Tax Consequence of the Withdrawal and Revocation of Donation

September 25, 1990 BIR RULING NO. 192-90 91 (a) & (b) 000-00 192-90 M a d a m : This refers to your letter dated May 21, 1990 which was referred to this Office by the Honorable Senator Ernesto F. Herrera in his letter dated June 14, 1990, stating that you executed in favor of your daughter Teresita Garcia-Azcona, a Deed of Donation involving several parcels of land; that as a consequence, this Office has assessed you the amount of P1,663,362.83 as donor's tax; that said amount is, however, beyond your means to pay; hence, you sent our Office a Deed of Revocation of your said donation (not received in this Office); but that you were informed that you can no longer withdraw your said donation; and that you are of the opinion that you cannot be forced to do certain act against your will. aisadc Based on the foregoing representations, you now request, in effect, a ruling in the tax consequence of your alleged withdrawal and revocation of the aforementioned donation. In reply, please be informed that Article 725 of the Civil Code, provides that Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. It is perfected from the moment the donor knows of the acceptance by the donee (Art. 734, Civil Code). However, in order that the donation of an immovable may be valid as in this case, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. 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 (Art. 749, Civil Code). In this connection, Section 91(a) and (b) of the Tax Code, as amended, provides that there shall be levied, assessed, collected and paid upon the transfer by any person, resident or non-resident, of the property by gift, a tax, computed as provided in Section 92 of the same Code. The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Under this Section imposing a gift tax, the taxable event is the irrevocable divestment of all donor's rights in the property rather than the irrevocable vesting of rights in the particular beneficiaries. (Helvering vs. Robinette, 129 F(2d) 832, off'd 318 U.S. 184, 635 S. Ct. 540). Corollary to such right to donate, is the right to revoke donation previously made which could be exercised as a matter of right only in those cases where it is allowed by law; and within the period provided therefor. Accordingly, in cases where revocation of donation is anchored on grounds other than those where the law allows the same to be exercised as a matter of right on the part of the donor, the donee, as in the instant case, should in the opinion of this Office, give his consent to the revocation of the donation in order that the donation in his favor be considered, for purposes of the donor's tax to have been validly revoked; otherwise, the donation should be treated as subsisting subject to the donor's tax imposed under said Section 91(a) and (b) of the Tax Code, as amended. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner