Reciprocity in Exemption from Estate and Inheritance Taxes of Non-Resident American Citizens

January 23, 1974 BIR RULING NO. 001-74 Reciprocity in exemption from estate and inheritance taxes of non-resident American citizens explained; transfer of shares of stock to non-resident alien tenant subject to Philippine estate and inheritance taxes . This refers to your letter dated February 2, 1973 requesting Philippine inheritance tax waiver on the transfer in your name of one hundred fifty (150) Philippine Long Distance Telephone Company (PLDT) shares of stock as surviving tenant of the estate of your husband who died on December 13, 1972 in Florida, U.S.A. cdta It is represented that the said 150 PLDT shares of stock consisting of 100 shares-certificate No. N-12345, 40 shares-certificate No. 67890 and 10 shares-certificate No. 24688 are registered in the names of your husband and you, both non-resident American citizens, as joint (account) tenant with right of survivorship. In reply thereto, I have the honor to inform you that where the shares of stock of a non-resident owner are situated and used by him in his business activities in this country so as to avail himself of the protection and benefit of Philippine laws, the jurisdiction of the Philippine Government to tax must be upheld. (Wells Fargo Bank & Union Trust Co. vs. Collector of Internal Revenue, 70 Phil. 325 cited in B.I.R. Ruling No. 66-024 dated June 20, 1966). In this case, the deceased tenant possessed a descendible interest in the shares of stock which are the subject matter of a joint tenancy with right of survivorship within the jurisdiction of the Philippines. Since the estate and inheritance taxes are generally rated by death and accrue to the time of death, they are governed by the laws in force at the time of death. ( Knowlton vs . Moore, 178 U . S . 41, 20 U . S . S . Ct . 747, Blakemore & Bancroft, Inheritance Taxes, p . 299 ; Seattle v. Kelleher, 195 U . S . 351, 48 L . ed 232, 35 S . Ct . 44 ; Lorenzo v . Posadas, 64 Phil . 353 ). The law in force on December 13, 1972, the date of the death of your husband is Chapter I, Title III of the National Internal Revenue Code, more specifically Sections 85 and 86 thereof which imposed an estate tax on the privilege of a decedent to transmit property at death based upon the entire net estate as a unit, regardless of the number of heirs and their relation to the decedent, and an inheritance tax on the privilege of the heirs to receive from the decedent their individual share in the net estate after deducting the amount of the estate tax. With regard to the 150 PLDT shares of stock, the estate of your late husband cannot avail itself of the reciprocity proviso embodied in Section 122 of the National Internal Revenue Code which for purposes of reference, is quoted hereunder as follows: ". . . And provided, further , That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country." cdt According to the aforequoted provision of law, reciprocity in exemption from estate and inheritance taxes must be total, that is, with respect to transfer or death taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death tax of any and every character, in the case of the Florida law. Therefore, if any of the two states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work. There could not be partial reciprocity. It would have to be total or none at all. ( see The Collector of Internal Revenue vs. Douglas Fisher and Bettina Fisher and the CTA, G. R. No. L-11622, and Douglas Fisher and Bettina Fisher vs. the Collector of Internal Revenue and the CTA, G. R. No. L-11668, promulgated January 28, 1961 ). In this connection, however, the rule is well-settled that foreign laws do not prove themselves in this jurisdiction. Like any other fact, they must be pleaded and proved; otherwise, it will be presumed that the law prevailing in the foreign country is the same as that which prevails in this jurisdiction. ( International Harvester Co. vs. Hamburg-American Line, 42 Phil. 46; Sy Jee Lieng vs. Sy Quia, 16 Phil. 138 ). Be that as it may, this Office believes that a check-up on the private laws of the State of Florida is not necessary inasmuch as assuming arguendo that the law of Florida exempts the surviving tenant, e.g. (non-resident Filipino citizen) from the payment of transfer or death taxes on transfers to him of shares of stock held in joint tenancy with right of survivorship, still the same property would be subject to the estate tax imposed by the U.S. Internal Revenue Code, which is, of course, a part of the law of that state. (see also B.I.R. Ruling No. 66-024 dated June 20, 1966 ). The Federal Internal Revenue Code imposes an estate tax on non-residents not citizens of the United States, and does not provide for any exemption on the basis of reciprocity. ( Douglas Fisher and Bettina Fisher, supra ). The pertinent provisions of the U.S. Internal Revenue Code of 1954 read as follows: "SEC. 2103. Definition of Gross Estate . For the purpose of the tax imposed by section 2101, the value of the gross estate of every decedent nonresident not a citizen of the United States shall be that part of his gross estate (determined as provided in section 2031) which at the time of his death is situated in the United States." "SEC. 2104. Property Within the United States . (a) STOCK IN CORPORATION . For purposes of this subchapter shares of a stock owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States only if issued by a domestic corporation. xxx xxx xxx." "SEC. 2040. Joint Interests . The value of the gross estate shall include the value of all property (except real property situated outside of the United States) to the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivors, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth: xxx xxx xxx." The aforequoted provisions of law require the inclusion in a decedent's gross estate of the full value of property held jointly by the decedent and another person or persons with right of survivorship. Section 2040 of the 1954 U.S. Internal Revenue Code applies to all classes of property, whether real or personal, (except real property situated outside of the U.S.) and to all persons, whether citizens, residents or non-residents of the U.S., and regardless of when the joint interest were created. ( Merten's Law of Federal Gift and Estate Taxation, Vol. 2; see also "Federal Estate and Gift Taxation Cases and Materials" (1952) by Warren & Survey ). In view of the foregoing considerations, this Office is of the opinion as it hereby holds that upon the death of your husband, a non-resident alien joint tenant, the transfer of the 150 PLDT shares of stock in your name as the surviving non-resident alien tenant, or co-owner of property situated in the Philippines is subject to Philippine estate and inheritance taxes at the rates prescribed by Sections 85 and 86 of the Tax Code ( before amendment by Presidential Decree No. 69 ). Your request, therefore, for Philippine inheritance tax waiver on the aforementioned transfer has to be, as it is hereby denied. cdtai