Ernesto Ruiz Hidalgo

December 29, 2020 BIR RULING NO. OT-699-2020 Section 12 of Revenue Regulations No. 12-2018; BIR Ruling No. 1279-2018 Ernesto Ruiz Hidalgo ____________________ ____________________ Attention: Brendo S. Gavasan Attorney-In-Fact Gentlemen : This refers to your letter dated July 20, 2020 requesting for a ruling on the proper treatment of Section 12 of Revenue Regulations (RR) No. 12-2018. It is represented that Mr. Ernesto Ruiz Hidalgo (Ernesto), Mr. Eduardo Ruiz Hidalgo (Eduardo) and Ms. Maria Susan Pilar Hidalgo Batac (Maria Susan) are the surviving heirs of the late Carmen Zamora Hidalgo. Carmen Zamora Hidalgo (Carmen) left a parcel of land located in Guadalupe, Carmen, Davao del Norte with Transfer Certificate of Title (TCT) No. __________ consisting of thirty-nine thousand five hundred eighty square meters (39,580 sq.m). To settle the estate, Ernesto, Eduardo and Maria Susan executed an Extrajudicial Settlement of Estate with Waiver of Rights on October 1, 2019 wherein Eduardo and Maria Susan renounced their share in favor of Ernesto. During the processing of the transfer of ownership of the land title and upon reaching the Registry of Deeds (RD) of Davao del Norte, the latter required the presentation of proof for the payment of donor's tax. Hence this request. In reply, please be informed of Section 12 of RR No. 12-2018 provides, viz. : "Sec. 12. THE LAW THAT GOVERNS THE IMPOSITION OF DONOR'S TAX. xxx xxx xxx Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor's tax whereas general renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor's tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate ." xxx xxx xxx Applying the above-quoted provision of RR No. 12-2018 in the instant case, while Eduardo and Maria Susan renounced their inheritance specifically and categorically in favor of Ernesto, it was not made to the exclusion or disadvantage of other co-heirs in the hereditary estate. Article 777 of the New Civil Code (NCC) of the Philippines, as amended, provides that the rights to succession are transmitted from the moment of death of the decedent. However, the heirs have a right to either accept or repudiate the inheritance. Such is a voluntary and free act. Upon Carmen's death, the right to accept and repudiate the inheritance from Carmen was transmitted to her legal heirs. By executing an Extrajudicial Settlement of Estate with Waiver of Rights, Eduardo and Maria Susan exercised their respective rights to the inheritance. In doing so, it is as if Eduardo and Maria Susan were never heirs of the late Carmen in respect to the Davao del Norte property since the law clearly provides that the effect of acceptance or repudiation shall always retroact to the moment of death of the decedent. When Eduardo and Maria Susan repudiated their respective shares on the inheritance, they did not donate the property which had never become theirs. Accordingly, the repudiation is not subject to donor's tax imposed under Section 98 of the National Internal Revenue Code (NIRC) of 1997, as amended. Pursuant to Articles 1018 and 1019 of the NCC, as amended, renunciation or repudiation gives rise to accretion and the share of the one who renounces his part in the inheritance shall accrue to that of his co-heirs in the same proportion that he inherits. Thus, when Eduardo and Maria Susan executed Extrajudicial Settlement of Estate with Waiver of Rights, accretion had effectively taken place in favor of Ernesto such that the renounced inheritance is added or incorporated to Ernesto's share. In view of the foregoing, the pro indiviso share of Eduardo and Maria Susan in the Davao del Norte property will be transferred from the estate of Carmen directly to Ernesto. It is incorrect to construe that the Eduardo and Maria Susan acquired their pro indiviso shares in the Davao del Norte property and subsequently donated the same to Ernesto. There can be no donation as the property was never transferred to Eduardo and Maria Susan. Consequently, since there is no donation, no donor's tax may be assessed on the transaction. The case is different when there are other co-heirs left aside from Ernesto, and despite of the presence of other co-heirs, Eduardo and Maria Susan chose to renounce only in favor of Ernesto to the exclusion of other co-heirs because in such a case, Eduardo and Maria Susan are deemed to have accepted their inheritance and donated the same to Ernesto. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue