Pineda, Jacob, Cabug & Associates Co.

February 13, 2008 BIR RULING [DA-091-08] DA053-06 Pineda, Jacob, Cabug & Associates Co. 509 Makati Executive Center Leviste Street, Makati City Attention: Ms. Rebecca Jacob Partner Gentlemen : This refers to your letter dated August 8, 2007 stating that the Late Socorro H. Brocal died intestate on April 4, 2006 leaving behind Edgardo N. Brocal, as the surviving spouse, and three (3) legitimate children namely: Timothy Janzzen H. Brocal, Charles Johannes H. Brocal and Willem Justley H. Brocal; that several real properties formed part of the Estate of the Late Socorro H. Brocal and more particularly described as follows: TCT/CCT No. Area (sq. m.) Location 206771 52.50 Manila 2560656 129.40 Manila 803363 190 Cavite 86020 27.65 Pasong Tamo Tower 83102 49.44 Pasong Tamo Tower 245858 174 Manila T-848332 150 Cavite 35927 12 City and Land Mega Plaza PT-40346 52.50 City and Land Mega Plaza 149908 240 Caloocan City 616493 150 Cavite T-200294 120 Laguna 87801 23.44 Herrera Tower 84412 14.94 Herrera Tower P-2366 2,090 Taal P-2367 2,103 Taal P-2368 8,390 Taal 267919 199 Manila 241803 45 Manila 241804 45 Manila 241805 45 Manila 64740 31.44 Alpha Salcedo Condominium that an Extra-Judicial Settlement of Estate with Waiver of Rights will be executed by the above-mentioned heirs; that the heirs decided not to divide the properties pro indiviso , for the reason that some of the heirs wanted specific properties of their own individual sentimental preferences; that in the course of the discussion, the heirs agreed to allow Edgardo M. Brocal to have first choice of the properties comprising his one-half (1/2) share in the estate as surviving spouse, with the net distributable estate to be divided, to the extent possible, in accordance with their intestate shares taking into consideration the preferences of each individual heir; that the said method resulted in an uneven distribution of the estate wherein some heirs will receive more than the value of their supposed shares, with the others receiving less. Based on the foregoing representations, you now request, on behalf of the heirs of the Late Socorro H. Brocal, for a ruling as to whether or not the heirs are liable for donor's tax on the distribution of the above-mentioned real properties in their favor; and that the amount of estate tax to be paid should be excluded in the computation of the net distributable estate in arriving at the distributive shares of the heirs. In reply thereto, please be informed that this Office had already occasion to rule on the matter when it said in BIR Ruling No. DA053-2006 dated February 21, 2006, as follows: ". . . 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 a right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion (Arts. 1018, 977, 967, Civil Code of the Philippines). However, if the renunciation by an heir or heirs is made in favor of one or more heirs but not all the other heirs, the act of renunciation 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, Civil Code). AcICHD In the instant case, there is no specific repudiation on the part of one or some of the heirs in favor of another heir or heirs to the exclusion of the other heirs. Everyone received a share in the estate. While the values of the properties received by each heir were not equal, this by itself cannot be interpreted as repudiation. Since most of the estate left behind by the late Salvador H. Laurel consisted of real property, it would be impossible, if not absurd, to expect that the properties to be distributed to each of the heirs would be of equal value, especially since they decided to divide the estate in accordance with their individual preferences for and sentimental attachments to the properties. xxx xxx xxx" Inasmuch as the above-cited ruling is in all fours similar to the instant case, since there is no specific repudiation on the part of the above-mentioned heirs in favor of another, although the values of the properties to be received by each heir would not be equal, the same cannot be interpreted as repudiation. Accordingly, the distribution of the properties in favor of the heirs is not subject to donor's tax. On the issue of whether the amount of estate tax to be paid should be excluded in the computation of the net distributable estate in arriving at the distributive shares of the heirs. Section 86 of the Tax Code of 1997, as amended, enumerates the items allowed as deductions against the gross estate of the decedent to be able to determine the net taxable estate. Such enumeration is exclusive thereby those items not mentioned therein are deemed excluded. Considering that the amount corresponding to the estate tax to be paid is not among those items enumerated in Section 86 of the Tax Code of 1997, as amended, it is therefore deemed excluded in the items allowed as deductions against the gross estate. Thus, for taxation purposes, specifically for the purpose of computing the net taxable estate, the amount corresponding to the properties to be distributed to cover the amount of estate tax still has to form part of the gross estate of the decedent. The said amount still has to be considered in the distribution of the corresponding shares due to the heirs though the same, in actuality, may not be treated as part of the heirs' respective shares in the estate. Accordingly, the estate tax will not reduce the taxable base (the gross estate after allowable deductions) even if the amount of such tax is sourced from the gross estate of the decedent. 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. HAICET Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service