy tax and an estate duty. It is to be noted that in the United States, either the inheritance tax or estate tax or both are imposed by the various States but currently the only duty provided by federal law is the estate tax. (3) In the Philippines. The first inheritance tax law was Act No. 2601 which took effect on July 1, 1916. Its provisions were subsequently incorporated in the Revised Administrative Code (Sec. 1536, et. Seq.), then amended by various acts (Act Nos. 2711, 2835, 3031, and 3606, and C.A. No. 105.) until they were superseded by Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, which took effect on July 1, 1939 except the provisions of the income tax law which becae effective on January 1, 1939. Subsequent amendments dealt mostly with the increase in the rates of the taxes and in the amounts of exemption therefrom.
By virtue of Presidential Decree No. 69 (Nov. 24, 1972), both the estate and inheritance taxes have been integrated into an estate tax and the donors and donees taxes, into a donors tax. The said Decree became effective on January 1, 1973. As amended by R.A. No. 8424, the provisions on estate tax are now found in Chapter 1, Title III of the National Internal Revenue Code of 1997 (hereafter referred to as the TAX CODE), more specifically, Sections 84 to 97 and 104 which deal with estate tax. Sections 98 to 104 in Chapter 2, Title III deal with donors tax.
4. Definition of estate taxes Estate Tax is the tax on the right to transmit property at death and on certain transfers which are made by the statute the equivalent of testamentary dispositions, and is measured by the value of the property.
5. Definition of Inheritance tax Inheritance tax is a tax on the privilege of inheriting the property of a person upon his death. It has also been defined as a tax imposed on the legal right or privilege to succeed to, receive or take property by or under a will, intestacy law, or deed, grant or gift becoming operative at or after death. It is also referred to as a succession tax or duty, or legacy tax. The term inheritance tax is sometimes used in a generic sense as including estate tax.
6. Reasons for repeal of Inheritance tax As previously indicated, the inheritance tax is no longer imposed under the Tax Code. The provisions of the Tax Code pertaining to this tax have been repealed.
The primary virtue of an inheritance tax is that it may be graduated according to the amount received and the relationship of the recipient to the deceased.
(1) The primary disadvantage is on the practical administrative side and arises particularly where the will of the testator provides for contingent future interests, with the result that the persons who will take and the amount they will receive may remain uncertain for many years after the decedents death. This leads to difficulties of valuation and collections and loss or the least lag in revenue. These difficulties are obviated where the tax is imposed upon the estate.
(2) Moreover, the schedule of estate tax rates is much simpler and more easily administered. The estate tax is not laid upon and not any particular legacy, devise, or distributive share. The relationship of the beneficiary to the decedent has no bearing upon the question of liability or the extent thereof. The transfer is taxable although it escheats to the State for lack of heirs. (US Estate Tax Regulations No. 80, Art. 3 [1939].)
7. Nature and Objet of estate tax (1) Estate tax is not a direct tax on property. Neither is it a capitation tax; that is, the tax is laid neither on the property nor on the transferor or the transferee. (28 Am. Jur. 12.) In other words, it is an excise or privilage tax.
(2) The object of estate tax is to tax the shifting of economic benefits and enjoying of property from the dead to the living. 8. Purpose and Justification of estate tax Death taxes are imposed not only to give added income to the government. The following theories have also been advanced in justification of death taxation:
(1) Benefit-received theory This theory considers the services the government renders in the distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these services and other benefits that accrue to the estate and the heirs, the State collects the tax;
(2) Privilege theory or State partnership theory According to this theory, inheritance is not a right but a privilege granted by the State, and large estate have been acquired only with the protection of the State. Consequently, the State, as a passive and silent partner in the accumulation of property, has the right to collect the share which is properly due to it;
(3) Ability to pay theory This theory asserts that the receipt of inheritance, which is in the nature of unearned wealth or a windfall, places asserts in the hands of the heirs and beneficiaries thereby creating an ability to pay the tax and thus to contribute to governmental income. The exemption of a minimum amount of inheritance from the tax can provide for cases of need; and
(4) Redistribution of wealth theory According to this theory, the receipt of inheritance is a contributing factor to the inequalities in wealth and incomes. The imposition of death tax reduces the property received by the successor, thus helping bring about a more equitable distribution of wealth in society. The tax base is the value of the property and the progressive scheme of taxation is precisely motivated by the desire to mitigate the evils of inheritance in its original form.
9. Incidence or Burden of estate tax There are three (3) views on the question of who is the taxpayer in estate taxation, namely;
(1) Predecessor. The incidence falls on the predecessor because the object of the tax is, after all, the property which has been held or accumulated by the deceased and the tax has fallen upon him in the sense it has affected the amount of the property which he could dispose.
(2) Successor. The incidence is on the successor because the tax is not paid by the predecessor who has no liability till he dies and who is free to ignore the duty if he wishes, while the successor comes into less that he would have, while hs no kind of redress; and
(3) No personal incidence. - Strictly speaking, the estate tax has no personal incidence at all, merely falling upon the estate as such.
10. Power of Impose estate tax (1) Basis. The power to tax estates and inheritances is based on the general discretionary taxing power of a State legislature to select the subjects of taxation and this power extends to all the usual objects within its sovereignty. It arises because of the shifting from one to another of the power of or privilege incidental to ownership or enjoyment of property occasioned by death. Apart from the principle that succession to the property of a deceased person is not a fundamental right and consequently, the legislature can constitutionally burden such succession with a tax, a death tax is sustainable on the ground of other benefits accorded a resident decedent or property located within the State, or a decedent who was a citizen of the State.
(2) Scope. The power of the legislature to impose estate tax is not limited to taxation of transfer at death. It extends to the creation, exercise acquisition, or relinquishment of any power or legal privilege or right which is incident to the ownership of property, whenever any of these is occasioned by death.
11. Death, the generating source of power Estate and inheritance tax laws rest in their essence upon the principle that death is the generating source from which the taxing power takes it being and that it is the power to transmit, or the transmission from the dead to the living on which the tax is more immediately based. Hence, it accrues as of the death of the decedent by operation of law.
No manual transfer of the property to the heirs is required, but the course and direction of the property are under the control of the probate court (in case of testamentary disposition) and the actual transfer is not effected until its recipients are determined and title is lodged in them.
12. Accrual of, and obligation to pay, the tax distinguished Ordinarily, an estate or inheritance tax accrues as of the date of the decedents death, although the amount of the tax may then be unknown, but on determination thereof, it relates back to the time of death.
The accrual of the tax is to be distinguished from the obligation to pay the same. The time when the heir legally succeeds to the inheritance may differ from the time when he actually receives such inheritance. The property belongs to the heir at the moment of the death of the ancestor as completely as if the latter had executed and delivered to the former a deed for the same before his death. However, it does not follow that the obligation to pay the tax arises as of that date. The time for payment is clearly fixed by law.
13. Law at time of death applicable It is well-settled that estate (or inheritance) taxation is governed by the statute in force at the time of the death of the decedent. The taxpayer cannot foresee and ought not to be required to guess the outcome of pending legislative bills or measures.
Of course, the tax may be made retroactive in its operation. But legislative intent that a tax statute should operate retroactively should be perfectly clear.