BIR Ruling [DA-060-05]

February 22, 2005 BIR RULING [DA-060-05] 90 (A); 97 105-99 dtd July 13, 1999 Atty . Bienvenido J. Medel Business Center, The Sulu Hotel Matalino Road, Diliman, Quezon City S i r : This refers to your undated letter, in behalf of your clients, MELINDA DY-LIACO-NANA and ANNA MARIE R. NANA-ROQUE, in connection with the proposed donor's tax assessment due on the Extrajudicial Settlement with Waiver of Rights executed between themselves. It is represented that then spouses now decedents Aurora Robles Nana and Santos Nana owned a parcel of land covered by Transfer Certificate of Title (TCT) No. 275699 of the Register of Deeds for the Province of Rizal; that the decedent left one legitimate child, Anna Marie R. Nana-Roque; that in 1983, Aurora Robles Nana died intestate; that her husband, Santos Nana and her daughter, Anna Marie Nana-Roque succeeded to her estate consisting of one-half of the said parcel of land; that Santos Nana subsequently married Melinda Dy-Liaco; that in 1995, Santos Nana died intestate; that his estate consisting of three-fourths (3/4) of the said parcel of land was passed on to his second wife, Melinda Dy-Liaco-Nana and his legitimate child by the first marriage, Anna Marie Nana-Roque; that in 1998, an extrajudicial settlement was executed between Melinda D. Nana and Anna Marie Nana-Roque; that the former waived her share in the estate in favor of the latter; that you are presently in the process of paying the estate taxes due on the estates of Aurora Robles-Nana and Santos Nana for the registration of the property in the name of Anna Marie Nana-Roque; that on September 14, 2004, you requested the computation of the estate taxes; that the Bureau is, however, assessing the donor's tax on the waiver made by Melinda Dy-Liaco-Nana in favor of Anna Marie Nana-Roque; that you hold the view that the assessment of a donor's tax on the waiver by Melinda Dy-Liaco-Nana in favor of Anna Marie Nana is inappropriate since the said parcel of land belongs to the conjugal partnership of Aurora-Robles Nana and Santos Nana; that, as such, the second wife, Melinda D. Nana, had no share in the said property and the waiver she executed was in fact, a recognition of her lack of ownership and/or interest in the said parcel of land; that while the second wife is entitled to inherit from the deceased husband, the waiver of inheritance is merely a case of accretion or non-acceptance of inheritance which is not subject to donor's tax, since the second wife at the time the waiver was made, did not yet own the property she was supposed to inherit. (BIR Ruling DA 251-99 dated April 23, 1999) In reply, please be informed that pursuant to Section 98 of the Tax Code of 1997, a Donor's Tax is levied, assessed, collected and paid upon the transfer by any person, resident or non-resident, of the property by gift, whether the transfer is in trust or otherwise, whether direct or indirect and whether the property is real or personal, tangible or intangible. In BIR Ruling #455-93 where the renunciation by the wife of properties inherited from her husband in favor of first-born grandchildren, a donor's tax was assessed since the renunciation by the wife was made in favor of one or more heirs but not all the other heirs, the act is in effect an act of disposition inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but by one or more heirs. (Arts. 1050, 1051, 1016, New Civil Code) TcIHDa However, where the renunciation was made in favor of a co-heir or an heir of the same degree, the renunciation or waiver of that share is exempt from donor's tax since as a general rule, when a person renounces/repudiates his part of the inheritance, the right of accretion takes place and the same is added or incorporated to that of the co-heirs, co-devisees or co-legatees. The share of the one who renounces his part of the inheritance shall accrue to his co-heirs in the same proportion that they inherit pursuant to Articles 1018 and 1019 of the New Civil Code of the Philippines. In legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always the right of accretion among them unlike in testamentary succession where there may not be a right of accretion (Arts. 1018, 977, 969, New Civil Code) thus a waiver of rights over the share in the inheritance by a co-heir is not subject to donor's tax. This Office, however, is confronted with the issue on whether the renouncer Melinda Dy-Liaco Nana is a co-heir of Anna Marie Nana-Roque, as to warrant the application of the foregoing rule. Renunciation of inheritance presupposes that succession has taken place and taking into consideration the facts of this case, we opine otherwise. In fine, Section 103 of the New Family Code of the Philippines provides, "that upon the termination of the marriage by death, the community property shall be liquidated in the same proceeding for the settlement of the estate of the deceased within one year from death of the spouses. However, should the surviving spouse contract a subsequent marriage without complying with the foregoing requirements, a mandatory regime of complete separation of property shall govern the property relations of the subsequent marriage ." If the surviving spouse does not settle the estate of the deceased spouse and liquidate their absolute community property, the heirs of the deceased spouse may be prejudiced by the subsequent marriage of the surviving spouse because under the Code, the latter would have an absolute community with his second wife and the community property of the first marriage might be merged with the absolute community of the second marriage. Hence, the Code prescribes a regime of complete separation of property in the second marriage so as to protect the heirs of the deceased first spouse. HAaECD Moreover, in Section 104 of the same Code, provides that, in cases of two or more marriages conducted by the same person, in liquidating simultaneously the community property of each, the respective capital, fruits and income shall be determined upon such proof as may be considered according to the rules of evidence. Since the community property of then spouses Aurora Robles Nana and Santos Nana remained unliquidated until Santos Nana's subsequent marriage to Melinda Dy-Liaco Nana, decedent Santos Nana was mandated by law to exercise a complete separation of community of property with his second marriage. Thus, the subject property which is the parcel of land could be readily identified as belonging to the community of property of the first marriage. Corollarily, Melinda Dy-Liaco Nana did not in any manner at any point in time, owned, or co-owned the subject parcel of land in whole or in part as this is a property rightfully identified and belonging to the community of property of the first marriage between then Sps. Aurora and Santos Nana. Thus, when she renounced her share in the subject property, she is indeed renouncing nothing, as the property was not a part of the community property of the second marriage. As such, the waiver she executed was in fact, void and produces no effect. The whole parcel of land rightfully belongs to Anna Marie Nana-Roque by way of legal succession. In view of the fact that Melinda Dy Liaco and Anna Marie Nana are not co-heirs to the subject property, the former cannot in any manner, participate in the adjudication in respect thereof. Furthermore, based on the above representation, we also opined that the renunciation is considered not to have taken place at all. Therefore, the applicability of the rules regarding renunciation of shares in favor of co-heirs is not proper. Accordingly, for lack of factual basis that would warrant the imposition of donor's tax, this Office hereby rules that even with the execution of the Extrajudicial Settlement with Waiver of Rights by the parties, the adjudication of the subject property by Anna Marie Nana-Roque is not subject to donor's tax. It is, however, subject to the estate tax imposed under Sec. 84 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different then this ruling shall be considered null and void. cHATSI Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group